Economy

PANAMA CITY (Reuters) – Panama will stick to its economic forecasts for next year even though the government withdrew its budget proposal after pushback from Congress, Economy and Finance Minister Felipe Chapman told Reuters.”Our economic projections are not going to change,” Chapman said in an interview on Friday. “We’ll keep working on a budget based on an estimate of… real gross domestic product growth of 3%.” The previous proposal was to slash spending by some 15%. The minister said he did not yet know if the new budget would consider a similar cut.Chapman went back to the drawing board last week after Congress’ budget committee expressed concerns about the bill, particularly a forecast for a higher deficit than what is allowed under an existing framework.The ministry will submit a proposal to reform the framework – the fiscal and social responsibility law – on Monday, Chapman said. “That law does not take into account exogenous factors that could alter the ability to comply with it,” he said, citing examples such as the pandemic or a recent drought, which has impacted operations at the Panama Canal, one of the world’s busiest trade corridors.The reform will “take those elements of flexibility into account and raise the ceiling (on the deficit) with the idea that it would come down progressively,” Chapman said. The government will present a five-year fiscal plan by the end of the year targeting a “soft landing,” he said.BUY-IN FROM INVESTORSInvestors are starting to show confidence in Panama’s commitment to reducing its debt, Chapman said. The yield on one-year treasury bills auctioned this month yielded 6.07% on average, down 33 basis points from the August and September auctions, the finance ministry has said.Chapman said that during a recent trip to New York, he met with ratings agencies, bondholders and banks, who, unsolicited, offered credit lines “in the billions of dollars.” He declined to offer more detail.Fitch cut Panama’s sovereign rating to junk in March, but the minister said he felt “optimistic” as conversations were progressing with agencies. Chapman said external threats were his main concern for Panama’s economy, while he was “more worried about it not raining.”The minister said efforts were ongoing to account for future droughts hitting the Panama Canal, with a plan to dam the nearby Rio Indio as the surest long-term option.In the short term, the canal could pump water from the Bayano Lake, Chapman said, though he acknowledged it was “not ideal.”The government is close to signing a deal with independent experts who will present their recommendations on what to do with copper concentrate mined from the now-shuttered First Quantum (NASDAQ:QMCO) copper mine, by the end of this year or at the beginning of next year, Chapman said.Panama’s Supreme Court declared First Quantum’s contract with the country unconstitutional last year amid protests over its environmental impact and complaints about the amount of royalties coming in from the mine. The ruling forced the key mine to close down. Chapman said the government was open to letting the mine export what it had already mined but that no date had been set.Any agreement would have to take into account public sentiment, Chapman conceded, as a recent newspaper poll showed two in three Panamanians against restarting operations at the mine to later close it.Any future deal with First Quantum would likely require larger royalty fees to win over citizens, he said. More

BUDAPEST (Reuters) -Hungary’s economy ministry proposed on Monday that savings in private pension accounts can be used tax-free for housing purposes as a one-off measure next year as part of wider efforts to boost the economy ahead of a 2026 parliamentary election.In power since 2010, Prime Minister Viktor Orban has struggled to revive Hungary’s economy after last year’s downturn following a surge in inflation to more than 25% in the first quarter of 2023, the highest level in the European Union.Hungary’s budget deficit has also averaged nearly 7% of gross domestic product since the COVID-19 pandemic, above EU average levels, limiting the scope for the kind of largesse that helped Orban get re-elected in 2022.The economy ministry said the proposal would allow the full amount of savings to be used next year for renovations, equity for new mortgages or repayments for existing mortgages.”The government will eliminate bureaucratic hurdles to allow people to decide if they want to voluntarily use their savings for housing purposes,” the ministry said in a statement.The ministry said more than 1 million private pension fund members had savings worth 2 million forints ($5,457) on average, which could now be used tax-free for housing purposes.Previously Hungarian officials have signalled that the moves could channel 300 billion forints ($817.53 million) to the housing market, or 15% of total private pension savings at the end of the first half, based on central bank data.However, real estate website ingatlan.com has estimated that, combined with interest payments from inflation-linked government bonds to retail investors, the combined market impact could reach 1 trillion forints ($2.73 billion) next year.That could boost housing prices by some 10% to 15% in 2025, mostly in large cities and Budapest, which has seen one of the sharpest rises in housing prices in Europe in the past decade, fuelled in part by Orban’s subsidies for families.Soon after he was elected in 2010, Orban’s government eliminated mandatory private pension funds and nationalised most of the $12 billion contained in them to plug budget holes and boost the economy.($1 = 365.9800 forints)($1 = 0.7658 pounds) More

The bill, submitted to parliament on Friday, also requires companies and individuals to make additional contributions to the fund via their tax statements and it envisages additional fees for Turks buying and selling real estate and vehicles.But the changes concerning credit cards – which envisage an annual contribution fee of 750 Turkish lira ($22) for cards with limits set above 100,000 lira – have prompted particularly strong criticism from consumers and economists.Three bankers who spoke to Reuters said that measure could reduce the number of credit cards in use in Turkey.”We are observing an increase in requests for lowering credit card limits. Banks have started to discuss and plan for the impact of the regulation draft. They will see what they can do to limit the impact,” said one of the bankers, who spoke on condition of anonymity.Some users on social media argued that such a fee is unfair because the credit card limit a bank assigns to a customer does not mean that amount of money will be spent.Economist Mahfi Egilmez said on his X account that the thinking behind the proposals was muddled.”Tax cannot be collected from credit card limits or loans. A loan is a debt. Tax is something collected from the creditor, not the debtor,” he wrote. “As we move away from science, we are entering into a terrible confusion of concepts.”There are some 126 million credit cards in use in Turkey, a country of about 85 million people, and some 1.25 trillion lira ($36.48 billion) transactions were made in August, according to Interbank Card Center (BKM) data.Turks have increasingly relied on credit cards for purchases to survive through years of high inflation that eroded household income and savings, with less access to loans.Due to high borrowing costs with loans extended to consumers at around an annual 70%, consumers are more inclined to purchase items in installments, a common feature of credit cards in Turkey.($1 = 34.2644 liras) More

BENGALURU (Reuters) – Bank Indonesia (BI) will leave interest rates unchanged on Wednesday despite inflation falling to its lowest level since 2021, as receding expectations of aggressive U.S. Federal Reserve easing weaken the rupiah, a Reuters poll found.Inflation eased to a multi-year low of 1.84% in September and has been within BI’s target of 1.5% to 3.5% throughout 2024, suggesting the central bank could further lower rates before year-end.Despite BI’s intervention to stabilise the rupiah last week, the currency has fallen more than 3% from a September peak following a strong U.S. employment report.That suggests the Asian central bank is unlikely to implement back-to-back rate cuts having surprised markets with its first easing in more than three years in September.Marking a shift in expectations, over 75% of economists, 24 of 31, in an Oct. 7-14 Reuters poll predicted the central bank would keep its benchmark seven-day reverse repurchase rate at 6.00% on Oct. 16.In the previous poll, taken after the central bank’s cut last month, more than 50% of respondents anticipated another reduction this week.BI was also forecast to keep the overnight deposit facility and lending facility rates unchanged at 5.25% and 6.75%, respectively.”Recent market developments have shifted the odds in favour of BI keeping its policy rate unchanged … Stronger-than-anticipated U.S. labour market data triggered a market repricing of U.S. rate expectations and renewed pressure on the rupiah,” ANZ said in a note to clients, adding that longer-term they continued to see 5.00-5.25% as a reasonable range for the terminal policy rate.”BI has an easing bias, and further rate cuts are just a matter of time. Should global risk sentiment rebound in the days leading up to BI’s October meeting, a 25 bp rate cut is certainly possible.”Among those who predicted BI will hold rates this week, a majority, 12 of 20, were expecting a half-point cut by year-end. Median projections showed rates were expected to fall to 5.00% by end-June – consistent with the previous poll – while the Fed was seen cutting rates by 150 basis points by the end of 2025. “We anticipate that BI will only proceed with a rate cut when signals from the Fed on a rate cut … become more definitive,” said Josua Pardede, chief economist at Bank Permata.Inflation was expected to average 2.5% this year and 2.6% next year while economic growth was seen steady at 5.0% in 2024 and 5.1% in both 2025 and 2026. The growth forecasts were broadly unchanged from a July survey but the inflation outlook was lowered.(Other stories from the October Reuters global economic poll) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.It’s now almost exactly a quarter-century since the economists Barry Eichengreen and Ricardo Hausmann first argued that the “original sin” of the developing world was borrowing in overseas currencies like the dollar.For centuries, this led to periodic financial crises. But countries like China, India, Brazil, Mexico and smattering of other smaller developing countries such as Chile and Poland have worked hard to develop their own local bond markets over the past two decades. This is arguably one of the under-appreciated developmental success stories of the past generation. As Goldman Sachs highlights in a new report on “lessons from two decades of EM fixed income investing”, EM local bonds are now a $7tn asset class, vastly outstripping the ca $1.2tn EM dollar bond universe.(zoomable version)Of course, progress is not uniform. Many smaller emerging markets remain dependent on overseas borrowing, and probably always will, as they lack the scale to build healthy local debt markets. And as we’ve noted before, the growing international involvement in local bond markets comes with downsides The currency mismatch risk has simply migrated from borrowers to lenders. That’s better, but it doesn’t eliminate the dangers of financial crises.But after weathering a lot of major shocks over the past two decades, what was once a risky asset class has now grown up. Goldman Sachs notes that while local-currency EM bonds have had a cruddy decade, they actually did no worse than developed market bonds when the Fed started jacking up interest rates, and have now recovered more of the lost ground. Likewise with dollar EM bonds. (zoomable version)Goldman has made the report public for us, so you can read the whole thing here. But here are its main points:What have we learnt from two decades of performance? A more mature asset class, with less outperformance but more resilience. Growing up is not all it’s made out to be. After a blistering start in the 2000s, returns across EM fixed income have been more modest over the past decade. But while that outperformance has faded, EM fixed income has demonstrated an impressive resilience in the face of several large shocks, including the Global Financial Crisis, the Covid pandemic and the subsequent inflation surge.In what macro/markets environment does EM fixed income flourish? Differentiated risk betas with a high yield. EM debt offers a high yield — indeed, a higher yield than for many other sovereign fixed-income assets — but uniquely embeds positive cyclical exposure. At the same time, EM fixed income tends to benefit more from global rate relief than other cyclical fixed-income assets. So the best periods often tend to be a combination where rates are stable or easing and growth prospects are being re-rated higher.What role can EM fixed income play in broader portfolios? Hard currency EM, in particular, allows for higher returns primarily for somewhat higher volatility/risk tolerance portfolios. For local currency EM, however, the more differentiated risk exposure compared with other non-US Dollar fixed income portfolios implies that there are benefits of holding GBI-EM even in portfolios that target lower volatility outcomes.To hedge or not to hedge? Mind the currency risk. For EM local debt investors, management of FX risk has been a key consideration, especially through long persistent periods of Dollar strength. Hedging Dollar risk has been important to total returns in EM and DM. But for EMs, hedging currency exposure completely comes at the cost of giving up cyclical upside. More

SINGAPORE (Reuters) -Singapore’s central bank on Monday left its monetary settings unchanged, as expected, as data showed the economy perked up in the third quarter though analysts are betting on a loosening in policy early next year to guard against external risks.The Monetary Authority of Singapore (MAS) said it will maintain the prevailing rate of appreciation of its exchange rate-based policy band known as the Nominal Effective Exchange Rate, or S$NEER.The width and the level at which the band is centred would also be maintained, the MAS said. “The risks to Singapore’s inflation outlook are more balanced compared to three months ago,” MAS said in a statement, adding that growth momentum has picked up.Separately, advance trade ministry data earlier showed gross domestic product (GDP) grew 4.1% year-on-year in the third quarter underpinned by a boost in manufacturing, accelerating from 2.9% in the second quarter, and policymakers expressed optimism about the 2025 outlook. “The growth outlook is more sanguine,” said OCBC economist Selena Ling, but added that geopolitics and trade conflicts are concerns for the city state and that MAS has an opportunity to loosen policy at its next review in January.Capital Economics markets economist Shivaan Tandon concurred, saying “the risk of keeping monetary policy too tight for too long will take centre stage soon prompting the central bank to pivot”.MAS said it expects the economy to grow at the upper end of the trade ministry’s adjusted GDP growth forecast range of 2.0% to 3.0% for 2024, but cautioned that external risks posed “significant” uncertainty for next year. “A sharp escalation in geopolitical and trade conflicts could exert sizeable drags on global and domestic investment and trade,” the central bank said. Singapore is often seen as a bellwether for global growth as its international trade dwarfs its domestic economy.MAS expects core inflation to decline further to around 2% by the end of 2024.Core inflation has tapered from a peak of 5.5% in early 2023, and hit a 2-1/2 year low of 2.5% in July before edging up to an annual 2.7% in August.As a heavily trade-reliant economy, Singapore uses a unique method of managing monetary policy, tweaking the exchange rate of its dollar against a basket of currencies instead of domestic interest rates like most other countries. It adjusts policy via three levers: the slope, mid-point and width of the policy band.The MAS tightened policy five times between October 2021 and October 2022, including in two off-cycle moves, to tame inflation during the pandemic and amid global geopolitical instability. Since then, it has held steady as concerns over economic growth trumped inflation.Capital Economics’ Tandon expects the manufacturing-led uptick in economic growth to fade amid slowing global demand, prompting the MAS to respond. “With policy very tight by historical standards, the economy set to weaken and the MAS now appearing less concerned about inflation, we expect the central bank to loosen policy in January.” More