Economy

RIYADH (Reuters) -Saudi Arabia’s non-oil growth is expected to come in above 5% in the medium term, Finance Minister Mohammed Al Jadaan said on Monday, slightly lower than the 6% figure previously projected, but likely to outperform the wider region this year.”If you look at the non-oil GDP, it is growing at very healthy numbers: 4% and north of 4%. We are expecting 5%-plus in the medium term,” Jadaan told delegates at the Saudi Capital Markets Forum in Riyadh. “That is very strong growth.”The world’s top oil exporter is accelerating plans to diversify its economy away from oil under a plan known as Vision 2030. It aims to develop sectors such as tourism and industry, expand the private sector and create jobs.Non-oil activities vastly outperformed oil sector expansion last year, lifting overall growth which had slowed sharply on the back of cuts to oil production and lower prices.The International Monetary Fund in January forecast non-oil growth in the oil and gas exporting Gulf Cooperation Council (GCC) states – of which Saudi Arabia is a member – at below 4% this year, projecting 3.9% in 2024 and 4% in 2025.The IMF also slashed its 2024 GDP growth forecast for the kingdom to 2.7% but said that non-oil growth was still expected to remain “robust”.Jadaan had said in October that non-oil GDP was expected to grow by around 6% in 2023 and beyond, possibly to 2030.Non-oil GDP grew 4.6% in 2023, while overall GDP contracted 0.9%.The government expects higher spending in the coming years, which analysts have said will drive domestic growth and support non-oil GDP but will also tilt the kingdom into a fiscal deficit of about 2% this year.But Jadaan said Saudi Arabia’s economic and social reforms – including significantly narrowing fiscal deficits – had allowed it to be better equipped to deal with external shocks such as the COVID-19 pandemic and geopolitical risks.”We transform socially. We transform economically. We transform in fiscal policy, where we brought all the budget deficits down from 15% to 2% or even less than that. That is how a country becomes more resilient and deals with these shocks,” he said in Riyadh. More

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Germany has struggled since Russia’s 2022 invasion of Ukraine pushed up energy costs, and its vast, industry-heavy economy is now in its fourth straight quarter of zero or negative growth, weighing on all of the euro zone. “There is still no recovery for the German economy,” the Bundesbank said. “Output could decline again slightly in the first quarter of 2024. With the second consecutive decline in economic output, the German economy would be in a technical recession.”This weak performance has raised questions about the sustainability of the German economic model and critics argue that much of its energy-reliant heavy industry is now being priced out of international markets, warranting an economic transformation.The government, however, has pushed back on gloomy projections, arguing that it is merely a perfect storm of high energy costs, weak Chinese demand and rapid inflation that temporarily holds back growth but does not fundamentally question economic strategy.For now the weakness will persist, the Bundesbank argues.Foreign industrial demand is trending down and the order backlog is dwindling. Firms are also holding back investment, partly because financing costs have risen sharply since the European Central Bank pushed up interest rates to a record high to combat inflation, the central bank said.High nominal wage growth is also impacting firms and strikes in key sectors, such as transport, could also weigh on growth in the quarter.Disruption of shipping in the Red Sea will, however, not have a significant impact because there is plenty of spare capacity in shipping and because freight costs are only a minor part of the overall cost of goods, the Bundesbank said.While the outlook is weak, the bank said it expects no major deterioration in the labour market, which has insulated the economy so far, and Germany was not facing a broad-based, prolonged recession.”The weak phase in the German economy that has been ongoing since the beginning of the Russian war of aggression against Ukraine will thus continue,” the bank added. More

Germany’s decade-long property boom has unravelled since a sudden bout of inflation forced the European Central Bank (ECB) to hike interest rates, while the domestic economy was hit by more expensive energy imports and sluggish exports. The price of owner-occupied residential property fell by just over 4% last year according to industry data. The German statistics office put the decline at 8.9% for the first nine months of the year.Yet the Bundesbank, the ECB’s biggest shareholder, estimated that prices were still 15-20% above where they should be based on Germany’s current demographic and economic situation.”The overvaluation may not have been fully corrected yet despite a considerable reduction,” the Bundesbank said in its monthly report. “This continues to pose a certain risk of price corrections.”It said the price-to-income ratio was 20% higher than its reference value while the long-term relationship between property prices, interest rates and incomes showed an overvaluation of between 10% and 15%. For flats in German cities, the relationship between purchase price and rent lay 20% above its long-term average, the Bundesbank said.As people were less able to afford to buy, they turned to renting. Renting a city flat was 5.5% dearer according to Bulwiengesa, a property consultant and analysis firm. New lease contracts were 6.3% more expensive for multi-family homes, according to data from Germany’s association of Pfandbrief banks. The ECB is widely expected to start cutting rates this year and even Bundesbank President Joachim Nagel, an early supporter of rate hikes, said the “greedy beast” of inflation had now been tamed. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.A Chinese rival to Tesla said it was increasing investment and hiring thousands of new staff to survive a “bloody sea” of competition. He Xiaopeng, chief executive of Xpeng, said the Volkswagen-backed company would add 4,000 staff and invest Rmb3.5bn ($486mn) in autonomous driving and artificial intelligence technologies.However, Guangzhou-headquartered Xpeng “will buck the trend” during a year that was a “knockout round” for Chinese carmakers, He said in a letter to staff published by local media. “Many business partners are pulling back and are afraid to invest . . . This is an opportunity for our development,” He said.He added that Xpeng, which was founded in 2014, had been in a “bloody sea” of competition since its founding 10 years ago. “We believe persistence will bring success in the end,” he said. Xpeng did not immediately respond to a request for comment on the letter. He’s letter comes at a time Brussels and Washington are increasingly concerned about excessive electric vehicle manufacturing capacity in China. The FT reported that US officials have warned China that Washington and its allies will take fresh action if Beijing tries to ease its overcapacity problems by dumping products on international markets, including EVs and lithium batteries.China’s auto exports hit a record 4.9mn last year, up from 1.1mn the year prior, as the nation overtook Japan as the world’s biggest car exporter. Of that, only about 1.2mn were EVs — 29 per cent of which were Tesla vehicles — while the remaining 75 per cent were internal combustion engine cars, according to data from Shanghai consultancy Automobility.The capacity utilisation rate of China’s auto manufacturing sector has hovered around 70 to 75 per cent in recent quarters, below the range of 76 to 82 per cent that prevailed before 2020, according to Gavekal Research, a Beijing research group.The push towards exports came as Chinese EV production rose 38 per cent to 9.5mn cars last year. While the pace of growth has slowed, the share of EVs among new car sales rose from 26 per cent in 2022 to 32 per cent last year.The slowing pace of sales growth has fuelled expectations among auto executives for a wave of consolidation that will leave only a handful of companies in the world’s largest car market.Wang Chuanfu, the founder of the world’s biggest EV maker BYD, was more positive about the market outlook, telling a conference on Sunday that the penetration rate of Chinese EV sales would hit 50 per cent this year, according to local media.Beijing has signalled an increasing willingness to intervene in the EV market following a series of western complaints, as well as domestic concerns over the EV sector displaying signs of a boom-and-bust cycle that has beset Chinese industrial development for decades.Xin Guobin, vice-minister of industry and information technology, warned in January that Beijing would take “forceful measures” to address “blind” construction of new EV projects by some local authorities and enterprises. He also warned about insufficient external consumer demand.Earlier this month, China’s commerce ministry and eight other agencies announced plans to support the “healthy development” of the country’s overseas EV expansion, including co-operating more with foreign partners and utilising free trade deals. Experts said this was a further sign that Beijing wanted to allay international concerns over a wave of Chinese EV exports. More

The loan prime rate (LPR) normally charged to banks’ best clients is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).In a survey of 27 market watchers conducted this week, 25, or 92.6%, of all respondents expected a reduction to the five-year LPR on Tuesday. They projected a cut of five to 15 basis points.Meanwhile, seven, or 25.9%, of all the participants predicted a cut in the one-year tenor.Most new and outstanding loans in the world’s second-largest economy are based on the one-year LPR, which stands at 3.45%. It was lowered twice by a total of 20 basis points in 2023.The five-year rate influences the pricing of mortgages and is 4.20% now. It was last trimmed in June 2023 by 10 basis points.The strong expectation of a reduction to the mortgage reference rate comes after the central bank-backed Financial News reported on Sunday that the benchmark LPR could fall in coming days, with five-year tenor more likely to be reduced.”Lowering five-year LPR will help stabilise confidence, promote investment and consumption, and also help support the stable and healthy development of the real estate market,” the newspaper said on its official WeChat account.While a slowing economy has hastened the need for lower rates, such moves have been constrained by uncertainties around the timing of U.S. rate cuts and risks of rapid yuan declines and capital outflows.The LPR is loosely pegged to the medium-term policy rate, and the two sets of rates usually move in tandem. Market watchers said a recent reduction to banks’ reserve requirement ratio (RRR) and major lenders’ latest cuts to deposit rates should allow banks to cut the LPR.China’s central bank left the MLF rate unchanged as expected on Sunday when rolling over maturing medium-term loans, with uncertainties around the timing of an easing by the Federal Reserve limiting Beijing’s room to manoeuvre on monetary policy.The PBOC’s decision to cut RRR and fully roll over maturing MLF loans “underscores the continued commitment to an expansionary monetary policy stance aimed at bolstering economic growth and stability,” said Tommy Xie, head of Greater China research at OCBC Bank.”We see the chance of an imminent LPR cut this month to further support market sentiment.” More

The West African monetary union debt management agency UMOA Titres said in a statement that Niger had failed to make a repayment of principal which was due on Feb. 16. It noted that this occurred in the context of Niger being subject to sanctions imposed by the conference of heads of state and government of the West African Economic and Monetary Union (known by its French acronym, UEMOA). “This situation is carefully monitored by UMOA-Titres in collaboration with the institutions concerned,” it said in a statement. Niger has been suspended from the regional financial market, and the regional central bank by the Economic Community of West African States (ECOWAS) and UEMOA following a military coup in July that ousted President Mohamed Bazoum.The country announced last month, along with neighbours Mali and Burkina Faso, that it was leaving ECOWAS with immediate effect. The regional bloc has a summit planned for Feb. 24 to discuss the situation. ($1 = 604.0000 CFA francs) More

The grant will go toward chips for the auto and defense industries, and is the largest award to date from $39 billion in government funding.The Biden administration on Monday announced a $1.5 billion award to the New York-based chipmaker GlobalFoundries, one of the first sizable grants from a government program aimed at revitalizing semiconductor manufacturing in the United States.As part of the plan to bolster GlobalFoundries, the administration will also make available another $1.6 billion in federal loans. The grants are expected to triple the company’s production capacity in the state of New York over ten years.The funding represents an effort by the Biden administration and lawmakers of both parties to try to revitalize American semiconductor manufacturing. Currently, just 12 percent of chips are made in the United States, with the bulk manufactured in Asia. America’s reliance on foreign sources of chips became an issue in the early part of the pandemic, when automakers and other manufacturers had to delay or shutter production amid a dearth of critical chips.The award to GlobalFoundries will help the firm expand its existing facility in Malta, N.Y., enabling it to fulfill a contract with General Motors to ensure dedicated chip production for its cars.It will also help GlobalFoundries build a new facility to manufacture critical chips that are not currently being made in the United States. That includes a new class of semiconductors suited for use in satellites because they can survive high doses of radiation.The money will also be used to upgrade the company’s operations in Vermont, creating the first U.S. facility capable of producing a kind of chip used in electric vehicles, the power grid, and 5G and 6G smartphones. If not for the investment, administration officials said the facility in Vermont would have faced closure.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