Economy

“The biggest mission for my administration is to revive the economy,” Kishida told the lower house plenary in a policy speech marking the start of the regular parliament sessions.”The economy, particularly wage hikes, is an urgent issue.”While he did not announce any new policies, the premier stressed the need to regain public trust in politics amid a funding scandal that has sent support for his ruling Liberal Democratic Party (LDP) to its lowest in more than a decade.Achieving sustainable wage growth and stable inflation is a focus of this year’s spring wage talks between employers and workers and could pave the way for the Bank of Japan to depart from its unconventional monetary stimulus.Last year, Japan’s blue chip firms offered a 3.6% wage hike, the highest in three decades, and economists now expect 2024 wage hikes could beat that at nearly 3.9%, reflecting a labour crunch and corporate cash pile of 343 trillion yen ($2.33 trillion).However, small firms, which employ seven out of 10 workers, lag their larger peers in offering generous wage hikes.Analysts are watching to see if there is any correlation between the end of deflation and the timing of the BOJ’s policy change.While Japan’s economy is no longer in deflation, risks that price declines return have prevented authorities from declaring a decisive end to deflation.Kishida said his administration has lifted minimum wages and sought to raise pay for public-sector workers in medical and welfare services as well as truck drivers, and the class of non-regular workers including part-timers and contract workers.The premier said on top of wage hikes, temporary cuts in income and resident taxes of 40,000 yen ($269.96) per individual would be available from June, boosting disposable income.”By achieving rises in wages and disposable income through public and private-sector coordination, we will build a positive mindset in society that it’s natural for wages to rise,” he added.Kishida and Finance Minister Shunichi Suzuki both stressed the need to tackle fiscal reform.”Japan’s fiscal situation will become even more severe due to several rounds of extra stimulus budgets in response to the COVID-19 pandemic and rising inflation,” Suzuki told parliament.He referred to planned issuance of government bonds (JGBs) of around 182 trillion yen for the fiscal year ending March 2025.”We must secure market confidence in Japan’s fiscal sustainability by tackling fiscal reform in the medium to long term,” Suzuki said. “We will press ahead with expenditure and revenue reform with the aim of the primary budget surplus in fiscal 2025 by normalising spending structure.”($1 = 147.2200 yen) More

The BOK held its benchmark rate at 3.50% for an eighth meeting in January and hinted it may pivot towards monetary easing along with its global peers, an outcome correctly forecast by all 38 economists polled by Reuters.”It is necessary to maintain a tightening stance until there is confidence that inflation is settling at the target level,” one of the six board members said.While overall inflation is cooling, measures stripping out more volatile food and energy prices have come down more slowly and policymakers pointed out upside from supply-side risks persist amid a war in Ukraine. South Korea’s annual consumer inflation eased for a second month in December to 3.25% and came in below market expectations, backing policymakers’ outlook that price pressures will gradually ease through 2024.The consensus from analysts is that the BOK will start cutting rates in the third quarter of this year, but as price pressures soften, some are betting on an earlier start to policy easing.One other board member said while the economy faces risks from project financing loans going sour amid the debt crisis at builder Taeyoung Engineering & Construction, any jitters related to the sector need to be dealt with targeted support measures outside monetary policies. More

BUDAPEST/PRAGUE (Reuters) – The sickly state of the German economy is the next big challenge for the export-reliant countries of central Europe, which are still recovering from some of the world’s worst inflation spikes in the wake of the COVID-19 pandemic.Close trade ties with Germany and its once-mighty auto sector were for years a boon for the region since the collapse of communism. But now those ties risk becoming a drag on the economies of Hungary, Czech Republic and Slovakia.Already, some local companies reliant on ties with Germany are trying to tap deeper into other overseas markets and branch into industries like defence to mitigate the weakness of their large western neighbour, where another year of near-recession looms.However such efforts come at a time of major geo-political uncertainties, with the Ukraine war, Middle East conflict and rising protectionism. Despite the push into the defence sector, all of these factors could hamper the efforts of the region’s companies.”Economic disruption in the region’s most important trade partner, and persistent weakness in the auto sector, pose additional risks of economic setback to the CEE region,” said Dawn Holland, Director, Economic Research at Moody’s (NYSE:MCO) Analytics.Central Europe’s inflation surge, led by eye-watering levels at 25% in Hungary last year, has prompted central banks to lift borrowing costs to their highest in two decades, with Czechs enduring the most sustained fall in real wages, now spanning eight successive quarters.German companies had annual turnover of some 250 billion euros ($270 billion) in central Europe in 2021, employing about 1 million people directly and many more through suppliers, according to Germany’s Bundesbank.The Czech Republic and Hungary rely on Germany for a third and a quarter of their exports respectively, with Slovakia sending a fifth of its exports there based on a tally by S&P Global. Poland is seen less exposed because of the strength of its more diversified domestic economy, with its exports less dependent on car manufacturing.The best scenario for most companies interviewed by Reuters would be stagnation in turnover this year, though some did not rule out an outright decline in revenue and possible job cuts.Building on feedback from clients, Hungary’s DGA Gepgyarto es Automatizalasi Kft, which makes steel structures, welded components and custom manufactured machinery, had been planning a 50% capacity expansion to meet the expected growth in demand over three years from 2023 to 2025.”This (higher) demand had evaporated,” Tamas Tornai, Executive Director of the holding company that controls DGA told Reuters. Even so, DGA is going ahead with its 2.5 billion forint ($6.95 million) expansion to serve the booming defence industry.WIPED OUTGermany’s car sector is not only struggling with weak sales in its U.S. and European markets but obstacles ranging from high energy prices to the global shift to e-mobility that is forcing a rethink of the future of internal combustion engines.Within central Europe, Hungary has led a charge in attracting investments in battery and electric car manufacturing from China, positioning itself as a meeting point for Eastern and Western investors.”There is a very strong decline in car sector demand, caused by inflation, interest rates and economic uncertainty, which nearly wiped out private buyers from the market,” said Tamas Mogyorosi, Business Development Manager at Alap Group.He said the company, which provides quality management and other services for car sector, aerospace and electronics industry clients, tried to make up for a decline in western European markets by ramping up orders from Asian clients.Otto Danek, vice-chairman of the Czech Exporters’ Association, said the sector has seen a sharp cooling since the second half of 2023 due to the weakness in Germany.    “A relatively small drop in demand from this territory has a significant impact on the entire export segment,” said Danek, who owns Atas Elektromotory Nachod, a company making small electric motors.”We are looking for new markets, more so in Europe … but such a shortfall cannot be replaced in half a year.”    Agrikon KAM, which makes components for agricultural machinery, serving mostly German clients, projects a 10% fall in revenue in 2024, which could lead to a 5% to 10% fall in its headcount by the middle of the year. It says a possible rise in sales to the U.S. will not fully offset the weakness in Europe.Rating agencies say that weakness could complicate efforts to rein in budget deficits, which S&P Global says will remain “exceptionally wide” in historical terms for the region this year.”The more protracted weakness in Germany is one of the top risks we see for CEE,” said Karen Vartapetov, Director, Lead Analyst for CEE & CIS Sovereign Ratings at S&P Global.”It could weigh on medium-term growth in CEE and further undermine what already appear to be challenging fiscal consolidation plans.”($1 = 0.9241 euros)($1 = 359.56 forints) More

Climate campaigners rejoiced last week when US President Joe Biden froze approvals for new liquefied natural gas terminals that export the fuel. But the White House hopes that the “pause” in LNG permitting will win it political kudos with a much bigger group: American consumers worried about the price of heating and electricity. “We will take a hard look at the effects of LNG exports on energy costs, America’s energy security, and our environment,” the president said in announcing the halt, which will stop progress for at least 17 export projects awaiting authorisation while the US Department of Energy undertakes a review of its approval processes. The US has over the past eight years become the world’s largest exporter of LNG, as developers built projects along the Gulf and Atlantic coasts to funnel the country’s sudden bounty of shale gas into oceangoing vessels. The US’s seven operating terminals can now produce as much as 87mn tonnes of LNG a year — enough to satisfy the combined gas needs of Germany and France — and five more projects already approved and under construction will add another 63mn tonnes of capacity. With yet more projects still in line for approval, climate activists set their sights on the multibillion-dollar industrial sites as charged symbols of fossil fuels. But unlike opposition to oil pipelines and drilling that the energy industry often blames for higher petrol prices, they argued that limiting LNG exports could lower fuel costs for US households. “The most elemental economic analysis will tell you that if you’re exporting a lot of something, the prices are going to go up for people back home,” said Bill McKibben, co-founder of 350.org, a climate campaign group, who was one of the most vocal advocates of the freeze. “Very few Americans are eager to have their country fracked in order to sell cheap gas to China.” The focus on costs comes as Biden’s approval ratings continue to suffer from inflation that soared during the coronavirus pandemic. The consumer price index was 3.4 per cent in December, well above policymakers’ long-term targets. Before Cheniere Energy sent out the first ship full of condensed shale gas in 2016, there were significant fears that the trade would drive up domestic gas prices, prompting a flurry of studies into the subject. The first of these, released in 2012, suggested that over the two decades from 2015 to 2035, LNG exports would add 3-9 per cent to consumers’ gas bills and between 1-3 per cent to electricity bills, depending on the volume and pace of exports. Further studies were carried out in 2015 and 2018. But the studies generally concluded that the impact of rising exports on US prices would be limited. That has proven to be the case: prices in the Henry Hub market alongside the Louisiana coast averaged $3.37 a million British thermal unit in the seven years since 2016, compared with $3.48 in the seven years beforehand, according to the Energy Information Administration. “If they do what was done twice in the last decade of looking at exports and seeing whether they have harmed America’s energy security or driven up costs for American consumers, they will find out that which is patently obvious to everyone, which is we have so much energy security we are exporting it to other countries,” said Jason Bennett, a partner at law firm Baker Botts. The rapid growth of the export industry has also provided an outlet for US gas as production breaks records. “LNG exports offtake provide actually a couple of useful benefits for the US — one is that it makes it easier to produce oil in gassy formations, because it gives the gas a place to go,” said Kevin Book at ClearView Energy Partners, a Washington consultancy. There is nevertheless some domestic concern about the effects of shipping gas abroad. “More exports equal more reliability and price risk,” said Paul Cicio, president of the Industrial Energy Consumers of America, which represents manufacturing companies. He pointed to the fallout from a brutal winter storm in 2021 that drove a surge in demand, sending Henry Hub prices briefly to more than $12/million Btu.“It is a real serious problem when US natural gas inventories are low during the winter months, because in the winter months we have peak demand due to the weather. And so if you add on top of that accelerating increases in exports . . . that peak gets bigger and bigger with time,” Cicio said. ‘We will take a hard look at the effects of LNG exports on energy costs,’ US President Joe Biden said More

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British businesses have experienced a stark increase in the complexity and cost of trading with the EU since the UK left the bloc, spending an average of nearly £100,000 navigating the post-Brexit customs border over the past three years, new data has revealed.A survey of 1,001 senior decision makers working in UK-based businesses that trade overseas found that 81 per cent believed they faced more complexity today than they did before Brexit. Three-quarters reported that their sales into the EU had fallen or become more complicated as a result of bureaucratic barriers, including tariffs and regulatory compliance obligations, that were erected by the EU-UK Trade and Cooperation Agreement.A similar proportion said their business was “less profitable as a result of Brexit”, a view shared by 70 per cent of those who voted to leave the bloc and 79 per cent of those who wanted to remain. For those reporting that Brexit had “harmed” their operations, the mean cumulative cost since 2020 was £96,281.The findings come as the UK government on Wednesday begins to phase in new Brexit border checks on imports of most plant and animal products from the EU.The British Chambers of Commerce warned on Monday that many firms remained “in the dark” about crucial aspects of the new border, which will require the use of export health certificates (EHCs) and include physical inspections at ports from the end of April. William Bain, the director of trade policy at the BCC, said the border risked adding to business cost pressures: “There is a real fear that these extra costs will end up being passed on to the UK importer and their customers, putting upward pressure on inflation,” he said.Meanwhile, over three-quarters of the survey respondents agreed with the statement: “The UK has not experienced the trade boom that the promoters of Brexit promised” — including 73 per cent of leavers and 84 per cent of Remainers.UK officials acknowledge that Brexit has created challenges for business, but add that they are working with industry and the EU to reduce the frictions as far as possible.Alex Baulf, vice-president of global indirect tax at Avalara, a tax technology firm that commissioned the survey conducted by Censuswide, said he was a “little surprised” at the high total average cost companies had suffered. But, he added that the overall picture of business being hurt by the new cross-border compliance and trade red tape was not surprising. “There is a customs border now, businesses are finding ways to navigate that, but it implies a compliance burden with more red tape,” Baulf said.“UK businesses have had less trade with the EU and that’s impacting [their] revenue. Where there is trade, there’s additional cost, which is eating into margins.”The findings chime with recent surveys by the British Chambers of Commerce and Make UK, the manufacturers organisation, which indicated that businesses were seeing very little improvement in trade with the EU three years after Brexit.Make UK found that nine out of 10 British exporting manufacturers were still facing challenges trading with the EU almost three years after the post-Brexit trade deal came into force, a proportion that had changed little since it conducted its first post-Brexit survey in mid-2021.The Avalara survey found 82 per cent of British businesses would support efforts by the UK government to improve trade across Europe.The research surveyed a range of businesses with up to £500mn turnover. Roughly half had fewer than 250 employees while the remainder had more than 250. The majority (68 per cent) said they had explored trading in non- EU markets, with 45 per cent actively expanding into the US, 41 per cent in Canada, 27 per cent in New Zealand and 26 per cent in China. More

In a speech that delivered China’s assessment of world trade conditions in 2024, commerce minister Wang Wentao last week warned the “environment is poor”.“Rising trade protectionism” and “intensified geopolitical conflicts” were among the main challenges, he told reporters in Beijing on Friday. But in China’s favour, he reassured his audience, were record exports from its “new three” industries: electric vehicles, solar energy products and lithium batteries.The rapid growth of China’s new breed of green exports — which rose 30 per cent year-on-year to Rmb1tn ($139.3bn) in 2023, according to Wang — has boosted the world’s second-largest economy as it struggles with a deep property slump, deflationary pressure and low investor confidence. But for its developed country trading partners, the prospect of China’s low-cost imports flooding their markets and wiping out jobs in important industries such as the automotive sector and solar and wind power is prompting growing alarm.Later this year, the European Commission is set to conclude an anti-subsidy investigation into Chinese EV production that could lead to higher tariffs for Chinese imports. Brussels is also considering emergency support measures for its solar panel manufacturing industry, including an anti-dumping investigation. The US, meanwhile, has slapped export controls on high-technology shipments to China.The EU and US are, to use officials’ preferred term, “de-risking” — in effect diversifying their sources of key products — and tightening investment screening for Chinese companies, essentially scrutinising transactions for national security concerns. Beijing has attacked the EU anti-subsidy investigation into EVs as “naked protectionism” and has criticised “de-risking”. But western critics argue China’s policymaking has been mercantilist for decades, with the methodical setting of targets to increase domestic supply chain self-reliance. Foreign companies complain they are facing growing obstacles to accessing the Chinese market. “I’m worried about this issue, that it could turn into another trade conflict between two of the most important trading partners,” says Wang Yong, professor at the School of International Studies in Peking University, referring to the EV dispute between China and the EU. “If that happens nobody will benefit,” he says, adding that China and its main trading partners need to think of “creative solutions” to avoid escalation.But George Magnus, an associate at Oxford university’s China Centre, says trade negotiators will struggle to prevent further fallout this year.The emergence of China’s “new three” and other industries that were developed with heavy state subsidies is bringing to a head a clash between the Chinese economic system, which closely marries state policy and financial support with an aggressive private sector, and the market-orientated capitalism of developed countries.“What both parties want is just not really acceptable to either side,” Magnus says. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Developed countries, and those in the EU in particular, want China to dilute its industrial policies and focus on the domestic economy. Chinese leaders, meanwhile, “obviously like the idea of open trading relationships but it’s open trading relationships that are consistent with the way that they want to do industrial policy”, he adds.Developed countries have long grizzled about Beijing’s industrial policy but for the EU the discrepancies gained urgency in 2022, when China booked a “historic” trade surplus with the bloc of nearly €400bn. Brussels announced the anti-subsidy investigation when Chinese EVs began gaining market share last year. At the same time, the Ukraine war and the pandemic convinced European leaders they needed to diversify their sources of some key products in their supply chains, such as rare earths, which are dominated by China. Their actions came alongside measures in the US. As well as restricting Chinese access to advanced semiconductors and stepping up the screening of inward and outbound investments to and from China, in 2022 President Joe Biden signed the Inflation Reduction Act, which aims to strengthen America’s renewable energy manufacturing supply chain. “We do not want to see decoupling from China,” European Commission President Ursula von der Leyen told reporters on a visit to Beijing to see President Xi Jinping in December. “What we want to see is de-risking.”This was about “addressing excessive dependencies through the diversification of our supply chain . . . and thus increasing our resilience”, she said.Chinese officials responded by criticising Europe’s “restrictive economic and trade policies”. China’s foreign ministry director-general for European affairs, Wang Lutong, who participated in the meetings with the EU delegation, attributed China’s industrial development to mere “innovation”.Yet for Beijing, ambitious policies squarely aimed at reducing the economy’s reliance on foreign countries have been under way for decades. This was originally motivated by China’s desire to catch up with its western counterparts after decades in which the economy was largely closed to world trade during Mao Zedong’s leadership. But under Xi, who has sought to become more assertive on the foreign stage, it has become a national security imperative. “China was the original ‘de-risker’,” says Jens Eskelund, president of the European Union Chamber of Commerce in China. “It’s no secret that China has been talking about self-reliance for a very long time.”In the early 2000s, Beijing launched several industrial plans which aimed to reduce the nation’s dependence on imported technology to 30 per cent or less by 2020. But the plan that really worried western governments, including that of former US president Donald Trump, was “Made in China 2025”, which sought to elevate China’s technological prowess to the highest levels. Tao Wang, chief China economist with UBS and author of Making Sense of China’s Economy, says policymakers at the time were worried about rising labour costs, a rapidly ageing population and the growth of digital technologies overseas. “The idea was that China was facing this middle-income trap challenge,” Wang says. “And so we really needed to move up the value chain and upgrade our industry to be able to compete.”The worrying part of Made in China from developed countries’ perspective was that accompanying documents listed ambitious market share targets across 10 strategic industries, from IT and digital machine tools to robotics, aerospace and new energy vehicles. For instance, Chinese producers of 5G mobile network equipment and handsets should have 80 per cent domestic market share and 40-45 per cent international market share by 2025, according to analysis from the US Chamber of Commerce. To achieve similar targets, electric battery makers were offered subsidies that could account for more than 50 per cent of the cost of the product.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Foreign business groups attacked the plan as mercantilist, with the US Chamber saying it raised the “likelihood of growing inefficiencies and overcapacity in China as well as spillover distortions on a global scale”. After outcry from western governments, culminating in Trump launching a trade war on China, Beijing gradually dropped Made in China 2025 from official discourse. Xi began instead talking about “dual circulation”, essentially trying to balance exports and domestic consumption — an equilibrium Beijing has yet to manage, economists say. However, generous subsidies have continued to flow into many of the target sectors, from semiconductors to EVs. The 2018 prospectus of leading EV maker Nio, for instance, mentions not only subsidies targeting consumers, which are also common in the US and EU, but government handouts for building and operating public charging stations, as well as for product development, production facilities, research and development, asset acquisitions and low-interest government loans. In 2020, Nio received a nearly $1bn bailout from state-backed investors.China ended a 13-year consumer subsidy scheme for EV purchases in 2022. But local governments still offer subsidies and tax rebates and the central government has prolonged a tax reduction on EV purchases to 2027. CSIS, the US think-tank, has put Beijing’s cumulative state spending on the EV sector at more than $125bn between 2009 to 2021. Importantly for China’s state planners, the sector has met its targets. Chinese brand EVs held 79.9 per cent of the domestic market in 2022, according to state media.What has really alarmed the west about Chinese clean tech companies is that their technology is often superior to that of the US and other advanced economies.A European Commission anti-subsidy investigation into Chinese EV production, which has been gaining market share, could lead to higher tariffs for Chinese imports More

TOKYO (Reuters) – The dollar held narrow ranges against its major peers on Tuesday, as traders awaited the Federal Reserve’s monetary policy decision for clues on when the U.S. central bank might cut rates.In the meantime, jobs opening data from the U.S. Department of Labor Statistics due later in the day will act as a preview to the closely watched payroll report to be released on Friday.The dollar was steady in the Asian morning, with market participants moving cautiously ahead of the two-day FOMC meeting that kicks off on Tuesday.While the Fed is expected to hold interest rates, the focus on the tone that Fed Chair Jerome Powell strikes at the press conference on Wednesday and any hints of rate cuts in the near future.Markets are currently pricing in a 46.6% chance that the U.S. central bank will begin cutting in March, dropping from 73.4% a month ago, according to the CME Group’s FedWatch Tool, as data reinforces views that economic growth remains solid.”I suspect that the FOMC meeting will not be as dovish as current market pricing suggests,” said Matt Simpson, senior market analyst at City Index.”If recent Fed comments are anything to go by, the Fed are unlikely to release a dove into the crowd – and that risks a bounce for the U.S. dollar and yields.”U.S. job opening figures on Tuesday will kick off a week of domestic jobs data, culminating in a key U.S. payrolls report for January on Friday. The data will give another indication of whether the world’s largest economy remains strong after the Fed’s aggressive hiking campaign.The euro zone will also offer another peek under the economic hood with flash GDP data for the fourth quarter published on Tuesday, but expectations are for a much weaker outlook than its American counterpart.Meanwhile, European Central Bank policymakers on Monday disagreed on the exact timing of a cut or the trigger for action, although that hasn’t stopped traders from fully pricing a move in April.The euro was mostly unchanged at $1.0838.Sterling was last trading at $1.2716, holding firm ahead of the Bank of England’s monetary policy meeting this week.Elsewhere, the dollar gave up 0.15% against the yen at 147.24 per greenback.Japan’s jobless rate fell to 2.4% in December from the previous month, government data showed on Tuesday, just under economists’ median forecast of 2.5% in a Reuters poll.”From the BOJ (December) minutes, policymakers are increasingly confident about the investment outlook due to higher corporate profitability, though there is still lingering uncertainty on the pace of wage gains,” said Wei Liang Chang, currency and credit strategist at DBS.”An adjustment to NIRP (negative interest rate policy) is thus more likely in Q2 following the spring wage negotiations, and dollar/yen would be more driven by the Fed than any expectations of a policy shift by the BOJ in the short-term.”In cryptocurrencies, bitcoin rose 0.22% to $43,275.63. More