Economy

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesFor up-to-the-minute news updates, visit our live blogGood evening.2024 was meant to be the year that the race to the bottom in corporate taxation ended, but the implementation of a much-heralded global deal on how multinationals are taxed appears to be under threat.The two-part agreement, originally brokered by the OECD in 2021 with buy-in from more than 135 countries, was the biggest corporate tax reform in more than a century.  The second stage of the reforms, which bring in a global minimum 15 per cent corporate tax rate, began to take effect at the start of the year. The EU, the UK, South Korea, Japan, Canada and Norway have all begun applying the new rate, affecting the profits of multinationals with annual revenues higher than €750mn. The FT editorial board applauded the move as a big step forward. It was however highly regrettable that the US and China, the world’s two largest economies, had not yet introduced legislation to implement the deal they both backed, the FT said.  The Lex column said the cleverly designed rule would restrict the scope to profit from arbitrage and be felt most acutely by companies that use tax havens, “euphemistically known as investment hubs”. The OECD originally estimated the initiative would increase global corporate tax revenues by up to $220bn a year but now expects the measures to bring in $155-192bn a year. Some however are sceptical of the OECD’s calculations.However, as we report today, it is the first leg of the deal, which would make companies pay more tax in the place they do business, that is causing most concern. Its implementation is facing resistance from US Republicans and could be killed off completely should Donald Trump, a staunch opponent of the agreement, become president in November.These factors, plus difficulties finalising the treaty text, are jeopardising efforts to meet a June deadline for its signing. All eyes are now on the meeting of G20 finance ministers in São Paulo, Brazil, this week, where the treaty’s fate could be decided.Need to know: UK and Europe economyThe UK’s tax burden will hit a record high as a share of national income, no matter what chancellor Jeremy Hunt announces in next week’s Budget, according to new analysis from the Institute for Fiscal Studies.The funding crisis in England’s local authorities is “forcing them to the pawnshop” in a fire sale of assets. The councils have been hit hard by the government’s austerity programme, which began in 2010 with the aim of reducing the national deficit through spending cuts.A top executive at Vauxhall owner Stellantis said the UK government needed to do more to encourage drivers to switch to electric vehicles before it commits to converting a factory to battery-powered models. Business regulation was meant to be nimbler after the UK was freed from the shackles of EU red tape, so what went wrong? A Big Read investigates. The FT editorial board separately bemoans the state of Britain’s gummed up planning system.Need to know: Global economyDeparting US climate envoy John Kerry accused asset managers of “turning away from science” after several of the world’s biggest investors retreated from an industry group formed to tackle climate change. The British Labour party said it was “laser-focused” on net zero despite dropping its £28bn a year green investment pledge.US economic growth for the fourth quarter was revised down slightly from 3.3 per cent to 3.2 per cent but did not shake the overall picture of resilience at a time of high interest rates. However, no matter how well the economy seems to be performing, the US remains a country torn over identity disputes, writes columnist Edward Luce.Mexican billionaire Carlos Slim has built up an unlikely alliance with the country’s leftist president Andrés Manuel López Obrador. The two men share an interest in Mexican “national champion” companies, a mistrust of regulators and an enthusiasm for building mega-projects.Need to know: BusinessAmazon is stepping up investments in start-ups that combine AI with robotics as it attempts to automate its retail network. Shenzhen, the third most populous city across the border from Hong Kong, plans to become “China’s Detroit” by expanding its auto city, boosting export capacity and accelerating construction of a BYD factory. China last year overtook Japan as the world’s largest car exporter, sending 5mn vehicles overseasProfits for the biggest US oil and gas producers have almost tripled under President Joe Biden, even as the industry hits out at his “hostile” policies. US production has smashed records in recent years and last year the country overtook Qatar to become the world’s largest exporter of liquefied natural gas.Saudi football clubs are returning to the transfer market for more big signings in the summer after sending shockwaves through the game worldwide last year when they spent more than €800mn on new players, including stars such as Brazilian forward Neymar. How do you make the world’s most advanced microchips? Manufacturers coming up against the limits of physics are rethinking semiconductor architecture to make them even more powerful. Our visual storytelling team explains.Nippon Steel’s planned purchase of US Steel is being seen as a test case for how Japan’s managers, unaccustomed to dealing with trade unions, cope with increasingly fiery American workers. The World of WorkA government survey revealed the extent of the gender pay gap in Australia for the first time. Morgan Stanley, UBS and Bank of America have some of the largest, more than twice as high as the average of 19 per cent. The biggest gaps by sector are construction, banking and consulting.There was better news for supermarket workers in the UK, where high street bellwether Marks and Spencer joined other grocers in raising hourly pay above the national living wage. All the major chains have been increasing pay amid a tight labour market and a cost of living squeeze over the past 18 months.The phrase “office politics” might make you shudder — but is playing the game just an unfortunate fact of working life? Listen to the new Working It podcast. Some good newsResearchers have long acknowledged the lack of diversity in the genomes available for them to study but a huge new US programme called “All of Us” is filling the gap with findings from historically under-represented groups such as African-Americans and Hispanics.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. 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HARARE (Reuters) – Africa’s public debt will stay above pre-pandemic levels in 2024 and 2025, with many countries still at risk of falling into debt distress as they continue to struggle to service international loans, a U.N. official said on Wednesday. Addressing a United Nations Commission for Africa (UNECA) conference in Victoria Falls, the agency’s macroeconomics and governance director Adam Elhiraika said eight countries were in debt distress, while 13 were “expected to be at risk of debt distress”.Africa has been hit by repeated economic shocks since 2020, from the COVID-19 pandemic to Russia’s invasion of Ukraine and rising U.S. interest rates, putting cash-strapped, debt-laden governments in a political and fiscal bind.”Debt will (stay) above the pre-pandemic level. This is huge,” Elhiraika said, adding that the continent’s debt-to-GDP ratio was 62.5% at the end of 2022.This ratio doubled to 57% in the decade to 2020 and could rise 10 percentage points in the next five years if Africa’s fiscal trajectory does not change, according to a recent International Monetary Fund (IMF) report.”There is need for African countries to work with international partners to address debt distress,” Elhiraika said.Africa’s fiscal deficit deteriorated to 4.6% of GDP last year, Elhiraika said, without citing previous years’ figures, and is set to widen further to 5% in 2024. Many African governments are having to slash spending, while interest payments are growing faster. Zimbabwe Finance Minister Mthuli Ncube called for a rethink of the global financial system.”Access to finance for Africa must be made cheaper and easier. Hence, there is a need to re-look at the international financial architecture to ensure that it is fit for purpose,” Ncube said, addressing the conference.Zambia became the first African nation to default on its debt in late 2020, during the COVID-19 pandemic. Ghana followed in 2022, while Ethiopia became the latest last December. More

CARACAS (Reuters) – Venezuela’s government is intensifying its efforts to lower inflation ahead of a presidential election this year, keeping the bolivar-dollar exchange rate steady and weighing how to manage spending without stoking consumer prices, public-sector sources and analysts said.The oil-rich South American country, whose government is under U.S. sanctions for repressing political opposition and alleged criminal activity, has faced a long-running economic crisis marked by chronic shortages, a plunging currency and hyperinflation. Consumer prices rose by nearly 190% in 2023, one of the highest readings in the world, as the costs of basic goods continued to increase and the local currency fell sharply against the dollar.Price increases were down to 107% on a year-on-year basis through January. Monthly price rises have been in the single digits for the last 10 months as President Nicolas Maduro’s socialist government has held to an orthodox anti-inflation approach that began in 2021, injecting dollars and heavily restricting credit and spending.”Venezuela will consolidate its definitive victory this year against inflation, returning, with the help of God, to annual inflation of two digits,” Maduro told lawmakers in January. Annual inflation has not been under 100% since 2014.”The objective is low inflation and holding the exchange rate. That is the policy,” one source close to the government said on condition of anonymity.So far this year the exchange rate has been held at 36 bolivars to the dollar, after depreciating by 38% in 2023.Delcy Rodriguez, the country’s vice president and finance minister, asks the central bank for weekly price reports, a source with knowledge of the matter said.”What has been done so far should be maintained so as not to return to complicated scenarios,” said Francisco Torrealba, a government-allied lawmaker, alluding to efforts to avoid sharp fluctuations in the exchange rate.The central bank and U.S. oil giant Chevron Corp (NYSE:CVX) sold some $4.2 billion in dollars via local banks last year, according to analyst firm Sintesis Financiera, a figure that is 17% higher compared to 2022.Chevron operates in Venezuela with special authorization from Washington, bringing back some of its export earnings to exchange for bolivars so it can pay local expenses.Analysts predict dollar sales will grow this year.Neither the central bank nor the communications ministry responded to requests for comment.SPENDING DILEMMAAfter the U.S. relaxed oil sanctions late last year on the back of an election deal with the opposition, Maduro’s government predicted a 27% increase in income from state oil company PDVSA and analysts said the government would probably use the earnings to boost social spending with an eye to attracting voters.Maduro’s administration has done an abrupt about-face on rapprochement with Washington and his domestic opponents in recent weeks and the U.S. has said oil sanctions roll-backs will expire in April unless the opposition’s candidate is allowed to compete in this year’s presidential election.The reversal will hit the government’s spending ability, presenting the dilemma of how to attract voters without stoking inflation.”Within the government the main thing is inflation, but it needs to create a feeling of well-being for the elections,” requiring spending, a source close to the administration said when asked about possible public-sector pay increases.Public employees earn an average of $40 a month and have not gotten raises since 2022, after receiving them sometimes as often as three times per year. Maduro’s government has instead given out bonuses.”The government will maintain the bonus strategy and may give a raise in May, though it won’t be very large,” predicted Asdrubal Oliveros, an economist and director of consulting firm Ecoanalitica. “The elections will determine spending.”Apart from bonuses, the government may distribute more food baskets because they are less costly than raises and do not impact prices as much, said Tamara Herrera, the head of Sintesis Financiera.”If the election is competitive there will be more spending, but if it is not competitive, spending will be restricted and the money will be used for (regional and legislative) elections in 2025,” said Luis Vicente Leon of analyst firm Datanalisis. More

“Strengthening economic and trade cooperation is a win-win situation for both countries,” Li told the delegation led by Chamber of Commerce chief Suzanne Clark.”Seeking decoupling and building ‘small yards with high walls’ do not align with the fundamental interests of both sides,” he added.   Li said U.S. companies were welcome to continue investing in China and that barriers were not in the fundamental interests of both sides.Clark is leading a delegation of former U.S. government officials to Beijing this week, the group has said.The visit comes as the United States and China gradually resume engagements after the two economic superpowers’ most tense relations in years, at loggerheads over the future of democratically ruled Taiwan, territorial claims in the South China Sea and trade policies. Ties are still recovering after the United States downed an alleged Chinese spy balloon a year ago. More

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WASHINGTON (Reuters) – U.S. Federal Reserve officials say they are confident housing inflation will finally cool in coming months, a key and long-awaited component of their effort to control overall price increases and secure their turn to interest rate cuts. The real challenge on that front, however, may be just over the horizon when a pipeline of new apartments starts to run dry while the stock of single-family homes remains short, a recipe for future price pressure in a category accounting for about a third of the Consumer Price Index.Though their 2% inflation target uses an index that is less sensitive to shelter costs, Fed officials still see housing and rent dynamics as an important, unresolved part of their inflation battle, one that could highlight one of the inherent tensions in today’s tight-credit policy stance.Fed officials acknowledge the difficulty of finding a rate setting that keeps overall demand in check without choking off the supply of new homes and apartments, but some argue that policymakers already have leaned against the economy too hard. “You think you can snap your fingers and housing can be created…The reality is that is not the case,” said Jay Lybik, national director of multifamily analytics for real estate data firm CoStar. After a surge of building boosted apartment supply, CoStar’s data signals new unit volumes in sharp decline by early next year, falling to perhaps 50,000 or 60,000 per month versus the estimated 100,000 needed to keep pace with demand. “We risk a real acceleration in terms of rents that will make things worse come 2025 and 2026,” Lybik said.’LONGER-RUN PROBLEMS’Housing affordability concerns intensified during the pandemic, with median home prices jumping 50% from its onset through the end of 2022 – though they have since eased – and apartment construction tilted towards higher-end units. Members of Congress have called on the Fed to cut rates both to bring down mortgage costs for consumers and encourage construction; states are toying with rent-control measures and programs to boost supply. The issues are far bigger than the Fed.”We have longer-run problems with the availability of housing,” Fed Chair Jerome Powell said at a press conference following the central bank’s January meeting. “There hasn’t been enough housing built,” Powell said, but “these are not things that we have any tools to address.”Housing markets vary widely across the country, shaped by local zoning rules, politics and land prices. Still, financing costs heavily influenced by the Fed are key to the investment decisions being made today that will determine future housing supply. For the Fed’s immediate purposes, a coming “disinflation” in overall shelter costs seems almost certain as the record pandemic-era jump in rents and home prices fades into the past, but nonetheless essential to gaining the necessary confidence in declining inflation to begin rate cuts. After rapid rate hikes beginning in March 2022, the policy rate has been held at 5.25%-to-5.50% since July.’BUILT-IN’ INFLATIONARY PRESSUREWhile inflation has fallen from 40-year highs, recent progress has been “bumpy” Fed officials acknowledge, with shelter inflation in particular remaining higher for longer than anticipated. A surprise jump in CPI last month was largely driven by shelter costs still rising by 6% year-over-year versus 4% typically seen before the pandemic when overall inflation was near or below the Fed’s target. Rent measures assembled in closer to real time aiming to capture current market prices instead of the slow-moving averages in official data indicate price increases have been slowing. For example, an index from online real estate firm Zillow (NASDAQ:ZG) closely watched by Fed officials was rising at a 3.4% annual rate as of January.”We know it’s coming,” Arben Skivjani, deputy chief economist for property management and analytics firm RealPage, said of housing inflation’s decline in a recent National Association for Business Economics presentation. After rising nearly 16% annually in early 2022, asking rents have shown virtually no increase since last summer, RealPage data shows. Supply constraints, though, may risk secularly faster inflation. “We have not built enough homes, we’ve not built enough shelter for at least a decade…You’re short supply of a good that everybody still wants,” Mark Fleming, chief economist at First American bank, said at an NABE discussion of housing inflation. “What’s going to happen to the price?…Long run, there’s definitely built-in inflationary pressure.”MISSING ‘PUZZLE PIECE’ Shelter inflation peaked at an 8.32% annual rate in March 2023, the fastest since the early 1980s. The median home price surged nearly 50% from $322,000 in 2020’s second quarter as the pandemic began to a peak of $479,000 at the end of 2022, Census data shows, the fastest run-up since the early 1960s.The median price has since edged back to $417,000, a side effect of Fed rate hikes that at one point pushed the average interest rate on a 30-year home mortgage to nearly 8%, the highest in a quarter century.But some indexes of more recent home sales show prices rising again, leaving Fed officials hunting for data on home sales and construction to show evidence that demand and supply might move toward better balance. New Cleveland Fed research on the stark supply-demand imbalance that has powered pandemic-era home price appreciation is one example of the focus on it.Chicago Fed President Austan Goolsbee called housing a missing “puzzle piece” in the Fed’s hope for broadly lower inflation, while Richmond Fed President Thomas Barkin has made analysis of building patterns in his district, comparing communities able to keep pace in new home construction with those that are constrained, a staple of his recent speeches.EY Chief Economist Gregory Daco said shelter inflation’s near-term path was clear. It is headed down, and could over the next couple of months make a substantial contribution to lower headline inflation, a fact he argues is so clear he feels “increasingly frustrated” by the Fed’s reluctance to act on it.Next year, he said, is another story.”Rent inflation has slowed quite tremendously. That has yet to appear fully” in the data the Fed watches most closely, he said. “Fast forward another six to 12 months…and it may actually move the other direction…That’s where the lack of supply comes in.” More

WASHINGTON (Reuters) – The U.S. Congress on Wednesday has three days to avert a partial government shutdown, as disagreements between the two parties and within the fractious House Republican majority delay lawmakers in their duty of funding federal agencies. The two chambers’ top Democrats and Republicans had emerged from what they described as an intense Tuesday meeting with President Joe Biden vowing to avert a shutdown, but without agreement on how to do so – whether by reaching a deal covering the fiscal year that began Oct. 1, or by passing a fourth short-term stopgap.Senate Democratic leader Chuck Schumer and House of Representatives’ speaker, Republican Mike Johnson, have traded blame despite an agreement reached last month on $1.59 trillion in discretionary spending for the fiscal year.”We believe that we can get to agreement on these issues and prevent a government shutdown. And that’s our first responsibility,” Johnson told reporters on Tuesday.Hardliners within his thin Republican majority have sought spending cuts and policy changes, including some related to abortion and food aid, on the funding bills, which Democrats have balked at. Failure to reach an agreement will trigger a partial government shutdown beginning Saturday.A second deadline on a larger group of federal agencies that would run out of funding on March 8 also looms.Schumer told reporters on Tuesday lawmakers had made progress on talks to fund the government but had not finalized anything yet.”There is no reason for a shutdown, not if both sides in both chambers cooperate in a bipartisan way,” Patty Murray, the Democratic chair of the Senate Appropriations Committee, said on Tuesday. The impasse comes as the current national debt stands at $34.3 trillion and is rapidly rising. Rating agency Moody’ssaid in September a government shutdown would hurt the country’s credit rating.In addition to the government funding bills, Congress is also struggling to pass a $95 billion national security funding bill, including new aid for Ukraine and Israel, that Biden has urged. The Senate passed a bill, but it has been held up in the House. More

WASHINGTON (Reuters) – President Joe Biden’s administration on Wednesday unveiled an executive order aimed at protecting American personal data by restricting its transfer to China, Russia and other countries, senior U.S. officials said, citing national security concerns.The order, first reported by Reuters, will curb bulk transfers of Americans’ geolocation, biometric, health and financial information by data brokers and others to specific “countries of concern,” the officials said.It will also bar the transfer of any volume of data on U.S. government personnel, they added, to such countries, which also include Iran, North Korea, Cuba and Venezuela.”China and Russia are buying American sensitive personal data from data brokers” and leveraging it “to engage in a variety of nefarious activities including malicious cyber-enabled activities, espionage and blackmail,” the officials said.”Buying data through data brokers is currently legal in the United States. That reflects a gap in our national security toolkit,” they added, saying Wednesday’s order aimed to fill that gap.The order is the latest bid by Washington to stem the flow of American data to China, which is locked in a years-long trade and technology war with the United States.The U.S. Congress is considering legislation to ban federal agencies from contracting with China’s BGI Group and Wuxi APPTEC, part of an effort to keep China from accessing American genetic data and personal health information.In 2018, a U.S. panel that reviews foreign investments for potential national security threats rejected a plan by China’s Ant Financial to acquire U.S. money transfer company MoneyGram International because the companies could not assuage concerns over the safety of data that can be used to identify U.S. citizens.The officials said on Wednesday that transactions with data brokers who know that the information will end up in “countries of concern” will be banned, as will all genomic data transfers. Transfers of other classes of data – from biometric to financial – would only be banned if they met certain volume thresholds and were being sent to those countries, one official said.To allay concerns that the new rules would unnecessarily hamper economic activity, certain types of data including corporate payroll and compliance are exempted, they added. Certain transactions such as cloud service, employment and investment agreements would also be permitted, subject to some security requirements such as encryption and anonymization.The order also directs the Department of Justice to give industry ample opportunity to comment on proposals before they go into effect.The White House says companies are collecting more of Americans’ data than ever before. That data is often legally sold and resold through data brokers who can then transfer it to foreign intelligence services, militaries, or companies controlled by foreign governments. More