Aurelia Butler

The centre-left Social Democrats (SPD), the ecologist Greens and the pro-business Free Democrats (FDP) face a massive spending problem as they agreed in exploratory talks to return to strict debt limits from 2023 and avoid tax increases.Sources familiar with the parties’ talks told Reuters last week they were discussing higher federal borrowing next year to allow a one-time, multi-billion-euro injection into the government’s climate investment fund.But the federal audit office, in a report for the Bundestag lower house of parliament, warned them against fiscal largesse.”The situation is serious. To make the federal finances sustainable again, a new federal government must act now,” the office said. “The federal finances are in a critical state.””Waiting and hoping for better economic times will not be enough to restore financial sustainability,” it added.Economic advisers to the government, whose forecasts guide it in setting fiscal policy, cut their 2021 growth forecast for Europe’s biggest economy in a report published on Wednesday.They forecast 2.7% growth for 2021, down from the 3.1% in March, due to supply chain bottlenecks and capacity constraints in the global economy.Berlin “faces a host of fiscal problems and challenges for which no solutions have yet been found”, the office said, listing the battle to combat climate change, an ageing of society, and the risk of interest rate rises among others.The office’s commissioner for administrative efficiency recommended “a moratorium on expenditure, which requires that every new measure must be counter-financing through the termination of other measures.”The three parties holding coalition talks want to reach agreement on forming a new government before Christmas. More

(Reuters) – A bipartisan group of governors from nine states sent a letter on Wednesday to U.S. lawmakers urging them to pass subsidies for semiconductor factories that would produce chips for cars.The governors, who include Michigan Democrat Gretchen Whitmer, called on Congress to pass the $52 billion CHIPS Act, which would set aside $2 billion for the kind of older-technology chips of which there is a deep shortage in the automotive industry.The group, which also includes the governors of auto-producing states like Alabama, said the shortage had cost automakers 2.2 million vehicles and affected 575,000 jobs in the industry.“The global auto chip shortage has hit Michigan and states across the country hard, idling plants and slowing production, threatening thousands of auto-related jobs up and down the supply chain,” Whitmer said in a statement. “With no end in sight, it’s clear we have no time to lose if we’re going to protect jobs and maintain our competitive edge.”The semiconductor funding passed the U.S. Senate earlier this year by 68-32 as part of the broader U.S. Innovation and Competition Act, or USICA. But it has not passed the House of Representatives.Elements of the broader bill have drawn opposition from some House members who worry that it does not have safeguards to prevent research funds from benefiting China, the United States’ primary global competitor.”We understand that the House of Representatives has its own priorities with respect to the policies and programs included in USICA, we hope the two chambers will now come together quickly to find common ground with respect to this legislation, including full funding for the CHIPS Act re-shoring provisions, as soon as possible,” the governors wrote.Also signing the letter were the governors of Illinois, Wisconsin, North Carolina, Kentucky, Pennsylvania, Kansas and California. More

(Reuters) – U.S. President Joe Biden is expected to visit the port of Baltimore on Wednesday to tout billions of dollars included in the recently-passed $1 trillion bipartisan infrastructure bill that will help unclog the nation’s ports.The visit marks the first of many such trips Biden and top administration officials expect to make in upcoming weeks to highlight the benefits of the $1 trillion infrastructure package that passed on Friday after months of negotiations. Biden is hoping to convince voters that Democrats delivered on campaign promises to invest in America’s future ahead of the 2022 mid-term elections when the party will seek to defend its razor-thin majorities in Congress.White House spokeswoman Karine Jean-Pierre told reporters on Tuesday that Biden has spent the last few months promoting the merits of the infrastructure plan and a separate roughly $1.75 trillion proposal to expand the nation’s social safety net and fight climate change. “Look, that’s going to continue,” Jean-Pierre said.The infrastructure package includes $17 billion in investments to help the nation’s ports, including dredging to allow for larger ships and capacity expansion.Many U.S. ports have bridge or depth limitations that restrict their ability to receive larger vessels, while a surge of cargo is straining land operations at some ports. More

The companies said that if they took on new debt in the process of acquisitions, they might breach the so-called three red lines – financial requirements introduced by the central bank last year that developers must meet to get new bank loans.Cailianshe, which cited unidentified sources, did not give details on the state-owned firms.China’s property woes have rattled global markets in recent months after the debt-laden developers including Evergrande Group and peer Kaisa Group suffered a liquidity squeeze, leaving investors worrying about unfolding economic uncertainties.Some local governments have been prodding government-owned firms and state-backed property developers to purchase some of Evergrande’s assets to try to control the situation, Reuters reported, but lending curbs have been limiting them from more such deals.The central bank said in October that the spillover effect from Evergrande’s debt woes was controllable, adding that authorities would provide financing support for the resumption of troubled developers’ projects.Some banks have also sped up the disbursement of home loans in some cities recently, but no wave of new credit is being unleashed just yet amid a heavy regulatory push to deleverage the sector, Reuters reported. More

US consumer prices are expected to have surged in October at their fastest pace in three decades, as bottlenecks and other supply-chain disruptions intensify and inflationary pressures broaden.Consensus forecasts compiled by Bloomberg indicate that the consumer price index to be published by the Bureau of Labor Statistics on Wednesday rose by 5.9 per cent in October from a year ago — the fastest annual pace since 1990 and a sharp increase from September’s levels of 5.4 per cent.Month-over-month price gains are also expected to have increased, with a jump of 0.6 per cent pencilled in. While that is markedly lower than the 0.9 per jump reported between May and June, it represents a significant acceleration from the August to September period, when prices rose 0.4 per cent.Once volatile items such as food and energy are stripped out, economists expect monthly increases of 0.4 per cent, double the most recent reading. On an annual basis, that pace is forecast to register at 4.3 per cent. In September, it stood at 4 per cent.

The incoming data will reinforce the view that inflationary pressures are proving far more persistent than initially expected — a growing risk the Federal Reserve acknowledged last week when it announced its plans to begin scaling back its $120bn asset purchase programme later this month. While costs have moderated in recent months in some sectors most sensitive to the economic reopening from the coronavirus pandemic, including used cars and travel expenses, prices are picking up elsewhere.Rents and other shelter-related costs, which represent about a third of CPI, have steadily risen in recent months, while certain services are also becoming more expensive as employers raise wages to grapple with a severe worker shortage.Worsening supply-demand mismatches have also pushed up energy prices, and pernicious bottlenecks have made many goods, from household items to new cars, considerably more expensive.Senior Fed officials — including chair Jay Powell and Richard Clarida, the vice-chair — still contend that today’s imbalances will eventually recede as global supply chains and labour markets adjust, meaning today’s inflation will ultimately prove “transitory” and fade over time. But Powell and Clarida have indicated the Fed is monitoring the situation closely and stands ready to use the central bank’s tools if necessary.One popular gauge of interest rate expectations, eurodollar futures, suggests the Fed will raise its main policy rate around September 2022. More

Europe’s productivity growth has been anaemic for years, keeping a lid on overall economic expansion and some economists hoped that a rapid adaption of digital solutions could be the COVID-19 pandemic’s silver lining. Data so far suggest that this is happening as labour productivity is now more than 2% higher than in the final quarter of 2019, even if it has declined somewhat since the onset of the recovery, the ECB said in an Economic Bulletin article. “The pandemic has accelerated the trend for digitalisation that had already started well before the crisis,” the ECB said.”Although part of the shift to remote working might reverse over time, some is likely top persist … and could potentially open the door to substantial gains in terms of productivity and employee well-being,” the ECB added.But the shift is not without risk. Unlike others crises, the pandemic has not yet led to mass exit of low productivity firms as government guarantees kept companies afloat, halting what is normally a “creative destruction” process, the ECB added. The redistribution of labour to more productive sectors could also reverse.As containment measure forced businesses to halt many face-to-face interactions, usually low productivity tasks, activity was redistributed, accounting for 30% to 40% of the labour productivity growth, the ECB said.”It is not clear to what extent the contribution of sector reallocation will persist over time – the impact already seems to be declining in the second quarter of 2021, and this may accelerate as containment measures are gradually removed,” the ECB added. Lockdowns may have also interrupted education and training, while the current supply chain bottlenecks could force firms to find new suppliers and supply routes, impacting their productivity. More