Economy

Li told the closely-watched annual gathering of leaders in business and government that the Chinese economy is making “steady progress,” adding that it will continue to provide “strong impetus” for global growth.”Last year, the Chinese economy rebounded and moved upward,” he said in prepared remarks on Tuesday.Recent data has suggested that China is struggling to regain its footing following the lifting of harsh COVID-era restrictions. Despite posting an increase in exports in December, the world’s second-largest economy continues to face deflationary pressures, weak consumer spending, and an ongoing property sector crisis, prompting some analysts to call on policymakers to roll out more support measures.Li, however, argued that Beijing had promoted economic development in China without needing to introduce “massive stimulus.””We did not seek short-term growth while accumulating long-term risks,” he said.Official Chinese gross domestic product (GDP) data for 2023 is due to be unveiled on Wednesday. A poll of economists conducted by Reuters found that growth likely expanded by 5.2% last year.China’s GDP is expected to decelerate to 4.6% this year, before slowing further to 4.5% in 2025, the Reuters survey showed. More

DAVOS, Switzerland (Reuters) – Chinese Premier Li Qiang said on Tuesday the Chinese economy had rebounded and moved upward, and was estimated to have grown around 5.2% in 2023, above the official target of around 5%.Li said at the World Economic Forum in Davos that the Chinese economy could handle ups and downs in its performance, and the overall trend of long-term growth would not change. More

PARIS (Reuters) – Even though the next move of the European Central Bank (ECB) will likely be an interest rate cut, there is no rush to do this and the ECB is prepared to be patient, said ECB member and Bank of France governor Francois Villeroy de Galhau.”We should be patient,” he told Bloomberg TV on the sidelines of the World Economic Forum in Davos. More

HELSINKI/FRANKFURT (Reuters) – The European Central Bank is making progress in lowering inflation to 2% but needs more evidence before rate cuts come on the agenda and policymakers should wait “a bit longer” rather than move prematurely, Finnish policymaker Tuomas Valimaki said.The ECB ended its quickest interest rate hike cycle in September and with inflation now slowing, the topic of policy easing is creeping up the agenda, though investors and policymaker differ greatly on the timing of the first move. “It’s better to wait a bit longer than doing a premature exit from this restrictive level, and then perhaps to having to do a reversal,” Valimaki, a Bank of Finland board member, said in an interview. “We need to avoid declaring victory over inflation prematurely. It would be better to wait and see how data on wages develop,” Valimaki added. He is a temporary but voting member of the ECB’s Governing Council who is sitting in for Governor Olli Rehn while he is campaigning to become Finland’s next president. Several key euro zone countries are setting wages in the coming months and ECB chief economist Philip Lane has said the ECB would have crucial data by its June meeting, a hint taken to suggest no rate move until then. But investors are betting on a much quicker reversal and see 150 basis points of rate cuts in the record-high 4% deposit rate, with the first step coming in March or April.Valimaki declined to endorse any calendar for policy action but said he has seen no wage data so far that would suggest the ECB’s own December projections and rate outlook would be incorrect. Aggressive rate cut pricing could in fact push back rather than bring forward ECB action because looser financing conditions, already evidenced through lower service costs on floating rate mortgages, could even lift the inflation path. “But this is dependent on our forecast being more correct than those of the market, and that’s certainly what we believe in,” Valimaki said.The bloc suffered weak, possibly negative growth in the second half of last year but Valimaki said he was still betting on a “soft landing,” or a rebound this year after a mild contraction, even if risks are skewed towards a more negative outcome. Weighing in on a key debate that could influence policy for years to come, Valimaki said the ECB should keep bond purchases and long-term loans to banks as permanent tools to provide liquidity to the financial sector. The ECB is currently discussing its operational framework and its decision, due this spring, will impact how big the ECB’s balance sheet would be in a neutral setting and how banks could access central bank funding.A key debate is whether the ECB should maintain a “structural portfolio” of assets, so there would be abundant liquidity in the system or if funding should be provided on an on-demand basis. “In my view it is preferable to use both outright purchases and credit operations on a permanent basis to provide structural liquidity to the banking system,” Valimaki said. Such operations could provide stable and well distributed financial liquidity across the euro zone, which is much more a bank finance based economy than the United States. But the overall size of the ECB’s balance sheet will continue to shrink no matter which option the ECB picks and excess liquidity, now at 3.5 trillion euros, will continue to shrink for some time, Valimaki said. More

TOKYO (Reuters) -The head of Japan’s biggest business lobby Keidanren on Tuesday called for wage hikes this year that exceed the inflation rate, setting the tone for annual wage talks that may pave the way for the Bank of Japan (BOJ) to exit its ultra-easy monetary policy.At stake in this year’s spring negotiations between trade unions and large Japanese firms, analysts say, is whether wages will rise far enough to ignite the sustainable inflation that policymakers consider a prerequisite for ending negative interest rates.The talks are due to conclude in mid-March.”Our main scenario is for the BOJ to confirm wage hikes at big firms and go ahead with ditching negative rates in April,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute.In an annual report on Keidanren’s management and labour policy, released on Tuesday, Chairman Masakazu Tokura said the business lobby and companies this year bear “social responsibility to aim for wage hikes that beat price rises”.”There’s a very strong sense of urgency that Japan’s future rests on whether we can step up a gear to achieve structural wage hikes this year and onwards,” Tokura said, adding that present conditions offer a “last chance” to end deflation completely.The report, which serves as the basis for the lobby membership’s stance in annual talks with Rengo, Japan’s largest labour union group, also said the government and the BOJ are expected to guide policies aimed at achieving “appropriate price rises”.Small firms, which employ seven out of 10 employees in Japan and have a greater impact on overall wage growth, tend to begin labour-management talks after big firms wrap up their negotiations in March.Several large firms have already said they intend to implement big wage hikes, although plans at small companies will only be known around mid-year.While small firms tend to operate on thin margins, many also face a labour crunch, due largely to Japan’s ageing population, and have no choice but to raise wages to attract talent, analysts said.Prime Minister Fumio Kishida, BOJ Governor Kazuo Ueda, Keidanren chief Tokura and Rengo head Tomoko Yoshino are all seeking pay raises that beat inflation, after last year’s labour talks brought pay rises of nearly 3.6%, the highest in three decades.The tighter job market, record corporate earnings and ample cash holdings at many Japanese companies have added to the case for firms to share more of their profits with workers.Japan’s jobless rate stood at 2.5% in November, edging close to levels not seen since Japan’s asset bubble burst in the early 1990s. November data from the Labour Ministry also showed that there were nearly 1.3 jobs for every job seeker.While companies were hoarding 343 trillion yen ($2.4 trillion) in cash and savings as of the end of September, the ratio of wages to profits remained relatively low, analysts said, leaving room for higher labour costs.Tuesday’s Keidanren report will be followed by a labour and management forum next week, which will kick off the wage talks in earnest.($1 = 145.7800 yen) More

1. U.S. stock futures lowerU.S. stock futures pointed into the red on Tuesday, with investors preparing for a fresh batch of results from major banks.By 05:29 ET (10:29 GMT), the Dow futures contract had edged down by 185 points or 0.5%, S&P 500 futures shed 31 points or 0.6%, and Nasdaq 100 futures had shed 127 points or 0.7%.The main U.S. averages were closed on Monday for the Martin Luther King Jr. holiday.Traders will likely be keeping tabs on corporate earnings, which will include quarterly figures from large lenders Goldman Sachs and Morgan Stanley. Both companies rely on their investment banking divisions, meaning much attention will likely be paid to how these operations fared during the final months of 2023.Last week, Wall Street giant JPMorgan said it had a “robust” pipeline for its investment banking unit thanks to hopes for imminent interest rate cuts by the Federal Reserve, which fueled a broader market rally late last year. Signs of life in recently dormant mergers and acquisitions activity also emerged as industry-wide deal volumes jumped by 19%, according to Dealogic numbers cited by Reuters. Investment banking fees at JPMorgan surged by 13% in the fourth quarter, while fixed income markets revenue increased by 8%.2. Fed’s Waller to speakTraders will also be focusing on a speech from Federal Reserve Governor Christopher Waller later on Tuesday that could provide clues into how the Fed plans to approach policy decisions in the coming months.Despite unveiling a forecast for interest rates that was more dovish than prior projections in December, several Fed officials have pushed back against market optimism that they will begin to slash borrowing costs as soon as March. Policymakers have instead signaled that they would like to see more evidence that the rate of inflation in the U.S. is steadily cooling down to their stated 2% target.Markets will likely be eager for Waller to explain his own expectations for price growth and rates when he delivers comments at the Brookings Institution in Washington, D.C. at 11:00 ET (16:00 GMT).Typically a more hawkish voice at the Fed, Waller said in November that he was “increasingly confident” that policy was well-positioned to both “slow the economy and get inflation back to 2%.” But he noted that there was “no reason” to say that the U.S. central bank will keep rates at more than two-decade highs should prices pressures continue to ease over “the next three to five months.”3. Musk asks for increased Tesla stakeElon Musk has said that he would be “uncomfortable” participating in Tesla’s development of artificial intelligence and robotics unless he had nearly double his stake in the electric carmaker.Musk, considered to be the world’s richest man by Forbes, said in a post on his social media platform X that he would like to gain about 25% voting control of Tesla.He added that this move, which would almost double his current holdings in the company, would allow him to be “influential, but not so much that I can’t be overturned.” Musk flagged that, should his stake not increase, he would prefer to build products “outside of Tesla.”The tech tycoon has long backed Tesla’s development of “Full Self-Driving” software and prototype humanoid robots, although much of the business’ revenue still derives from its automotive operations.Musk currently owns roughly 13% of the firm after he sold a portion of his stake in 2022 to help fund his takeover of Twitter, which was later renamed X.4. Trump wins Iowa caucuses in routDonald Trump notched a key victory in the Iowa caucuses on Monday, all but cementing his position as the front-runner in the race to secure the 2024 Republican presidential nomination.According to the Associated Press, the former president scored about a 30-point win, well above his closest rivals: Florida Gov. Ron DeSantis and ex-U.N. Ambassador Nikki Haley. The AP called the result just a half-hour after the caucuses convened, underlining Trump’s dominance on the night.Turnout at the first major Republican nominating contest of the year was lower than levels seen in the last round of GOP caucuses in 2016, partly due to participants facing bitterly cold temperatures and dangerous driving conditions.But the result still gives Trump a massive surge of momentum heading into the first Republican primary in New Hampshire later this month. The competition facing the former president has also narrowed — biotech entrepreneur Vivek Ramaswamy suspended his campaign and backed Trump.5. Oil higher amid profit-taking, Middle East violenceOil prices were higher on Tuesday, as traders noted that violence in the Middle East has not adversely impacted oil supplies.By 05:29 ET, the U.S. crude futures traded up 0.6% at $73.46 a barrel, while the Brent contract added 1.2% to trade at $79.14 per barrel.Signs that recent attacks on shipping vessels by Iran-backed Houthi rebels in Yemen — and subsequent strikes by the U.S. and U.K. — were not denting oil supplies spurred on some profit-taking on Monday, Reuters reported. However, volumes were limited due to the U.S. market holiday.The delayed start to the U.S. trading week will mean that official inventory data from the Energy Information Administration will be pushed back by one day to Thursday, while industry data from the American Petroleum Institute is set to arrive on Wednesday. More

Q: What’s your take on inflation developments since your last policy meeting?A: Inflation certainly has decreased rapidly from its peak, thanks to low energy prices, and also due to our decisive monetary policy measures. We see core inflation slowing down and gradually approaching our goal. Policy has evidently been effective in dampening the inflation pressures and anchoring inflation expectations. So, we are on the right track.Having said this, inflation and especially core inflation at 3.4%, remains faster than we can accept. Thus, restrictive monetary policy still called for.Inflation readings have been volatile, especially as a result of the base effects. In December, inflation bounced back somewhat from November levels, mainly on the energy base effect. This year energy inflation is expected to gradually increase into positive territory due to reversal of this base affect. Energy will continue to be a volatile component in inflation throughout the year. That’s why we also need to focus on the dynamics of underlying inflation.Q: The ECB’s chief economist said over the weekend that the bank would be in possession of key wage and inflation data by June. Is that also a significant date for you in assessing where policy is going?A: I would not want to give any specific date on when we would have enough information to change our view. Forecasting is difficult, especially forecasting turning points. We do analysis on a continuing basis and our views will evolve with incoming data. We’ll continue to be data dependent, which is the correct approach to address the uncertainties around the projections.Q: How do you see the risk to the inflation outlook?A: We see risks on both sides. We could have a surprising deterioration of the economic outlook, which would then reduce inflation quicker. But there is a lot of uncertainty to the other direction as well. We are not totally on safe ground with wage formation. We need to get core inflation back to our target.Q: Have you seen any concerning wage data recently?A: Since our last policy meeting, when we also published new projections, I haven’t seen wage readings which contradict our projections.Wage formation is one of the key issues when assessing the evolution of core inflation this year. Social partners’ expectation of moderating inflation is a key prerequisite for wage agreements that would be in line with our inflation target.Thus, preserving the credibility of our inflation anchor is one of the fundamental reasons for us to keep our heads cool and not jump the gun. The history of central banking shows that false starts can be very costly. We need to have enough evidence of healthy dynamics for core inflation and certainly in this regard, the development of wages is crucial.Q: What do you mean by false start?A: We need to avoid declaring victory over inflation prematurely. It would be better to wait and see how data on wages develop. It’s better to wait a bit longer than doing a premature exit from this restrictive level, and then perhaps to having to do a reversal. I see a clear need to get enough evidence that we are on track.Q: Where do you think future economic growth will come from?A: I expect it to start from private consumption. Wage developments coupled with moderating inflation, will increase households’ real incomes and that will be helpful in boosting economic growth. Certainty among investors on the terminal rate, has also increased compared to a year ago , which will be helpful for investors. Exports have not been strong lately, but we are expecting a rebound from net exports later this year.I expect growth to gradually strengthen over the course of this year.Q: Is a soft landing now materialising?A: A soft landing in the euro area is my and our baseline for the euro area. As it is also for a number of international institutions such as the IMF or the European Commission. However, it’s clear that risks to growth are tilted to the downside, as indicated, for example by PMIs which have remained clearly below 50.Q: How consistent is your warning against a false start with a market pricing for 150 basis points of rate cuts this year?A: Market pricing is one thing and the analyst view is another. Economists’ views differ from the rate path priced into money markets. This suggests a considerable degree of uncertainty among market participants and the distributions around the market prices are wide. Market pricing also has real effects. In Finland, mortgages are floating rate and that’s why households are already starting to face looser financing conditions.We need to get enough evidence and analysis before the interest rate cycle can turn. The evidence from the economy and our projections should show that inflation is decreasing to the level which coincides with our price stability objective in the medium term.Q: Is the market undoing the ECB’s tightening and thus actually delaying a rate cut?A: There is logic in that argument. If markets are ahead of policymakers, time will tell who was right and views will converge.If our baseline forecasts are correct and market rates fall much more rapidly than what is priced into the projections, then ceteris paribus that would lead to higher inflation, and I can understand the logic of saying that it could delay monetary easing. But this is dependent on our forecast being more correct than those of the market, and that’s certainly what we believe in.Q: Finnish wage growth appears to be modest. Do you have an expectation that very large deals will be done elsewhere?A: Our inflation target is 2% so if you assume productivity growth somewhere around 1%, wages increase around 3% would be consistent with the inflation target. Currently wage increases are higher than that. But as long as this is a lagged compensation of the inflation peak, then it is not indicating a wage-price spiral. But if wage agreements don’t come down over time, then there is a such a risk.In Finland, like in the rest of the euro area, nominal wage growth accelerated significantly in the latter part 2022 but still remained somewhat more moderate than in many euro area countries. However, the nominal unit labour costs here have developed in line with corresponding costs in other euro area countries, as our labour productivity growth has been weaker than elsewhere. The slower wage growth has also been associated with slower inflation. So, when it comes to wages, cost and prices, we’ve experienced a similar trend as elsewhere.Q: How do you resolve the anomaly of a tightening labour market during a recessionary period with high interest rates. Labour markets should be softening.A: The labour market has been robust and unemployment is lower than ever. This is the case in many if not all euro area countries and also applies to others outside Europe. If you compare GDP growth and changes in unemployment, they are not in line with past correlations. This is especially true when you look at unemployment or employment figures. The story is slightly different if you look at hours worked. Still, the labour market has been extremely robust.Q: Could high corporate margins have a role in this?A: Consider the fact that many companies before the pandemic faced a shortage of labour, especially skilled workers. So, if you have healthy margins, it is not entirely surprising that companies may have decided to maintain current staffing levels, even if the demand is a bit weak. If everything goes as projected and the landing is relatively soft, then weak demand is short lived and afterwards they again face a shortage of skilled labourers. So, this kind of “labour hoarding” could explain why labour market developments have been out of line with past correlations.Q: Do you think the ECB should raise the minimum reserve requirement as advocated by some?A: I don’t currently see any reason to make the minimum reserve requirement an active monetary policy instrument to influence the policy stance. We have our policy rates for that purpose and have other tools as well.The decision to set the remuneration of minimum reserves at zero in July was aimed at improving the efficiency of monetary policy without weakening its effectiveness.The ongoing operational framework review will provide a good opportunity also to think about the role of required reserves in our operational framework. The reserve requirement can play an important role in some operational frameworks, whereas they might not be strictly needed in others. So, I think this question should and will be part of the review.Q: Should the ECB maintain a structural portfolio under its new framework and what should be part of it?A: Even though our balance sheet is now shrinking, it will continue being larger than it was before the global financial crisis. For example due to the growth of banknotes in circulation and other liabilities.In my view it is preferable to use both outright purchases and credit operations on a permanent basis to provide structural liquidity to the banking system. TLTROs and QE may be useful in some circumstances, for example to prevent financial crises or to provide a further stimulus in a liquidity trap, but they should not be mixed with structural liquidity operations.Structural outright portfolios would provide stable liquidity while structural long-term credit operations could allow some liquidity transformation against less liquid collateral and distributing liquidity efficiently directly to bank, after all, the funding of real economy in the euro area is very much bank based.So, I see the coexistence of outright purchases and credit operations. But this is not a novelty. We had outright purchases even before the global financial crisis but they were just not part of the monetary policy thinking because they were done as investment operations by the national central banks.Q: How big should this structural portfolio be?A: The need for reserves is higher if one wishes to continue pushing the market overnight rate to the deposit facility rate, as we currently do. The need will be lower if one wishes to return to setting the interest rates by a corridor. I can also tell you firmly that the current level of central bank liquidity is not needed to bring overnight rate to the floor. But also, banks’ demand for working balances will be significantly higher than it was before the global financial crisis. The precise calibration of banks’ neutral liquidity needs will change significantly over time and mentioning specific numbers at this stage is not necessary or useful.I’m confident that we can design a framework that provides us with effective ways to steer money market rates, which is of course our main goal. How large the structural operations will need to be for that is an empirical question. That will be answered in due time when our balance sheet decreases. But we have plenty of time for that.Q: Why is Finland among the worst hit economies in the euro zone?A: There are several factors explaining our weak growth performance. As a neighbouring country to Russia, the war in Ukraine impacts us more than most other countries in the euro area.Monetary policy tightening has weakened demand as has inflation. While transmission channels are largely common among the economies, there are differences in the speed of monetary policy transmission. Tighter policy has been transmitted in Finland rapidly, for example because mortgages tend to have variable rates. So, rising interest rates have been more rapidly increasing loan servicing costs for Finnish households.Other structures of our economy also impact the pace of monetary policy transmission. The Finnish industrial structure is more heavily weighted towards manufacturing and construction, which increases the economy’s interest rate sensitivity. We know that services are less sensitive to interest rates than construction.Q: How big is the Russia impact?A: Before the war, Russia’s share in our exports was slightly higher than for others in the euro area. Now exports to Russia are at their lowest levels since the Second World War and our companies have withdrawn from Russian markets almost completely. The indirect effects are even larger. For example, we have lost a relatively inexpensive supplier for inputs to our industry. One of our comparative advantages had been the relatively cheap energy and raw material imports for the forest industry from Russia. This comparative advantage is lost permanently or at least very persistently. The increased self-sufficiency in electricity production has helped somewhat, but we still have a deficit in our energy balance, and imported energy has become more expensive. The Russian war has also deepened the deficit in our services trade balance, as Russian tourists are not allowed to come to Finland anymore.Q: Do you see any signs of a reputational risk from Finland’s geographic proximity to Russia?A: We are seen for good reasons as an extremely stable country in Europe and sovereign spreads reflect that. The fact that we are now a part of NATO also helps.Q: What is the way out of the deadlock between unions and the government on labour market reform?A: Labour market reforms are necessary and the government’s aim to improve incentives to work and to cut public expenditure are understandable. Our public finances have weakened and the debt ratio is on an upward trajectory. Bringing public finances closer to balance on a long term basis requires concrete measures that affect both revenue and expenditure. But also structural reforms, such as labour market reforms, that support economic growth are needed. These measures are indeed needed if we want to preserve the Finnish welfare state without compromising too much the level of our public service. Delaying the implementation of these measures would only make it more difficult and more costly. The effect of the unrest on the labour market for the economy is obviously an unambiguously negative. I hope and believe that all parties involved would soon find a way forward. After all, it is in all parties’ interest that Finland has prosperous firms with satisfied workers. More

SHANGHAI (Reuters) – Victor Li is determined to get married soon, but like many other young Chinese grappling with an uncertain economic outlook, the well-heeled Shanghai entrepreneur isn’t sure he can afford to.”It’s very expensive for us to get married, especially in a big city like Shanghai,” the 32-year-old said, as he took a break from a ticketed networking event for wealthier, top university-educated singles at an upmarket Shanghai jazz bar.”In terms of financial ability, it actually puts a lot of pressure on young people, including me.”As the world’s second biggest economy slows, an increasing number of people are opting to stay single due to poor job prospects amid record youth unemployment and chronically low consumer confidence, leading to a record slump in marriage registrations in 2022.This reluctance to tie the knot is worrying policymakers grappling with a decline in births and a rapidly aging population in a country that was once the world’s most populous, and where marriage rates are closely tied to birth rates as unmarried mothers are often denied child-raising benefits.China’s fertility rate is currently one of the world’s lowest, and official data on Wednesday is expected to show that the population fell for a second consecutive year, renewing concerns about the demographic decline.Last year, President Xi Jinping said it was necessary to “actively cultivate a new culture of marriage and childrearing” to foster national development. Local governments have also announced various measures to encourage new families, including tax deductions and housing subsidies, as well as cash ‘rewards’ for marriages if the bride is aged 25 or younger.Julia Meng, whose company “Julia’s Events” organised the Shanghai singles event, said an increasing number of people aged 35 and older had effectively “given up” on marriage.Younger Chinese, like event attendee Jack Jiang, say they want to get married, but high housing prices, uncertain job prospects and the general economic situation isn’t helping.”It’s not that we want to be single, it’s the urban structure, economic situation that have led to this result,” the 32-year-old entrepreneur said. More