Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Since the Federal Reserve’s January policy meeting, chair Jay Powell has pushed back against market bets on rapid interest rate cuts. Some analysts expect that pushback to continue when minutes of that meeting are published on Wednesday, particularly given recent signs of stubborn inflationary pressures.The Fed kept rates on hold at the current range of 5.25 to 5.5 per cent last month, and reiterated that policymakers expect to cut rates only three times this year. Before the meeting, the market had been pricing in as many as five cuts in 2024, betting that the central bank would start easing policy in the first half of the year. The meeting, and two higher than expected inflation reports since have brought market expectations closer in line with the Fed’s. Peter Tchir, head of macro strategy at Academy Securities, expects the Fed will re-emphasise its hawkishness, maintaining that there is more progress to be made on inflation before officials are prepared to cut interest rates. While the minutes do reflect what was said at the last meeting, it is generally understood that the Fed can highlight certain discussions in order to convey policy messages, according to Tchir. “Minutes are a policy tool in their own right, rather than simply reflecting the meeting,” he said. “I think we’re going to see this ongoing hawkish tilt, pushing back against the market which got ahead of itself in terms of rate cuts. Now we’ve seen CPI and PPI come in hot, the Fed will make sure the minutes push back on those rate cut expectations,” Tchir added. Kate DuguidIs activity still slowing in the eurozone? Data released on Tuesday is expected to show that the eurozone’s economic downturn eased in February, though most analysts say it will take several months for the region to return to growth. Economists polled by Reuters expect S&P Global’s flash eurozone composite purchasing managers’ index, a closely watched measure of business activity across the bloc, to rise to 48.9 in February — below the 50 threshold that separates expansion from contraction but an improvement on last month’s reading of 47.9.Nomura economist George Buckley said: “The euro area PMIs have been materially weak since mid-2023. We think this might continue in February.”The data will be closely scrutinised by the European Central Bank, which investors expect to begin cutting interest rates around June. With inflation on the retreat, monetary policy is now “constraining growth”. Emmanuel Cau, head of the European equity strategy at Barclays, argues that the much stronger performance of the US — where gross domestic product rose 3.3 per cent in the final quarter of 2023 — had overshadowed improving conditions across the Atlantic.“Without getting carried away, we see some green shoots in the [European] economy,” said Cau, adding that the bank’s economists expect a small acceleration in GDP growth into mid-year from the “current quasi-recession level”.The European Commission agrees, though it last week downgraded its forecasts for eurozone growth this year. The Commission now expects GDP to rise 0.8 per cent in 2024, down from 1.2 per cent in its autumn forecast. George SteerIs the UK rebounding after slipping into recession? After the UK economy slipped into a technical recession in the second half of last year, investors will be watching business activity data next week for signs of a recovery.Economists polled by Reuters forecast that S&P’s composite PMI index will show continued expansion in February on Thursday, slipping slightly to 52.7 from 52.9 the previous month. A reading above 50 indicates a majority of businesses reporting improved activity.A weaker PMI reading could fuel fears of a further downturn after a larger than expected 0.3 per cent fall in fourth-quarter GDP reported this week. That could prompt investors to increase their bets on how much the Bank of England will cut interest rates this year, as they did after this week’s lower than expected inflation figures and disappointing GDP release.However, Philip Shaw, an economist at Investec, expects the index to rise to 53.4, fuelled by an acceleration in services activity. He expects the manufacturing sector to remain stuck in a downturn, with the index barely moved from the previous month to 47.5.Shaw explained that growth in the services sector should be helped by “looser financial conditions” as borrowing costs decline on expectations of rate cuts. “January’s cut in Employees’ National Insurance Contributions probably gave the economy a bit of additional momentum as well,” he said. Shaw also expects a further improvement in consumer confidence helped by lower than expected inflation in January and the easing of mortgage rates. Such figures would “hint at good prospects of an increase in GDP over the first quarter, signalling an end to the recession during the second half of last year”, he added. Valentina Romei More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Geologists are signalling the start of a new energy “gold rush” for a previously neglected carbon-free resource — hydrogen generated naturally within Earth.As much as 5tn tonnes of hydrogen exists in underground reservoirs worldwide, according to an unpublished study by the US Geological Survey. Previewing the results at the American Association for the Advancement of Science annual meeting in Denver, project leader Geoffrey Ellis said: “Most hydrogen is likely inaccessible, but a few per cent recovery would still supply all projected demand — 500mn tonnes a year — for hundreds of years.”The demand for hydrogen as a fuel and industrial raw material, particularly to make ammonia for fertiliser production, has been mainly met so far by chemically reforming gas that is made up largely of methane, known as “blue hydrogen” when the carbon emissions are captured or “grey hydrogen” when they are not. A smaller amount is made by splitting water through electrolysis using renewable energy sources, known as “green hydrogen”.But Mengli Zhang of the Colorado School of Mines said tapping natural hydrogen — also known as geologic or gold hydrogen — would be cleaner and cheaper than blue or green hydrogen. “A gold rush for gold hydrogen is coming,” she told the conference.The prospect is beginning to attract interest from investors. US start-up Koloma raised $91mn last year from funds including Bill Gates’s Breakthrough Energy Ventures. “Geologic hydrogen represents an extraordinary opportunity to produce clean hydrogen in a way that is not only low carbon, but also low land footprint, low water footprint and low energy consumption,” said Paul Harraka, Koloma’s chief business officer.US company Natural Hydrogen Energy has drilled an exploratory well in Nebraska. “It will take a couple of years to ramp up to commercial production,” said Viacheslav Zgonnik, chief executive. “We are doing everything we can to get there faster.”Previous scientific opinion held that little pure hydrogen was likely to exist near Earth’s surface because it would be consumed by subterranean microbes or destroyed in geochemical processes. But geologists now believe hydrogen is generated in large quantities when certain iron-rich minerals react with water, Alexis Templeton of the University of Colorado, Boulder, told the AAAS conference.Hydrogen requires different geological conditions from oil and natural gasfields. “We haven’t looked for hydrogen resources in the right places with the right tools,” said Ellis.Geologists are now finding natural hydrogen reserves around the world. This month researchers reported that more than 200 tonnes of hydrogen a year were flowing from the Bulqizë chromite mine in Albania. The village of Bourakébougou in Mali is often seen as the birthplace of natural hydrogen extraction. Since 2012, almost pure hydrogen has flowed from a borehole there with no diminution of pressure, giving villagers their first electricity supply.Ellis said the Bourakébougou gas well may have inspired a hydrogen rush comparable with the birth of the petroleum industry in 1859, when Edwin Drake drove a pipe into the ground at Titusville, Pennsylvania and struck oil.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

They said that due to slower growth at the end of 2023 and a weak outlook for the first half of this year, the government would have to lower its full-year 1.4% GDP growth forecast and announce new cuts in state spending.Online paper La Tribune reported that the 2024 forecast will be cut to around 1% and that Le Maire will announce spending cuts of 20 billion euros over two years. Le Figaro reported that he will lower the forecast to 0.9% and would announce a 10 billion euro savings plan. The finance ministry declined to comment on the reports. It said on Saturday that Le Maire would speak on the 8 pm TF1 news.The European Commission on Feb. 15 cut its 2024 GDP growth forecast for France to 0.9% from the 1.2% seen in November, and it cut its forecast for Germany – the EU’s biggest economy – to 0.3% from 0.8%.Earlier this month, the Paris-based Organisation for Economic Cooperation and Development cut its 2024 French growth forecast to 0.6% from 0.8% previously.France’s official statistics agency INSEE on Feb. 7 forecast that the euro zone’s second-biggest economy was set to expand just 0.2% in the first quarter from the previous three months, when it flatlined, and that it would maintain that rate in the second quarter. More

“Natural asset companies” would put a market price on improving ecosystems, rather than on destroying them.Picture this: You own a few hundred acres near a growing town that your family has been farming for generations. Turning a profit has gotten harder, and none of your children want to take it over. You don’t want to sell the land; you love the open space, the flora and fauna it hosts. But offers from developers who would turn it into subdivisions or strip malls seem increasingly tempting.One day, a land broker mentions an idea. How about granting a long-term lease to a company that values your property for the same reasons you do: long walks through tall grass, the calls of migrating birds, the way it keeps the air and water clean.It sounds like a scam. Or charity. In fact, it’s an approach backed by hardheaded investors who think nature has an intrinsic value that can provide them with a return down the road — and in the meantime, they would be happy to hold shares of the new company on their balance sheets.Such a company doesn’t yet exist. But the idea has gained traction among environmentalists, money managers and philanthropists who believe that nature won’t be adequately protected unless it is assigned a value in the market — whether or not that asset generates dividends through a monetizable use.The concept almost hit the big time when the Securities and Exchange Commission was considering a proposal from the New York Stock Exchange to list these “natural asset companies” for public trading. But after a wave of fierce opposition from right-wing groups and Republican politicians, and even conservationists wary of Wall Street, in mid-January the exchange pulled the plug.That doesn’t mean natural asset companies are going away; their proponents are working on prototypes in the private markets to build out the model. And even if this concept doesn’t take off, it’s part of a larger movement motivated by the belief that if natural riches are to be preserved, they must have a price.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

By Leika KiharaTOKYO (Reuters) – The Bank of Japan is on track to end negative interest rates in coming months despite the economy’s fall into recession, say sources familiar with its thinking, though weak domestic demand means they may seek more clues on wages growth before acting.Japan shocked analysts on Thursday when data showed gross domestic product unexpectedly contracting for two straight quarters, the technical definition of a recession, and losing its place as the world’s third-largest economy to Germany.While the GDP headlines were startling, the focus for BOJ policymakers is on whether the bumper wage hikes set for 2024 will be repeated next year, a condition the central bank believes is necessary for Japan to emerge from decades of tepid household consumption.For that reason, this spring’s annual wage negotiations that set pay levels for 2025 remain a more important economic indicator for the BOJ than the fourth-quarter GDP, which is backward looking.At the same time, the consumer-sector weakness seen in the GDP figures means an end to negative rates is now more likely at the BOJ’s April meeting rather than its March gathering, giving the bank more time to get a read on the health of the economy.”It’s true domestic demand lacks momentum. But GDP is only among many data points the BOJ looks at,” said one source. “What’s important is the economy’s broader trend and the outlook,” another source said, a view echoed by third source.BOJ governor Kazuo Ueda, who took office last year, has been laying the groundwork to shift away from the radical monetary stimulus introduced by his predecessor Haruhiko Kuroda, which has been blamed for heavy financial market distortions.On Friday, Ueda stuck to the script that tweaks to various monetary easing measures, including negative rates, were still options despite the GDP data.DELAY NOT WITHOUT RISKIntensifying labour shortages have prodded many firms to signal significant pay hikes, heightening hopes of broad-based wage gains that would give households purchasing power to weather steady price rises.The BOJ hopes higher wages and weakening cost-push pressure will underpin consumption and the broader economy, thereby keeping inflation sustainably around its 2% target and allowing it to normalise monetary policy. Last week, Deputy Governor Shinichi Uchida explained in depth the BOJ’s plan for dismantling its complex policies, which included a pledge to avoid hiking borrowing costs rapidly upon ending negative rates.The carefully telegraphed signals have led most market players to project an end to negative rates either at the BOJ’s policy meeting on March 18-19 or April 25-26. A Reuters poll conducted after the release of GDP data showed all 10 economists predicting an end to negative rates by April.Delaying an exit from negative rates could accelerate the yen’s recent declines, hurting already soft consumption by pushing up import costs.”Markets are already fully pricing in the chance of action either in March or April,” a fourth source said. “If the BOJ forgoes action, that could be a huge shock to markets.”While sticking to its plan for a near-term exit, the BOJ may prefer to act in April rather than March to gauge more data given uncertainty over the economic outlook.Some analysts expect the economy to contract again in the current quarter due to sluggish consumption and delays in capital expenditure caused by labour shortages.Key data points BOJ policymakers will likely look at ahead of their March meeting include the conclusion of big firms’ wage negotiations with unions on March 13.Revised October-December GDP data, due on March 11, may also be important given the large revisions seen in past releases, especially around capital expenditure, which could sway the view on the economy.Waiting until the April meeting will allow policymakers to scrutinise the BOJ’s quarterly “tankan” survey, due on April 1, for clues on whether companies are maintaining their upbeat capital expenditure plans.”If the tankan underscores the resilience of capital expenditure, that could offset the weak GDP outcome,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley Securities, who predicts an end to negative rates in April.The BOJ’s quarterly regional branch managers meeting, to be held in mid-April, will also give board members a fresh glimpse of whether wage hikes are broadening nationwide.Mindful of the need to appease politicians worried about the risk of a deeper recession, the BOJ will likely keep signalling an end to negative rates won’t be followed by the kind of aggressive rate hikes seen in the United States, analysts say.”The BOJ will probably keep explaining that ending negative rate isn’t tantamount to monetary tightening,” said Koichi Fujishiro, chief economist at Dai-ichi Life Research Institute. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.South Africa must continue to fight inflation even as central banks in other emerging markets move to cut interest rates, the country’s central bank governor has said.South African Reserve Bank chief Lesetja Kganyago told the Financial Times in an interview that “the job of taming inflation is not yet done” in Africa’s most industrial economy, despite central bank peers elsewhere signalling that they believe the worst of price rises are over.Chile and Brazil are among the emerging-market central banks that have increased the pace of rate cuts, after generally being ahead of advanced economies in tightening monetary policy in recent years as global inflation began to surge.But policymakers in other developing economies, including the Philippines and India, have so far held back amid worries about potential upward pressures on inflation, such as the trade disruption in the Red Sea following a spate of attacks by Yemen’s Houthi rebels on commercial shipping. The caution reflects similar uncertainty in the US Federal Reserve and other developed-world central banks.Policymakers in South Africa, which has held rates in recent meetings after a series of increases from late 2021 onwards, needed to see more data showing inflation was moving closer to the middle of an official 3 per cent to 6 per cent target before changing tack, Kganyago said.Inflation in the country — currently at 5.1 per cent — had previously seemed to be falling, only to rise again, he said, adding: “The arrival of one swallow does not make a summer.”It was “not surprising” that Brazil was the first emerging market to start cutting because the Latin American nation’s rates remained relatively high in real terms, giving the country’s central bank “policy space”, Kganyago said.Even after several reductions, Brazil’s benchmark rate is 11.25 per cent, with inflation at 4.5 per cent in January. In South Africa, by contrast, “our real repo rate is just about 300 basis points” given the current inflation rate, Kganyago added.The central bank has forecast that the economy will grow barely 1 per cent this year and it is under pressure to loosen policy.South Africa has been hit hard by years of rolling power blackouts and port and rail blockages imposed by the troubled Eskom and Transnet power and freight state monopolies.“The growth challenges that South Africa is facing are nothing to do with the demand side” but instead reflected supply-side and structural problems, Kganyago said. As the economy struggles, polls suggest President Cyril Ramaphosa’s African National Congress will battle to retain its three-decade electoral majority in upcoming polls. The vote is due as soon as April or May, although no firm date has been set.The central bank chief also said discussions were continuing with South Africa’s treasury on whether and how to tap a government gold and foreign exchange account held at the bank that has swelled to about R500bn (over $25bn) because of the rand’s drop against leading currencies in recent years.But he cautioned that any such transfer would need to preserve the central bank’s operational independence. Some investors have called on South Africa to use part of the account’s profits to pay down government debt. Because these profits are mostly unrealised on assets that are hard to sell, they have suggested funding the transfers through printing equivalent sums of money. These would then have to be mopped up to prevent the liquidity stoking inflation.If the reserve bank bore the cost of mopping up by paying interest to banks to hold on to money, it would soon run out of its available capital of more than R20bn, Kganyago said.“Our law does not allow us to run negative equity, which means we would need to be capitalised,” he said. That could involve the treasury setting conditions on the bank, which prized its independence, he added.David Omojomolo, Africa economist at Capital Economics, said: “Other central banks have been able to operate with negative equity positions, but it’s not clear investors would look kindly on this in South Africa given the fiscal constraints.” Video: Eskom: how corruption and crime turned the lights off in South Africa | FT Film More

Beijing is striking a delicate balancing act to support the economy at a time when signs of persistent deflationary pressure call for more stimulus measures. But any aggressive monetary movement risks reviving depreciation pressure on the Chinese currency and capital outflows.With investors now pushing back the start of the Fed monetary easing to at least the middle of the year from March, following the latest U.S. data, traders and analysts expect China could hold back rolling out imminent stimulus.The People’s Bank of China (PBOC) said it was keeping the rate on 500 billion yuan ($69.51 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.50% from the previous operation.Sunday’s operation was meant to “maintain banking system liquidity reasonably ample,” the central bank said in an online statement.In a Reuters poll of 31 market watchers, 22, or 71%, of all respondents expected the central bank to keep the borrowing cost of the one-year MLF loans unchanged on Feb. 18. With 499 billion yuan worth of MLF loans set to expire this month, the operation resulted a net 1 billion yuan fresh fund injection into the banking system.Chang Wei Liang, FX & credit strategist at DBS, said the steady MLF rate comes as “policymakers’ preference to anchor the yuan and limit negative rate differentials with the U.S. dollar.”Still, some investors and market watchers have ramped up their bets of more monetary easing measures in coming months to support the world’s second largest economy after the central bank delivered a deep cut to bank reserves earlier this month.The PBOC said in its latest monetary policy implementation report that it would keep policy flexible to boost domestic demand, while maintaining price stability.”We continue to expect two rounds of rate cuts in Q1 and Q2, with 15 basis points each to both the open market operations (OMO) and MLF rates,” Ting Lu, chief China economist at Nomura, said in a note ahead of the loan operation.He added that the latest round of easing measures, including an earlier-than-expected reserve requirement ratio (RRR) cut, “failed to stabilise market sentiment”.The central bank-backed Financial News, reported on Sunday citing market watchers that the benchmark loan prime rate (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 developments of the real estate market,” the newspaper said on its official WeChat account soon after the MLF rate decision.Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. The monthly fixing of the LPRs is due on Feb. 20.($1 = 7.1929 Chinese yuan) More

Chinese companies across the electric vehicle supply chain said lower costs and technological leadership would help them secure western deals despite geopolitical tensions and security concerns.Companies producing everything from EV chassis and autonomous driving software to the cobalt and nickel used in batteries are hoping to find overseas partners, despite US and European angst over the rise of China as a technological superpower. Paul Li, founder of Chinese electric vehicle parts supplier U-Power, claims working with the country’s EV sector, which is by far the world’s biggest, can mean foreign companies developing cars years faster than they have traditionally and reducing costs by as much as half. As evidence that foreign carmakers are realising the advantages, he points to Volkswagen’s $700mn tie-up with Chinese rival Xpeng last year. That deal was soon followed by a €1.5bn investment in Chinese EV start-up Leapmotor by Stellantis, which makes Jeep cars in the US and owns the Fiat and Citroën brands in Europe.“Those global corporates already proved that even the biggest automotive [manufacturers] today have to purchase China’s solutions in order to save time as well as get a lot more competitive products,” Li said. Li’s company, which has offices in Hefei, near Shanghai, as well as in Silicon Valley, designs and sells EV chassis — known as skateboards. U-Power last month signed a deal to supply New York-based EV start-up Olympian Motors with its skateboards. The company is also working with Singapore-based FEST Auto to sell EVs to the European logistics market. In another example, Shenzhen-based Appotronics, which provides laser projectors for nearly half of China’s cinemas, will supply BMW with laser technology for some of the German group’s latest in-car displays. And Shenzhen-based DeepRoute.ai, which already has a US office, is now setting up one in Europe to sell its mapping technology for driverless cars.The trend highlights Chinese confidence that trade tensions and decoupling moves will be trumped by Europe and the US needing help to build up their local EV industries, after being slower than their Chinese counterparts to adapt to the transformation to smarter, cleaner vehicles.“Even the US is aware there needs to be some level of potential for Chinese involvement — it can be very controlled, but there needs to be some level,” said Cory Combs, associate director at the Beijing-based Trivium China consultancy. Chinese companies are also developing new approaches to gain a foothold in foreign markets, rather than just exporting products from China. That includes setting up factories and research centres in Europe and North America, as well as forming joint ventures with European and US companies.BYD, the world’s biggest electric-vehicle manufacturer and key Tesla rival, has announced plans to build a factory in Hungary and is looking at production sites in Mexico, as it eyes sales in Europe and the US. The potential investments come in the face of an EU trade investigation into the Chinese EV industry and the Biden administration’s Inflation Reduction Act (IRA), which does not allow Chinese companies to benefit from generous subsidies on American soil. Some Chinese producers of EV battery materials are taking an even more circuitous route to western markets by setting up joint ventures with South Korean industrial groups. They include Zhejiang Huayou Cobalt, China’s biggest producer of the key battery material, and Shanghai-listed Ronbay Technology, which dominates the global market for high-nickel cathode electrodes, as well as smaller battery material groups CNGR Advanced Material and GME Resources. Experts say that the Biden administration has not yet made clear whether such arrangements will be allowed under the IRA’s foreign entities of concern rules. “The best we can tell is if you’re a non-state actor or non-state owned . . . you can create a subsidiary that is not domiciled in China and actually get around [the IRA],” said Combs of Trivium.Marina Zhang, an expert in Chinese industry and innovation at the University of Technology Sydney, said western reticence about “locking into” China-dependent supply chains had intensified in recent years.“Any investment from China, especially state-owned or state-backed companies, or even companies perceived to be associated with a state, are raising alerts immediately. Before we were talking about the military, telecommunications, now we’re talking about critical minerals, energy,” she said.However, Matt Sheehan, an expert on US-China technology co-operation and competition for the Carnegie Endowment for International Peace, a Washington think-tank, argues that the US needs to recognise where it can learn from China in low-carbon technologies as it builds its own cleantech industry. That should include forging deeper ties between the state of California, which has existing climate-focused co-operation with China, and Chinese counterparts, as well as research collaboration and cross-border venture capital flows, he wrote last year, while noting: “Doing this will take courage and creativity.”Li, of U-Power, is among Chinese EV executives who want their companies to be seen as “global”. To that end, his company’s US unit is a separate legal entity, with an independent share structure, rather than having the status of being a subsidiary of the Chinese business. “I don’t know how the regulators will see this, but I label [the company] as a global operation,” he said.Additional reporting by William Langley in Hong Kong More