Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Warsaw and Kyiv’s agriculture ministers were to hold emergency talks on Wednesday as Polish farmers blockaded border crossings with Ukraine in a renewed dispute over grain imports.Protesters at six road crossings have blocked or disrupted the passage of about 7,000 trucks waiting to enter Poland from Ukraine and some 2,500 seeking to travel in the other direction. The demonstrations have also disrupted Ukrainian imports entering Poland via rail. Ukraine’s border queue registration site estimates that the trucks could be forced to wait for between 13 days and two months to cross, which could return the border to a similar crisis situation to late last year when protesting Polish hauliers blockaded crossings for more than two months. The agriculture protests boiled over on Tuesday when some Polish farmers spilled Ukrainian grain from waiting freight trains, sparking outrage in Kyiv. Oleksiy Kubrakov, Ukraine’s infrastructure ministry, accused the protesters of being “out of control”, while the country’s ambassador to Poland called for Polish police to punish the farmers involved in acts of sabotage against food exports critical to the country’s war against Russia. But Poland’s new coalition government has instead urged Ukraine to use Wednesday’s talks at an undisclosed location to offer new guarantees that its food exports do not undermine Polish agriculture. Prime Minister Donald Tusk has sought to improve relations with Kyiv that were strained last year under the previous administration, and offered full support for its war effort, but without upsetting farmers and other domestic economic interests. Tusk’s unwieldy coalition contains politicians who represent farmers, including Michał Kołodziejczak, the secretary of state for agriculture who founded the Agrounia farming movement. Protests that included Agrounia prompted the former Polish government to introduce a unilateral import ban on Ukrainian grain last April, in violation of EU common trade policy. Kołodziejczak told broadcaster Polsat on Tuesday that “we don’t want to silence the protests, we just want to solve the problem”. He said Poland was ready to introduce further restrictions on Ukrainian food exports and that “the ball is in Ukraine’s court”.He also warned Ukraine’s President Volodymyr Zelenskyy against any retaliatory measures. “Is President Zelenskyy threatening us with an embargo on products from Poland? In the situation Ukraine is in, does he want to do that?” said Kołodziejczak. Zelenskyy said this week that the protests were “about politics and not grain” and that the demonstrations were “outright mocking” of Ukrainians working to keep their economy afloat under Russian shelling. Ukraine relies heavily on its western borders for travel and trade, with commercial and cargo flights suspended and its ports blocked. Passenger cross-border traffic was also seriously disrupted on Tuesday by Poland’s nationwide farming protest, although cars were allowed to cross again on Wednesday morning. At one farmers’ protest near Poland’s border with the Czech Republic, a farmer flew a Soviet Union flag from his tractor and a sign seeking help from Russian President Vladimir Putin. Poland’s interior minister later said the pro-Russia protester would be prosecuted. The farmers’ dispute is the latest disruption to trade over the Poland-Ukraine border. Thousands of trucks were forced to queue at border crossings between the two countries late last year because of a blockade by Polish truckers, backed by farmers, to complain about unfair competition from Ukrainian drivers. Tusk’s government got the truckers to end their protest in January. The Polish farmers are seeking to end duty-free food imports from Ukraine, as well as remove EU climate change limitations on the usage of pesticides and fertilisers. Brussels agreed to set caps on Ukrainian imports of poultry, meat and sugar from June in response to farming protests that have also taken place in a dozen other EU countries.But Kyiv claims Poland’s latest demands are unjustified because Ukraine is sticking to an earlier agreement to verify that grain exports transit Poland rather than flood its domestic market. “All wagons are inspected by Polish authorities at the border and sealed,” said Ukraine’s railways company in a statement on Tuesday. “This makes it impossible for Ukrainian grain to enter the Polish market.” The protests in Poland come as farmers across Europe have taken to the streets to voice anger about a range of issues. Complaints include that they are not being paid enough for their output, that green rules are too burdensome, and that they face unfair competition from imports that do not obey the same quality standards. In France, farmers have rekindled protests in recent days despite the government making a series of pledges a month ago to address their concerns. French Prime Minister Gabriel Attal on Wednesday unveiled more concessions to try to get ahead of protests expected to intensify on Saturday when the annual farm fair starts in Paris.In Madrid, protesting farmers drove hundreds of tractors into the centre of the Spanish capital. “Fed up, tired, forgotten,” read one of the banners, as agricultural workers filled Plaza de la Independencia with the sound of whistles, cowbells and music. “We don’t want subsidies,” said Maricruz, one of those who joined the demonstration, “We want to make a living from our work.”Additional reporting by Leila Abboud in Paris and Carmen Muela in Madrid More

LONDON (Reuters) -Art more than science?Just two months after Federal Reserve policymakers flagged 75 basis points of interest rate cuts for this year, some are already musing about the risks the economy takes off again from here – potentially obviating the need for any cuts at all.Seriously? In fairness, they’re just sketching scenarios and remain broadly wedded to December’s quarterly projections – even if officials remain vague on exact timing.What seems sure is there’s no fixed model or mechanical trigger for what happens next – and clearly no rush to arms.For one, ‘forward guidance’ – introduced over the past 15 years as a tool to guide long-term interest rates lower when policy rates hit zero and couldn’t fall any more – has all but gone for now. The 5%-plus policy rate is the dominant lever. And data updates or business soundings now dictate the nudges, nods and winks from meeting to meeting on how that rate will evolve. In a series of interviews last week, Atlanta Fed boss Raphael Bostic – a voting member of the rate-setting Federal Open Market Committee this year – talked of the ‘art’ in the timing the first rate cut.To a question on how the Fed will know when to cut? Bostic indicated it would be as much about professional sensibility to the unfolding evidence as any pre-determined plan. “There will be art to this,” he told CNBC. “But I do think we will get to a place where the full range of information around inflation will tell us that normalisation is closer.”To his credit, Bostic quickly went on to detail what he was watching closely – namely a worrying dispersion of inflation that showed almost a third of the Fed’s favoured PCE price basket with annual increases still more than 5% – almost 50% more than seen in more ‘normal’ times.And he fretted that the welcome fall of so-called ‘trimmed mean’ core inflation gauges – which remove price outliers – look to be ‘plateauing’ at rates still above the Fed’s 2% target.And so Bostic, who’s on the slightly hawkish side of the Fed council and forecast just two 2024 rate cuts in December, felt disinflation was “a little bumpy”. “We just have to be patient,” he added. “Let time play out, let people get a new equilibrium and we’ll be fine.”But it was also Bostic who also spoke of the risk that “pent up exuberance” could re-ignite domestic demand and price pressure. Mindful of not letting markets run away with one way bets, all bases seemed covered. San Francisco Fed chief Mary Daly, typically a more dovish Fed leader who predicted three cuts this year and who is also a voter on the FOMC, talked more effusively about the “unequivocally good news” on inflation. But she too was equally hungry for more information before committing to a first cut. “We will need to resist the temptation to act quickly when patience is needed”.With no fixed playbook then, new year economic readouts on punchier U.S. inflation and job creation but softer retail and industry activity still leave everyone in ‘wait and see’ mode.POLICY ARTISTSIn some respect the Fed has – artfully perhaps – in fact managed to communicate patience, vigilance, flexibility and determination all at once without moving policy one jot since July.So much so that it has succeeded this year in dragging market pricing back to where it wanted it to be since December – letting the air out of overinflated rate cut bets that emerged quickly after that meeting and which now price less than four quarter-point moves in 2024 compared to six a month ago.And it has managed that without major disturbance – lifting long term rates back to December levels, though still some 75bps below October’s peaks while stock market benchmarks surf record highs. On Tuesday, Deutsche Bank flagged what it now sees as a ‘shallower’ Fed cycle than it originally thought – 100bps of cuts from June – and blamed inflation “persistence” with 3-month annualised core consumer price inflation still above 4%. Nuveen Chief Investment Officer Saira Malik was gloomier and said a first cut may not even arrive until the second half of the year. “The Fed isn’t ready to spring forth.”Don’t fight the Fed, in other words.A similar game is at play on the other side of the Atlantic.The European Central Bank has also dispatched its various hawks and doves to keep the market guessing – only for both sides to deliver a similar message of more patience and no mechanical trigger for a first move.The upshot is that that’s reshaped the market rate cut trajectory to ape that of the Fed – even though the euro zone is on the cusp of recession and the United States booming with 3%-plus annualised output growth.Critical of the ECB’s doggedness despite a poorer underlying economic condition, Unicredit (BIT:CRDI) economic adviser Erik Nielsen pointed out how both sides of the debate on the ECB council were now saying the same thing “with only nuances to divide them”.Two recent speeches he highlighted were from hawkish board member Isabel Schnabel and more dovish chief economist Philip Lane – and yet both appeared to converge on the need to hold back demand further to prevent firms raising prices. “Euro zone domestic demand has not grown to any measurable extent for almost two years – incidentally leading to the greatest gap in per capita income growth between Europe and the U.S. in decades,” Nielsen opined, puzzling at the ECB stance.It may be that all major central banks are just playing for more time. But it they may soon need to better differentiate their stances to match domestic economic realities rather than just clubbing together to corral excessive market expectations. And that’s the point at which currencies rate and broader financial markets could get very frisky indeed.The opinions expressed here are those of the author, a columnist for Reuters. More

Thirty years ago, the U.S. entered an era of productivity gains that enabled healthy growth. Experts are asking if it could happen again.The last time the American economy was posting surprising economic growth numbers amid rapid wage gains and moderating inflation, Ace of Base and All-4-One topped the Billboard charts and denim overalls were in vogue.Thirty years ago, officials at the Federal Reserve were hotly debating whether the economy could continue to chug along so vigorously without spurring a pickup in inflation. And back in 1994, it turned out that it could, thanks to one key ingredient: productivity.Now, official productivity data are showing a big pickup for the first time in years. The data have been volatile since the start of the pandemic, but with the dawn of new technologies like artificial intelligence and the embrace of hybrid work setups, some economists are asking whether the recent gains might be real — and whether they can turn into a lasting boom.If the answer is yes, it would have huge implications for the U.S. economy. Improved productivity would mean that firms could create more product per worker. And a steady pickup in productivity could allow the economy to take off in a healthy way. More productive companies are able to pay better wages without having to raise prices or sacrifice profits.Several of the trends in place today have parallels with what was happening in 1994 — but the differences explain why many economists are not ready to declare a turning point just yet.The Computer Age vs. the Zoom AgeBy the end of the 1980s, computers had been around for decades but had not yet generated big gains to productivity — what has come to be known as the productivity paradox. The economist Robert Solow famously said in 1987, “You can see the computer age everywhere but in the productivity statistics.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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The economy has been “resilient” in the face of tighter monetary policy, which has led the brokerage to push back its earlier forecast of a 25 basis points cut in May to June.”Given the upside surprises to both payrolls and inflation, we now expect the Fed to wait a bit longer before cutting rates,” UBS economists said in a note dated Feb. 20.U.S. consumer prices rose more than expected in January amid a surge in the cost of rental housing, recent data showed, while job growth accelerated and wages increased by the most in nearly two years.UBS also expects the Fed to deliver 75 bps of cuts in 2024, less than its previous estimate of 100 bps. It maintained that the Fed will deliver one rate cut per quarter after the first one in June.A slim majority of economists surveyed by Reuters said the Fed will cut the federal funds rate in June, adding that greater risk was the first rate cut in the cycle would come later than forecast. More

HONG KONG/BEIJING (Reuters) -Chinese banks have approved property development loans of $17.20 billion as part of a special mechanism to inject liquidity into the sector, but detailed statements show some loans to distressed developers are only adjustments of existing credit.Banks are adjusting the repayment plans or extending the maturity of some existing loans and not granting new credits, bankers and developers said.Launched last month, “Project Whitelist”, as it is known, allows city governments to recommend residential projects to banks as being suitable for financial support, and to coordinate with financial institutions to meet project needs.It is a key plank of Beijing’s efforts to revive a property sector reeling under a debt crisis and boost confidence, although adjusting existing loans will not ease the liquidity squeeze for distressed developers.Late on Tuesday, the housing ministry said 214 cities nationwide had set up the mechanism, recommending more than 5,300 projects to banks.Of this tally, development loans worth 29.4 billion yuan ($4.09 billion) have been issued, covering 162 projects in 57 cities.It added that 123.6 billion yuan ($17.20 billion) of development loans have been approved, citing data from some of the state-owned and commercial banks.Banks that decline any loans to the “whitelist” projects must explain their decision to the financial regulators, the ministry said. “Whitelist” projects of distressed developers have also been granted loans by banks, local governments and financial institutions said in separate statements this week, after news late in January that state-owned or state-backed firms formed the bulk of the approved developers.The first loan granted under the mechanism in the northeastern city of Dalian was financing of 212 million yuan for a project of Country Garden, China’s largest private property developer, which defaulted on its $11-billion offshore bonds in October, media said on Wednesday.However, they added that the loan, from Industrial and Commercial Bank of China, consisted of adjusted repayment arrangements for existing credit. The reports gave no details.In a statement, the Citic Bank branch in the eastern city of Suzhou said it readjusted repayments on a loan of 1.5 billion yuan to a local “whitelist” project of Country Garden.Last week brokerage CSL (OTC:CSLLY) International estimated that new loans would make up a third of the approved loans under the mechanism.The project comes at a time when developers do not have the money to repay banks, and so existing loans need to be replaced with new loans or extended, the branch head of a city commercial bank said, seeking anonymity as the issue is sensitive.China aims to ramp up financing for residential projects but banks’ reluctance to lend to the sector could be a major obstacle for distressed developers most in need of funds.The Hang Seng Mainland Properties Index rose 3.8% on Wednesday, versus a 1.6% gain in the broader market.($1=7.1842 yuan) More

WASHINGTON (Reuters) – President Joe Biden’s administration said on Wednesday it is cancelling $1.2 billion worth of student loans for some 153,000 people who are eligible under a program used to make good on promises to increase loan forgiveness.Biden last year pledged to find other avenues for tackling debt relief after the Supreme Court in June blocked a broader plan to forgive $430 billion in student loan debt.The administration has now canceled some $138 billion in student debt for nearly 3.9 million people through executive actions, the White House said.The latest announcement applies to people enrolled in a repayment program known as Saving on a Valuable Education (SAVE) and covers those who borrowed $12,000 or less who have been repaying the money for at least 10 years.The move will “particularly help community college and other borrowers with smaller loans and put many on track to being free of student debt faster than ever before,” the White House said.Left-leaning progressive and young voters, whose support Biden needs to win re-election in November, have been vocal in advocating for student loan forgiveness on a wide scale. Republicans largely oppose such actions. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.China is shipping more goods to the US via Mexico, circumventing steep tariffs imposed by the Trump administration and retained by Joe Biden’s White House, according to a Financial Times analysis of trade data.Figures from Container Trades Statistics, analysed by Xeneta, show the number of 20ft containers shipped from China to Mexico hit 881,000 in the first three quarters of 2023, the most recent period for which data is available, up from 689,000 in the same period of 2022.The rise came as Mexico overtook China as the biggest exporter of goods to the US last year, and as truck shipments across the border into the US have continued to increase quickly.The numbers also point to the difficulty facing the Biden administration, as it moves aggressively to curb US dependency on global supply chains dominated by geopolitical rivals such as China, whose manufacturing capacity has given it a pre-eminent role in supplies of everything from white goods to electric vehicles. “The US is the world’s biggest consumer of stuff; China is the world’s biggest producer of goods,” said Robin Brooks, former chief economist at the Institute of International Finance. “One way or another, these two forces have to meet.”US moves to reorient supply chains away from China and reshore manufacturing capacity began in earnest in 2018, when then President Donald Trump slapped hefty tariffs on trade with China. His successor Biden has kept them in place amid persistent trade and geopolitical competition between the two powers.As a result of the tariffs, shipments arriving directly from China now account for less than 15 per cent of US imports, down from more than a fifth in 2017.However, some Chinese goods that would have been shipped directly to the US are still making their way to the country via Mexico — without facing the same levies. “Reducing reliance on China is an easy soundbite for politicians, but the reality is very different,” said Erik Devetak, chief product and data officer at Xeneta.A genuine realignment of global manufacturing would be “a vast undertaking which will take many years and a colossal amount of investment and state intervention to achieve”, Devetak added.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Mexico is not the only beneficiary of China’s move to export goods that could end up later in the US to a third country first. Beijing is also running trade surpluses with countries like Vietnam, Singapore and the Philippines, which in turn are running widening surpluses with the US — suggesting that China’s manufacturers are continuing to benefit from US consumers’ demand for their goods, Brooks said.Chinese carmakers appear to be particular beneficiaries. Figures from INA, Mexico’s trade body for auto parts suppliers, show that 33 Chinese-owned companies with Mexican operations sent $1.1bn worth of parts to the US in 2023, up from $711mn in 2021. Mexico imported almost $9bn in vehicle parts from China last year, INA said. Cars imported to the US from Mexico are subject to a 2.5 per cent US levy, while parts put together in Mexico incur a tariff of 0 per cent to 6 per cent. By contrast, cars and auto parts imported directly from China pay an additional 25 per cent levy under the regime introduced by Trump and maintained under Biden. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Gary Hufbauer, of the Peterson Institute think-tank, suggested rules written years ago for the US-Mexico-China trade deal had been overtaken by China’s rise as an auto-manufacturing powerhouse — giving Chinese companies a way to avert the tariffs. The US was likely to “press for new and tighter rules of origin”, he said.Current US rules prevent direct transshipments, so goods simply shipped through Mexico without any assembly or Mexican input pay the full tariffs.But Biden has faced pressure from unions and Congress for an even tighter regime, amid signs that Chinese components are reaching the US via Mexico. Plans by Chinese companies such as EV manufacturer BYD to open factories in Mexico have also raised concerns in the US.Katherine Tai, the US trade representative, acknowledged in a January letter to Congress that existing US rules left unintended openings for Chinese companies as she pledged to work with lawmakers to address the “challenges”.Mexico is aware of the issue and last year announced tariffs ranging from 5 per cent to 25 per cent on goods from countries such as China — although it is unclear how well the new regime will be enforced or affect the imports.It also signed a memorandum of intent with the US in December on screening foreign investments — including planned new Chinese EV plants in Mexico — for national security risks. However, trade analysts are sceptical that tariffs and trade rules will be sufficient to discourage goods from the world’s biggest manufacturer reaching its biggest consumer.“The Mexico story highlights the real paradox,” said Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies. “The US wants to create alternative supply chains in partner countries . . . but what happens when it’s Chinese companies that are building those supply chains?”Additional reporting by Valentina Romei and Alan Smith in London and Aime Williams in Washington  More