Aurelia Butler

BERLIN (Reuters) -Thousands of German workers launched nationwide strikes to press for higher wages on Tuesday, compounding woes of companies worried about staying globally competitive as high costs, weak exports and foreign rivals chip away at their strengths.The strikes by unionised workers in the nearly 4-million strong electrical engineering and metal industries hit companies such as Porsche AG, BMW (ETR:BMWG) and Mercedes.Also this week, car giant Volkswagen (ETR:VOWG_p) could announce shutting three plants on home soil for the first time in its 87-year history, as well as mass layoffs and 10% wage cuts for workers who keep their jobs.A worsening business outlook in Europe’s largest economy has piled pressure on Chancellor Olaf Scholz’s rickety coalition government, which could be on the verge of collapse ahead of federal elections next year as policy cracks widen.Scholz is hosting a meeting with business leaders on Tuesday, including Volkswagen boss Oliver Blume, but his team has already played down expectations of quick results. In a sign of government dysfunction, his finance minister has also announced a separate summit on the same day.Germany has a long history of so-called “warning strikes” during wage negotiations, but they come at a time of employers’ deepening concerns about the future. A leading business group said a survey of companies pointed to Germany experiencing another year of economic contraction in 2024 and no prospect of growth next year.”We are not just dealing with a cyclical, but a stubborn structural crisis in Germany,” said Martin Wansleben, managing director of the German Chamber of Commerce and Industry (DIHK)that conducted the survey.”We are greatly concerned about how much Germany is becoming an economic burden for Europe and can no longer fulfil its role as an economic workhorse,” he said, calling for “profound reforms”.”A separate survey by the VDA auto industry association suggested the transformation of the German car industry could lead to 186,000 job losses by 2035, of which roughly a quarter have already occurred.”It is becoming increasingly clear that there is no room for interpretation: Europe – especially Germany – is losing more and more international competitiveness,” the VDA report said.”The price of electricity for German companies is up to three times higher than for international competitors, e.g. from the USA or China. Germany is a country with the highest taxes and the bureaucratic burdens are constantly increasing.”WORKERS WANT THEIR SHARE The International Monetary Fund, too, joined those calling for reforms in Germany, suggesting the government ditch a constitutionally enshrined borrowing cap known as the debt brake so it can boost investment. The debt brake is supported by Finance Minister Christian Lindner, whose is at odds with Economy Minister Robert Habeck, who has called for a multi-billion euro fund to stimulate growth.Offering some respite for the government, a separate survey by the Ifo institute last week showed business morale had improved more than expected in October. Tuesday’s strikes were orchestrated by the powerful IG Metall union, which also staged a walkout during the night shift at Volkswagen’s plant in the city of Osnabrueck, where workers worry the site may be shutting down.IG Metall is demanding 7% pay rises compared to the 3.6% raise over a period of 27 months offered by employers’ associations. Companies say the demands are unrealistic.”Wage restraint does not create jobs. Our difficult situation has completely different causes than high wages,” said Harald Buck, works council chairman of Porsche AG at the Zuffenhausen plant in Stuttgart. Some 500 employees walked out during the night shift and then around 4,000 employees went on strike during the early shift to join a demonstration, according to a statement. “We are not the cause. We have earned our share and are fighting for 7%.” Separately, the next round of talks between Volkswagen and labour representatives is due on Wednesday, though the company’s works council chief has threatened to break off the talks. More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThe annual meetings of the IMF are always a good time to take stock of the global economy and the policy positions of leading countries. Last week’s jamboree in Washington was no exception. What struck me most was not the general angst about a Trump victory — that was inevitable. It was the otherworldliness of the IMF’s main economic policy advice. There is no doubt what this advice was. The World Economic Outlook (WEO) report was titled “Policy pivot, rising threats”, and the three pivots it called for were as follows. First, an easing of monetary policy, which the IMF recognised was already under way. Second, a sustained and credible multi‑year fiscal adjustment to address the “urgent” need to stabilise government debt dynamics and rebuild fiscal buffers. Third, it called for growth-enhancing structural reforms. Since the IMF always, rightly, calls for growth-enhancing structural reforms, I will focus on its recommendation of monetary loosening alongside fiscal tightening. This is new. The table below shows the development of monetary and fiscal policy advice in successive autumn and spring IMF meetings. No need for ChatGPT here. It is surprisingly easy to summarise its advice in a maximum of two words. The IMF’s monetary advice has tended to mimic the policies of central banks and might even be a description of what is happening rather than advice. Fiscal policy advice from the IMF has moved in a linear fashion from a recommendation of stimulus during the coronavirus pandemic towards ever louder calls for policy tightening.The IMF is not asking countries to go crazy with tax increases or public spending cuts. Pierre-Olivier Gourinchas, the fund’s chief economist, said a balance had to be struck between short-term demand destruction if countries slammed on the fiscal brakes and the risk of disorderly adjustments if they did too little and countries lost access to bond markets. “Success requires implementing, where necessary, and without delay, a sustained and credible multi‑year fiscal adjustment,” he said. According to the IMF, the benefits of this pivot from monetary to fiscal tightening is a “favourable feedback loop” in which inflation remains under control as interest rates come down, easier monetary policy supports demand growth and eases the costs of government borrowing, this facilitates fiscal consolidation and then further monetary easing. In combination, the IMF concludes, “tighter fiscal policy paves the way for looser monetary policy”. There is little doubt that interest costs have been rising as a share of government revenues and this is increasingly a problem for finance ministries around the world, so the IMF has touched on an important problem.Some content could not load. Check your internet connection or browser settings.Let us see if this pivot is happening in the real world. On the monetary side, there are clear signs that progress with disinflation has allowed central banks to ease nominal interest rates. Whether you like the concept of short-term real interest rates or not, these have continued to rise in 2024 when rates had previously been stable because they came with falling year-ahead inflation expectations. The IMF explains that real rates are expected to come down alongside nominal rates as inflation expectations stabilise. The chart below shows the discretionary and non-discretionary monetary tightening phases along with market forecasts for the US and Eurozone. The monetary policy pivot is happening. Some content could not load. Check your internet connection or browser settings.What about fiscal policy?It is right for the IMF to give recommendations, but I am afraid to say there is next to zero sign that the finance ministries of the world were listening last week. There is not much sign that the IMF really believes it either. Almost every G7 country has a higher projected structural budget deficit in 2029 than in 2019 before the pandemic, with huge loosening in France and Italy. The US structural deficit is marginally lower in 2029 than in 2019, but huge in both years. The forecast for 2029 is also based on the IMF’s forecast policy assumption that countries do follow the fund’s advice to some extent. There is not much fiscal tightening baked into the 2024 to 2029 forecasts either. Some content could not load. Check your internet connection or browser settings.More telling is that the fiscal outlook of structural deficits is worse in this October’s edition of the WEO compared with earlier editions. The chart below compares the most recent forecast with those made in the April 2022 WEO. That fiscal pivot is simply not happening. Some content could not load. Check your internet connection or browser settings.To the extent that the fiscal pivot does not happen as the IMF hopes, it suggests that government borrowing costs are likely to remain higher and that monetary policy probably cannot and should not loosen as much as financial markets expect. That is, unless, a lot more stimulus is generally needed than the IMF thinks.Whatever happens, the IMF is likely to become ever more shrill with its fiscal policy message in future as countries merrily ignore it. The UK isn’t pivotingThe first country to ignore the IMF’s advice will be the UK on Wednesday when the newish Labour government delivers its first Budget. Since ministers do not want a big surprise on the day, we know it will increase taxes, public spending and government borrowing. Below are my predictions for the new government borrowing forecasts along with those from the previous March Budget. These are falsifiable and I promise to come back next week with a mea culpa if they are horribly wrong. I expect the new binding fiscal rule will be balancing the current budget (excluding net investment), which will be projected by the end of the decade. So, there is a budgetary consolidation planned. But there is also a significant fiscal loosening, with overall public sector net borrowing (PSNB) likely to be about 1 per cent of GDP higher as the UK government plans to increase day-to-day public spending growth and public investment. Tax rises will also be large — about 1.5 per cent of GDP annually — by the end of the decade.Some content could not load. Check your internet connection or browser settings.What should the Bank of England make of this? The Budget will increase actual and projected borrowing, this will stimulate demand, higher investment will improve supply, tax rises will detract from supply and there will be an ongoing fiscal consolidation. Another falsifiable prediction of mine is that the BoE is likely to say these changes will make little difference to projected monetary policy. This is what happened in MPC meetings after other recent Budgets that loosened the fiscal stance. I am thinking of the May 2023 MPC meeting, the December 2023 meeting and the March 2024 meeting. That said, I once suggested privately to one MPC member that the committee likes to find reasons why fiscal policy does not matter. I came away with a flea in my ear, having been roundly told off. What I’ve been reading and watchingThe Bank of Canada goes large with a half-point cut in ratesThe Chinese economy shows ever more signs of strain — this time with falling industrial profitsEurope is preparing for a Trump victory with plans for tariff retaliation. Not wise, says Alan Beattie, because it is better to do a deal with the former president, even if you have no means of undertaking the commitments you have made to buy US stuff Central bankers in advanced economies should spare a thought for their counterpart in Bangladesh. Governor Ahsan Mansur, who got the job after the regime of Sheikh Hasina was toppled in August, has accused tycoons of “robbing banks” of $17bn in the countryA chart that mattersEver wondered how good financial markets are at predicting US interest rates? This year, they have been all over the place, starting the year predicting six quarter-point cuts, reducing that to one-and-a-half by April and going back to six in September. Now it is four. Let me know if you think this is an efficient market, carefully processing the available information? I’m at [email protected] Some content could not load. 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BANGKOK (Reuters) -Thailand’s government has agreed with the central bank to maintain the current 1% to 3% inflation target for 2025, in return for assurances the bank will support its fiscal policy and help jumpstart growth, the finance minister said on Tuesday. The central bank has insisted the present target, in place since 2020, has worked well for the economy, but the government wants higher prices to boost economic activity amid tepid growth that has lagged regional peers. The meeting between Finance Minister Pichai Chunhavajira and Bank of Thailand (BOT) chief Sethaput Suthiwartnarueput, first reported by Reuters, came after months of intense government pressure to cut interest rates and align with fiscal policy aimed at stimulating the economy.Pichai said the BOT should support the government’s efforts on the economy and consider inflation and foreign exchange when conducting monetary policy. “I can accept the inflation target of 1%-3%, but there must be measures to support growth and bring actual inflation up to an appropriate point, close to 2% or at 2%,” he told reporters after the meeting at the finance ministry. The BOT declined to comment on the meeting. Pichai said the real problem was not the inflation target, but debt, low investment and too low inflation, he said, adding the BOT must submit policy guidelines to him again.The government had been pushing all year for a rate cut, blaming rates for suppressing activity and curbing its efforts to boost growth. The BOT had long resisted the pressure, including from several major business groups, but unexpectedly cut its key rate by 25 basis points to 2.25% on Oct. 16, the first reduction since 2020. The next policy review is on Dec. 18.Pichai said the BOT should also ensure that the baht currency supports exports, adding low interest rates would help the economy, investment and debt.PUSH FOR INFLUENCEThe government will in two weeks introduce more measures to address household debt, he said, which was 16.3 trillion baht ($483 billion), or 89.6% of GDP, among the highest in Asia.The government has sought to assert its influence on the BOT by nominating a ruling party loyalist and critic of the BOT governor for the post of board chair.Ahead of Tuesday’s meeting, Pichai had said inflation would miss the target this year, as average annual headline inflation was just 0.20% in the first nine months of 2024.The central bank has long maintained that it is structural issues that are weighing most on growth.BOT Deputy Governor Piti Disyatat told Reuters last week that inflation was low and well anchored, with no risk of deflation, while the economy was converging to trend growth.The current policy stance was well-balanced and the recent rate cut was a “recalibration”, not the start of an easing cycle, he said. The BOT expects headline inflation, at 0.61% in September, to return to target late this year and predicts average inflation at 0.5% this year and 1.2% in 2025.The BOT this month raised its 2024 GDP growth forecast to 2.7 from 2.6% but trimmed its 2025 growth outlook to 2.9% from 3.0%. The economy expanded just 1.9% last year. ($1 = 33.76 baht) More

China’s top legislative body, the Standing Committee of the National People’s Congress (NPC), is looking to approve the fresh fiscal package, including 6 trillion yuan which would partly be raised via special sovereign bonds, on the last day of a meeting to be held from Nov. 4-8, said the sources.The 6-trillion-yuan worth of debt would be raised over three years including 2024, said the sources, adding the proceeds would primarily be used to help local governments address off-the-books debt risks. The planned total amount, to be raised by issuing both special treasury and local government bonds, equates to over 8% of the output of the world’s second-largest economy, which has been hit hard by a protracted property sector crisis and ballooning debt of local governments. Reuters is confirming for the first time that the Chinese authorities are contemplating approving the 10-trillion-yuan stimulus package, an amount that financial analysts have said in recent weeks they expect Beijing to consider. The spending plans suggest that Beijing has switched into a higher stimulus gear to prop up the economy although it’s still not the 2008-like bazooka that some investors have been calling for.The central bank in late September announced the most aggressive monetary support measures since the COVID-19 pandemic. The government followed up weeks later by flagging more fiscal stimulus without specifying financial details of the package, stoking intense speculation in global markets about the size of the new spending.The sources who have knowledge of the matter declined to be named due to confidentiality constraints.The State Council Information Office and the news department of the NPC Standing Committee did not immediately respond to Reuters requests for comment.The sources cautioned that the plans are not finalized yet and remain subject to changes.”The current policy priorities appear to focus first on addressing local government hidden debt, followed by financial system stability, and then on supporting domestic demand,” said Tommy Xie, head of Greater China Research at OCBC Bank.China’s top legislative body generally holds its meeting every two months – in the second half of even-numbered months. As per the parliament’s 2024 work agenda, released in May, a standing committee session was planned for October.The forthcoming meeting was initially planned for late October before being rescheduled to early November, said one of the sources.The meeting’s timing, which coincides with the week of the U.S. presidential vote on Nov. 5, offers Beijing greater flexibility to adjust the fiscal package including the total size, based on the election outcome, said the sources.Beijing may announce a stronger fiscal package if Trump wins a second presidency as his return to the White House is expected intensify the economic headwinds for China, the two sources said.Republican candidate Trump has gained in recent polls to erase much of the early advantage of his Democratic opponent, Vice President Kamala Harris. Trump has vowed to impose 60% duties on imports from China.STIMULUS INITIATIVESAs part of its latest fiscal package, the NPC Standing Committee is also expected to greenlight all or part of up to 4 trillion yuan worth of special-purpose bonds for idle land and property purchases over the next five years, said the sources.Local governments would be allowed to raise that amount on top of their usual annual issuance quota, which mainly funds infrastructure spending. The quota stood at 3.9 trillion yuan this year and 3.8 trillion in 2023.The latest move is aimed at enhancing local governments’ ability to manage land supply, and alleviate liquidity and debt pressures on both local governments and property developers, they added.Special-purpose bonds are a tool for off-budget debt financing used by Chinese local governments, with the proceeds raised typically earmarked for specific policy objectives, such as infrastructure expenditures.Should the NPC Standing Committee approve these issuances in full instead of in stages, it could increase the total stimulus size to over 10 trillion yuan, they added. An average of 2 trillion yuan in new central government debt annually underscores an urgency in Beijing to shore up the economy.Late in 2023, China issued 1 trillion yuan in sovereign bonds to bolster flood-prevention infrastructure and meet its roughly 5% economic growth target. Beijing started this year with plans to issue 1 trillion yuan in special sovereign debt already in place, but that sum is widely expected to be increased as growth has been drifting off target and economists said a longer-term structural slowdown could be in play. All the same, the planned fiscal spending falls short of the firepower deployed in 2008, when Beijing’s 4 trillion yuan in fiscal stimulus in response to the global financial crisis accounted for 13% of GDP at the time. The extra money fuelled a property market frenzy and led to unfettered lending to local government financing vehicles, which municipalities used to get around official borrowing restrictions.As part of the overall fiscal spending, China is also considering approving other stimulus initiatives worth at least one trillion yuan, such as a consumption boost including trade-in and renewal of consumer goods, said the sources. Another trillion yuan could also be raised via special treasury bonds for capital injection into large state banks, said one of the sources and another source with knowledge of the matter.”Significant fiscal stimulus should buoy confidence and support economic growth,” said Louis Kumis, S&P Global’s Chief Asia Economist in Hong Kong. “It seems support for consumption remains modest. That means it remains unlikely that we will see a substantial improvement of the economic growth outlook or that deflation risks have been vanquished.” More

The fiscal package is expected to be further bolstered if Donald Trump wins the Nov. 5 presidential election, the sources said.Here are some comments from analysts on the stimulus plans:TOMMY XIE, HEAD OF GREATER CHINA RESEARCH, OCBC BANK, SINGAPORE”The current policy priorities appear to focus first on addressing local government hidden debt, followed by financial system stability, and then on supporting domestic demand.”My key concern was: how will the debt swap be financed? If local governments primarily finance the swap, converting hidden debt into on-balance-sheet obligations may reduce interest expenses. However, this approach alone may not increase local government expenditure unless there is a debt transfer from the local to central governments.”This exclusive news is important as it may help address one of my key concerns. In my view, the issuance of long-term special bonds is crucial to this strategy.”GARY NG, SENIOR ECONOMIST FOR NATIXIS, HONG KONG”The stimulus size is getting closer to the market expectation, but the package can be a painkiller rather than a booster for the economy.”To gauge the impact on growth, the time horizon of bond issuance and funding usage will be key to watch; 4 trillion yuan can provide meaningful support to purchase idle units and mitigate risks. However, the amount of the new local government bonds used for debt swaps and spending is still uncertain. Therefore, it is positive in repairing confidence, but the economic impact may not be as big as it looks on the surface.”ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE”Notwithstanding the large and impressive amount, how that debt will be utilised is key in understanding the fiscal impact on economic demand and growth.”The signs are that the bulk of China’s upcoming fiscal package will be focused on local government debt restructuring and banking sector recapitalisation.”If most of the 10 trillion yuan debt issuance is indeed used for local government debt swaps, i.e. swapping high interest debt with low interest debt, and banking sector recapitalisation, the net fiscal impact will be much smaller than the headline figure would suggest. This is because neither debt restructuring nor banking recapitalisation is a form of direct demand stimulus.”LOUIS KUMIS, CHIEF ASIA ECONOMIST, S&P GLOBAL, HONG KONG”Significant fiscal stimulus should buoy confidence and support economic growth.”Most of the revenues of extra bond issuance seem destined to be used to help local governments address their debt problems. Still, that should allow them to be less frugal in their spending.”Directing funds towards idle land and property should help. Yet, given the weak sentiment and large stock of unsold housing, the property steps are unlikely to stabilise the housing market in the near future.”It seems support for consumption remains modest. That means it remains unlikely that we will see a substantial improvement of the economic growth outlook or that deflation risks have been vanquished.”LYNN SONG, CHIEF GREATER CHINA ECONOMIST, ING, HONG KONG”If we do get a big 10 trillion yuan package as the headline, this will likely be sufficient to satisfy most investors.”The numbers given generally are in line with our earlier expectations for fiscal stimulus of around 2-4 trillion yuan per year.”If the 6 trillion yuan for local government bonds and 4 trillion yuan for property purchases and reclaiming idle land is indeed the ultimate divide, we feel it is quite a notable sum committed to propping up the property market, especially if the deployment is more front-loaded.”Housing inventories have actually already started to decline after peaking in February this year, but accelerating purchases would help bring inventories back toward a healthy level at a faster pace.”The multiplier effect of this round of fiscal stimulus will naturally be lower compared to previous packages more focused on infrastructure investment, but tackle two of the biggest pain points for the Chinese economy, and should be a welcome move for markets if it is approved.”Moving forward, markets will continue to look for future policy measures to support consumption, another policy priority which has been flagged multiple times in recent briefings.”LINDA LAM, HEAD OF EQUITY ADVISORY FOR NORTH ASIA AT UMP IN HONG KONG”If that number is true, it’s more on the high end of the estimates, but within expectations. It’s the market consensus that a fiscal package has to be part of the solution.”The market has been eager to get a concrete number.”Of course implementation is key, depending much on monetary transmission and consumption power.” (This story has been corrected to say Natixis, not Nations, in paragraph 8) More