Aurelia Butler

The ECB this month projected inflation in the monetary union to fall to 1.8% after 2022, but Knot said that outlook could prove to be too rosy.”I have a different view, I think the chance we remain stuck above 2% is just as big. Not far above 2%, but still,” Knot told Dutch daily Trouw.Knot earlier this month said the ECB could decide to raise interest rates in 2023, if inflation continues to exceed expectations next year. More

German fashion house Hugo Boss is expanding production capacity closer to its base in Europe to reduce its dependence on south-east Asia at a time when global supply chains are under severe pressure. Chief executive Daniel Grieder, who is aiming to double sales to €4bn a year by 2025, told the Financial Times that supply chain disruptions were creating “unbelievable challenges” for Hugo Boss and its rivals, with supply shortages, delays and higher shipping costs. The company was enlarging its factory in Izmir, Turkey, in response, Grieder said, adding that it wanted to hire almost 1,000 more workers there, increasing staff by a third. It was also planning to invest more in machinery and tools at the site.Grieder also promised to end years of “hibernation” by the company, which under its previous ownership by UK private equity group Permira unsuccessfully tried to turn itself from a premium into a luxury brand. Grieder told the FT that he would broaden the brand’s product portfolio and offer more casual and leisure wear in addition to its flagship range of business clothes. He has earmarked €500m for investments in stores over the next five years and is planning to increase the marketing budget by €100m a year until 2025.The Izmir factory, which dates from 1999, is already the largest single Hugo Boss production site and has traditionally been used mainly to make formal wear. The company also has sites in Germany, Poland and Italy, which combined with Turkey account for about 20 per cent of its clothing production. Another 30 per cent of its garments are sourced from suppliers in or close to Europe. Hugo Boss said this share would rise further over the coming years.Much of the industry relies heavily on production in south-east Asia, where labour costs are far lower. Grieder, an industry veteran who was poached from rival fashion brand Tommy Hilfiger, said the shift would be permanent. “Our future strategy is to produce even more garments close to those markets where they will be sold,” he said.Products for the Americas would be made there, likewise for Europe and Asia, he said, adding that this would be a “huge switch” for the company. Over the past year, the company has already rearranged production in Izmir and is now also making jerseys, womenswear and other garments there. Grieder said a proprietary factory close to Europe had been “a massive competitive advantage” in recent months.

The company is also looking at relocating some of its production to “city factories” in western countries and, in the first quarter of 2022, will start trialling the final production of jeans and denim in a small factory in Los Angeles.In the third quarter of 2021, Hugo Boss increased its year-on-year sales 40 per cent, while revenues were 7 per cent higher than they were in the third quarter of 2019, before the pandemic struck. Last year, sales fell 31 per cent to €1.95bn and the company swung to a net loss of €219m.Grieder said demand for formal wear, which was hit hard by lockdowns and the huge increase in working from home, had rebounded more sharply than anticipated, thanks to pent-up demand linked to postponed events such as weddings. According to Grieder, the company had feared that sales of formal wear such as traditional suits would fall 50 per cent. “This did not happen, and we are really glad about that,” he said. More

China’s increasingly dominant role as a lender to poor countries has deterred many of them from seeking debt relief for fear of losing access to future Chinese funds, according to the head of the Paris Club group of wealthy creditor nations.Nations “didn’t want to create difficulties with China”, Emmanuel Moulin, chair of the Paris Club and head of the French Treasury, told the Financial Times.Indebtedness among low-income nations has risen sharply since the start of the pandemic, as healthcare and other costs pushed up public spending while the severe global recession hit output and government receipts. This triggered an international effort to ease their debt burden. The Debt Service Suspension Initiative (DSSI), launched by the G20 group of large economies in April last year, allowed the world’s poorest countries, mostly in sub-Saharan Africa, to postpone interest payments owed to official bilateral creditors. It was originally due to expire at the end of last year but was extended twice and will now end on December 31. Despite this, few nations have chosen to tap the scheme: just 42 out of 73 eligible countries have applied for support. The $12.7bn deferred fell far short of initial estimates which suggested the DSSI would provide about $20bn of relief in 2020 alone.This relatively low take-up is partly because of the rapidly growing role China plays in lending to other nations, Moulin said. China has become by far the biggest bilateral lender to countries eligible for the DSSI in recent years, and now accounts for almost two-thirds of their bilateral debts.“Some countries have decided not to apply for the final [DSSI] extension as they didn’t want to create difficulties with China,” Moulin said. “Some countries have preferred to talk to China and other creditors about new money rather than requesting help under the DSSI.”However, China has made by far the biggest contribution to the DSSI. Calculations by the Jubilee Debt Campaign, a nongovernment organisation, estimate that it has deferred payments of $5.7bn, while $4.5bn was deferred by Paris Club member states.The Paris Club was formed by creditor nations in 1956 to address debts owed by nation states around the world, at a time when its membership dominated the global market for bilateral lending. Today 22 high- and middle-income countries are members.China has not joined the group and has disagreed with the club over the classification of some of its loans, although it agreed to mirror the Paris Club’s approach to the DSSI.Moulin said that overall, “We can’t complain about the participation of China in the DSSI. They have been very fair in the way they have implemented it.”The G20 scheme also called on debtor countries to ask their commercial creditors, such as bondholders and banks, for similar treatment to that provided by bilateral lenders. No participating country has done so, for fear of losing access to future borrowing or causing a downgrade to their credit ratings, which could lead to default.Participating countries must make up the deferred amounts in full over the following four to six years. Several factors have eased financial conditions for developing countries since the early months of the pandemic, easing the pressure on them to address their debt burdens. These include the huge liquidity pumped into global markets by the world’s leading central banks, higher commodity prices and an injection of liquidity by the IMF this summer. As a result, Moulin said, in recent months “the situation was not the same as it was at the start”.The G20 has devised a common framework for debt treatment beyond the DSSI that will come into force next year. It is much narrower in scope and will only be open to countries with unsustainable debts at risk of falling into default. So far only Ethiopia, Chad and Zambia have asked to take part.Moulin said progress on the common framework had been slower than expected. “There has been some criticism of the slowness of the process. It is true and we are cognisant of the fact. We would have liked it to be faster,” he said. More

The coronavirus pandemic has forced a “fundamental shift” in global trade policies as governments increasingly focus on supply-chain resilience and securing access to next-generation technology, according to South Korea’s trade minister.Yeo Han-koo told the Financial Times in an interview that the traditional concentration on market access and supply-chain efficiency had been found wanting.“The scope of trade policy that we had before the pandemic — basically just market opening in trade in goods and services, rules of origin and so on — that is not the trade policy that we are witnessing in this new era,” said Yeo.“Digitalisation, supply-chain vulnerability and developing the rules of the road for emerging technologies: these are the new challenges.”Yeo cited an acute shortage of diesel exhaust fluid in November as an example of a supply-chain shock that had rattled policymakers. South Korea depends on China for more than 97 per cent of its DEF imports. But after Beijing restricted exports of urea, an essential ingredient in DEF used to reduce toxic emissions from diesel engines, the country’s logistics sector faced imminent paralysis. The South Korean military was forced to airlift tens of thousands of litres of the fluid from Australia, south-east Asia and the Middle East.“This was not even a high-tech product, but we woke up one morning to realise that we were relying on just one country. We need early-warning systems to stop these situations from developing into something serious,” said Yeo.South Korea is the world’s eighth-largest exporter of goods and services, according to the World Bank. Booming trade in chips, cars and ships are driving the country’s economic recovery from the Covid crisis, with exports and trade volume expected to reach record levels this year.Asia’s fourth-largest economy announced this month that it was preparing to apply to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, after China’s bid to enter the regional trade pact assuaged Seoul’s fears of upsetting its biggest trade partner.But it is unclear how Seoul’s formal application, which is expected to be submitted before President Moon Jae-in’s term in office ends in May, will be received in Japan.

Yeo Han-koo said US trade representative Katherine Tai’s role in resolving a dispute between South Korean companies LG and SK was an example of what ‘active trade authorities’ can do © South Korean ministry of trade industry and energy

The countries are embroiled in a dispute at the World Trade Organization over export controls that Tokyo imposed on South Korean semiconductor components in 2019 linked to a fight over Japan’s wartime occupation of Korea. All members of the CPTTP must approve any new entrants to the pact.Yeo admitted that “we haven’t really had the chance to have in-depth conversations” but insisted that the responsibility for improving relations lies squarely with Tokyo.“It is Japan that imposed these export control measures, and since then Korea has rectified all of the issues that Japan has raised,” he said. “So it is Japan’s turn to come forward with a more positive, more constructive stance and see how we could solve this problem.”Separately, Yeo insisted that Seoul would not “take sides” in the dispute between the US and China.“The previous equilibrium in US-China relations has been broken, so now everyone is recalibrating to find a new equilibrium,” said Yeo. South Korea and like-minded governments “don’t want this conflict leading to more serious chaos in the world economy”, he added.“It is not only Korea. Many countries in the region face a similar situation.”Seoul has worked closely with the Biden administration to deliver on Washington’s priorities in sectors including electric vehicles and semiconductors.Yeo praised Katherine Tai, the US trade representative, for her intervention to broker a settlement to end a bitter dispute between the battery-making affiliates of Korean companies SK and LG.

The disagreement had threatened the future of SK’s $2.6bn battery plant in the US state of Georgia, and Ford and Volkswagen’s plans to build electric vehicles in America.“Katherine Tai’s intervention saved thousands of jobs and the US-South Korea supply chain in EV batteries,” said Yeo. “It was an example of what active trade authorities can do.”But he acknowledged that South Korean chipmakers had been unsettled by US demands for details about chip supply and demand, inventory and different customer segments.“Companies will worry that this kind of information may reveal sensitive information related to their consumers and their business secrets,” he said. “We have communicated our concern, and the US has communicated that it understands that concern.” More