Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK entered a technical recession at the end of 2023, official figures showed on Thursday, dealing a serious blow to Rishi Sunak’s pledge to “grow the economy”.Labour claimed the prime minister’s promises on the economy were “in tatters” after gross domestic product contracted more than expected in the last three months of last year.GDP fell 0.3 per cent in the final three months of 2023 compared with the previous three months, following a 0.1 per cent decline in the third quarter, according to data published by the Office for National Statistics.Two consecutive quarters of contracting GDP is commonly defined as a technical recession, though many economists believe stagnation is a better description absent a sharper or more sustained downturn.Traders increased bets on the Bank of England cutting interest rates from 5.25 per cent. Swaps markets are pricing in three quarter-point rate cuts this year, with a 75 per cent probability of the first cut being delivered by June, up from around 65 per cent before the GDP data was released. Interest rate-sensitive 2-year gilt yields fell 0.06 percentage points to 4.5 per cent and the FTSE 100 index of blue-chip stocks rose 0.2 per cent in anticipation of interest rate cuts. Sterling edged down 0.2 per cent to $1.254.Rachel Reeves, shadow chancellor, said Sunak’s promise at the start of 2023 to “grow the economy” was “now in tatters”.She said: “The prime minister can no longer credibly claim that his plan is working or that he has turned the corner on more than 14 years of economic decline under the Conservatives that has left Britain worse off.”But chancellor Jeremy Hunt said there were signs the British economy was “turning a corner”.“Forecasters agree that growth will strengthen over the next few years, wages are rising faster than prices, mortgage rates are down and unemployment remains low,” he 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.Economists polled by Reuters had forecast the economy would contract by 0.1 per cent in the final quarter as high borrowing costs, inflation and strikes hit activity.In 2023, the economy largely stagnated as it grew only 0.1 per cent. This was well below the 2.5 per cent expansion registered in the US, and weaker than the 0.5 per cent growth of the eurozone.The figures look worse taking into account the increase in the UK’s population. Output per head contracted by 0.7 per cent in 2023, falling in every quarter of last year at an accelerating pace and has not grown since the first quarter of 2022. James Smith, Resolution Foundation research director, said: “Britain has fallen into recession, and a far deeper living standards downturn.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The figures create a challenging backdrop for Hunt as he prepares for a March Budget. He is considering slashing billions of pounds from public spending plans to fund pre-election tax cuts in an effort to boost the Conservative party’s re-election chances.The data comes as the Tory party risks losing two seats in by-elections on Thursday in Wellingborough, Northamptonshire, and Kingswood, near Bristol.The ONS said all the main sectors fell in the quarter, with manufacturing, construction and wholesale being the biggest drags on growth, partially offset by increases in hotels and rentals of vehicles and machinery.There was a fall in the volume of net trade, household spending and government consumption in the final quarter, only partially offset by an increase in investment.The ONS said that in December output was down 0.1 per cent from the previous month, softer than the 0.2 per cent contraction forecast by analysts. Earlier in the week, Andrew Bailey, BoE governor, warned against putting “too much weight” on the economy slipping into a technical recession as it was expected to be “very shallow”. Sanjay Raja, chief UK economist at Deutsche Bank, said the contraction in the fourth quarter represented a “meaningful miss on GDP” for the BoE’s Monetary Policy Committee.“There’s clearly more spare capacity in the economy than assumed in their recent projections,” he said, adding that the data would “no doubt become uncomfortable especially with the bank rate at highly restrictive levels”.In February, the BoE upgraded its forecast for 2024 growth, which it now says will be 0.25 per cent — up from its previous prediction of zero growth. It forecasts 0.75 per cent growth for 2025. The GDP figures follow UK inflation data published on Wednesday that showed price growth at 4 per cent in January, the same rate as December and lower than forecast by the BoE. However, on Tuesday, official data also revealed that pay growth was still strong, raising concerns about the persistence of underlying price pressures.Additional reporting by Mary McDougall More

1. Futures edge upU.S. stock futures gained on Thursday, after equities rebounded in the prior session from a dip earlier in the week.By 04:00 ET (09:00 GMT), the S&P 500 futures contract had gained 11 points or 0.2%, Nasdaq 100 futures had added 35 points or 0.2%, and Dow futures had risen by 82 points or 0.2%.The main indices on Wall Street gained on Wednesday, partially recovering from a drop on Tuesday sparked by hotter-than-expected U.S. inflation figures that led markets to push back their bets for the timing of potential Federal Reserve interest rate cuts. The benchmark S&P 500 rose by 1.0%, the tech-heavy Nasdaq Composite advanced by 1.3%, and the blue-chip Dow Jones Industrial Average climbed by 0.4%.Artificial intelligence chipmaker Nvidia (NASDAQ:NVDA) jumped ahead of its much-anticipated quarterly results next week, surpassing Google-owner Alphabet (NASDAQ:GOOGL) as the U.S. stock market’s third-most valuable company. Ride-hailing group Lyft (NASDAQ:LYFT) also surged by more than 30% thanks to a bullish annual free cash flow outlook and better-than-projected profit, while rival Uber (NYSE:UBER) soared on a new $7 billion share buyback plan.2. Cisco Systems slashes guidance, unveils plans to cut workforceCisco Systems reduced its full-year guidance and detailed plans to cut its global workforce as part of a broader restructuring push, sending shares lower in premarket U.S. trading on Thursday.   The network equipment maker said it expects to post full-year adjusted earnings per share (EPS) of $3.68 to $3.74 on revenue between $51.5 billion to $52.5 billion, compared with a prior estimate for adjusted EPS of $3.87 to $3.93 and revenue of $53.8 billion to $55.0 billion. In a call with analysts, Chief Executive Charles Robbins flagged that the business expects to see “weak demand with our telco and cable service provider customers.”Cisco added that it would slash headcount by about 5%. It said the move will result in an $800 million charge from severance and other one-time termination benefits and other costs. The bulk of these expenses are expected recognized in the first half of its 2025 fiscal year. Highlighting the earnings calendar on Thursday will be results from agricultural equipment firm Deere & Company (NYSE:DE), sports betting service DraftKings (NASDAQ:DKNG) and cryptocurrency exchange Coinbase (NASDAQ:COIN).3. Buffett’s Berkshire Hathaway trims Apple stakeWarren Buffett’s Berkshire Hathaway lowered its position in tech giant Apple in the fourth quarter.According to a securities filing on Wednesday, Berkshire offloaded 10 million shares in the iPhone maker, or about 1.1% of its stake in the firm.Apple still remains crucial for Berkshire, the massive investment conglomerate that has an interest in swathe of major corporations across multiple industries. Following the sale, Berkshire, which first invested in Apple in 2016, had holdings in the group worth $174B at the end of last year — well ahead of its second-biggest investment in lender Bank of America.Speaking at Nebraska-based Berkshire’s annual meeting in 2023, Buffett lauded Apple — whose stock price has skyrocketed by more than 330% over the past five years — as “a better business than any we own.”But Apple has recently lagged behind its peers in Big Tech as worries mount around its operations in China and regulatory scrutiny of its App Store. Microsoft (NASDAQ:MSFT) overtook Apple as the world’s most valuable company earlier this year.4. TSMC shares jump after Morgan Stanley lifts Nvidia price targetShares in Taiwan Semiconductor Manufacturing Company (TW:2330) touched a fresh record high on Thursday after analysts at Morgan Stanley raised their price target of client Nvidia.TSMC, the world’s largest contract chipmaker, is a key supplier for tech titans like Nvidia and Apple. The spike in shares in TSMC, which restarted trading following the Lunar New Year holiday, spurring on a broader rally in tech stocks in Asia.Underpinning the increase was a note from analysts at Morgan Stanley in which they bumped up their price target for Nvidia to $750 from $603, citing booming demand for nascent AI technology. Nvidia manufactures the powerful graphics processing units needed to power large language models like the popular ChatGPT chatbot, making the California-based group one of the focal points of soaring enthusiasm around AI.5. Oil subduedOil prices hovered around the flatline in early European trade on Thursday, as traders digested a substantially bigger-than-expected build in U.S. inventories and Japanese quarterly growth figures. Brent oil futures expiring in April were mostly unchanged at $81.59 a barrel, while West Texas Intermediate crude futures were down 0.1% at $76.29 per barrel by 04:30 ET.Crude prices had lost over $1 each on Wednesday after data showed U.S. oil inventories grew a staggering 12 million barrels in the week to February 9, much higher than expectations for a build of 3.3 million barrels. The reading was driven chiefly by record-high U.S. production, indicating that the world’s largest fuel consumer remained well-supplied with oil.Meanwhile, gross domestic product (GDP) data from Japan showed the country unexpectedly entered a technical recession in the fourth quarter due in part to persistent weakness in private consumption. More

SHANGHAI (Reuters) – Faced with diminishing job prospects as the economy slows, Chu Yi is choosing to “lie flat”, a Chinese term used to describe people who work just enough to afford to spend their time on what they enjoy.The Shanghai-based 23-year-old used to work at a fashion company, but said she quit her job two years ago because she had to frequently work overtime and she hated her boss. Chu now works from home just one day a week for a travel company, which gives her ample time to practice tattooing as part of a six-month apprenticeship towards becoming a full-time tattoo artist. And she is not alone in “lying flat”: although there is no data on how many young Chinese are opting out of corporate jobs that they traditionally would have taken, the youth jobless rate rose to a record high of 21.3% in June 2023 amid an economy still struggling to return to pre-pandemic growth levels, and several Chinese college graduates have said that they are trading down to find a source of income.”For me, there is not much meaning to work,” Chu said. “Most of it seems to be finishing work for your manager and making your manager happy. So I decided I don’t want to work.”There are around 280 million young Chinese who like Chu are born between 1995-2010, and surveys show that this Generation Z is the most pessimistic of all age groups in the country.Pacifying this generation amid some of the slowest economic growth in nearly half a century presents a key policymaking challenge for Chinese President Xi Jinping, and last month the human resources ministry said more efforts were needed to prop up employment in 2024, especially for the youth.Zhou Yun, an assistant professor of sociology at the University of Michigan, said that while it may seem that some youth were opting out of the corporate rat race, it was impossible to overlook their pessimism about the future.As China’s economy slows and the labour market remains tight, it is “profoundly challenging for young people to navigate rigid social inequalities, tightening political control and dim economic prospects,” Zhou said.All this combined is making young people like Chu prioritise their own well-being and interests over what she called the “unending pressure” of corporate work. Chu said that she was much happier now and believed her choice was “worthwhile”.”My current salary, even though it’s not a lot, is enough to cover my daily costs. Free time is worth much more than several thousand yuan,” she said.(This story has been refiled to change the dateline to Shanghai from Hong Kong) More

JOHANNESBURG (Reuters) – South Africa’s budget deficit will narrow at a slower pace in coming years than October estimates predicted, put off course by poor mining tax receipts, according to a Reuters poll which also showed the central bank would delay interest rate cuts.The consolidated budget deficit will narrow to 5.0% of gross domestic product (GDP) in the fiscal year that begins in March, a poll of economists taken in the past week showed. That is 0.4 percentage point less than previously thought in National Treasury estimates.Further delays are expected in following fiscal years, with deficits narrowing to 4.6% and 4.2% of GDP for the subsequent two years from government estimates of 4.2% and 3.6% in October.”We are coming off a high base in terms of mining receipts, you will recall 2022 was a very good year with a windfall in mining taxes and very favourable commodity prices, unfortunately last year we had a slump in coal prices and also export volumes,” said Isaac Matshego, a senior economist at Nedbank. This year’s deficit is now expected to have widened to 5.3% of GDP compared with Treasury estimates of 4.9%.The survey further suggested the actual gross debt-to-GDP ratio accumulated by South Africa will be 76.6% of GDP in the new fiscal year before averaging around 78% in the next three fiscal years.South Africa’s economy is expected to grow 1.1% this year, 0.1 percentage point slower than predicted last month, a recurring theme of increasingly disappointing growth figures and hampering the country’s ability to raise taxes.The South African Reserve Bank is now expected to wait until the third quarter of this year before it cuts 50 basis points to 7.75% between July and/or September. In a January poll it was expected to cut by 25 basis points in May.David Omojomolo, Africa economist at Capital Economics, wrote he still expects South Africa’s economy to start performing a little better over the course of 2024. “The issues at ports have eased and load-shedding (power shortages) at the start of this year, has overall been less intense compared to last. At the same time, fiscal policy will become more supportive as the election closes in and we also expect the SARB to eventually start lowering interest rates,” added Omojomolo. More

The world’s biggest solar panel manufacturer has warned that Europe and the US risk slower decarbonisation of their economies if they restrict Chinese companies from their renewable energy supply chains.China dominates solar manufacturing, accounting for more than 80 per cent of global production following decades of deep state support, rapid domestic demand growth and intense local competition. But western political and industry leaders have called for greater diversity in supply amid a glut of Chinese imports, as well as expressing security fears about China-made components being used in critical infrastructure.Dennis She, vice-president of Longi Green Energy Technology, which has around 20 per cent of the global market for photovoltaic modules, told the Financial Times that western countries would “at least slow down” their transitions away from fossil fuels if they were to cut back on Chinese solar supplies. He also warned that the cost of solar panels produced without Chinese involvement in countries like the US would be “double”. Europe produces fewer than 3 per cent of the solar panels needed to reach its target of having 42.5 per cent of energy generated by renewable sources by 2030. She said importing higher volumes from China would mean more “downstream” jobs beyond panel manufacturing, including in construction of new solar developments, as well as engineering, design and installation. “You don’t need to kill most of the jobs from the downstream to protect 1 per cent [of the European jobs in solar manufacturing] — it doesn’t make sense,” he said. The warnings come against a backdrop of rising western concern that Beijing’s subsidies for its clean tech industries — which also include wind, batteries and electric vehicles — have boosted Chinese manufacturing capacity far beyond the levels needed to meet domestic demand, leading to unfair trade practices as Chinese factories now flood international markets with exports.Last month, a bipartisan group of US senators called on President Joe Biden to increase tariffs on Chinese-made solar imports. The heavily subsidised products were hurting American efforts to “reshore” domestic manufacturing, they said, adding that China’s overcapacity posed “an existential threat” to US energy security. In response to western protectionism, China’s solar industry, which has weathered several rounds of tariffs from Europe and the US over the past 15 years, is increasingly expanding its manufacturing footprint closer to offshore customers, including in the US.Yet some attempts to shift production to south-east Asia have been viewed in the US as a means to sidestep restrictions. Companies, including one Longi subsidiary, have been found guilty in the US of using foreign manufacturing to circumvent tariffs on Chinese-made components.Longi makes most of its products in China, but also has factories in Vietnam and Malaysia’s southern state of Sarawak, and is planning a new factory in India. To mitigate worsening geopolitical risk, She said, Longi is increasingly “trying to work with countries”, including through local joint venture partners, to set up more solar production capacity. That includes the US, where the Shanghai-listed group has set up a joint venture with Invenergy in Ohio. Longi is also in talks to enter Saudi Arabia through a local partner.However, to serve developing economies in regions including south-east Asia, Latin America and Africa, Longi is ramping up exports from China, She said, noting that about 1bn people in the world live without access to electricity.“For the rest of the market, solar is a very good ‘gift from the gods’ . . . you have the solar [panels] from China, sunshine is your own sunshine,” he said.Wood Mackenzie, an energy consultancy, has forecast that after investments worth more than $130bn last year alone, China is set to continue to lead solar technology and dominate more than three-quarters of the world’s solar polysilicon, wafer, cell and module manufacturing capacity for the next three years at least.Last year, solar production costs in China fell by more than 40 per cent to around 15 cents per watt, compared to 30 cents in Europe and 40 cents in the US, according to Wood Mackenzie. The fall was driven in part by lower material costs and oversupply. Longi’s current factory utilisation rate has fallen to between 70 and 80 per cent amid the glut, but it expects industry consolidation and demand growth in the next few years will help it gain market share and improve profitability. “Everyone’s bleeding at this moment,” She said, adding that only players with sufficient scale like Longi were likely to survive. “Small players, or new players from other industries, will disappear from the market . . . I can’t tell you the exact number, but tier-two, tier-three companies, most companies, actually, are at risk.”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

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Japan’s economy has contracted for a second straight quarter, recording “broad-based” falls in domestic demand and public spending and adding to pressure on the Bank of Japan as it considers raising interest rates for the first time since 2007.Weak private consumption helped push Japan’s gross domestic product to shrink by 0.4 per cent on an annualised basis in the fourth quarter, and by 0.1 per cent on a quarterly basis, according to preliminary data released by Japan’s Cabinet Office on Thursday.The fall was at odds with economists’ estimates of a slight rise of between 0.2 and 0.3 per cent, and pushed some investors to revise bets on when the BoJ will begin to unwind its ultra-loose monetary policy, including the world’s last remaining negative interest rates. Economist had been expecting the BoJ to raise rates at its April monetary policy meeting, if not in March.“The latest GDP data, although it might be revised, complicates the monetary policy outlook. Two consecutive declines in GDP add to a string of disappointing data releases,” said Stefan Angrick, chief economist at Moody’s Analytics in Tokyo. “This makes it harder to justify a rate hike, not to mention a series of hikes.”Angrick noted that a small increase in exports had helped offset a larger contraction, but said “the decline in GDP was broad-based”, with falls in private consumption, capital spending and government consumption.The disappointing fourth quarter data also came as Japan’s third-quarter GDP was revised down to a 3.3 per cent contraction on an annualised basis. “To add insult to injury, GDP for the third stanza was revised to a 0.8 per cent drop from a 0.7 per cent drop” on a quarterly basis, added Angrick. “With two consecutive declines in GDP, Japan is in a technical recession.”You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The yen was little changed after the data release on Thursday at ¥150.2 to the US dollar, while the Nikkei 225 index rose close to 1 per cent, staying just above 38,000 points and within touching distance of its December 1989 bubble-era high of 38,915.The BoJ kept overnight interest rates at minus 0.1 per cent at its most recent policy meeting in January. But officials at the Japanese central bank have been growing increasingly confident that the economy is robust enough to attempt an exit from its negative interest rates policy, thanks to momentum for wage growth and greater assurance of hitting its inflation target of 2 per cent.However, economists said that the fourth-quarter GDP data would complicate that picture, particularly as indices for services and consumption activity remained subdued ahead of the “shunto” spring wage negotiations by the country’s largest companies. Private consumption fell 0.2 per cent in the fourth quarter, following a 0.3 decline in the previous quarter.“The Bank of Japan will likely now become even more cautious about any policy change,” said Min Joo Kang, senior economist for South Korea and Japan at ING, predicting that an interest rate increase could be pushed back to June, or even the third quarter of 2024.According to Rabobank analysts, futures trading on Thursday suggested the probability of an April rate increase falling to 63 per cent, from more than 70 per cent the day before.Japan’s Cabinet Office data releases are closely watched by economists and investors but are volatile and prone to revision. A technical recession is defined as two consecutive quarters of contracting GDP. More

The programme includes 15 trillion won worth of cheap policy loans from a state-run bank for key industries, such as semiconductor and battery, while commercial banks will also provide 20 trillion won to support small and medium-sized businesses, the Financial Services Commission said in a statement on Thursday. “Our banks need to start making efforts to expand support for companies, beyond consumer financing focused on mortgage loans,” said Chairman Kim Joo-hyun.Evolving trade relations with China, technological advancement in major industries and fragmentation of global supply chains pose new challenges to companies, raising the need for regulatory reform and financial support, Kim said. For companies facing liquidity trouble this year due to high interest rates, banks will offer a temporary cut in interest rates, the commission said.($1 = 1,332.3700 won) More

SINGAPORE (Reuters) -Singapore’s economy grew 2.2% on a year-on-year basis in the fourth quarter of 2023, government data showed on Thursday, lower than an advance estimate of 2.8% released last month. The fourth-quarter expansion was also below the 2.5% in a Reuters poll.On a quarter-on-quarter basis, seasonally-adjusted basis, gross domestic product (GDP) expanded 1.2% in the October-December period, compared with 1.7% in advanced estimates.The trade ministry maintained its GDP growth forecast for 2024 at 1.0% to 3.0%.For the whole of 2023, GDP grew 1.1%, slower than the 3.8% in 2022.”GDP growth in 2023 was mainly driven by the other services, information and communications and transportation and storage sectors,” said Beh Swan Gin, permanent secretary of development at the trade ministry.The central bank left monetary policy settings unchanged in its first review of the year as inflation pressures continued to moderate and growth prospects improved.The Monetary Authority of Singapore (MAS) has increased the frequency of its reviews from twice a year to quarterly starting in 2024.Edward Robinson, chief economist of MAS, on Thursday said monetary policy remained appropriate despite “continuing uncertainties on the growth and inflation front” which he said the central bank would monitor closely.Core inflation in December was 3.3% year-on-year, slowing from its peak of 5.5% early last year. More