Economy

Economists widely expect the ECB to slash rates by a quarter of a percentage point at its upcoming policy meeting next week, after having slashed borrowing costs four times to address weak growth and cooling inflation in the currency bloc.Traders increased these bets this week after US President Donald Trump stopped short of formally slapping sweeping new import tariffs on the Eurozone, with money markets now anticipating a total of four drawdowns in 2025. That would bring the rate the ECB pays on deposits by Eurozone lenders to 2% by the end of the year.Meanwhile, policymakers at the central bank have bolstered forecasts for a reduction at the ECB’s January meeting. ECB President Christine Lagarde, along with a slate of other officials at the central bank, have supported bring down rates further.Lagarde, in particular, told CNBC at the World Economic Forum in Davos, Switzerland this week that a “gradual move is certainly something that comes to mind at the moment”.Writing in a note to clients on Thursday, the Deutsche Bank analysts led by Mark Wall said they see the ECB cutting by 25 basis points at each of its Governing Council’s four gatherings in the first half of 2025.The analysts are then predicting the ECB will slow its cutting cycle in the second half, reducing rates by a quarter-point at both its September and December meetings.”This view is predicated on the assumption of below-trend growth, moderately below target inflation and risks to inflation that are skewed to the downside,” the analysts said.However, they flagged that there remains a risk that the ECB could opt to slow down cuts as soon as the second quarter. More

Prabowo has frequently highlighted the need for efficient spending under his administration. The cuts are equivalent to about 8% of the total approved spending this year of 3,621.3 trillion rupiah.Spokesperson Deni Surjantoro said the cuts do not entail a revision to the state budget for 2025, which would require approval from the parliament, adding ministries and agencies would identify areas to cut.Prabowo issued the formal presidential instruction in a document released this week, local media reported. He instructed his cabinet on Wednesday to halve costs on ceremonies and business trips.Indonesia has allocated 71 trillion rupiah this year for Prabowo’s flagship programme to provide free meals for up to 17.5 million people, which began earlier this month.But Prabowo wanted to expand the recipients this year to its full scale at 82.5 million, or more than a quarter of the population, by the end of the year. That would require an additional 100 trillion rupiah in the budget, said the head of the agency overseeing the programme last week.Some economists have warned the additional debt to fund it could hurt the country’s hard-won reputation for fiscal prudence.The finance ministry has previously projected 2025’s budget deficit at 2.53% of Indonesia’s gross domestic product.($1 = 16,275.0000 rupiah) More

At 06:20 ET (11:20 GMT), the yield on benchmark 10-year UK government bonds, known as gilts, rose 6 basis points to 4.70%. Prices and yields move inversely.In an interview with The Wall Street Journal on the sidelines of the World Economic Forum’s annual gathering in Davos, Reeves said she may announce new measures at a budget update scheduled for March 26.Reeves set out new fiscal rules in October, including a pledge to borrow only for investment and not to pay day-to-day bills by the fiscal year ending March 2030.”We will find ways to ensure we continue to meet those fiscal rules,” Reeves told WSJ Editor-in-Chief Emma Tucker. “I’ll set out the measures that are necessary, if they are necessary.”However, data released earlier this week showed that Britain ran a bigger-than-expected budget deficit in December, with a sharp sell-off in British government bonds swelling debt interest costs.Public sector net borrowing was £17.8 billion pounds ($22 billion) in December, more than 10 billion pounds higher than a year earlier, the Office for National Statistics said on Wednesday. More

BRASILIA (Reuters) – Investors already concerned about Brazil’s ballooning public debt load under veteran leftist President Luiz Inacio Lula da Silva are being forced to reckon with an additional risk: a government debt profile with growing sensitivity to high interest rates. That’s because Latin America’s largest economy finances an unusually high portion of its debt through floating-rate bonds crafted to appeal to investors during times of market stress, a tool its Treasury was forced to lean on heavily last year, leaving the debt with its worst composition in 20 years.The rate sensitivity of Brazil’s debt is poised to accelerate as the country’s central bank aggressively tightens money supply to combat inflation, overshadowing improvements in the primary budget balance. No major country carries as much debt in floating-rate bonds as Brazil. Issuance of these instruments, known as LFTs, was the highest ever last year and their share of the total debt also rose by a record margin. Interest rate shocks now threaten to drive up the cost of servicing nearly half of the country’s already large debt.”In the past year, interest rates rose. And with LFTs, you pay that cost right off the bat,” said former Treasury Secretary Paulo Valle, adding this implies a riskier and, therefore, deteriorated debt composition in the eyes of rating agencies.With a heated economy and external and local uncertainties keeping Brazil’s currency weak, the central bank has already signaled two more 100 basis-point increases to the Selic benchmark rate to battle inflation, which would lift it to 14.25% by March. Last year, demand for LFTs was boosted by market volatility amid shifting expectations for U.S. interest rates and growing fiscal concerns over Brazil’s debt trajectory.The negative sentiment deteriorated further after Lula presented a spending control package that disappointed markets in November, following a kick-off of his third non-consecutive term in 2023, with surging expenses related to social benefits, increases to the minimum wage and public sector salaries.By November, the LFT’s share of total debt had posted a year-to-date jump of a record 6.5 percentage points, accounting for 46.1% of Brazil’s total debt. December data is expected to show an extension of that rise, the Treasury acknowledged to Reuters, putting the instrument’s year-end share of total debt on course to be the highest since 2004. While the debt composition mirrors that of two decades ago, gross debt is nearly 20 percentage points higher at 77.8% of GDP in November, meaning debt servicing applies to a larger stockpile.As a result, despite a narrowing primary deficit in 2024, Brazil’s nominal deficit is projected to approach 8% of GDP, the highest among major emerging economies and the most burdened by interest costs.This debt expansion pattern is expected to persist even if the government meets its zero primary deficit target this year, with Itau projecting the nominal deficit to deepen to 9.9% of GDP by 2026.The Treasury said that debt management in 2024 considered the prevailing economic scenario, demand conditions, and market dynamics. It hopes to gradually replace floating-rate bonds with fixed-rate and inflation-indexed securities.The government’s 2025 debt strategy, due to be unveiled later this month, is expected to continue relying on floating-rate bonds amid local fiscal woes and global concerns over U.S. President Donald Trump’s policies, even as borrowing costs are seen tightening further. As inflation expectations keep drifting from the 3% official target, economists are increasingly forecasting the Selic rate to surpass 15% this year, with market bets reflected in the yield curve suggesting it could exceed 16% by November.For Carlos Kawall, a partner at Oriz Asset Management and former Treasury Secretary, the government’s fiscal framework has clearly proven inadequate to stabilize debt growth, with political unwillingness to pursue fiscal adjustment spilling over into LFT growth and accelerated debt expansion.”Debt management is a passenger in the government’s misguided fiscal policy strategy,” said Kawall. “You can’t fix the consequences without addressing the cause.” More

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As such, they predict a gradual decline in the saving rate as interest rates decrease.This anticipated fall in the saving rate is expected to underpin consumer spending, which Capital Economics believes will become a crucial component of GDP growth in the years 2025 and 2026. The firm’s analysis suggests that as households begin to save less, their expenditure is likely to rise, thereby contributing positively to the overall economic activity.The household saving rate is a critical economic indicator that reflects the proportion of disposable income that households save rather than spend. A higher saving rate can signify caution among consumers, which may lead to reduced spending and slower economic growth. Conversely, a lower saving rate can indicate increased confidence and willingness to spend, which can stimulate the economy.The forecast by Capital Economics is grounded in the expectation that interest rates will trend downwards, making saving less attractive for households. This scenario is likely to encourage more spending, which in turn could bolster economic growth. The firm’s analysis is based on historical patterns and current economic conditions, providing a reasoned projection for the medium-term economic outlook.While the precise impact of these changes on the UK economy will unfold over time, Capital Economics’ analysis offers a positive outlook for consumer-driven growth in the coming years. The firm’s findings are significant as they provide a basis for understanding potential trends in the UK’s economic trajectory.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

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