Aurelia Butler

In a 30-plus-year career in corporate restructuring, consultant Andreas Rüter has seen it all: the dotcom bust, September 11, the global financial meltdown, the euro crisis, Covid-19. But what’s happening right now in corporate Germany is “unprecedented” and “of a completely different order of magnitude”, says Rüter, the country head of AlixPartners. The federal republic’s all-important automotive sector, chemical industry and engineering sector are all in a slump at the same time. Rüter’s firm is so overwhelmed by demand for restructuring that it’s turning potential clients away.Over the past three years, Europe’s largest economy has slowly but steadily sunk into crisis. The country has seen no meaningful quarterly real GDP growth since late 2021, and annual GDP is poised to shrink for the second year in a row. Industrial production, excluding construction, peaked in 2017 and is down 16 per cent since then. According to the latest available data, corporate investment declined in 12 of the past 20 quarters and is now at a level last seen during the early shock of the pandemic. Foreign direct investment is also down sharply. Light on the horizon is hard to detect. In its latest forecast, the IMF says that German GDP will expand by just 0.8 per cent next year. Of the world’s largest and richest economies, only Italy is expected to grow as slowly.In manufacturing, where Germany is Europe’s traditional powerhouse, things look especially bleak. Volkswagen has warned of plant closures on home turf for the first time in its history. The 212-year-old Thyssenkrupp, once a symbol of German industrial might, is bogged down in a boardroom battle over the future of its steel unit, with thousands of jobs at risk. The tyremaker Continental is seeking to spin off its struggling €20bn automotive business. In September, the 225-year-old family-owned shipyard Meyer Werft narrowly avoided bankruptcy with a €400mn government bailout. Robin Winkler, Deutsche Bank’s Germany chief economist, labels the fall in industrial production “the most pronounced downturn” in Germany’s postwar history. He is far from alone. “Germany’s business model is in grave danger — not some time in the future, but here and now,” Siegfried Russwurm, the president of the Federation of German Industries (BDI), warned in September. A fifth of Germany’s remaining industrial production could disappear by 2030, he said. “Deindustrialisation is a real risk.” Some content could not load. Check your internet connection or browser settings.These dire predictions come at a time of rising political instability. Relations between the parties in Chancellor Olaf Scholz’s fragile coalition — social democrats, greens and liberals — are at rock bottom, with their policy differences now so deep that many expect that the alliance could collapse in a matter of weeks, ushering in snap elections.As the political centre has weakened, populist parties such as the far-right Alternative for Germany and the hard-left Sahra Wagenknecht Alliance (BSW) have surged, their fiery rhetoric raising fears for the future of a finely balanced political system based on consensus and compromise. Economists and business leaders blame Germany’s economic woes on high energy costs, high corporate taxes and high labour costs, as well as what they describe as excessive bureaucracy. These issues have been compounded by a shortage of skilled workers and the dire state of the country’s infrastructure after decades of under-investment. Meanwhile, according to the country’s statistical agency, nervous German consumers are now saving 11.1 per cent of their income, twice as much as their US peers — thus slowing down the economy even further. Technicians at the Venator chemical plant in Krefeld, north-western Germany . . .  More

Argentina’s long-simmering legal fights with many of its former investors are coming to a head, and the billions of dollars in damages at stake could complicate President Javier Milei’s attempts to fix the country’s struggling economy. Lawsuits over decisions taken by previous governments, from expropriations to changes to bond payments, are winding their way through courts in the US and Europe, and plaintiffs are piling pressure on the government to negotiate. While Milei says he will pay his country’s obligations, behind closed doors officials warn the government will fight to the bitter end to reduce them and protect Argentina’s scarce resources.“Unfortunately for Milei, a tsunami of judgments that has been building for two decades is now breaking, with final rulings in all the [major] cases due in his four-year term,” said Sebastián Maril, a director at consultancy Latam Advisors.Maril estimates that awards in ongoing cases against Argentina could total up to $31bn without interest, although government sources argued the figure was “highly speculative” as it includes more than $12bn in estimated awards for claims on which judges have not yet ruled. By far the largest judgment is the $16bn that a New York court awarded last year to former minority shareholders of state-controlled energy firm YPF, which Argentina expropriated in 2012. Argentina is appealing, arguing that the New York court’s decision was flawed and the award “grossly inflated”.The court is weighing up whether to compel Argentina to hand over the 26 per cent of YPF shares owned by Milei’s government as payment, while it awaits a ruling from the higher courts. The plaintiffs are largely financed by litigation funder Burford Capital. Other claims are also quietly adding up. Last month the UK supreme court declined to hear Argentina’s appeal of a $1.5bn judgment over changes to the way the country calculates GDP, which reduced payouts on its growth-linked bonds. The government has until November 28 to pay bondholders or face enforcement action.In August, a US court refused to throw out a $340mn arbitration award over the Argentine government’s 2008 expropriation of airline Aerolíneas Argentinas. Another US court ruled that a group of holdouts from Argentina’s 2001 sovereign default may recoup three-quarters of an earlier $417mn award by seizing some Argentine funds held in the US.Milei’s administration has been deeply critical of the leftwing Peronist governments that made the disputed policy decisions and has pledged to shed Argentina’s reputation as a serial defaulter.“Populist [governments’] ‘creative’ solutions have brought tragic economic consequences and discredited our country,” said Milei’s cabinet chief Guillermo Francos on X following the UK Supreme Court decision. “Our greatest commitment is to work each day to become a serious country in the eyes of the world again.”But Argentina has no money to pay. The country’s central bank has negligible hard currency reserves, and it already faces questions about how it will make more than $14bn in sovereign debt repayments due to bondholders and multilateral lenders next year.Jaime Reusche, vice-president and senior credit officer at Moody’s Investors Services, said the judgments were increasing pressure on Argentina’s limited capacity to make external payments — the main reason Moody’s has yet to upgrade the country’s bottom-of-the-barrel credit rating, despite macroeconomic improvements under Milei.“There is a 50-50 chance that Argentina’s government can meet its commitments in the next two or three years,” he said. “The outlook is so sensitive that if a couple of variables change, they may need to [renegotiate] debt repayments, and these judgments are a very real contingent liability.”Argentine officials say they will exhaust legal possibilities to protect the public purse. That goes both for cases without a final ruling and the nearly $2.4bn worth of judgments where the decision may no longer be appealed but enforcement can still be challenged.“We will exercise our right to protect our assets like any sovereign would,” said one government official. “Nobody relishes keeping litigation open, but we have many demands on our resources, especially given the constraints on the fiscal sector, which the judgment creditors are well aware of.”Critics of the government argued that statements by Milei, such as a recent post on X that referred to “the illegal expropriation of YPF”, were muddying the waters on that case and may hurt Argentina’s chances of prevailing on appeal.Plaintiffs in the YPF case have attempted to get Argentina to negotiate a settlement, but the government has not engaged with those efforts.Those who advocate for Argentina coming to the table say that a drawn-out battle would increase interest bills, while attempted asset seizures would embarrass Argentina, undermining Milei’s effort to attract badly needed foreign investment. “Kicking the can down the road has never gone well for us, because we almost always lose in these cases,” said Maril, noting that Argentina had already paid out $17bn since 2000 to defaulted bondholders, expropriated shareholders and others.Marcelo García, Americas director at intelligence firm Horizon Engage, said the litigation had weighed down on investors’ decisions by highlighting Argentina’s severe cash flow problem. But he added that it would be harder than in the past for plaintiffs “to turn Argentina into an international pariah” when Milei is making many reforms demanded by investors.Claimants who were pushing to be paid quickly should expect a wait, the Argentina government official said.  “It is not always obvious for the private sector how a government deals with these claims. We can’t sacrifice equity in the short term like a corporation might, because a state can’t go into liquidation. We don’t have the same timelines,” they said. “But we do want problems solved, as expeditiously and efficiently as possible.” Plaintiffs in many of the cases are searching for Argentine assets to seize in lieu of payment. Experts say that will be difficult, as the few assets held abroad, such as diplomatic properties or central bank holdings, are protected from seizure in most jurisdictions.There are exceptions. During US hedge fund Elliott Management’s 15-year battle to collect on defaulted Argentine bonds, Dennis Hranitzky, currently head of sovereign litigation and global asset recovery practices at law firm Quinn Emanuel, successfully seized $70mn from Argentina. His team also briefly seized an Argentine naval vessel in port in Ghana in 2012, which embarrassed Buenos Aires — but it was soon released. Hranitzky’s team also identified the $312mn of Argentine state funds held in New York that a US appeals court ruled in August must be turned over to the holdout bondholders.“I’ve been doing this continuously for the last 22 years and can say from experience that while collecting from Argentina isn’t easy, it can be done,” said Hranitzky.Additional reporting by Alistair Gray in London and Joe Miller in New York More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is leading a review of international development for the UK government and is a member of the House of LordsTrade policy is probably the area in which the views of the public and those of economists diverge most substantially. Polls in the US regularly show that the majority of people think that protectionism is a good thing, whereas only a minority of professional economists would agree. But when asked if they would be willing to pay more for goods and services in order to have more domestic production, people tend to change their minds.Public opinion is one reason why politicians sometimes reach so quickly and easily for tariffs and other trade restrictions as a solution to many problems. But so is the fact that even though there are many better alternatives to tariffs for achieving growth in jobs, industrial development, fairer outcomes and national security goals, these are often harder to sell to voters. So it is easy to opt for the politically expedient but often ultimately ineffective imposition of tariffs, provision of subsidies and state aid, and localisation of public procurement.Some current supporters of trade restrictions have a zero-sum view of the world and reject the classical arguments for the gains from trade that originate in the work of David Ricardo and Adam Smith. They ignore the fact that a rules-based trading system has contributed hugely to prosperity and poverty reduction, especially for developing countries. Since 1990, global trade has contributed to a 24 per cent increase in global incomes, including a massive 50 per cent gain for the poorest 40 per cent of the world’s population. Supporters of trade restrictions often also fetishise trade deficits and manufacturing exports. But trade deficits are not a problem if they can be financed sustainably and are often a consequence of other macroeconomic imbalances. And there is nothing better about dollars earned from manufacturing exports than dollars earned from services exports.More interesting are those who believe in economic openness but want to use trade policy to achieve other objectives such as competitiveness, redistribution of incomes, climate change mitigation or national security. In most cases, however, there are better ways to achieve those worthy goals than through trade policy.Consider the case of industrial policy, where a variety of trade restrictions have been imposed in the US and elsewhere in the hope of achieving competitive advantage in industries such as electric vehicles or chips and artificial intelligence. The history of such industrial policies is long and the successes have arguably been fewer than the failures. But the main point is that there are much better and more successful policies to build competitiveness, such as financing research and development, building a skilled labour force and providing incentives for investment. Using trade policy as the answer to regional inequality and income inequality is far less effective than building a proper social safety net and investing in declining regions and in people. Countries that have adequate safety nets and policies that help workers reskill and adjust to economic change experience far less protectionism than those that allow global shocks to be felt across the population. It is possible to build safety nets that act like trampolines — enabling workers to bounce back with support that kicks in early and comprehensively to support incomes and also gets people into new jobs.As for accelerating progress to address climate change, it bears repeating that the most efficient way to do this is through a carbon tax with a rebate to protect the poor. Trade restrictions, such as local content requirements or tariffs, make it more expensive to transition to a green economy. Some argue that new green technologies will emerge behind protectionist barriers. But targeted subsidies to research and development would do a better job of making that happen. If we want to address the urgent challenge of climate change, we should focus on policies that make it cheaper and faster to deliver emissions reductions. Similarly, national security is better served by diversifying supply chains. In other words, we need more trade not less. Trade policy is first and foremost about fostering competition to create growth and jobs and to serve consumers efficiently. In most cases, there are better alternatives for achieving competitive industries, fairer income distribution, mitigation of global warming and national security objectives. As the old saying goes, “use the right tool for the job”. Not every nail needs to be hammered with trade policy. A bigger and more varied toolkit would get the job done better and preserve the global trading system that has done so much to improve lives in recent decades.  More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyIt is in the nature of electioneering that, whatever their starting point, politicians will tip more populist, promise big things and be economical with the policy details. This US presidential election has been no different. But whoever is declared the winner only stands a chance of delivering on their promises if they formulate specifics to address five areas that influence the future wellbeing of the economy.This year’s presidential candidates made many ambitious policy statements. They even agreed on some: job creation, ending inflation, protecting domestic companies, eliminating the taxation of tips and improving housing affordability. Donald Trump also opted for additional tax cuts, ambitious deregulation, high tariffs, lower federal spending, expanding fossil fuel production and curtailing environmental initiatives. Kamala Harris has focused on reducing the cost of healthcare and improving access to it, fighting corporate price gouging, expanding tax credits and creating an innovation fund.Yet both Harris and Trump lack the specifics to meet their promises. It’s not something that should be left unaddressed, even in an economy that has outperformed other advanced countries. Measures are needed to be taken in five areas to stand a good chance of delivering on promises.First, the incoming president must find a way to maintain growth while repositioning the economy to take advantage of the drivers of tomorrow’s prosperity. This involves removing the brakes on existing economic engines, such as manufacturing and services, and promoting future sources of growth by supporting the smart dissemination of innovations in artificial intelligence, life sciences, green energy, defence, healthcare and food security. Both the Inflation Reduction Act and the Chips Act should be evaluated for course corrections to fulfil their restructuring aims. This needs to be accompanied by more dynamic regulatory approaches to foster innovation and a better understanding of the risk of the balance between job losses and the upside of skills enhancement.The second challenge is to come to grips with high budget deficits and rapidly rising debt. It was once unthinkable that the US would have almost three years with an unemployment rate around or well below 4 per cent and yet run budget deficits of 6-8 per cent of GDP. To paraphrase John F Kennedy, this is the time of “sunshine” when governments should be “fixing the roof” and not creating additional holes. Yet, whether it is the current deficit at over 6 per cent of GDP or government debt at 120 per cent of GDP, both are on an ultimately unsustainable path.It’s not just about the size of the imbalances. The incoming administration needs to build much greater operational flexibility for public finances that lack sufficient resilience and agility. This requires reforms to the tax system, including removing distortive exemptions and anti-growth biases; rationalising spending; and liberating more resources for investment and precautionary buffers.Third, both candidates need to resist the excessive use of the economic tools they favour. For Harris, this means avoiding overregulation and blunt industrial policy. For Trump, it means containing the use of tariffs and tax cuts.Fourth, the new administration needs to restore credible American leadership at the centre of the global economic and financial order. This is not about a globalist ideology. It is about countering fragmentation which undermines growth and national security. Active US involvement is also needed to develop common responses to shared threats. The alternative is greater vulnerability to more frequent and more violent shocks.The final issue is proper communication. You need only look at the UK to see how an ambitious economic initiative can fall victim to obfuscation. The Biden-Harris administration learnt this lesson the hard way when it followed the 2021 lead of the Federal Reserve in wrongly characterising inflation as “transitory” only to see it surge to more than 9 per cent. Trump managed it better in the immediate aftermath of his 2016 election victory when his conciliatory tone on the economy flipped equity market losses into gains and set an economic narrative that has served him well since.Overpromising in electioneering is neither new nor unexpected. The issue now is for the winning candidate to pivot from promises to economic governing lest the US lose its economic exceptionalism and the world lose its one major growth locomotive. More

SAO PAULO (Reuters) -Brazil’s Itau Unibanco, Latin America’s largest private lender, on Monday bumped up its estimated portfolio growth for the year after logging an 18% increase in its third-quarter net recurring profit.Itau reported a 10.68 billion real ($1.84 billion) net recurring profit for the quarter ended in September, beating an estimate of 10.4 billion reais from analysts polled by LSEG.Itau said it now expects its total credit portfolio to grow between 9.5% and 12.5%, up from a previous estimate 6.5% to 9.5% growth.Itau management has previously said the bank was close to wrapping up an overhaul of its personal credit segment by cutting back on loans likely to go unpaid.That has raised analysts’ expectations for coming quarters, as Itau could start to deliver higher portfolio growth once the process is wrapped up. “It is important to mention the resumption of the growth of the credit card portfolio,” Itau said in the earnings report, noting it grew 1.7% sequentially as the bank cut back on risky clients. The bank’s over 90-day delinquency rate inched down to 2.6% from 2.7% the previous quarter, and was also under the 3% a year earlier. Analysts at Citi called the results “solid,” nodding toward the bumped-up loan growth guidance.The new outlook “shows the benefits of (Itau’s) ample capital position and an opportunistic approach to gain share and be selective with clients,” they wrote in a note to clients.Itau’s return on equity, a gauge of profitability, stood at 22.7%, up from 21.1% a year earlier, and 22.4% in the second quarter.The lender posted an 8.5% year-on-year increase in its net interest income, its main source of revenue, while its cost of credit fell 11% on lower provisions. Itau logged a 500 million real gain from a large client, it said, without naming them.Analysts had expected a potential gain for Itau as Brazilian retailer Americanas started to pay creditors to the bankrupt department store giant.($1 = 5.7916 reais) More

Third-quarter net earnings fell about 87% to $120 million, as its engineered materials segment was impacted by rapid slowdowns in commercial activity in both automotive and industrial segments. The company said the temporary dividend reduction, beginning in the first quarter of 2025, was a prudent and cost-effective path forward to support deleveraging, and its plans to cut additional costs would help it save more than $75 million by the end of 2025.CEO Lori Ryerkerk said the teams executed value enhancing initiatives and made improvements but “these actions have been increasingly offset in the current environment and the earnings generated fell short of our expectations.”Last month, peer Dow, which is set to be replaced by Sherwin-Williams (NYSE:SHW) in the Dow Jones Industrial Average, forecast fourth-quarter revenue below market expectations and started review of some of its European assets as the company grapples with sagging demand.Celanese also said it was “reducing manufacturing costs through the end of 2024 by temporarily idling production facilities in every region and driving cash generation through an expected $200 million inventory release in the fourth quarter.”The company forecast fourth-quarter adjusted profit of $1.25 per share, below average analysts’ expectations of $2.93 per share, according to data complied by LSEG, as the company expects demand conditions to worsen.Celanese makes chemical products that are used in coatings, paints and pharmaceutical products and polymers.The chemicals industry, which had previously been dealing with high inventory that led to destocking, is now facing weaker demand in key markets such as China and Europe.  More

Shares of the company rose about 8% in extended trading. The data analytics company has benefited from a boom in GenAI technology, as more companies turn to its AI platform, which is used to test, debug code and evaluate AI-related scenarios.The company now expects 2024 revenue in a range of $2.805 billion to $2.809 billion, up from its prior expectation of $2.742 billion to $2.750 billion.The company is among the largest beneficiaries of a rally in AI-linked stocks, with its shares up more than 140% so far this year. It was added to the S&P 500 in September and has outperformed the index’s 20% year-to-date gain.It also raised its annual forecast range for adjusted income from operations to between about $1.05 billion and $1.06 billion. It earlier forecast $966 million to $974 million. “Top line growth, which is driven by the demand for AI, (is) flowing through to the bottom line,” CFO David Glazer told Reuters. While businesses are increasingly using Palantir (NYSE:PLTR)’s services, a large chunk of its revenue comes from government spending. Palantir, whose services include providing software to governments that visualizes army positions, posted a 40% rise in U.S. government revenue in the third quarter, which made up more than 44% of total sales of $725.5 million.Analysts on average had expected revenue of $701.1 million, according to data compiled by LSEG. Palantir also recorded its largest-ever profit, with net income of $144 million in the third quarter, CEO Alex Karp said in a letter to shareholders. One of the Nordic region’s largest investors, Storebrand Asset Management, said last month it sold its Palantir holdings due to concerns that the company’s work for Israel might put it at risk of violating international humanitarian law and human rights.The company also forecast fourth-quarter revenue above estimates. More