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“I also see that we have an overall corporate taxation that is no longer competitive and conducive to investment,” Habeck told weekly Welt am Sonntag.”This is precisely why we should consider how we can, for example, finance tax relief, tax incentives for investments in the future,” he said, adding that would be a way to unleash economic forces.Habeck said that the government was constrained by what he called “extremely tight financial leeway”, pointing to savings pressure with regard to Germany’s 2025 budget.His comments come after Finance Minister Christian Lindner called for a package of measures to strengthen the economy, including increased flexibility on the labour market, less red tape as well as tax incentives as part of a corporate tax reform.”I agree with Christian Lindner. We need to do more for growth and economic dynamics,” Habeck said, adding he was working together with Lindner on a reform package. More

The road-map to fuel efficiency standards, a policy that advocates say will spur manufacturers to send more EVs to Australia and further boost adoption, was announced last year by the centre-left government, which won power in 2022 on a promise of climate policy reforms.Apart from Russia, Australia is the only developed country to either not have or be developing fuel efficiency standards, the Labor government says.In releasing its “preferred model” on Sunday, the government said it favoured an option that would “bring Australia in line with U.S. standards by 2028 and provide the optimal cost benefit outcomes for Australian car buyers”. The new standard, which the government wants to have in effect from Jan. 1 2025, would save motorists A$100 billion ($65 billion) in fuel costs through to 2050, Energy Minister Chris Bowen said in a statement.”This is about ensuring Australian families and businesses can choose the latest and most efficient cars and utes, whether they’re petrol and diesel engines, or hybrid, or electric,” Bowen said.Electric vehicle (EV) sales in Australia hit an all-time high in 2023, according to the country’s automotive association, however light vehicle sales remain dominated by emissions-intensive trucks and sports utility vehicles (SUVs).Transport is one of Australia’s largest sources of emissions and a higher uptake of electric vehicles would bolster the government’s pledge to cut emissions by 43% by 2030. ($1 = 1.5356 Australian dollars) More

As Jay Powell faced reporters on Wednesday following the US Federal Reserve’s first policy meeting of 2024, his mood was confident. Hailing “six months of good inflation” and predicting more to come, the Fed chair said: “Let’s be honest: this is a good economy.”Maybe a little too good. On Friday, markets were stunned by a Bureau of Labor Statistics release that showed the US economy added 353,000 jobs in January — almost double what was expected. A March cut to interest rates — already described as unlikely by Powell — was instantly ruled out on Wall Street as a result of the blowout employment data. Central bankers around the world had begun preparing for rate cuts on the back of steadily weakening inflation. But as the US jobs numbers demonstrate, hot labour markets are the biggest potential barrier to them hitting their 2 per cent inflation goals. Eswar Prasad, an economist at Cornell University, says Friday’s data made declaring victory against inflation “a much more fraught” decision for central banks. “The reality is that, with these pressures, it’s going to be very difficult to keep inflation contained unless productivity growth remains strong.” This is not to deny how dramatic the improvements in the inflation picture have been. A year ago, the Fed and its counterparts were in the midst of a brutal series of interest-rate increases that some feared would drive economies into recession. Powell warned in February 2023 that officials still had a “long way to go” as they attempted to quell the “significant hardship” imposed by the highest inflation in 40 years. Since then, inflation has tumbled towards the Fed’s 2 per cent target across an array of different gauges. In Frankfurt, Christine Lagarde, president of the European Central Bank, on January 25 sounded similarly positive about the eurozone picture as she declared the “disinflation process” to be at work; headline price growth in the bloc is now 2.8 per cent, not far from the ECB’s 2 per cent target. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Andrew Bailey, governor of the Bank of England, told reporters in London last Thursday that he was seeing “good news on inflation” after price growth in the UK more than halved in the space of six months, to 4 per cent. The speed of the retreat in inflation over recent months has wrongfooted many rate-setters. Consumer price growth across advanced economies has dropped from more than 7 per cent in 2022 to 4.6 per cent in 2023, according to the IMF. Forecasts from the fund last week pointed to a further decline to just 2.6 per cent this year — sharply below its previous 3 per cent prediction — with four-fifths of the economies it tracks set to experience lower annual headline and core inflation in 2024.  Mahmood Pradhan, head of global macroeconomics at the Amundi Investment Institute, argues the trend in inflation is now “decisively down and it is just a question of time before we see substantial rate cuts this year”.He added: “Central bankers out of caution want to wait a bit longer, but I can see the Fed, ECB and Bank of England all cutting in the middle of this year.”Continued progress in this disinflation story will hinge heavily on the fate of labour markets. While the initial declines in inflation were driven by external factors, progress now depends on the more difficult task of depressing domestically generated price growth. That will be harder if jobs and wage growth stay too robust. Economists say squeezing out the last vestiges of excess price growth might require policymakers to maintain persistently tough policy that further depresses demand.It all speaks to a concern that has been haunting central bankers for months: will the “last mile” of the effort to drive price growth down to their 2 per cent targets prove to be the most difficult? If it does, central banks will have to be particularly patient before cutting rates. Among the major central banks, officials at the Fed have consistently appeared the least concerned about the difficulties of getting through that final stage of the inflation-fighting journey. Powell himself sounded sceptical about the notion in December. “Inflation keeps coming down,” he said. “It’s so far, so good — although we kind of assume that it will get harder from here. But so far, it hasn’t.”The Fed’s confidence owes something to both the nature of US inflation and the pace of its descent. While the US was hard hit by Covid-related disruption to supply chains, it did not see the sort of surge in energy prices that drove up prices across Europe following Russia’s invasion of Ukraine. As a result, US inflation never reached double digits, peaking at 9.1 per cent in 2022. The nature of its inflation shock also made its reversal more swift. On some measures — including a six-month gauge of core personal consumption expenditures, a measure that Fed officials say offers the best signal of underlying price pressures — inflation is now under 2 per cent. But worries about an overheating jobs market re-emerged with a vengeance on Friday. In addition to the blowout January numbers, figures for December and November were revised upwards and average hourly earnings increased by 4.5 per cent, according to the labour bureau. Diane Swonk, US chief economist at KPMG, says unusually low levels of lay-offs and a drop in hours worked suggested that some of the job market’s strength was due to employers “hoarding” labour. Those who struggled to hire workers after Covid lockdowns ended did not want to find themselves in the same position when demand picked up, she explains.“However, that is still a lot more paychecks to start the year than usual,” she adds. “When taken with the upward revisions to the previous two months and the hotter than expected wage growth, that suggests the labour market may be re-accelerating.” 3.3%Growth rate of the US economy in the fourth quarterCurt Covington, a senior director at AgAmerica Lending, a credit provider to farmers, says wage pressures remain high in states such as California, where the statewide minimum wage has risen by another 50 cents to $16 an hour this year — up from $12 an hour when the pandemic struck. “The [production of] certain commodities is very labour driven, speciality crops in particular,” says Covington. “You don’t see much of the increase in labour costs on Midwest crops like corn and beans, but when you get into speciality crops such as some fruits and vegetables, the labour cost has gone up significantly.”Some economists worry that the deflation in goods prices caused by the easing of supply chain pressures will soon come to an end, making the job of suppressing overall price growth yet harder. This is especially relevant given strong US demand, with the economy expanding at an annualised rate of 3.3 per cent in the fourth quarter. Pradhan argued that stubbornly high wage growth represents the main question mark for central bankers as they prepare for the “last mile” of the disinflation journey. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.But he remains sanguine. US wage growth should prove benign because it is supported by strong productivity growth, he argues. In Europe, weak economic demand should lead to “continued moderation”. Others note that the situation facing the Fed is very different from the dreaded wage-price spiral seen during the 1970s and early 1980s. “This spell of inflation hasn’t primarily been about demand. It’s been about disruptions to supply chains, labour markets, and spending caused by Covid,” says Claudia Sahm, a former Fed economist and founder of Sahm Consulting. “Productivity continues to look really good,” she adds. “The US economy can tolerate higher wages.” At the European Central Bank, rate-setters have made it clear that their key focus in the coming months will be on wage settlements and whether they are compatible with the 2 per cent inflation target. Back in December, German central bank boss Joachim Nagel warned inflation was “a stubborn, greedy beast” and that bringing it down would require “gritting your teeth and not letting up”. More recently Nagel has sounded somewhat more optimistic, telling an event in Berlin last week that the beast had been “tamed”. But Lagarde has been warning it is “premature” to even discuss possible interest rate cuts at this stage — critically because of rising wages. The worry at the ECB and elsewhere is that workers will demand big pay rises to restore the purchasing power they lost during the initial spikes in prices. As that increased spending power finds its way into the economy, it triggers a fresh surge in prices.Eurozone wages rose over 5 per cent last year, close to the annual inflation rate. While recent data shows wage pressure is “already declining”, Lagarde said the ECB still wants to be sure that higher labour costs are “sufficiently absorbed” by companies choosing to reduce their profit margins rather than raising their prices.Eurozone inflation has fallen steadily from a record 10.6 per cent in late 2022 to below 3 per cent, but Lagarde has expressed concern that one area where prices seem stickier is the services sector, where labour makes up a large share of total costs. Eurozone services prices rose 4 per cent in the year to January for the third consecutive month.As in the US, those worries are underpinned by the unexpected resilience of the region’s labour market. Eurozone unemployment remained at a record low of 6.4 per cent in December and many companies — particularly in the services sector — are still complaining that labour shortages are the main constraint on production.6.4%Eurozone unemployment in December, a record lowBut as in the US, optimistic economists dismiss the idea that Europe is on the cusp of a wage-price spiral, pointing out that the automatic “indexation” of pay to prices has largely disappeared except for in a few countries, such as Belgium.A key difference with previous periods of high inflation is that wages seem to be following prices rather than leading them, according to Sven Jari Stehn, chief European economist at Goldman Sachs. “It is natural that when you have a supply shock which pushes up prices, it has a lagging impact on wages, but the risk here isn’t that great,” he says.Even though labour markets are tight, it may be hard for many companies to pass on higher wage costs because — unlike the US — underlying economies are stagnating. So although unions last week demanded a pay rise of 6 to 7 per cent for German chemical workers, this seems unlikely to trigger a price surge in a sector that suffered an 11 per cent fall in production last year.“A one-off rise in wages is very different from a spiral,” says Marcel Fratzscher, a former ECB official now running the German Institute for Economic Research in Berlin. “The ECB should look through a one-off adjustment.” In private, ECB rate-setters say they feeling confident. “We see indicators moving in the right direction,” says one of its governing council members. “Monetary policy is working. Inflation is falling.” Officials at the Bank of England are not sounding quite that assured — or at least not yet. While Bailey finally opened the door to lower interest rates last week after his policy committee kept rates pegged at 5.25 per cent, the BoE governor appeared to tip-toe around the topic of rate cuts, as if mentioning the idea out loud would prompt unwarranted relief in markets. While the UK labour market had cooled, it remains “tight by historical standards”, the bank warned, as it continued to highlight indicators of persistent price pressures including wage growth and services inflation. A survey by BoE regional agents showed that pay settlements will fall to an average of 5.4 per cent this year, a figure that is not far below last year’s 6 per cent.Worries about other “upside risks” to inflation have added to central bankers’ caution. One obvious one stems from the continuing conflicts in the Middle East; the disruption to shipping from attacks by Houthi rebels on vessels in the Red Sea is widely cited as a factor that could push inflation higher than expected. Europe appears particularly exposed given the importance of the trade route for imports from China.However, rate-setters including Lagarde of the ECB have tended to downplay that issue, pointing out that shipping made up only 1.5 per cent of the total cost of goods. Economists seem to agree. Goldman has estimated the rise in container shipping rates will add only 0.1 percentage points to global inflation.Even the ECB’s new artificial intelligence-powered model for forecasting inflation shows it is set to fall much closer to 2 per cent by this summer than the central bank forecast only a few weeks ago. Nevertheless, banks will probably remain wary of jumping too soon and then being forced to abruptly reverse course if inflation takes flight again. The IMF itself warned last year that there is a prodigiously rich history of central banks prematurely declaring victory over inflation.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.That includes the US itself, where Federal Reserve chair Arthur Burns was accused of being far too relaxed about price growth in the early 1970s — failing to get to grips with a scourge that plagued the US economy for an entire decade.The rapid reversal of supply-driven inflation juxtaposed with stubborn domestic price growth leaves central bankers facing a delicate balancing act, says Krishna Guha, a former Federal Reserve official who is now vice-chair of investment bank Evercore-ISI.“You want to make sure that you don’t jeopardise the soft landing by keeping policy too tight for too long,” he says. “The job isn’t quite done yet, but they are reasonably close — in some cases very close — to having pulled this off.”Sahm is more confident, saying the market has “had months of good data on prices.”“This [January] jobs report doesn’t change the fact that it’s going to turn out to be the first mile that was the toughest, not the last.”Data visualisation by Keith Fray More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Officials in the Bank of Japan have grown increasingly confident that the economy is robust enough to attempt an imminent exit from the world’s remaining negative interest rates.The central bank has become more bullish on its inflation outlook due to rising momentum for wage increases and growth in service sector prices, strengthening views within the BoJ that the ending of its ultra-loose monetary policy, in place since 2016, could come as early as March.In a widely expected decision, the BoJ kept overnight interest rates at minus 0.1 per cent at its most recent policy meeting in January. Kazuo Ueda, the bank’s governor, offered few hints on when it might raise interest rates for the first time since 2007.A subtle but important change, however, appeared in the BoJ’s quarterly economic outlook report released at the same time as the rate decision. In it, the BoJ added a new phrase — the “likelihood” of hitting its 2 per cent inflation target “has continued to gradually rise” — offering its strongest hint yet that policy normalisation was approaching. A BoJ official said the addition of the phrase was to communicate its intention to financial markets and make clear that there was a stronger outlook on the economy. “We can’t say when, but the economy is steadily moving in the direction towards a policy revision,” the official said.At last week’s news conference, Ueda also made clear that a cycle of increases was not guaranteed to follow a decision to end negative interest rates, saying: “An extremely accommodative financial environment will continue for the time being.”The signals from the BoJ came with caveats that it needed to assess further economic data on prices and wages. However central bank officials have also emphasised their more hawkish tone in regular exchanges with financial market participants.“The fact that the BoJ added the line . . . on the front page of its economic outlook is a clear message that policy change is coming soon,” said UBS economist Masamichi Adachi, who did not rule out a policy change in March although his main scenario was still for this to happen in April.Morgan Stanley MUFG and BNP Paribas said in published notes that an interest rate increase could come in March.Since the BoJ’s meeting, the yen has climbed roughly 1 per cent against the US dollar while the yield on the 10-year Japanese government bond has risen to 0.7 per cent from 0.6 per cent before the BoJ decision. A strengthening yen would be consistent with the view that Japan could soon move away from negative rates.A summary of opinions from the most recent policy meeting also reflected growing confidence among BoJ board members that economic conditions would support an exit from its easing measures.“It seems that conditions for policy revision, including the termination of the negative interest rate policy, are being met,” said one member, according to the summary released on January 31. Another pointed to the need “to start discussing the exit from the current monetary policy, since the achievement of the target is becoming more realistic”.One member described the current phase as “a golden opportunity”, warning that upcoming policy shifts by overseas central banks could reduce the BoJ’s flexibility in revising its monetary policy.Receding inflation around the world has stoked expectations that central banks including the US Federal Reserve and European Central Bank will start to cut rates this year. The timing of the policy change is unclear, with Fed chair Jay Powell signalling on Wednesday that it would not begin cutting interest rates in March.Despite the BoJ’s more bullish tone on the economy, Stefan Angrick, a senior economist at Moody’s Analytics, said latest data did not necessarily support the central bank’s view, with consumer spending at the level it was in 2021.“The BoJ is trying to prepare the runway for the next step, but if it waits too long, the data could keep weakening and they could run out of justification for normalising,” he said. More

“There are 90 million euros ($97 million) for this project from the National Recovery and Resilience Plan (NRRP)… which will allow the current factory to strengthen itself and for a further new production line to be established,” Meloni said at the end of her visit to the 3Sun plant, in the city of Catania.”Our bet is for Catania to become one of the most important hubs in solar panel production,” she added. The factory’s existing production capacity of approximately 200 megawatts (MW) a year is set to expand to 3 gigawatts (GW) by the end of this year, with a six month delay compared with what was initially announced by Enel in 2022. Meloni said the aim was to create 700 new jobs by the end of 2024, and a further 1,000 indirectly, in companies working with the 3Sun plant. The project to boost the factory’s capacity comes as the European Union is seeking to speed up the switch to renewables and end its dependence on gas imported from Russia. Meloni, who took charge in October 2022, has pledged to boost renewables in the south to try to tackle decades of under-development.”We want and we need to be competitive in this sector compared to Asian players,” Meloni said on Saturday. In January Enel secured a 560 million euro financial package from the European Investment Bank (EIB) and a group of Italian banks, led by UniCredit, to expand the site. Further funds for the plant will come from the European Union’s innovation fund for green technology projects. The energy group is also in talks with potential investors over possibly selling up to 50% in the factory, sources have said.($1 = 0.9273 euros) More

Investing.com — The Federal Reserve took a March rate cut off the table, and welcomed strong economic growth with open arms, ditching its worries about the risk of growth-led inflation, but against a string of data including the blowout January jobs report some question whether rate cuts are needed at all this year.“I don’t think rate cuts are warranted and it could be a policy mistake to cut rates that will have intermediate-term inflationary consequences,” Phillip Colmar, global macro strategist at MRB Partners told Investing.com’s Yasin Ebrahim in a recent interview, following the Fed’s Jan. 31 decision to keep rates steady and downplay a March cut. Rate cuts would likely further stimulate at a time when recent data including the much stronger than expected jobs report in January suggests current Fed policy is accommodative rather than restrictive.The inflation consequences “may not be revealed in the next couple of months because of the unwinding of inflation prints,” or base effects, and “some of those pandemic-related distortions,” Colmar says, but could likely begin in the second half of this year, post the election cycle as the economy slurps up the rate-cut Kool-Aid.“The risk of inflation bottoming out higher than people expect will likely reveal a higher underlying trend and that really closes the window on how deep the Fed will cut rates, “Colmar added, expecting that the Fed will stick with its forecast for three cuts, and isn’t likely to give the market the five or six rate currently priced in this for this year.Colmar isn’t alone in his worries about reaccelerating economic growth giving inflation a new lease of life.Following the January monthly payrolls reported showing the economy drummed up 353,000 new jobs in January — up from 333,000 the prior month and confounding economist forecasts for 187,000 – and monthly wage growth jumped to a 0.6% pace, which was double the expectation of 0.3%, Scotiabank’s Derek Holt, Vice-President & Head of Capital Markets Economics, in a Friday note warned that “if this keeps up, we can’t rule out the return of rate hikes.”Others, however, believe cuts are needed to maintain the level of restrictiveness in the economy because if inflation continues to fall, then the real interest rates, which are adjusted for inflation and reflect the real cost of borrowing, could become far too restrictive and risk a steep decline in the economy.“By the June meeting, we forecast job gains will be around replacement rates and core inflation will have shown broad slowing that convinces FOMC members progress is sustainable,” Morgan Stanley said, forecasting a first cut in June.“As inflation falls, real rates become more restrictive, and we think gaining consensus to cut will be easier,” it added, noting that Fed Chair Jerome Powell had hinted, in his press conference earlier this week, that a decline in new tenant rents, or NTR, in Q4 could force the Fed to lower its expectations for inflation when it updates its economic projections in March. “We will update our inflation forecast at the next meeting…it may be lower now given the data we have gotten,” Powell said in the FOMC press conference on Jan. 31. This comment, Morgan Stanley believes, refers to “both the incoming inflation data and the NTR data, which participants are likely to include in forecast adjustments.”For a long time, stronger economic growth was the boogeyman hiding under the inflation bed, forcing the fed to cling onto its tightening bias. And for good reason. When there are too many jobs, chasing too fewer workers, companies are forced to hike wages to compete in the labor market, and consumer spending ratchets up, keeping economic growth on the up, and up.“Evidence of growth persistently above potential, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Powell said at the Nov. 1, 2023 FOMC press conference.But that has all changed. The Fed now believes disinflation, a strong economic and labor market growth can all co-exist — the “immaculate disinflation” race is truly on.  “I think we look at stronger growth. We don’t look at it as a problem. I think, at this point, we want to see strong growth. We want to see a strong labor market. We’re not looking for a weaker labor market,” Powell said at a press conference that followed the Jan. 31 FOMC meeting.This U-turn somewhat in messaging from the Fed has left many puzzled. “I do not have a good explanation for why he sounded more dismissive toward GDP growth this time around,” Holt added.Colmar agrees, saying that “it is really going to take weakness in the economy that creates enough weakness in labour and downward pressure on wages,” adding that the increased participation rate, the number of people entering the labor market, that had helped keep a lid on wages, may not have much room to run.“If you look at the small business sector, which employs the bulk of the population, it’s telling you a pretty profound thing right now,” Colmar said. “It’s telling you that inflation is the problem, that small businesses are actually planning to lift selling prices and lift wage compensation or employment compensation … those things aren’t good for the Fed,” Colmar added.Still, with a data-dependent Fed, if the data continue to surprise to the upside, there is a chance that the Powell we saw in November, worries about above potential growth, may return.“If Q1 GDP tracking continues to be hot, then it may return Powell to what he said in the November press conference when he said ‘Evidence of growth persistently above potential or that labour markets are not coming into balance could warrant further tightening,’ Holt added. 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COLOMBO (Reuters) -Thailand and Sri Lanka signed a Free Trade Agreement on Saturday, a move Sri Lanka hopes will help it emerge from its worst financial crisis in decades.The island nation has been renewing a focus on trade deals to foster economic growth and help its battered economy, which is estimated by the World Bank to have contracted 3.8% last year, after a severe foreign exchange crunch plunged it into a wider financial crisis. The Free Trade Agreement (FTA) is aimed at enhancing market opportunities, with negotiations covering various aspects such as Trade in Goods, Investment, Customs Procedure and Intellectual Property Rights, the short statement added. A delegation headed by Thai Prime Minister Srettha Thavisin arrived in Colombo on Saturday to sign the FTA along with other agreements and Thavisin will also attend Sri Lanka’s 76th Independence Day celebrations on Sunday. “This will provide tremendous business opportunities for both sides. We encourage our private sectors to explore the potentials of two-way trade and investment,” Prime Minister Thavisin told a joint media briefing following the signing. The two countries also signed a new bilateral air services agreement, providing for liberalized air services between the two countries. The countries’ two-way trade was worth about $460 million in 2021, Sri Lankan central bank data shows. Sri Lanka exports mainly tea and precious stones to Thailand and imports electronic equipment, food, rubber, plastics and pharmaceuticals. More