Economy

“A bumper kharif (summer crop) harvest is expected to lower food inflation in the coming months,” the report said. India’s retail inflation surged to a 14-month high in October, driven by high vegetable prices.A favorable monsoon, adequate reservoir levels and higher minimum support prices are likely to boost winter crop sowing and production, it said.”Early November trends signaled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains,” it said.The report said many high-frequency indicators of economic activity in India have shown a rebound in October after a brief period of softening momentum.Persistently high inflation has squeezed India’s middle class budgets, slowing urban consumption in the last few months and threatening brisk economic growth. India expects the economy to grow at 6.5%-7% in the financial year that ends in March.India’s export recovery may encounter challenges due to softening demand in developed markets, the report said, with trade in services sustaining momentum.”Geopolitical developments and policy decisions of the next administration in the United States will determine the course of trade and capital flows,” it said. More

President-elect Donald Trump nominated fund manager Scott Bessent to be his incoming US Treasury Secretary on Friday, and the decision has been generally received favorably given he’s seen as a mainstream candidate rather than an unknown.Bessent has spent his career in finance, working for macro investment billionaire George Soros and noted short seller Jim Chanos as well as founding Key Square Group, a global macro investment firm. He was an economic advisor for Trump’s 2024 presidential campaign. In an interview with the Wall Street Journal, published on Sunday, Bessent indicated he will prioritize delivering on election tax cut pledges, including making Trump’s first term tax cuts permanent, as well as eliminating taxes on tips, social-security benefits and overtime pay.Bessent said, in the interview, that he would also focus on enacting tariffs, although has also said they should be objectives “layered in gradually”, while the levels of tariffs being mentioned, such as 60% on Chinese goods, were “maximalist” positions that might be watered down.In various media appearances he has talked of cutting the budget deficit to 3% of GDP and dealing with the mountain of U.S. debt, largely by slashing spending.That said, the amount of discretionary spending there is to cut is trivial compared with the essential stuff such as Medicare and defence.US bond yields fell after his appointment, dragging the dollar lower, while stock index futures climbed on Wall Street.US stock futures rose Monday, continuing the previous week’s positive tone ahead of Thursday’s Thanksgiving holiday. By 03:45 ET (08:45 GMT), the Dow futures contract was up 260 points, or 0.6%, S&P 500 futures climbed 25 points, or 0.4%, and Nasdaq 100 futures rose by 90 points, or 0.4%.The main benchmarks posted positive weeks last week, with the Dow Jones Industrial Average advancing around 2% to finish at a record close. The broad-based S&P 500 and the tech-heavy Nasdaq Composite each rose about 1.7%.The main economic focus this week will be Wednesday’s Personal Consumption Expenditures Price index, the Federal Reserve’s preferred gauge of underlying inflation.Recent stubborn inflation data has seen the Fed take a cautious stance towards further interest rate cuts.While the US is due to release November data on both consumer and producer prices before the Fed’s next meeting on Dec. 17-18 this will be the final PCE report before then.The retail sector will be in the spotlight this holiday-shortened week, with the US Thanksgiving holiday on Thursday and the following Black Friday marking the start of the holiday shopping season.A fresh batch of retail earnings are also due in the coming days, starting later Monday with Bath & Body Works (NYSE:BBWI), while Best Buy (NYSE:BBY), Macy’s (NYSE:M), Nordstrom (NYSE:JWN) and Urban Outfitters (NASDAQ:URBN) all due to report this week.Earnings results from two major retailers last week gave two very different perspectives. On Tuesday, Walmart (NYSE:WMT) raised its annual sales and profit forecast for the third consecutive time, while Target (NYSE:TGT) shares dropped sharply on Wednesday after it forecast holiday-quarter comparable sales and profit below estimates.Investors are watching the extent to which inflation will weigh on buying habits, with consumer spending accounting for more than two-thirds of US economic activity. The European banking sector received more merger and acquisition news Monday, after Italy’s UniCredit (BIT:CRDI) launched a surprise all-share offer worth €10 billion ($11 billion) for smaller domestic rival Banco BPM (BIT:BAMI).The deal would, if completed, merge two of Italy’s largest lenders, with UniCredit stating that the purchase would allow the bank to “further strengthen its role as a leading pan-European banking group.”UniCredit is also pursuing a potential deal with Germany’s Commerzbank (ETR:CBKG), although the German government has yet to bless the potential union.UniCredit said on Monday the buyout offer for Banco BPM was independent of its proposed investment in Commerzbank.Banco BPM bought 5% in bailed-out mid-sized rival Monte dei Paschi (MPS) earlier this month, a move seen as potentially paving the way for an eventual combination as the state pulls out of MPS entirely.The European banking sector has been considered ripe for consolidation for years, with cash-rich UniCredit often cited as a possible acquirer.Crude prices retreated Monday, handing back some of last week’s hefty gains, on increasing hopes for a ceasefire in the troubled MIddle East, an oil-rich region.By 03:45 ET, the US crude futures (WTI) dropped 0.7% to $70.73 a barrel, while the Brent contract fell 0.7% to $74.14 a barrel.Israel and Hezbollah were close to signing a ceasefire agreement to end hostilities in Lebanon, Axios reported on Sunday, citing Israeli and US officials. Israel daily The Times of Israel also reported that Prime Minister Benjamin Netanyahu was holding high-level talks over the deal, which was brokered by US officials. The prospect of an Israel-Hezbollah ceasefire points to lessening tensions in the Middle East, presenting a lower risk premium for oil. Both contracts gained around 6% last week, notching their biggest weekly gains since late September to reach their highest settlement levels since Nov. 7. More

The cost of Neom has been estimated to be as high as $1.5 trillion.
This year, however, has seen a sharp change in direction in terms of spending for the kingdom.
“Saudi Arabia has poured tens of billions into projects that have yet to hint of any financial returns,” one financier told CNBC.

Digital render of NEOM’s The Line project in Saudi Arabia
The Line, NEOM

In Saudi Arabia’s northwestern desert, a sprawling construction site replete with cranes and pile drivers sits encircled by a recently-built road. A pair of tracks cuts through the site like deep gashes through the sand, comprising the spine of what planners say will be a high-speed rail system.
The skeletal infrastructure forms the foundations of The Line, a multi-billion dollar high-tech city that its architects say will eventually house 9 million people between two 106-mile long glass skyscrapers more than 1,600 feet high.

The project, whose estimated cost is in the hundreds of billions, is just one of the hyper-futuristic venues planned in Neom, the brainchild of Saudi Crown Prince Mohammed bin Salman and a region that the kingdom hopes will bring millions of new residents to Saudi Arabia and revolutionize living and technology in the country. It’s a core pillar of Vision 2030, which aims to diversify the Saudi economy away from oil revenues and create new jobs and industries for its burgeoning young population.
The cost of Neom has been estimated to be as high as $1.5 trillion. In the years since it was announced, Saudi Arabia’s Public Investment Fund, the mammoth sovereign wealth fund now overseeing $925 billion in assets, has poured billions into overseas investments, with ever-increasing waves of foreign investors flying to the kingdom to raise cash.
This year, however, has seen a sharp change in direction in terms of spending, with a stated emphasis on keeping investments at home along with reports of cutting costs on megaprojects like those in Neom. The changes come as the Saudi deficit grows and the outlook for oil demand, along with global oil prices, sees sustained lows.

Construction for The Line project in Saudi Arabia’s NEOM, October 2024
Giles Pendleton, The Line at NEOM

That begs the question: does Saudi Arabia have enough money to meet its lofty goals? Or will it have to be more flexible to make its spending trajectory sustainable?
One Gulf-based financier with years of experience in the kingdom told CNBC: “The PIF’s pivot towards domestic investments, widely acknowledged but now officially admitted, suggests that there is still a lot of spending needed. Saudi Arabia has poured tens of billions into projects that have yet to hint of any financial returns.”

The financier spoke anonymously as they were not authorized to speak to the press.
Andrew Leber, a researcher at Tulane University who focuses on the political economy of the Middle East, believes that the current pace of spending won’t last.
“The number of ‘we pay up front and hope for economic returns later’ giga projects that are currently underway is not sustainable,” Leber said.
“With that being said,” he added, “the Saudi monarchy has shown itself to be somewhat flexible whenever economic realities assert themselves. I do think that eventually, a number of projects will be quietly shelved in order to bring its fiscal outlays back into greater sustainability.”

Digital render of NEOM’s The Line project in Saudi Arabia
The Line, NEOM

Saudi Arabia in October cut its growth forecasts and raised its budget deficit estimates for the fiscal years 2024 to 2026 as it expects a period of higher spending and lower projected oil revenues. Real gross domestic product is now expected to grow 0.8% this year, a dramatic drop from a previous estimate of 4.4%, according to the ministry of finance.  
The kingdom’s economy also swung dramatically from a budget surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023 as it ramped up public spending and decreased oil production due to its OPEC+ supply cut agreement. Its government forecasts a deficit of $21.1 billion for 2024, projecting revenue at $312.5 billion and expenditures at $333.5 billion.
Saudi authorities expect that the budget will remain in deficit for the next several years as it pursues its Vision 2030 plans, but they add that they are fully prepared for this.

“Our non-oil revenues have grown significantly, now it covers about 37% of expenditure. That’s a significant diversification, and that gives you a lot of comfort that you can maneuver and be stable despite the fluctuation in oil price,” Saudi Finance Minister Mohammed Al-Jadaan told CNBC in October. “Our aim is to make sure that our plans are stable and predictable.”
“We are not going to blink, we have significant fiscal resource under our disposal, and we are very disciplined in our fiscal position,” the minister said.
Saudi Arabia has an A/A-1 credit rating with a positive outlook from S&P Global Ratings and an A+ rating with a stable outlook from Fitch. That combined with high foreign currency reserves — $456.97 billion as of September, a 4% percent increase year-on-year, according to the country’s central bank — puts the kingdom in a comfortable place to manage a deficit, economists told CNBC.

Riyadh is successfully issuing bonds, tapping debt markets for more than $35 billion so far this year. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams, which S&P Global said in September “will continue to improve Saudi Arabia’s economic resilience and wealth.”
When asked if the kingdom’s spending trajectory is sustainable, Al-Jadaan replied: “Absolutely, yes,” adding that the government recently published its numbers for the next three years and that “we think it is very sustainable.”
Still, many analysts outside the kingdom, as well as individuals working within the kingdom and on NEOM projects, are skeptical of the megaprojects’ feasibility. Reports that some projects have been dramatically cut down — in the case of the Line, its size target slashed from 106 miles to 1.5 miles and population target down from 1.5 million by 2030 to less than 300,000 — attest to that concern on a higher level.

Neom executives acknowledge that the current phase of work on The Line is for a building length of 1.5 miles — which would still make it the longest building in the world. However, the eventual goal of 106 miles has not changed, they say, stressing that cities are not built overnight and that construction is continuing apace.
For Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, “it’s promising to see transparency and some project cutbacks.”
“The Kingdom’s rising external borrowing reflects challenges with Vision 2030 feasibility,” he told CNBC.
“Though debt remains manageable at 26.5% of GDP, continued small pressures add up, underscoring the need for fiscal discipline and achievable goals.”
Solomon pointed to the desire of many Saudi residents for improvements to the infrastructure they use in their daily lives — like Riyadh’s public transport, network connectivity, schools, and health care.
“The road to resilience for Saudi Arabia isn’t in figuring out ski slopes in the desert but in building with innovation, complexity, and the courage to pursue what’s truly impactful,” he said. More

The $300bn deal for rich countries to help poorer nations struck at the UN climate summit early Sunday was only reached through frantic diplomacy, including a high-level meeting the night before in a VIP room of the Baku stadium.The meeting of ministers from both wealthy and developing nations included Colombian climate minister Susana Muhamad; Kenya’s Ali Mohamed; Brazil’s Ana Toni, Ed Miliband from the UK and Germany’s Jennifer Morgan, those aware of the late night Friday gathering told the FT.It took place as the countries gathered for the UN COP29 summit remained gridlocked over the size and shape of a landmark deal to provide money to developing countries hit by the worst effects of climate change. But it also came against the backdrop of a separate battle for the inclusion of an explicit reference to next steps in the transition away from fossil fuels agreed at the last year’s UN summit in Dubai, to strengthen the pledge. This was blocked by Saudi Arabia and Russia, and was only given an indirect reference in the final outcome, maintaining the status quo. However, fossil fuel reliant nations failed in their push for a reference to “transition fuels” — taken to mean gas — when the overall agenda item was postponed after objections from a Latin American and Caribbean nations alliance, Switzerland, the Maldives, Fiji, Canada and Australia.Ana Toni, Brazil’s national secretary for climate change, and UK energy secretary Ed Miliband were a key duo in shepherding the COP29 agreement 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.The writer is co-founder and chief investment strategist at Absolute Strategy Research‘It’s prices stupid’ was the key lesson that policymakers and markets should take from the US election, as voters appeared to judge the economy through the prism of high prices, rather than falling inflation, or low unemployment. It may be time for them to revisit their policy mandates.Economic concerns remained central to the US election for 80 per cent of Republican voters, second only to immigration. This was despite low unemployment, inflation heading towards 2 per cent, and expectations of lower interest rates. The main issue was the pandemic price shock was not transitory. Despite inflation moderating, as post-pandemic supply pressures eased, a common theme was how voters were being squeezed by elevated price levels, with real wages failing to keep pace. Incumbent administrations in the UK and France were also ushered from office due, in part, to similar economic concerns about prices.In the US, the prices of goods that households regularly purchase (food and petrol) were 28 per cent above January 2020 levels (18 per cent above where they should have been in a 2 per cent inflation world). In the UK, food, drink and energy prices are 30 per cent higher, while in the Eurozone, the European Central Bank’s ‘Frequent Out Of Pocket Purchases’ index is up 26 per cent since the pandemic. It’s no wonder people are hurting.Some content could not load. Check your internet connection or browser settings.There are several lessons policymakers might take away from these political outcomes. For a start, headline inflation matters to people more than “core” — current policy may be targeting the wrong variable. Central banks may feel they are better able to influence “core” prices with their policy, but by looking through shocks in food and energy prices, they are ignoring the prices that matter for most people. If policy had sought to bring demand and supply into equilibrium earlier, we might have seen lower peak inflation, less price persistence, and less political turmoil.But a more fundamental change may be required. Many big central banks have implicitly returned to setting monetary policy with reference to Taylor Rule models, where interest rates are anchored around how far the economy is from the inflation target, and the degree of slack in the economy. However, these elections suggest voters would prefer more price-level stability, over low inflation rates, or full employment.If that’s the case, then central banks might want to revisit an alternative policy framework; the idea of price-level targeting, as proposed by Professor Michael Woodford of Columbia University. In this framework, policy targets a constant rise in the level of prices over time, so that if prices rise above that rate, policy has to respond sufficiently to reverse any price level divergence. This contrasts with the current framework, which can celebrate a return to 2 per cent inflation, even though the target has been missed for multiple years, and has left households with major losses in real purchasing power. By encouraging early action to limit the initial divergence from the desired price levels, this framework can, theoretically, deliver gains for consumers.Some content could not load. Check your internet connection or browser settings.Another issue with the current inflation-targeting regime is that for economies with large services sectors, the centrality of labour costs to service-sector inflation means that squeezing real labour incomes has been a key part of achieving the inflation targets. Indeed, ever since Paul Volcker as Federal Reserve chair started bearing down on inflation from the end of the 1970s, the majority of the gains in productivity have been captured by companies, not labour. Inflation targeting was supposed to boost productivity through reducing uncertainty and encouraging investment. But trend productivity has actually slowed since the early 1980s. Companies boosted profits, not growth, by cutting investment, increasing dividends, and prioritising buybacks.Because inflation targeting has boosted returns to capital over labour, it may have also contributed to increasing income inequality. This disparity has probably played a role in the rise in populism in many countries.In conclusion, this year’s elections have been an implicit rejection of the current monetary framework. Despite low unemployment, elevated price levels have squeezed real wages for many, fuelling discontent. If politicians want to get re-elected, and central banks want to remain relevant to society, it may well be time for them to revisit their mandates. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Heathrow’s incoming largest shareholder has thrown its weight behind expanding the UK’s largest airport, and said it would back management if it tried to build a third runway.French private equity group Ardian agreed to buy a 23 per cent stake in Heathrow in June, part of a £3.3bn shake-up in ownership at the airport which also saw Saudi Arabia’s sovereign wealth fund buy a stake.With the deal expected to complete before the end of next month, Ardian’s head of infrastructure Mathias Burghardt told the Financial Times that Heathrow needed to expand in the coming years.“Growth is in our DNA. We don’t invest in companies, or in infrastructure if they don’t have a growth plan,” he said. Heathrow’s chief executive Thomas Woldbye is within months expected to announce the airport’s first expansion plan since the pandemic, which will prioritise small-scale improvements to increase passenger numbers. He told an industry conference on Monday that Heathrow hoped to make a final decision on whether to press ahead with the planning process for a third runway by the end of 2025. But the only way to significantly increase capacity would be to build a new runway, a politically contentious topic that has remained unresolved for decades. Prime Minister Sir Keir Starmer’s cabinet is split over whether to back a third runway, the FT reported this month. Burghardt backed Woldbye’s plan, and said he would then support a third runway if there was “consensus” behind it.“The first thing is to grow the airport within the existing footprint, and then . . . how can we ensure growth beyond the existing footprint?”“If management designs growth, which could be a third runway . . . and if there is consensus, first with the government, but beyond that, other stakeholders, we certainly will support it for sure,” he said. But amid rising concerns about the difficulty of decarbonising aviation, Burghardt said any plans would be contingent on a credible plan to lower emissions. “Companies which are not prepared for that will really have problems in the future, and that will limit their growth,” he said. Asked whether Ardian would be willing to part-fund any big expansion — Heathrow’s third runway project was costed at about £14bn in 2019 — he replied: “Without being specific to Heathrow, our job is always to put [in] more money . . . the more capex, the more growth.”Ardian’s deal for a stake in Heathrow was followed this month by the Canadian pension investor PSP’s acquisition of the operator of Aberdeen, Glasgow and Southampton airports for £1.5bn, marking the latest investment in the British travel sector following the pandemic.Burghardt said that while travel had rebounded since the pandemic, it remained “difficult to say what is normal” as the mix of passengers had shifted since video meetings had replaced some business trips.He also said the UK remained an attractive market for investment, even amid fears that struggles at Britain’s largest water utility Thames Water would deter private funds from backing other UK infrastructure.“We’ve been investing in the UK for a period of years,” he said. “I really believe the UK has demonstrated the strength of its institutions.”However, he said that when Ardian sold its stake in the UK’s Anglian Water in 2014 the firm was “not convinced regulatory dynamics would evolve positively” in that sector, but that when it came to Heathrow and the airport sector “we believed that the existing regulation is a good regulation overall”. More