Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.If you’re so smart — goes a not very smart saying — why aren’t you rich? Well, Americans are adapting that question for Donald Trump. “If he was so bad, why were we rich?” Even voters who regard him with fear and distaste remember that he oversaw a non-inflationary boom as president. Much of that “achievement” was an accident of timing, of course. He had received a benign economic inheritance from Barack Obama. He was long gone when the invasion of Ukraine turned the global trade in vital commodities upside down. But, and this is the worst that can be said, Trump didn’t squander that luck. Four years of rule-breaking and mob-rousing didn’t do active harm to US living standards. Now consider another controversial leader who is up for election this year. After a decade of Narendra Modi, India has the fifth-largest output in the world, up from 10th. It could dislodge Japan from third place before the 2020s are out. Given India’s potential in 2014, a different government might have achieved much the same performance. However, as with Trump, the point is that even if a boom was always due, Modi’s alleged authoritarianism didn’t stop it. As international watchdogs marked India down from “free” to “partly free”, its economy soared. This is the liberal nightmare: not that populists abolish democracy to remain in power, but that they perform well enough not to have to. It is also intellectually confounding. Populism should be bad economics. It tends to set itself against things conducive to growth, such as immigrants (who expand the labour force), judges (who enforce contracts), technocrats (who set interest rates and competition rules) and free trade. Business professes to hate arbitrariness, the defining feature of strongman rule. Better a bad but consistent law than a leader’s personal caprice. The autocratic habit of feuding with independent central bank governors should on its own depress the animal spirits of investors. Yet here we are. Of the world’s most famous populist heads of government, how many have a defining economic failure on their record? Recep Tayyip Erdoğan, perhaps. Other than his losing fight with inflation, there are fewer examples than you’d think. Italian growth is not much slower under Giorgia Meloni than it was under more conventional prime ministers. Benjamin Netanyahu has been feted abroad for Israel’s economic performance.The UK is rare in that a causal link can be drawn between a discrete populist act (Brexit) and national economic underachievement. Sure enough, politics there has corrected somewhat, with chastened voters turning towards sensible-to-bland politicians as though it were 2005 again. The lesson? In order to get over populism, a country must suffer materially at the hands of it. (The moral case against populism isn’t enough.) The surprise is that such economic damage has been so rare.And why? One view is that, from the beginning, we commentators lost all sense of proportion. These “strongmen”, “autocrats” and “demagogues” are much more pragmatic than such excitable language allows. Whenever the Supreme Court ruled against a Trump policy, he didn’t have the judges arrested. He appealed, or tweaked the policy. He hounded Jay Powell via Twitter, but didn’t countermand his decisions as the Federal Reserve chair. At some base transactional level, Trump seems to know how far he can push things before harming the institutional framework in which commercial life takes place.As more voters go to the polls than ever before in 2024, four global authors — Margaret Atwood, Aditi Mittal, Elif Safak and Lola Shoneyin —  share their perspective on democracy, its value and its fragility.Watch now: ft.com/democracy2024A bleaker view is that economic harm takes time to show. This month, Lawrence Summers warned US corporate bosses against embracing Trump. Citing Mussolini, the economist said such wild leadership can be of transient use to business but “ultimately brings a great deal crashing down”. The important word is “ultimately”. Populism’s drag on the economy is gradual and cumulative. It is there each time vilification of the “deep state” puts a talented graduate off a career as a regulator, or an unfunded tax cut swells public debt, or a tariff gums up world trade, or partisan manipulation of the law saps confidence in the sanctity of contract.When populism began to break through around a decade ago, I wasn’t alone in assuming that it would be too expensive to the average voter to last. For the most part, I was over-optimistic (or, if you prefer, pessimistic). Think of the ideological challenge here. It was awkward enough that China enriched itself without democratising. If existing democracies become authoritarian without getting poorer, even the sunniest liberal will feel night closing [email protected] More

BANGKOK (Reuters) -Thailand’s central bank chief, under fire from the prime minister for not cutting rates, said slower-than-expected economic growth was not a crisis as portrayed by the government, nor would it be revived by its quick-hit stimulus measures.The Bank of Thailand’s current policy rate is broadly neutral, Sethaput Suthiwartnarueput told Reuters on Tuesday ahead of the central bank’s next rate meeting on Feb. 7, adding that the country was not facing a deflationary situation.His comments came after Prime Minister Srettha Thavisin – a real estate mogul and political newcomer – urged the central bank to cut the policy rate, which is at a decade-high of 2.50%, to help revive the economy.”If you want to raise the long-term potential growth rate, you’ve got to do the structural stuff. You’ve got to get productivity up. But the way to get there is not just by engaging in short-term stimulus type measures,” Sethaput said.Srettha’s government has described Thailand’s economy as being in “crisis”, underscoring the need for his signature 500 billion baht ($14 billion) digital handout scheme to boost consumption. “What we’re seeing is a recovery that is there, but is slower than expected,” Sethaput said in his most direct response to the ongoing disagreement with the government. “That’s not the same thing as a crisis.”Srettha last week said his government would move ahead with the handout scheme, which was a campaign promise that seeks to transfer 10,000 baht ($281) each to 50 million Thais via a mobile app to spend within six months, though it may be delayed. His deputy said there was no back-up plan if it could not be implemented.The central bank left its policy rate unchanged during its last rate meeting in November, having raised it by 200 basis points since August 2022 to curb inflation.Having openly disagreed with the central bank’s current policy stance, Srettha earlier this month met the central bank chief to urge him to cut interest rates.”There are only two countries in the world … that have lower policy rates than us. And that’s the Japanese and the Swiss,” Sethaput said.Sethaput said the recent meeting with Srettha was “cordial” and it was part of his job to withstand criticism.”I think the thing that is very important to maintain, absolutely critical is the independence of trust and credibility in the central bank,” he said.SLOWER GROWTH, LOW INFLATIONSethaput, who took office in Oct. 2020, said Southeast Asia’s second-largest economy is expected to grow less than 3% this year, down from the most recent forecast of 3.2% issued in November.Growth in 2023 would also be lower than the 2.4% seen earlier, with a slower-than-expected recovery in tourism and exports – both key drivers of the economy that are linked to China.”China, obviously, is very, very important to us. It accounts for about 12 percent of exports. Pre-COVID, it was 27 percent of our tourists,” he said.Overall foreign tourist arrivals in 2024 will be lower than 34.5 million predicted in November, Sethaput said, declining to provide a specific number.Growth in the fourth quarter of 2023 should be in line with the third quarter’s 1.5% growth, he said. Official 2023 gross domestic product data is due to be released on Feb. 19.Sethaput said headline inflation is expected to be lower than the latest forecast of 2.0% this year, with negative headline inflation in January, February and possibly March, while the core rate should be in line with an earlier forecast of 1.2%.Negative headline inflation has been driven by government energy subsidies and is not a concern or a sign of deflation, he said, as consumer prices fell for three straight months through December, against the central bank’s target range of 1% to 3%.”It’s a temporary thing, and the long-term inflation expectations are still positive and anchored,” Sethaput said. More

The ECB has been pushing banks for years to factor climate considerations into how they lend and assess risk but lenders have failed to heed its warnings and threats of additional capital requirements. “Our analysis of 95 banks covering 75% of euro area loans shows that currently banks’ credit portfolios are substantially misaligned with the goals of the Paris Agreement, leading to elevated transition risks for roughly 90% of these banks,” ECB board member Frank Elderson said in a blog post. The overall credit exposure is comparatively small, however, worth about 189 billion euros ($206 billion) to business with assets in the oil and gas, coal, power generation, automotive, steel, and cement sectors, or roughly 5% of credit to firms, the ECB said in a new report.Of the surveyed banks, 13 had exposures in excess of 5 billion euros each to the six key transition sectors, which account for roughly half of total CO2 emissions in the euro area.Banks have been given until the end of 2024 to meet the ECB’s climate disclosure requirements, including how much they are deviating from the expected decarbonisation pathway. If they fail this, then additional capital requirements may be introduced, the ECB has said. “Transition planning must become a cornerstone of standard risk management, as it is only a matter of time before transition plans become mandatory,” Elderson said.A big risk for banks is that their actions deviate from their own communication. While plenty of banks say they take climate change seriously, their practices suggest complacency.”Seventy percent of these banks could face elevated litigation risks as they are publicly committed to the Paris Agreement, but their credit portfolio is still measurably misaligned with it,” Elderson said.($1 = 0.9186 euros) More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Sign up here to get the newsletter sent straight to your inbox every TuesdayIt has been a difficult week for the small army of economists at the European Central Bank. Many will be reeling from the tongue-lashing they received from their President Christine Lagarde in Davos, calling them and most other dismal scientists a “tribal clique” who do not think outside their small world (watch at 13:30 minutes in). There is evidence some bad feeling is mutual. Were her words correct and wise? Email me: [email protected] interest rate landscapeCentral bankers have given many interviews and speeches in the past week, and one unifying feature is that officials hate U-turns. They would prefer to wait, act slowly and risk being late rather than reverse course. As Krishna Guha, vice-chair of Evercore ESI, put it: What we think some in the markets have been missing — or not putting enough weight on — is the central banks’ shared fear of starting too soon and having to stop or reverse course.Some examples of this tendency include Christopher Waller, the Federal Reserve governor, speaking last Tuesday, who said:The key thing is the [US] economy’s doing well; it’s giving us the flexibility to move carefully and methodically; so we can see how the data comes in, see if progress is being sustained. The worst thing we’d have is if it reverses and we’d already started to cut [rates]. (21:00 minutes in)He was echoed by Lagarde last Wednesday: The risk would be worse if we went too fast [with rate cuts] and had to come back to more tightening because we would have wasted all the efforts that everybody has put in the last 15 months. (30 seconds in)As central banks meet for monetary policy decisions over the coming 10 days, we therefore have to expect officials to be in wait-and-see mode. That said, each of the four major western central banks have their own specific challenges to address.Bank of JapanThe Bank of Japan is different in two respects. It is considering an interest rate rise rather than cuts and has already finished its meeting. Contrary to many economists’ predictions last autumn, the BoJ again left interest rates at -0.1 per cent and did not signal an imminent end to its policy of negative interest rates. It also left yield curve control unchanged, having loosened it in October, to have 1 per cent as a reference point for 10-year Japanese government bond yields rather than as an upper limit. This reference point is currently not binding. The main reason for the BoJ’s caution is that inflation and wage growth data have been weaker than expected, casting doubt on the BoJ’s ability to hit a 2 per cent target sustainably. The Committee still expressed confidence that after weaker energy prices lowered inflation in the 2024 fiscal year, a “virtuous cycle” between wages and prices would emerge, ensuring inflation would stabilise around the 2 per cent target rather than falling below. The BoJ’s confidence here is low, however, and it wants more evidence before ending negative interest rates and raising the policy rate. A symbolic rate rise to zero per cent in April is still expected, but it is a close call and will depend heavily on wage data in the coming months. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Federal ReserveThe Federal Reserve is probably in the best position, ahead of its rates decision on January 31, because inflation is moderating without an economic downturn. There will be no explicit policy change and the main focus will be the signals sent by the Federal Open Market Committee regarding the speed and number of interest rate cuts to come this year. Financial markets have expected the first cut in March and five further reductions in 2024, while the FOMC’s economic projections from December suggested only three quarter-point rate cuts were likely. The key issue is that Fed governors want evidence if they are to cut rates faster or more extensively. This would require inflation falling more rapidly and sustainably than expected or some bad news on jobs from the labour market. While there is plenty of time before the March 20 meeting for this evidence to arrive, we have not seen it yet. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Markets are beginning to take note. Accordingly, the CME Group FedWatch Tool now has a less than 50 per cent financial market expectation of a March rate cut. As the chart shows, the Atlanta Fed market probability tracker for March 2024 still gives an 80 per cent chance of a rate cut. The difference arises because, while the Atlanta Fed uses a more sophisticated algorithm to generate the probabilities, it bases them on three-month options in the secured overnight financing rate (SOFR) market, a period starting on March 20 and ending on June 18. Nearly everyone expects a rate cut by the June meeting. European Central BankThe headlines last week suggested that the ECB was rejecting the popular idea in financial markets that it would cut rates in the spring, but the reality was more subtle. For sure, Lagarde said she wanted to avoid cutting rates too early, but she also said that it was reasonable to think the central bank would cut its rates by the summer if there was not a further inflationary shock. Previously, her blanket response was that it was far too early even to talk about rate cuts, so her new statements were an acknowledgment that policy priorities are shifting in Frankfurt. The key reason for the delay was to give the ECB time get sufficient evidence in late spring that high wage growth did not present a continued inflationary threat. The eurozone does not have a comprehensive, accurate and timely measure of wages, but they are growing much faster (at about a 5 per cent annual rate) than a rate consistent with the 2 per cent inflation 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.However, as Philip Lane, ECB chief economist, has noted, there can be a period of wage catch-up after an inflationary episode to rebalance profits and wages, dependent on trends in productivity and import prices. As the chart shows, nominal wage levels have fallen significantly below price levels in the eurozone on all main measures and some catch-up in wages is justified. It is therefore likely that the ECB will wait, but a weakening in the economic outlook would prompt an earlier move if it was also paired with further good news on inflation. Bank of EnglandIn many ways, the BoE has the biggest task ahead in its meeting on February 1. It needs an entirely new economic narrative to accompany its refreshed economic forecasts that are bound to change significantly. With inflation in the final quarter of 2023 much lower than expected and energy prices well down on the Monetary Policy Committee’s November forecast assumptions, CPI inflation is now likely to fall back to the BoE’s 2 per cent target in the April or May data this year. In the November forecasts, the MPC thought it would achieve this milestone only at the end of 2025. The key conditioning assumption changes are shown in the following chart. 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 change in the outlook is likely to lead to an end of votes to raise interest rates further from the three hawks on the MPC who voted to raise rates from 5.25 per cent to 5.5 per cent at the December meeting. Jonathan Haskel has already indicated a change of view on X. As the chart shows, market expectations have priced in four quarter-point rate cuts this year and another three next year. The MPC is likely, therefore, to perform a pivot at this meeting. Two questions arise. First, whether the MPC implicitly validates the forward curve in its new inflation forecast, suggesting interest rate cuts as soon as May. Second, whether Andrew Bailey can manage to present the huge forecast revisions as a triumph of policy or whether it is seen as another blunder by the BoE. This has to be his best chance yet to score a communications victory. But, with the BoE, you never know. What I’ve been reading and watchingMy newsletter about the lack of evidence proving the “last mile” of inflation control is the hardest received academic support from the Atlanta Fed. “After examining a number of potential mechanisms, it is difficult to conclude that the last mile of disinflation is more arduous than the rest,” the paper by staff member David Rapach concludes. In a speech on Monday, Augusto Carstens, the often hawkish head of the Bank for International Settlements, said he now viewed the economic landscape with “cautious optimism”, saying inflation did not get embedded as he had feared. Obviously, he added that success must not breed complacency. In her column, Soumaya Keynes wonders how a new Trump presidency would affect the Fed. She’s exactly right to expect jawboning to keep interest rates down and ultimately a new Fed chair. There is not yet a settled name for a Republican replacement of Jay Powell in 2026, so a lot to play for and quite a bit of concern given some of the names she mentions. Over at the Long View, Katie Martin notes there seems to be only one thing that matters to financial markets this year — the path of interest rates. All the more reason to follow this closely.The Office of Inspector General, which oversees the Fed, has issued a long-awaited report into the trading activity of two former top Federal Reserve officials, Robert Kaplan of the Dallas Fed and Eric Rosengren of Boston — both of whom resigned in 2021. Their trades created an “appearance of conflict of interest”, it said, although its main conclusion was that no laws were broken or lasting damage done.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereUnhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here More

SHANGHAI/NEW YORK (Reuters) – From hope to hesitancy and now total capitulation, global investors in China are heading for the exits in the world’s second-biggest economy and sending its stock market crashing.Stock markets in Hong Kong and Shanghai tumbled on Monday — the Shanghai index marking its worst day since April 2022 — as investors retreated from what was a ‘must have’ country in global portfolios just a year ago.The selling seemed to subside on Tuesday as Chinese Premier Li Qiang chaired a cabinet meeting and Bloomberg News reported authorities were considering a package of measures to stabilise the market. Investors were unimpressed.”There is a degree of capitulation,” said Derrick Irwin, an emerging markets portfolio manager at Allspring Global Investments. “Until there is a bigger crisis, the Chinese government may just continue to kind of throw cups of water on the fire, instead of something big that they probably need to do.” Allspring has been underweight China since last year. This week’s selloff was a culmination of months of frustration over the direction of the economy, particularly the often-opaque regulatory changes that thwarted China’s post-pandemic recovery last year. China’s benchmark CSI 300 Index has slumped 47% since it peaked in February 2021, while the Hong Kong HSI stock index has sunk 49%. In contrast, Japan’s Nikkei Average and the U.S. benchmark S&P 500 are up 24% each.The Shanghai and Shenzhen exchanges have wiped out $3 trillion of value since the end of 2021.BIG MEASURES NEEDEDAnalysts at Goldman Sachs noted much of the negativity around China was priced into the stock market. But a turnaround will take time and require big policy measures, including forceful and comprehensive easing, stimulus, better Sino-U.S. relations and even government backstops in the housing and stock markets, they wrote.Tony Roth, chief investment officer at Wilmington Trust Investment Advisors, plans to scale down his already underweight position on China due to a loss of confidence in the country’s economic activity and regulation.”In general, our emerging markets managers are underweight China, and we are increasingly picking and working with managers that have greater underweights to China,” he said. Any hopes that 2024 will be different were nipped early by hints from authorities that they will overlook short term hiccups as they pursue healthier, long-term growth.Support for the battered property sector that underpins much of the economy has also been fitful, even as the Communist Party has vowed to boost oversight of the country’s $61 trillion finance industry and local governments.Marko Papic, chief strategist at the Clocktower Group, said a heavy-handed regulation of the finance sector is not what China needs now. “After a crisis, you need banks to have animal spirits and to feel like they should lend, so if you crack down on them, it’s going to slow down the recovery.”An eagerly anticipated policy rate cut this month didn’t come through, either, which Papic said showed “we’re really far from any sort of a bazooka … they’re not even willing to fire a water pistol.”A ‘MICRO’ STORYWhile investors have flocked to India, Japan and other emerging markets, some overseas money still remains in China, belonging to pension funds and others whose products are indexed to MSCI’s emerging market index, of which China comprises more than 26%. Estimates from the Institute of International Finance show a $82.2-billion outflow from China portfolios in 2023, while emerging markets excluding China saw $261.1 billion in non-resident portfolio inflows. Dozens of exchange-traded funds also hold the country’s equities. Yet, the compulsion to own a piece of the nearly $18 trillion economy has given way to discretion, says Norman Villamin, group chief strategist at UBP, which lowered China to underweight and raised India to overweight in October. “Over the last 30 years, the story of China has been China is growing fast, China is becoming the manufacturing center of the world. So you should just own China because the economy is doing very well,” Villamin said. Now, it is less of a ‘macro story’ and more a ‘micro story’ about owning a few good companies there, he said.BAND-AIDMainland investors are meanwhile unenthused by the Bloomberg News report that policymakers may mobilize about 2 trillion yuan ($278.98 billion) for a stocks stabilization fund. The Shanghai index closed below the psychologically key 2,800-point mark on Tuesday. “It’s like crying wolf,” said Simon Yu, vice general manager at Panyao Asset Management. “Talks about the rescue fund have been swirling for a long time, but haven’t yet materialised.”Local analysts have been calling for the set up of a rescue fund since last year. There’s precedence. A “National Team” was set up during the 2015 stock market crash, comprising a group of investors that included state fund Central Huijin, China Securities Finance Corp and investment vehicles under China’s forex regulator. Their buying lifted the stock market, but just briefly.Yu said market confidence could return if the government made it clear that it would buy stocks worth several hundred billion yuan every year. “If there’s nothing concrete, only vague rhetoric, investors expectations will remain pessimistic.”Singapore-based Daniel Tan, a portfolio manager at Grasshopper Asset Management, said the proposed amount for the fund is small “compared to the size of the problem” but could signal a change in authorities’ strategy.”We will adopt a wait-and-see approach for now. There is plenty of upside if and when the market starts to rally, we are not motivated to pick the bottom.” ($1 = 7.1691 Chinese yuan renminbi) More

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The eurozone economy is stagnating, price growth is slowing and high borrowing costs are squeezing demand for loans, yet the European Central Bank is expected to say this week it needs more time to be sure inflation has been tamed.The ECB’s governing council is set to meet on Thursday as eurozone inflation has fallen from a peak of 10.6 per cent in late 2022 to 2.9 per cent last month. The bank’s target rate is 2 per cent.However, bank-watchers believe the ECB, led by president Christine Lagarde, will still leave monetary policy on hold — with the deposit rate at a record high of 4 per cent and its vast bond portfolio slowly shrinking.Katharine Neiss, a former Bank of England economist now at investor PGIM Fixed Income, said the ECB was inclined towards caution on rate cuts after facing criticism in recent years for underestimating surges in inflation.“Put simply, it’s a case of once bitten, twice shy, and policymakers will want to be sure that the inflation genie has been put firmly back in the bottle,” she said, pointing to the second quarter as the “earliest period in the frame for cuts”.Another reason Lagarde is likely to be cautious about the pace of disinflation is the eurozone’s tight labour market. Unemployment in the euro area is at a record low of 6.4 per cent.Under these conditions, a concern is that workers will demand big pay rises to restore the purchasing power they lost after the largest price surge for a generation. Coupled with falling productivity, this risks pushing up price pressures again as companies try to pass on their higher labour costs.The ECB will be the second major bank to meet on policy since the start of 2024, after the Bank of Japan kept rates in negative territory on Tuesday. The US Federal Reserve and Bank of England meet next week.For now, most eurozone rate-setters appear confident they are on track to bring inflation down to their 2 per cent target by next year. But many want more evidence that upside risks such as strong wage growth are not going to materialise before they are ready to declare victory.Eurozone wages rose 5.3 per cent in the year to the third quarter of 2023, accelerating from 2.2 per cent a year earlier. There are signs this could keep rising, including a union demand in Germany for a €500-per-month wage increase for the country’s almost 1mn construction workers — equivalent to a 21 per cent pay rise for the sector’s lowest-paid majority.Boris Vujčić, governor of the Croatian central bank and one of the newest members of the ECB council, said this month: “We will definitely want to see the first-quarter wage negotiations [to decide] where wages will settle.”Data on first-quarter eurozone wage growth will be published shortly after the ECB’s meeting in April, pointing to the summer as the earliest moment rates could be cut. Philip Lane, ECB chief economist, said recently: “By our June meeting, we will have those important data.”The other upside risk on inflation is the war between Israel and Hamas, and the potential for it to escalate into a wider Middle East conflict that could disrupt energy supplies from the region and send oil and gas prices higher. Attacks by Yemen’s Houthi rebels on ships in the Red Sea have already disrupted global trade, causing many vessels to travel round the southern tip of Africa rather than risk going through the Suez Canal, adding time and cost to goods transport. However, most economists downplay the inflationary impact of the maritime disruption. Mark Wall, chief European economist at Deutsche Bank, said there was “a buffer to absorb rising costs”, thanks to spare capacity in the shipping industry, high inventories, elevated profit margins and weak demand.Oil prices have fallen since the Israel-Hamas conflict started and European natural gas prices have almost halved in the past three months to drop to their lowest level for more than two years.In addition, the eurozone economy is expected to remain weak, with Barclays forecasting that gross domestic product will contract 0.1 per cent in the fourth quarter from the previous three months, helping to cool price pressures.Banks continued to tighten lending standards in the final three months of 2023 and said they expected to squeeze credit supply further at the start of this year, according to an ECB survey of lenders published on Tuesday. They also reported lower borrowing demand from households and businesses, but said they expected a small rebound at the start of 2024.“We do think policymakers recognise that eurozone economic weakness is proving to be extended and likely has more to run in services, even though the manufacturing side may be stabilising at weak levels,” said Krishna Guha, a former Fed official now at US investment bank Evercore ISI. Consumer price growth has undershot ECB forecasts for two months, despite picking up to 2.9 per cent in December. UBS economist Anna Titareva forecast it would slow again to 2.8 per cent in January as “falling goods inflation” more than offset higher services inflation caused by an increase in VAT on German restaurant meals.Investors are betting that faster-than-forecast disinflation will push the ECB to start cutting rates as early as April, with swaps markets pricing in 1.35 percentage points of cuts this year. But a string of ECB policymakers have signalled recently that this looks too optimistic. Lagarde told last week’s World Economic Forum in Davos that a rate cut “is likely” by the summer.While most economists think the ECB will start loosening policy by cutting rates by a quarter of a percentage point, some think being behind the curve could force it to cut by a more aggressive half-point.“A later start with rate cuts would raise the probability that the council would need to catch up with a couple of 50 basis-point moves during the summer,” said Sven Jari Stehn, Goldman Sachs’ chief European economist. More

HANOI (Reuters) -A German business delegation, including top firms for tunnel machines, wind farms and industrial supplies, joined President Frank-Walter Steinmeier in a visit to Vietnam starting on Tuesday, as Berlin strives to reduce its reliance on China.German companies have invested over $3 billion in the Southeast Asian manufacturing hub, led by automotive giant Bosch, according to the German chamber of commerce in Vietnam. During the visit, Steinmeier and German labour minister Hubertus Heil signed a memorandum of understanding with their Vietnamese counterparts on skilled labour mobility to facilitate transfers of Vietnamese workers to Germany.After a meeting with Vietnam’s President Vo Van Thuong, Steinmeier said some of the companies with him “were looking into establishing a presence in the country”.Thuong told reporters he would welcome German investment in renewable energy and infrastructure. Companies in the business mission include Herrenknecht, which dominates the global market for tunnel boring machines. It is already selling tools to build the metro in Ho Chi Minh City, amid Vietnam’s plans to expand its railway and metro systems.Wind farm developer PNE AG is also in the delegation, possibly trying to tap into Vietnam’s planned expansion in offshore wind, despite regulatory delays.Building materials multinational Knauf Gips KG and automotive supplier Tesa are there too. Both already have operations in Vietnam.The visit “underlines Germany’s interest in looking beyond China and diversifying its economic relations,” said Florian Feyerabend, the representative in Vietnam for Germany’s Konrad Adenauer Foundation, a think tank. Steinmeier’s visit was delayed by a year because of a political reshuffle in Vietnam that led early last year to the resignation of its president.Steinmeier’s visit follows a trip to Hanoi by German Chancellor Olaf Scholz in November 2022, then the first by a German leader in more than decade.After meeting leaders in Hanoi, Steinmeier will visit Ho Chi Minh City, the country’s business hub, on Wednesday. More