Economy

SINGAPORE (Reuters) – (This Feb. 16 story has been corrected to say S$6 billion top up to fund helping with sales tax instead of S$6 billion in vouchers in paragraph 9, and clarifies that the S$1 billion over five years is for developing industry and talent in AI in paragraph 14)Singapore’s Finance Minister Lawrence Wong announced on Friday a “significant adjustment” to the tax system with implementation of the 15% global minimum corporate tax rate spearheaded by the Organisation for Economic Cooperation and Development (OECD).The prime minister-in-waiting also expanded government spending to help households battle inflationary pressures in the city-state and to grow the economy and jobs.Wong told parliament the tax adjustment could lead to a reduction in the tax base as multinational companies re-evaluate their plans and said he did not expect the move to generate revenue gains for Singapore.OCBC economist Selena Ling called the move “quite sobering” but said the trade-reliant economy had no choice since more countries – key trading and investment source markets – were implementing the OECD’s minimum corporate tax rate.Wong announced an overall small surplus of S$0.8 billion or 0.1% of GDP for fiscal year 2024, “essentially a balanced fiscal position”, he said. The government’s medium-term fiscal position was tight but its overall stance was “appropriate as we are providing targeted support”, Wong said.”Our key priority is to ensure a strong, innovative and vibrant economy.”Support for households in one of the world’s most expensive countries would be topped up by another S$1.9 billion ($1.41 billion), while a S$1.3 billion support package would also be introduced for companies, including a corporate income tax rebate of up to S$40,000.The population of 5.9 million is also dealing with hikes in sales tax that started last year, and an upcoming scheduled increase in water tariffs. Wong announced a S$6 billion top up to a fund to help Singaporeans cope with the sales tax hike.Inflation in Singapore has fallen from its peak of 5.5% early last year but remains higher than pre-pandemic levels at 3.3% in December.”The best way to deal with inflation is to ensure firms, workers are more productive and that real incomes rise,” he said.Wong said he was targeting growth of 2% to 3% each year over the next decade “by focussing on productivity and innovation”.Singapore expects higher GDP growth at 1% to 3% this year after it plunged from 3.8% in 2022 to 1.1% in 2023. A new tax credit would be created to support high-value economic activities, manufacturing, research and development and green transition, and S$3 billion would be added to an R&D fund, as well as S$1 billion over five years for development of artificial intelligence talent and industry. The government will also spend an additional S$300 million a year on healthcare support for its ageing population, which is expected to drive up overall spending to 20% of GDP by 2030 from the current 18%. Wong also announced a new fund for the energy transition, with an initial inject of S$5 billion. TAX CHALLENGEWong said he would push ahead with implementing pillar 2 of BEPS 2.0 – an OECD project under which more than 140 countries have agreed to bring the minimum effective tax rate of large corporates to 15%.But it was uncertain how much additional revenues that would pull in and how long it would last in a country that has long been attractive to investors because of its low tax rates.”We may even see a reduction in our tax base if MNE’s (multinational enterprises) shift some of their activities to other jurisdictions,” he said.In Singapore, the current headline rate is 17%, but some investors pay an effective rate that is as low as 4%.Ling, the OCBC economist, said this would level the playing field for countries and it remained to be seen how multinational companies would react. “Singapore has never competed on cost or tax alone,” she said.Wong said Singapore made no apology for pursuing growth, but the government would not push for economic expansion at all costs as there constraints in labour, land and carbon.Singapore, he said, would be an “economy that benefits the many rather than the few”.($1 = 1.3457 Singapore dollars) More

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1. Nvidia, Walmart headline weekly earnings calendarQuarterly earnings season marches on this week, highlighted in particular by aritificial intelligence darling Nvidia and low-cost store chain Walmart.Nvidia has seen its value soar over much of the last year thanks to surging enthusasism over AI. The California-based group, which is widely viewed as one of the most important makers of the high-end graphics processors that power the nascent technology, recently overtook Google-parent Alphabet (NASDAQ:GOOGL) as the U.S. stock market’s third-most valuable company.Along with its fourth-quarter results following the closing bell on Wednesday, investors will likely be keen to parse through any commentary from Nvidia about the path ahead for AI demand this year.Elsewhere, Walmart will step into the spotlight on Tuesday. The big-box giant could provide a glimpse into the spending habits of American consumers who have been carefully watching their wallets during a time of elevated interest rates and high inflation. What Walmart has to say about these trends will subsequently be in sharp focus.2. Fed minutes highlight upcoming economic releasesIt should be a slower week on the U.S. economic calendar after a spate of blockbuster data releases that have altered some expectations for potential Federal Reserve interest rate cuts.Highlighting the agenda will be minutes from the U.S. central bank’s January policy meeting on Wednesday, which could provide a fresh peek into how policymakers view the evolution of borrowing costs this year.Last month, the Fed left rates unchanged at a more than two-decade high, while Chair Jerome Powell stressed that officials wanted to see more evidence that inflation was sustainably cooling back down to their 2% target before starting to contemplate reductions. A March cut, Powell noted at the time, was not his “base case.”Powell has since moved to reiterate this message, and that push-back may be re-enforced in the minutes. Meanwhile, data has shown that price gains have remained sticky in the world’s largest economy and the labor market has stayed resilient, possibly bolstering the Fed’s case for delaying possible rate cuts this year.3. Chinese markets reopen higher after Lunar New Year holidayChina’s domestic stock markets rose on Monday as trade resumed after the Lunar New Year holiday, amid signals that consumer spending had picked up and in some cases surpassed pre-COVID levels during the week-long break.The blue-chip Shanghai Shenzhen CSI 300 index closed higher by 1.1%, while the Shanghai Composite index climbed 1.6%.Sentiment was aided chiefly by official data over the weekend showing that Chinese consumers spent more on travel, shopping and eating out during the holiday than they had a year ago. The readings boosted hopes that Chinese consumer spending — which is a key driver of economic growth — was now recovering after a three-year slump.4. EU set to fine Apple for 500 million euros – FTThe European Union is poised to hit Apple (NASDAQ:AAPL) with a fine of around 500 million euros for breaching the bloc’s laws surrounding music streaming, according to a report in the Financial Times.Citing five sources with knowledge of the matter, the paper said the penalty, which stems from an EU antitrust investigation into whether the tech giant purposefully used its platform to favor its own services over its competitors, is due to be announced next month. The fine would be the first levied by the EU on Apple.In particular, the probe was looking into whether Apple prevented apps from offering iPhone users cheaper music subscription alternatives outside of the company’s App Store, the FT reported. Brussels will deem Apple’s actions illegal and against its single-market competition protection rules, the FT added.Apple and the EU Commission both declined to comment on the upcoming ruling to the FT.5. Oil slips amid demand worriesOil prices fell in early European trade on Monday, weighed down by concerns over a potential demand slowdown.Brent oil futures expiring in April fell 1.0% to $82.62 a barrel, while West Texas Intermediate crude futures dropped 1.0% to $77.68 a barrel by 04:08 ET (09:08 GMT). The closure of U.S. markets on Monday is expected to keep price movements relatively subdued.Both benchmarks ended the prior week higher, although gains were held back by worries over sluggish demand in the face of higher-for-longer U.S. interest rates and stubborn inflationary pressures. Higher rates may dent U.S. economic activity in the world’s largest oil consumer.The International Energy Agency also warned last week of a demand slowdown in 2024, with the warning coming just as data showed the U.K. and Japan entering a recession. More

Here’s your week ahead primer in world markets from Rae Wee in Singapore, Lewis Krauskopf in New York, and Marc Jones, Dhara Ranasinghe and Naomi Rovnick in London. 1/ UNWELCOME ANNIVERSARYFeb. 24 marks two years since Russia launched its full-scale invasion of Ukraine. While markets have long overcome their initial panic, the anniversary is an unwelcome reminder of the war’s ongoing and multifaceted toll. Aside from the human tragedy, the rebuild cost alone is now estimated to have reached almost half a trillion dollars, or 2.8 times Ukraine’s annual economic output. Western governments have provided $100 billion – $60 billion in military aid and $40 billion in budgetary help – a year since the invasion.The grumblings are growing in Washington, where Joe Biden’s leading Republican opponent Donald Trump is revving up for November’s election that he fully expects to be part of. European leaders could also be about to raid some of the frozen Russian asset money that is currently sitting idle. 2/ ADIOS RECESSION RISKA resilient U.S. economy, with its strong labour market, explains why global recession fears have fallen away.Yet, even with China in the doldrums and powerhouse Germany now the sick man of Europe, business activity data out globally from Thursday should show that the picture beyond the U.S. is not all bleak.While in contraction territory, the January euro zone PMI hit six-month highs and the bloc avoided a recession late last year, the latest GDP data suggests. German Q4 GDP data and the Ifo sentiment index are out Friday. Note, German business morale brightened last month.Emerging markets outside China, notably India and the Middle East, are strong and the U.S. PMI likely remains in expansionary territory after reaching six-month highs in January. No surprise then, that investors no longer expect a recession. 3/ RESCUE EFFORTSMarkets in China return from the week-long Lunar New Year holiday on Monday, and investors are looking out for what Beijing does next to shore up its battered stock market.In the run-up to the festive period, authorities scrambled to pull out all the stops to stem losses in mainland shares that had cratered to five-year lows.That included appointing a new head of the country’s market regulator, nicknamed the “broker butcher” for his tough stance on containing risks.The week also brings a decision from the People’s Bank of China on its benchmark lending rates, though persistent headwinds for the yuan could limit the scope for any monetary easing.    Home prices, meanwhile, land on Friday, which will show just how deep the downturn in the beleaguered property sector is. 4/ AI DARLINGS While stunning gains of the so-called Magnificent Seven have been the story of the U.S. stock market over the past year, one of those megacap tech and growth stocks has been the main character: Nvidia (NASDAQ:NVDA), and it reports quarterly results on Feb. 21. After its stock more than tripled in 2023, the chipmaker at the centre of the excitement over AI has seen its shares soar another roughly 50% so far this year. Nvidia has now surpassed Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) in market value, making it the third biggest U.S. company by market cap as of Feb. 14. Such mammoth stock gains stand to raise the bar for its results, which the company reports after the U.S. market closes on Wednesday. And any disappointment potentially has a broad market fallout given Nvidia’s growing heft in major indexes and importance to the outlook for AI’s financial promise. 5/ DISMAL RECORD The UK’s biggest banks are set to release financial results for 2023 showing they have had the best year on record. Investors are unlikely to cheer. HSBC, Barclays, NatWest, Standard Chartered (OTC:SCBFF) and Lloyds (LON:LLOY) should announce combined pretax profits of 51.6 billion pounds ($64.8 billion), above the 2007 record of 35.8 billion, stockbroker AJ Bell calculates. Markets tend to focus on the future, however. And for UK banks, much is uncertain. High interest rates, which banks have passed on to borrowers while shrugging off pressure to equally compensate savers, have fattened up their profit margins for now.But a new mortgage price war and the need to repay Bank of England pandemic-era support are threatening future earnings. Borrower stress is also increasing, with insolvencies running at their highest since 1993. UK bank shares, trading at hefty discounts to lenders’ asset values, suggest the record year the industry is about to report has already faded from investors’ minds. ($1 = 0.7966 pounds) More

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The US is luring a record amount of capital investment from German companies attracted by its strong economy and lucrative tax incentives, just as conditions in their home market and China, their largest trading partner, are worsening. German companies announced a record $15.7bn of capital commitments in US projects last year, up from $8.2bn a year earlier, according to data compiled by fDi Markets, a subsidiary of the Financial Times, dwarfing the $5.9bn pledged in China. The amount heading for the US made up about 15 per cent of total commitments in 2023 in either greenfield or expansion projects overseas, compared with 6 per cent the previous year. The investment boom covers the first year since the Biden administration passed the Inflation Reduction Act and the Chips And Science Act, which offer more than $400bn in tax credits, loans and subsidies with the aim of rebuilding US manufacturing and accelerating the energy transition.German companies announced 185 capital projects in the US in 2023, of which 73 were in the manufacturing sector. The largest project was a $2bn investment by Volkswagen’s Scout Motors electric vehicle subsidiary in Columbia, South Carolina. Some types of foreign investment, such as M&A and other forms of equity investment, are not tracked by fDi Markets. Senior executives at BASF and Siemens Energy — two of Germany’s largest companies — said a combination of pragmatic US government industrial policies, a strong long-term market outlook and increasing focus on supply chains was driving US investment.  “We see this huge investment potential with the new buildout of energy infrastructure in the US,” said Tim Holt, an executive board member of Siemens Energy, which this month announced plans to build a $150mn power transformer plant in Charlotte, North Carolina. “In the past we have pretty much exported transformers from Germany, from Austria, from Croatia and from Mexico into the US. But given the market size and that we needed to do an expansion, we looked and we said the new factory is a good investment case given the market outlook.”Holt said the Covid-19 pandemic, geopolitical tensions and supply chain disruptions at the Suez and Panama canals highlighted the need for diversification of manufacturing.  There are signs the investment boom is continuing. A survey of 224 subsidiaries of German companies in the US published on February 8 by the German American Chambers of Commerce found 96 per cent planning to expand their investments by 2026.BASF, the world’s biggest chemical group and a major investor in China, is also expanding its US operations.Michael Heinz, BASF’s chief executive in North America, told the FT the market size, prospects for growth over the next decade and government incentive programmes made it a “very attractive market”.The company plans to invest €3.7bn between 2023 and 2027 in North America, which includes major expansions of petrochemical plants in Geismar, Louisiana, and in Cincinnati, Ohio.BASF is a key example for investors and politicians concerned about creeping deindustrialisation in Germany, having announced a “permanent” downsizing of its headquarters in Ludwigshafen, with thousands of job cuts and plant closures following the surge in European energy prices when Russia invaded Ukraine.Europe’s largest economy has been especially badly hit by the loss of cheap Russian gas, which for decades allowed it to remain a centre of heavy industry and manufacturing. A study last year found that nearly a third of German industrial companies were planning to boost production abroad rather than at home — a figure that had doubled from the previous year.“Europe is increasingly suffering from overregulation, slow and bureaucratic approval procedures and, above all, high costs for most production factors,” said Heinz.“There is no doubt, that the European industry is challenged. It won’t be clear-cut, but energy-intensive industries in Europe will likely shrink rather than grow in the medium term.”He said Germany and the EU as a whole needed to generate sufficient green electricity at competitive prices, build the right infrastructure for electricity and hydrogen, and develop less bureaucracy and faster approval procedures to remain competitive. BASF is also a massive investor in China, where almost half of its planned global capital expenditure is planned until 2027. The company is currently building a €10bn state-of-the art petrochemical plant in Guangdong, which the company has said will largely rely on green energy that would not yet be available at necessary scale in Europe.BASF has been criticised for making a big bet on an autocratic state by critics who are wary that German industry is repeating the mistake it made in relying too heavily on Russia. This month, BASF said it would sell stakes in its two joint ventures in Xinjiang — where Beijing has been accused of widespread human rights abuse. This followed allegations of the use of forced labour, highlighting the risk of investing in China as both the US and EU regulators are heightening scrutiny into Xinjiang supply chains.A report last week by the German Chamber of Industry and Commerce forecast that the US would supplant China as the nation’s top trade partner by 2025 at the latest. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Europeans are rightly worried about the possibility of a second Donald Trump presidency. This is a man who has said Russians should do “whatever the hell they want” on the continent, threatened a 10 per cent tax on all imported goods (not just those from China), and offended any number of cultural sensibilities. But while it’s smart to prepare for the possibility of another Trump administration, Europeans should also have a plan for what to do if the Democrats win in the elections this year.I say Democrats because president Joe Biden could yet step aside as their candidate due to concerns about his age. This has become a very live conversation among the party leadership following special counsel Robert Hur’s report that cleared Biden of any criminal wrongdoing in the investigation over classified documents, but portrayed him as an elderly man unable to remember key dates.Yet even if that happens, he would probably be replaced by someone who would double down on the core policy ideas of his administration, including re-industrialisation, a new approach to global trade and a shift from trickle-down economics to a focus on curbing corporate power and profiteering. I’d put my bet on a Midwestern populist to replace Biden rather than a shiny Californian centrist.This raises a key point. Many Europeans look at Biden’s surprising lack of popularity despite a stunning US economic recovery and assume that the policy message rather than the man is the problem. But they are wrong. Americans aren’t looking for incremental solutions. They just need better messaging of what a post-neoliberal world looks like in real life.US voters may not know — or care — about the Washington consensus, economist Milton Friedman or legal scholar Robert Bork. But they know greed and concentration of power when they see them, or more particularly when they feel them, as they have over the past two years of inflation and exploding corporate profits and margins in many areas.Democrats will double down on that felt experience in the 2024 campaign. In 2018, many Democratic midterm victors ran on the message that Trump’s corporate tax cuts were a giveaway to the rich. While the White House has been slow to recognise that fiscal interventions designed for the mid to longer term weren’t a balm for short-term price pressures, it’s also true that many voters hold corporations more responsible for the pressures than government.One recent survey found a 15-point increase since January 2022 in those who say “corporations are being greedy”; 59 per cent of the public now think private sector profiteering is a major cause of inflation, matching those who say fiscal stimulus is.I suspect this sentiment will continue to rise, and the Democrats will push the message of concentration of power and corporate profiteering to victory in November. I also think they’ll be helped by Trump’s own goals, like his Nato comments, which nudge moderate Republicans and patriotic independents towards any non-Trump candidate. If so, Europeans won’t have to worry about the US as a Nato partner, but they will have to come to grips with its move to a post-Bretton Woods worldview in other areas of policymaking.So far, that shift hasn’t gone down easily. Consider, for example, the European furore over the idea that the “New Brandeis” school of competition policy — named for the Supreme Court justice who curbed monopoly power and exemplified by Fed­eral Trade Com­mis­sion chair Lina Khan — is more aggressive and on point for the current era than the technocratic EU approach.Then there’s Europe’s lack of enthusiasm for the US approach to climate change (which involves industrial policy versus carbon pricing) or its befuddlement over US trade representative Katherine Tai’s challenges to the conventional approach in areas such as digital flows or environmental and labour standards.  Part of the discomfort is that these ideas are new, and still being fleshed out. But ask any Big Tech executive or multinational chief executive in private, and they’ll say that US policymakers pose a much bigger threat to concentrated power than Europeans do. Witness the recent Wall Street Journal editorial bashing both Khan and Tai. Few people in big business are wringing their hands about Brussels these days.A Democratic president won’t be looking at 10 per cent tariffs, but they may very well pressure Europe to join new trade actions and alliances in areas such as transport and logistics, critical minerals or electric vehicles. I think we’d see more pressure on European leaders to join the US in a shared approach to Chinese mercantilism, including both capital controls and increased subsidies for re-industrialisation in strategic industries at home.The EU is on the fence about all of this, understandably. It sits in between the US and China geographically, and wants to maintain that position economically and strategically as well. But I think that the political winds have begun to shift. German automakers or French luxury purveyors may hope to have it both ways, but European politicians, even in places such as Berlin, are beginning to realise that will be impossible. Europe is thinking hard about Trump 2 and a post-Nato future. But it also needs a response to the possibility of Biden 2, and what comes after the Washington [email protected]: How Biden’s Inflation Reduction Act changed the world | FT Film More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Australian mining billionaire Andrew Forrest has slammed Germany for its U-turn against EU legislation that would punish companies for environmental and human rights abuses in their supply chains.Germany withdrew its support for the landmark Corporate Sustainability Due Diligence Directive earlier this month at the insistence of the pro-business Free Democrats (FDP), the smallest party in the country’s coalition government.In an interview with the Financial Times, Forrest, chair and largest shareholder of Fortescue Metals Group, said Germany had “a responsibility” to back the legislation, which had been due for approval until the country’s change of mind. Fortescue is the world’s fourth-largest iron ore producer and a big German trading partner.“If you want to make sure that all your supply chains lead straight back to China, if you want to continue whingeing about it and wailing about it and doing nothing about it, then . . . don’t adopt the human rights corporate responsibility directive,” Forrest said, adding: “I could not be more stridently opposed to the view that [the directive] is bad for business.”Many in Brussels believe the law is doomed without the support of the EU’s biggest industrial power.The directive is intended to ensure that the largest EU companies report and take action on social, environmental and human rights abuses in their supply chains. It is one of the bloc’s most ambitious efforts to raise standards in countries outside the EU, as well as among its member states. But critics, including Germany’s biggest business lobby, say the proposed legislation places a huge burden on businesses and in many instances is unworkable.Fortescue is one of the largest single companies at the end of many German groups’ supply chains. Forrest, Australia’s richest man, has also pledged to invest in Europe and Germany to back green technologies.“I am a big supplier of raw materials and a backer of strategic changes [in European energy supply],” Forrest said. “If [Europe] adopts this law, then they’re going to stay competitive. What I do know is if they don’t adopt this law, then there’ll be a cloud of suspicion over industry.”Tougher rules on corporate social responsibility in supply chains would also help Europe meet its geopolitical goals, Forrest added, because they would force businesses to diversify away from cheap supplies provided by politically unstable countries. “I want to supply green hydrogen, green metals, green iron, green technology, green everything. But I will do so with responsibility for the environment, for human rights and green energy,” Forrest said, adding that if the EU did not adopt tougher supply chain rules, it would be handing an advantage to less scrupulous businesses able to outcompete more responsible ones on price. Since Germany withdrew its support for the directive, a number of other countries, including Italy, Bulgaria and Austria, have signalled they would also abstain or vote against it. The directive is now in limbo. Multiple votes to try and push it through in the past fortnight have had to be postponed. Without a breakthrough, diplomats in Brussels say it is now unlikely to be passed until after EU-wide parliamentary elections in June. Climate CapitalWhere climate change meets business, markets and politics. Explore the FT’s coverage here.Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here More