Economy

JERUSALEM (Reuters) – Israel’s sovereign credit rating could be cut if the war with Palestinian Islamist group Hamas expands to other fronts, but if this does not happen it should be able to weather the war’s economic fallout if it makes needed budget changes to offset higher spending, an S&P Global Ratings director said.S&P in October affirmed Israel’s ‘AA-‘ rating but revised Israel’s outlook to “negative” from “stable”, citing risks that the Israel-Hamas war could spread more widely with a more pronounced impact on the economy and security situation in the country. “The negative outlook on the ratings implies that we currently see at least a one-in-three chance of a downgrade over the next one to two years,” said Maxim Rybnikov, director of EMEA Sovereign & Public Finance Ratings at S&P, told Reuters in e-mailed comments.He said that if Israel’s security and geopolitical risks increase due to an escalation of the conflict – a direct confrontation with Hezbollah in Lebanon or Iran – that could lead to a downgrade. “We could also lower the ratings if the impact of the conflict on Israel’s economic growth, fiscal position, and balance of payments proves more significant than we currently project,” Rybnikov said. He said S&P projects Israel’s economy will grow by just 0.5% in 2024 and have a cumulative budget deficit of 10.5% of GDP in 2023-2024 “but there are downside risks to these assumptions.”He said he was following discussions on the 2024 budget, which was reopened to include billions of shekels of spending on the war.The cabinet this month passed a disputed 2024 state budget with amendments adding 55 billion shekels ($15 billion) of spending. It still needs parliamentary approval.”The big question for us is what happens next,” Rybnikov said.Critics of the budget, including the Bank of Israel, are seeking a cut in nonessential spending and to raise some taxes to offset the war-related costs. Also, some planned cuts to health and internal security were scrapped to ensure passage of the budget in the cabinet.Some 20 billion shekels a year for defence has been added to the budget. Bank of Israel Governor Amir Yaron has urged the government not too spend excessively and to offset spending increases needed for the war with reductions elsewhere, along with tax hikes – items that government leaders have dismissed.”Given Israel’s other credit characteristics, a temporary deterioration in the fiscal position can be weathered,” Rybnikov said. “However, if … the budgetary position turned out to be persistently weaker beyond 2024, without offsetting measures, this could erode Israel’s fiscal room to manoeuvre.”He said his base scenario is that the conflict will be resolved soon and the budget deficit will move back to 3% of GDP in 2025, from 4.2% in 2023 and a projected 6.6% in 2024, but that there were substantial risks of a lingering or escalating conflict.”It is already clear that defence spending will be higher in the years to come and the longer-term impact of the war on FDI (foreign direct investment) flows, investor sentiment and other areas remains uncertain,” said Rybnikov.”A persistent, as opposed to temporary, increase in net general government debt without offsetting measures could pose risks. That’s one of the reasons why the ratings are currently on a negative outlook.”He said the ratings outlook could move back to stable if the conflict is resolved, resulting in a reduction in regional and domestic security risks without a material longer-term toll on the economy and public finances.Credit ratings agency Moody’s (NYSE:MCO) declined to comment. Moody’s in October placed Israel’s A1 ratings on review, citing the conflict with Hamas.Fitch Ratings put Israel on rating watch negative in October. Fitch did not immediately respond to a request for comment.($1 = 3.6832 shekels) More

Scholz told a conference in Berlin for European delegates of his Social Democrats (SPD) party that this was a key issue for economic growth and the creation of jobs in Europe. The single market is far too fragmented, especially when it comes to financial issues, which is why the EU, with more than 400 million inhabitants, is unable to make full use of its power, he said. “That’s why we need to complete the European project so that European companies can rise,” Scholz said. The plan to create a single market for capital has been on the table since 2015 without any real progress. Scholz also called for a minimum tax rate for companies of 15% to be introduced in all EU countries. “Isn’t that possibly also the basis for the banking and capital markets union to work?” he asked. There has been concern that banks would choose to be based in an EU country with very low taxes “and if things go wrong, all European taxpayers will have to pay,” Scholz noted.The heads of EU institutions called for a strengthened euro and progress towards a capital markets union in a joint appeal in December. More

“We now have a credible prospect that inflation will return to 2% in 2025. The only piece that’s missing is the conviction that wage growth will adapt to that lower inflation”, the Dutch central bank governor said in an interview with Dutch TV program Buitenhof.”As soon as that piece of the puzzle falls in place, we will be able to lower interest rates a bit.” More

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In 2018, Anna-Lisa Miller was working with agricultural cooperatives in Hawaii, helping them reinvest in their communities through shared ownership.Ms. Miller, who had gone to law school and had planned to do civil rights litigation, loved the principle of workers partaking in the financial success of their employers, and the next year joined Project Equity, a nonprofit that helps small businesses transition to worker ownership. But it was slow going, with each transaction requiring customized assistance.Then she came across an investor presentation from a different universe: KKR, one of the world’s largest private equity firms. In it, a KKR executive, Pete Stavros, discussed a model he had been developing to provide employees with an equity stake in companies it purchased, so the workers would reap some benefits if it was flipped for a profit. When all goes according to plan, KKR doesn’t give up a penny of profit, since newly motivated workers benefit the company’s bottom line, elevating the eventual sale price by more than what KKR gives up.In 2021, the two met up to talk about the idea. By that time, Mr. Stavros had decided to start an organization to promote his model more broadly, hoping to reach the 12 million people who work for companies that private equity firms own. Ms. Miller saw it as a way to move much faster.“Me, as Anna-Lisa working at Project Equity — zero ability to influence private equity in any way — I thought, ‘Oh, gosh, maybe this could be a really efficient scale lever,’” Ms. Miller said. “And here’s Pete, not only doing it but wanting to start this nonprofit.”A few months later, she was the founding executive director of the new group, Ownership Works. The organization now has 25 employees working in a sleek New York office space a couple of blocks from KKR’s soaring headquarters at Hudson Yards. A couple of dozen private equity firms have signed on to give the idea a try.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?  More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Ecuadorean President Daniel Noboa is rushing to raise revenues as the country’s outbreak of drug-related violence threatens to spark an economic crisis in the Andean nation.Noboa, who took office in November pledging to boost jobs and halt the crime wave, aims to refinance foreign debt, increase value added tax and delay a shutdown of Amazon oil production to fund the war he declared on “terrorist” drug-traffickers.After the jailbreak of a powerful drug lord in early January, dozens of prison guards were held hostage by inmates while bandits took over a TV studio live on air. Noboa imposed a 60-day state of emergency, including a nightly nationwide curfew, as the army carries out raids on prison wings and gang-controlled neighbourhoods.“War is costly — we need to take tough economic measures and we need to all be on board,” Noboa told a radio station this month. Ecuador’s president Daniel Noboa, right, heads a security meeting in Guayaquil last week More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.European Central Bank president Christine Lagarde spurred investors to ramp up bets on early rate cuts this week by saying wage growth was showing signs of cooling, causing the euro and bond yields to fall. But economists warn that rate-setters still want hard data to confirm the impact on inflation before they take action.The big fear for all central banks since the start of the inflation surge has been that workers’ demands for higher pay to maintain their living standards would fuel persistent price rises. Wages were slower to rise in the EU than in the US or UK, because so many workers are covered by sectoral pay deals that last several years and take time to renegotiate. But by the third quarter of last year the effect was clear: the ECB’s real-time tracker of negotiated wages showed that annual pay growth hit 4.7 per cent, the fastest pace in the history of the single currency area. That compares with annual wage growth of 4.1 per cent in the US and 6.5 per cent in the UK, according to the latest data.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Lagarde said at the ECB’s press conference on Thursday that the pay of 40 per cent of employees covered by its wage tracker was “yet to be determined” because it was covered by collective agreements expiring in December and the first quarter of 2024. This means the ECB will receive crucial information in the next few months on the extent of underlying inflationary pressures. Lagarde’s comments suggested the ECB is cautiously optimistic about a benign scenario where wages grow more slowly, at a pace that allows workers to repair their living standards, while companies take a hit to profits rather than passing the cost to consumers. The central bank’s in-house wage tracker suggests pay growth has stabilised in recent weeks as job vacancies have declined, Lagarde said. “We are seeing a slight decline, so it is directionally good from our point of view.”Wage growth is expected to slow from about 5.3 per cent last year to 4.4 per cent this year, according to an ECB survey of 70 non-financial companies published on Friday, which found “an increasing number” were planning to cut jobs. The bank has said 3 per cent wage growth is consistent with inflation in line with its 2 per cent target.Meanwhile the ECB’s assumption that wage increases would be absorbed in companies’ margins was “exactly what we have seen”, Lagarde said, adding: “There is a phenomenon of catching up for employees. It’s also one of the reasons why we see growth coming up and the recovery beginning in the course of 2024, because of rising wages while inflation comes down.”“I’m not worried about what I see in wages,” an ECB governing council member told the Financial Times after Thursday’s meeting, when the central bank held rates at a record high of 4 per cent. “But we don’t need to rush, we need to be cautious and make a judgment based on data that will be coming out.”Policymakers have expressed differing views on how important quarterly wage growth figures will be when deciding when to cut interest rates.Data on first-quarter eurozone wage growth will be published shortly after the ECB’s meeting in April, suggesting its June vote may be the earliest rates could feasibly be cut. Philip Lane, ECB chief economist, seemed to signal this by saying recently: “By our June meeting, we will have those important data.”However, Lagarde downplayed the need to wait for the first-quarter wage figures to be confident that inflation had been tamed. “We look at a whole range of data, we are not only focused on wages,” she said. “So I would not draw any conclusion from a date of publication.”ECB president Christine Lagarde speaks to the press following the Governing Council’s monetary policy meeting on Thursday More