Economy

The Fed this week began putting more specific language around that strategy, but it will be interpreted differently by each policymaker. For his part Bostic said if inflation went up to 2.3% but appeared stable “that would be fine…By contrast if we were at 2.2 and the next quarter at 2.4 and then at 2.6 that trajectory would give me concern” and perhaps require efforts to cool the economy. More

The U.S. central bank earlier this week signaled it would keep interest rates in their current range of 0% to 0.25% until the economy reaches maximum employment, inflation has risen to 2% and is “on track” to modestly exceed that.But that promise could still mean the Fed could end up raising rates before the economy really reaches full employment, Kashkari said in an essay explaining why he dissented on the policy-setting Federal Open Market Committee’s decision.”I would have preferred the Committee make a stronger commitment to not raising rates until we were certain to have achieved our dual mandate objectives,” Kashkari wrote.The Fed should not tie rate hikes at all to readings of the labor market, which it misread in the aftermath of the last recession and, as a result, ended up stifling the recovery by raising rates too early, he said.”Not raising rates for roughly a year after core inflation first crosses 2 percent is consistent with a strategy of aiming for a modest overshoot in order to achieve average inflation of 2 percent,” Kashkari said.The Minneapolis Fed president also dissented during the central bank’s last round of rate hikes. If the new guidance had been in effect then, he said on Wednesday, the Fed would likely have waited about a year, until January 2017, to lift off from the near-zero level of interest rates, but that would still have left the economy short of full employment, he said.Dallas Fed President Robert Kaplan cast a second dissent at this week’s policy meeting, though for an entirely different reason: he felt the Fed’s new promise to keep rates near zero left it with too little flexibility to raise rates if needed. More

The United States imposed sanctions on Thursday on an official from Hezbollah, a movement backed by Iran and deemed a terrorist group by Washington, and two firms based in Lebanon, which is wrestling with an economic crisis.The U.S. Treasury said those targeted had ties to the heavily armed and politically powerful Shi’ite Muslim group.The measures build on sanctions the United States imposed this month on two former Lebanese government ministers, who it accused of enabling Hezbollah.”The company is surprised that the American administration accused it of corruption and enriching some individuals at the expense of the Lebanese people,” said Arch Consulting, one of the two firms blacklisted by the Treasury Department.The statement blamed Washington’s “policy of sanctions and blockade” for Lebanon’s “deteriorating economic conditions”.Lebanon’s economy is collapsing after the nation built up a mountain of debt following its 1975-1990 civil war. Its banks are paralysed, its currency has crashed and it has defaulted on its sovereign borrowing.Adding to its problems, a huge port blast in August ripped through Beirut, killing nearly 200 people, injuring thousands of others and causing damage estimated at billions of dollars.French President Emmanuel Macron called Lebanon’s president on Friday to discuss the need to press on with efforts to form a new government, seeking to give new momentum to France’s initiative to pull the country out of crisis. More

Candidates from the UK and Saudi Arabia unexpectedly survived the first round of voting in the race to lead the World Trade Organization, alongside three other contenders, including the two favourites for the job.
Liam Fox, the UK’s former international trade secretary, and Mohammad Maziad Al-Tuwaijri, a Saudi minister who advises the royal court on economics, will go forward to the second of three rounds of voting for WTO director-general, it was announced on Friday.
They will be joined by the two favourites, Kenya’s Amina Mohamed and Nigeria’s Ngozi Okonjo-Iweala, and Yoo Myung-hee, South Korea’s trade minister.

The eliminated candidates were Hamid Mamdouh, an Egyptian former negotiator and WTO official, Jesús Seade Kuri, a veteran Mexican policymaker, and Tudor Ulianovschi, a Moldovan former foreign minister.
While Mr Ulianovschi’s elimination was widely predicted, expectations among many trade officials in Geneva and bookmakers’ odds suggested that the Saudi candidate and probably Mr Fox would also lose out, with either Mr Mamdouh or Mr Seade going through.
After the result was announced, Mr Fox said: “My time as a UK minister in one of the world’s biggest economies with a respected development agenda allowed me to get a real sense of both opportunities and frustrations across the [WTO] membership. I am looking forward to continuing this campaign.”
The EU is not running a candidate after its then-trade commissioner Phil Hogan withdrew from the race. Its member states wield 27 votes out of the WTO’s membership of 164. They decided collectively to back Ms Mohamed, Ms Okonjo-Iweala, Ms Yoo and Mr Mamdouh.
But EU officials say there was also a surprising amount of support for Mr Fox, given his support for Brexit, and for Mr Al-Tuwaijri.
The second round of the contest will winnow the remaining field of five down to two over the next few weeks. The winner will be decided in a third round of voting in early November.
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Trade officials say Ms Mohamed and Ms Okonjo-Iweala remain the favourites to reach the final round, though the contest between them remains too close to call. The WTO has never had a female or African director-general.

The current target date for announcing the victor is November 7, a few days after the US presidential election. Some trade officials and experts had suspected that the US would obstruct the process as part of its protest against the way in which the organisation functions, but there has so far been no sign of that.
David Walker, the New Zealand ambassador to the WTO who is chairing the selection process, said on Friday: “Throughout the six days of consultations, it was clear to us that the entire membership is both committed to and fully engaged in this process.”
The WTO director-general has little executive power and largely plays a convening and facilitating role among the institution’s member states.
The vacancy arose unexpectedly after the former director-general, the Brazilian Roberto Azevêdo, departed a year before his mandate expired.
The WTO faces an uncertain future after persistent criticism from the Trump administration culminated in the US last year paralysing the organisation’s highest judicial institution, the appellate body, by refusing to appoint judges to replace those retiring. More

STOCKHOLM (Reuters) – Helen Balfors, a project leader at Norwegian conglomerate Orkla, has been working from home for longer than most of her colleagues after returning from a skiing trip to Italy in February as the new coronavirus took hold in Europe.The mother of three said that while the company had always encouraged a good work-life balance, some managers had required their employees to be in the office before the pandemic hit.”But now they realise it works just as well to be at home,” she said. “I just needed an extra screen and an extra keyboard from the office, which I got in a couple of days.”Well-developed digital infrastructure has helped the Nordic economies weather the pandemic better than most of Europe.Britain’s economy contracted by around a fifth in the second quarter, Spain registered an 18.5% drop, while the euro zone economy as a whole shrank 11.8%.In contrast, Finland’s GDP fell just 4.5% although Sweden and Norway saw larger hits of 8.3% and 6.3% respectively.”Better digital infrastructure means we were quicker at being able to work from home. The infrastructure is there and we are used to using it,” said Robert Bergqvist, chief economist at Swedish bank SEB.”That has helped hold up production and consumption.”Denmark, Sweden, Finland and the Netherlands had the most advanced digital economies in the EU in 2018, a research paper from the European Commission showed, based on connectivity, human capital, internet use and extent of e-commerce.(Graphic: Development of GDP in Europe during COVID pandemic, https://graphics.reuters.com/HEALTH-CORONAVIRUS/GDP-EUROPE/oakveowygvr/chart.png)FLEXIBILITYThe Nordics – home to telecoms infrastructure firms Ericsson (ST:ERICb) and Nokia (HE:NOKIA) – topped the EU table for home-working even before the pandemic. Sweden, in first place, had just under a third of workers working from home, at least occasionally, in 2019, according to the European Foundation for the Improvement of Living and Working Conditions (Eurofound), an EU agency. The EU average was around 10%.Long-term flexible employment practices, such as allowing parents to stay home with sick children and an emphasis on a healthy work-life balance have encouraged remote working.During the pandemic, around 60% of Finns have been able to work from home, around double the level in Spain. Sweden and Denmark are also well above the EU average of less than 40%, according to Eurofound.A high proportion of information technology-focused jobs that lend themselves to distance working has helped but businesses and individuals have been quick to make the digital leap.That, along with well-established rules for furloughing employees, means working hours have dropped less than in most of Europe – by 4.2% in Norway in the second quarter against a drop of 10.7% for the euro zone as a whole, Eurostat data shows.With workers retaining at least some income, household spending and consumption have held up well.Eurofound’s survey showed around 70% of Swedes, Finns and Danes were optimistic about their future against just 45% across the EU. (Graphic: Development of working hours during COVID pandemic, https://graphics.reuters.com/HEALTH-CORONAVIRUS/EUROPE-EMPLOYMENT/qzjvqybwevx/chart.png)TO LOCK DOWN OR NOT TO LOCK DOWNThe Nordic economic resilience has come despite very different approaches to fighting the virus.While Sweden took a light-touch approach, Norway, Denmark and Finland all opted for stricter measures, with Finland isolating its capital from the rest of the country.That means other factors have played a significant role.”The structure of the economy is an obvious candidate, where many southern European countries are more dependent on tourism,” Riksbank Deputy Governor Martin Floden said this earlier month.Tourism accounts for just under 15% of GDP in Spain and Italy – two of the economies worst hit by the pandemic – according to the World Travel & Tourism Council. Denmark’s share is 6.6% and Norway 8.0%.On the flip side, Norway has had to contend with the collapse in oil prices, while Sweden’s automotive sector has been badly hit.But strong public finances have given Nordic governments the flexibility to spend their way out of trouble. Norway raided its wealth fund – the world’s biggest.According to SEB, the Nordics have implemented direct spending measures of around 5.5% of GDP compared with around 4.4% for France, 3.7% for Spain and 3.4% for Italy.Yet government largesse is not everything.Germany has spent more, around 8% of GDP, yet in the second quarter its economy contracted almost 10%.Analysts caution that a final assessment of government and central bank measures and the effects on health and the economy will have to wait given the risk of a second wave of infections and the longer-term goals of many spending programmes.Working from home, however, is here to stay.Orkla’s Balfors said many people were now questioning why they needed to spend a whole day travelling to Norway for meetings with her company when there was the technology to hold them remotely.”It is going to change the way people see working from home – I’m completely sure of that,” she said. More

BUDAPEST (Reuters) – Hungarian car dealer Realszisztema has shelved plans to build a $1.7 million service facility and warehouse. Auto supplier AGC Glass Hungary, too, is turning away from expansion ambitions as it faces a future of fewer workers and sliding sales.The companies are part of an auto industry that until recently had been a mainstay of a strong Hungarian economy, and a sector that Prime Minister Viktor Orban has hailed as a testament to his stewardship of the nation.Realszisztema and some other Hungarian companies weathered the first wave of the COVID-19 pandemic reasonably well. But now they are preparing for a second wave, which has injected a renewed sense of uncertainty into their business plans, and the economic fallout is expected to stretch into 2021 and beyond.Hungary’s weakened prospects could represent the biggest threat to Orban’s decade-long rule as he prepares to face parliamentary elections in the first half of 2022.Orban, whose stated aim has been to transform his country into an “illiberal democracy”, has drawn censure abroad with his anti-immigration rhetoric and sweeping reforms that have earned him accusations of authoritarianism from the European Union. He has denied these accusations.He has nonetheless enjoyed enduring popularity at home, winning three straight terms to become Hungary’s longest-serving post-communist leader, and has repeatedly shown his ability to bring tens of thousands of supporters onto the streets.However he has long relied on the economy as a major vote-winner, with strong financial support for families, and has emphasised his role in helping develop industries such as autos and overseeing the growth of a large ecosystem of suppliers around car factories.”One of the main reasons why Orban’s supporters back his Fidesz party is its economic legitimacy. A sense that Fidesz can run a competent economic policy,” said Andras Biro-Nagy, a political analyst at think-tank Policy Solutions.The Hungarian government did not respond to a request for comment for this article.In recent years, the premier has said that Hungary’s auto industry was on track to become a regional hub. Even in June this year, when the country looked to have successfully beaten back COVID-19, he gave a rousing speech from a car factory.”We are in the citadel of Hungarian industry. This factory is the pride of Hungarian industry.” he said. “We are also somewhere important in terms of the national economy.”However both this sector and the wider economy are looking more precarious, with little certainty about the future, potentially robbing the premier of a key electoral advantage.Last year, the economy expanded by almost 5%, year on year, while the booming car sector increased output by more than 10%.This year the economy shrank 13.6% in the second quarter, the deepest contraction in Central Europe, and is not expected to rebound until 2022 or 2023. Some 200,000 people have lost their jobs. Car sector output, meanwhile, was down more than 24% in the first seven months of 2020.’THE LAST STRAW’Authorities warn of a second wave of infections towards the end of this year, and businesses are worried.AGC Glass, for example, estimates its turnover next year will be 15% below 2019 levels.”The size of the cake in Europe will be smaller and competition for each slice will be stiffer,” its human resources director Mihaly Giber said. “If half of the factory is put into quarantine, we will not be able to meet the demands of clients.”Orban’s Fidesz party currently leads in opinion polls and it is unclear how long Hungary’s economy will be impacted by the virus or if voters in 2022 will hold him responsible for the economic consequences of a once-in-a-century pandemic, according to political analysts.They say, however, that Orban’s hardline stance on immigration, which has been a big factor is his electoral success, is unlikely to dominate the agenda as in the past.”The social aspects of handling the economic crisis will be key in the forthcoming period, that is, whether people start blaming the government for their deteriorating financial situation,” said Biro-Nagy of Policy Solutions.Orban’s three-month furlough programme expired last month and there are no indications his government will resurrect it, with the budget projected to run a deficit worth 7% to 9% of economic output.The central bank has exhausted most of its monetary firepower. “We must be prepared that a renewed deterioration of the outlook may be the last straw for lots of participants in the economy,” Deputy Governor Barnabas Virag told a conference last week.”They may have tried to maintain their headcount but are now forced into layoffs, they have managed to service their loans … but now fall into delinquency, or delay investments.”Companies large and small are hoping they will not be one of those participants.Car dealer Realszisztema, based near Budapest, obtained a 1 billion forint ($3.3 million) loan under the central bank’s $5 billion pandemic funding scheme which, like many businesses, it used to refinance more expensive funding.However, the interest savings were offset by a retail sector tax used to plug holes in the budget this year.In a concerning sign for the future, just a third of the value of the loans taken up by businesses so far has been used for investments.”If foreign tourism fails to recover, if entire sectors of the economy shift to a lower gear and foreign companies do not replace their fleet every three years, that could affect us,” said Realszisztema investment director Peter Karai.REALITY CHECKAfter successive downgrades, the government now expects the economy to shrink by 5%-7% this year, by far the worst performance since Orban’s 2010 election landslide.The premier himself spoke of the gravity of the situation a week ago. “We cannot afford the virus crippling the country again,” he said, ruling out another lockdown.However some economists have raised concerns over a recent spike that has seen hundreds of new infections recorded a day since the end of August, with the total number more than doubling to over 15,000.”The alarmingly virulent spread of the virus in early September does not bode well for a fully-fledged continuation of the recovery,” economists at Raiffeisen said in a note.Hungarians became more pessimistic about the economy in September, a survey by the GKI think-tank found, mostly due to deteriorating employment prospects. That reversed a gradually improving trend since a nosedive in April.”It will be late-2022 or early-2023 by the time we reach pre-crisis GDP levels and the slow recovery will largely stem from the labour market,” said economist Peter Virovacz at ING.”(We will see) high or rising unemployment, a looser labour market, weaker wage growth and consumption also taking a hit.”AGC Glass is not planning any expansion in the foreseeable future. Despite hiring about 80 people since the economy reopened, its workforce remains below pre-Covid levels.Giber is concerned about the availability of workers as infections are rising. “If the situation in schools deteriorates and some parents need to stay at home with their children, that will hit the workforce.”($1 = 301.99 forints) More

Provisional tax data released on Friday showed employers had registered 4.8 million jobs as furloughed as of July 31, down from a peak of 8.9 million in early May.The government said final data could show an upward revision of around 10%, making it likely that 5.3 million jobs were still furloughed at the end of July.Since July employers have been able to bring furloughed staff back part-time, but still claim furlough payments for the hours when staff are not working.The 4.8 million jobs registered as furloughed included 950,000 where staff are now back working part-time but less than their usual hours, the finance ministry said.Finance minister Rishi Sunak has resisted calls to extend the Coronavirus Job Retention Scheme beyond the end of October but has said he will be “creative” in finding ways to minimise any future rise in unemployment.”These figures show the success of our furlough scheme — making sure people’s jobs are there for them to return to,” he said on Friday.Budget forecasters expect the programme to cost around 54 billion pounds ($70 billion) over its eight-month lifespan.Use of the scheme has varied widely across sectors, with more than 40% of staff in the hospitality sector still furloughed, but only a small fraction of those in sectors such as finance or IT where it is easier to work from home.Britain’s official jobless rate rose slightly to 4.1% in the three months to the end of July, and the Bank of England has forecast it will hit 7.5% by the end of this year.Less comprehensive but more timely survey data from the Office for National Statistics suggests the number of furloughed workers continued to fall through August but remained high.The Resolution Foundation think-tank estimated, based on the ONS data, that around 3 million people were furloughed at the end of August. More

WASHINGTON (Reuters) – U.S. presidential candidate Joe Biden’s recent warning that Britain must honor Northern Ireland’s 1998 peace agreement to secure a U.S. trade deal adds new complexity to already tough trade talks between the United States and the U.K.”We can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit,” Biden wrote on Twitter on Wednesday, referring to the deal that ended three decades of sectarian violence in Northern Ireland and created a shared regional government.Biden was echoing Democrat House Speaker Nancy Pelosi’s warning last week that any move by Britain to erect physical customs borders between British-ruled Northern Ireland and EU-member Ireland meant “no chance” for a U.S.-UK trade deal.His warning comes as U.S. negotiators in the Trump administration wrap up a fourth round of trade talks with their British counterparts in Washington this week. U.S. Secretary of State Mike Pompeo said Wednesday the talks could “reach a successful conclusion before too long.”No matter how they end, U.S. law gives Congress authority over trade policy. President Donald Trump has sometimes sidestepped that authority on trade issues, but U.S. and UK officials have said they are aiming for a comprehensive agreement that would need Congress’s approval.The U.S. election in November is expected to leave the House in Democratic hands, giving extra weight to Pelosi’s words.Both the U.S. and U.K. have other hurdles to clear as well, trade experts say.”Removing the Good Friday agreement is a non-starter, but there are five or six other potentially really difficult issues that the two countries are still far apart on,” said Harry Broadman, managing director with the Berkeley Research Group and a former senior U.S. trade official, including agriculture, the British health system and Britain’s proposed digital services tax.NON-NEGOTIABLEAsked about the Trump administration’s view Thursday, U.S. Trade Representative Robert Lighthizer’s office pointed to his June testimony to Congress, where he said there is no chance Congress would pass a trade deal if Britain put up borders in Ireland, violating the Good Friday agreement.”I’ve made that quite clear. The chairman [of the committee] has made it quite clear to me. The president agrees this is not something on which we’re going to have a negotiation,” he said.The Good Friday agreement is in jeopardy, some diplomats say, because of new legislation proposed by British prime minister Boris Johnson.British trade officials have repeatedly said they are seeking a comprehensive trade deal and are not seeking to rush into an agreement before the U.S. election, nor waiting to see who wins at the polls in November.U.S. and British trade negotiators were expected to discuss one of the thorniest issues between the two countries in the current round of trade talks – increased access for agricultural products.British trade minister Liz Truss has pledged to drive a “hard bargain” with the United States, vowing that Britain would not diminish its food safety standards to import American products such as chlorine-treated poultry and genetically modified crops.Britain wants access for lamb and beef exports to the United States.Autos are the largest source of trade between the two economies, and another point of friction. Britain maintains a 10% tariff on any U.S. imports, four times the U.S. tariff on British cars. An outstanding threat by Trump to impose 25% tariffs on imported vehicles makes negotiating down the U.K. rate unlikely, trade experts say.Pompeo, speaking Wednesday at a news conference with UK Foreign Secretary Dominic Raab, said he trusted Britain to find a solution.”We know the complexity of the situation,” Pompeo said. “In the end, this will be a set of decisions with respect to this that the United Kingdom makes and (I) have great confidence that they will get this right in a way that treats everyone fairly and gets a good outcome.”Raab told CNN on Thursday that the 1998 agreement is “not in jeopardy.””There is not going to be any hard border, certainly not applied by the UK,” Raab said, adding that if the EU made a similar commitment, “it would also help the negotiations.”Jacob Funk Kirkegaard, a non-resident senior fellow Peterson Institute for International Economics, said Biden’s warning suggests that perhaps he is just not that interested in a deal.”The phrasing of not wanting northern Irish peace to be a victim of Brexit, that’s a really forceful intervention by a potential future American president – basically disavowing the signature project that defines the current British government. It’s difficult to imagine that wording is not reflective of Biden’s overall interest in pursuing this deal.”Trump has developed close ties to Johnson, but Biden’s warning suggests he may not do the same, he said.”This signals to me that the ‘special relationship’ between a Biden administration and Boris Johnson’s government, especially in a no-deal Brexit, is not going to be very special.” More