Economy

YAKUTSK, Russia (Reuters) – Two Siberian airlines have asked the Russian government to extend the service life of Soviet-era Antonov aircraft, many of which are over 50 years old, as Russian planemakers scramble to plug the gap left by the exodus of foreign manufacturers. The small, propeller-driven An-24 and An-26 planes carry up to 50 passengers and are well-suited to the harsh conditions in Siberia and Russia’s far north. But the cost of maintaining them will only increase after Western sanctions against Russia over the conflict in Ukraine have hit investment and access to parts, airline executives, pilots and industry experts say. The sanctions, which have banned supplies of new aircraft and parts for planes made by the likes of Boeing (NYSE:BA) and Airbus, caught Russia’s aviation industry by surprise. Antonovs make up a fraction of Russia’s fleet of over 1,000 passenger planes, but the call to extend their service life from the typical 60 years highlights the problems domestic planemakers are having to keep pace with demand. “It’s a very reliable aircraft, all the systems work properly, there are no issues at all,” Polar Airlines pilot Konstantin Nazmutdinov told Reuters. “It is very well suited to the conditions of the far north, it can withstand temperatures up to minus 55 (degrees Celsius) (-67°F). There have even been cases when we flew in up to minus 60.”The Antonovs were designed in the 1950s and produced in Kyiv from the 1960s, but none has been made for almost a decade. In Yakutia, Russia’s largest region almost the size of India and the heart of Russia’s diamond industry, the planes are crucial. Almost 100 remain in service, with an average age of about 50 years, Sergei Zorin, deputy CEO of Siberian airline Angara, said. Some are due to be phased out as soon as this year. “By 2030, a quarter of these planes will be written off,” Zorin said, without more investment in maintenance and repairs.”It is expensive, it is impossible to afford without state support,” Zorin said. “We are today working in a market in which there are no alternatives to the An-24 and An-26.” An official from Russia’s trade and industry ministry told a meeting in parliament in November it was studying proposals from Zorin, backed by Polar Airlines, for Antonovs to be used until new, similar, Russian-made aircraft could be put into operation. The aviation authority, Rosaviatsiya, did not immediately respond to a request for comment. Russia has handed out more than $12 billion in state subsidies and loans to keep its aviation sector afloat since the Western sanctions were introduced, a Reuters analysis shows.’FLYING TRACTOR’The Antonovs don’t have to land on runways, but can manage on the ground or snow. An aircraft carrying 30 passengers landed on a frozen river near an airport in Russia’s far east in late December due to a pilot error. There were no casualties.”The An-24 is, as my father used to say, a flying tractor,” passenger Konstantin Semyonov told Reuters on the snow-covered runway at Yakutsk airport, around 5,000 km (3,100 miles) east of Moscow. “It flies and flies and flies … Don’t be afraid to fly on it, we’ve been doing it for a long time.”But maintaining Antonovs will soon stop being economically viable, according to Oleg Panteleev, head of the Aviaport aviation think tank.”The continuing use of An-24 and An-26 planes will inevitably raise the cost of flight hours,” Panteleev told Reuters. “Keeping an aging fleet operational … will become more and more expensive.”President Vladimir Putin inadvertently highlighted the importance of Antonovs on a visit to the far east this week.”I had planned to fly to Yakutia,” Putin said on Wednesday. “The plane can’t land there. I had to cancel my trip to Yakutia. “This is a specific failure due to the transport arrangements,” the Interfax news agency quoted him as saying.Zorin does not expect mass production of the new Ladoga aircraft, the same class as the An-24 and An-26, to begin until 2027 at best, later than the government’s most recent plans envisage. “The An-24 and An-26 have been and still are the only means of carrying passengers and freight in Yakutia,” said Alexei Yevseev, Polar Airlines acting technical director. “There’s no substitute for these planes.”Everyone using these planes has experienced problems with spare parts and engine components in the last two years, he said. “This needs to be sorted.” More

BEIJING (Reuters) – China’s Commerce Minister Wang Wentao expressed concern over U.S. curbs preventing third countries from exporting lithography machines to China during a phone call with U.S. Commerce Secretary Gina Raimondo on Thursday, his ministry said.Washington has used export controls to cut off China’s access to advanced chips and chip-making tools that could fuel breakthroughs in AI and sophisticated computers for its military. It has also lobbied allies with key suppliers to adopt similar curbs. “Wang Wentao focussed on the United States’ restrictions on third-party exports of lithography machines to China, a (U.S.)investigation into the legacy chip supply chain, and sanctions that suppress Chinese enterprises,” a Commerce Ministry statement said.Netherlands, home to the world’s leading chip equipment maker ASML (AS:ASML), was one of the countries involved. On Jan. 1, ASML said the Dutch government had revoked an export licence covering the shipment of some of its equipment to China. ASML’s most sophisticated machines – extreme ultraviolent “EUV” lithography machines – are already restricted and have never been shipped to China.New U.S. export bans in October then stopped ASML from even sending older models of its DUV semiconductor equipment to China.China was ASML’s biggest market in the third quarter of 2023, and responsible for 46% of the company’s sales.”We are deeply concerned by the direct involvement of the United States in interfering with the export of lithography machines by Dutch companies to China,” Shu Jueting, a commerce ministry spokesperson, said at a press conference on Thursday.”China firmly opposes the U.S. instrumentalising and weaponising export control issues, and even wantonly interfering in normal trade… we urge the Dutch side to respect the spirit of the contract,” she added.Commerce Minister Wang’s discussion with Raimondo also highlights Beijing’s concern at a U.S. Department of Commerce survey into how U.S. companies are sourcing so-called legacy chips – current-generation and mature-node semiconductors – as the department moves to award nearly $40 billion in subsidies for semiconductor chips manufacturing.The department said the survey aims to reduce national security risks posed by China and will focus on the use and sourcing of Chinese-manufactured legacy chips in the supply chains of critical U.S. industries.Wang and Raimondo also discussed the boundary between national security concerns and trade and economic cooperation, China’s commerce ministry said. More

The central bank’s latest inflation outlook for the year starting April stands at 2.8%, in the last report released in October. Recent falls in crude oil prices would prompt the downgrade in the new report due on Jan. 23, Jiji said without citing a source.BOJ Governor Kazuo Ueda has pledged to keep the central bank’s ultra-loose monetary policy intact until wage increases become widespread enough to keep inflation sustainably around its 2% target. More

WASHINGTON (Reuters) – The slide in inflation that gathered pace at the end of 2023 has begun shifting attention at the U.S. Federal Reserve to the health of the job market, with officials increasingly attuned to the risks of keeping monetary policy too tight for too long and watching for evidence of stress in business hiring plans.The monitoring ranges from focused talks with local executives about whether layoffs are anticipated for the year, to a closer look at what industry employment patterns say about the health of the job market overall, and an ongoing debate over whether still-elevated wage growth risks rekindling inflation.The shift in focus comes as the Fed must decide in coming months the point at which the risks of slowing the economy more than needed to curb inflation outweigh the likelihood that inflation will resurge. It’s a judgment in effect of whether officials have done enough to control the pace of price increases and now need to protect the employment side of their two congressionally mandated goals.It’s a consequential decision for November’s U.S. presidential election, given the stakes for both parties if voting takes place with inflation controlled, interest rates falling and unemployment still low – the “soft landing” trifecta the Fed appears to be approaching – or, alternately, with still-tight monetary policy, expensive credit, and potentially rising joblessness. While policymakers generally still focus on the fact that inflation is above the Fed’s 2% target, the commentary has become more two-sided.”I’ve got a natural bias to be tighter” to ensure inflation is controlled, Atlanta Fed President Raphael Bostic said this week.But the concentration of recent hiring in a handful of industries like health and education “means that the slowdown is actually happening” through much of the economy, Bostic said. “The question is does that continue…on a smooth path? Or do we get to a place where it slows down so much that we are near a cliff?…We need to be getting touch points on a regular basis so we can see the change as it’s happening and not find out like two months later.”‘CRACKS’ EMERGINGThe central bank next meets on Jan. 30-31, and policymakers are expected to leave their benchmark interest rate steady at the current 5.25% to 5.5% range. Still, their policy statement and Fed Chair Jerome Powell’s comments at a post-meeting press conference should shed light on how confident officials are that inflation is contained and how close they are to cutting rates.A majority of officials feel rates will need to fall this year to between 4.50% and 4.75%, a decision to be shaped by inflation data but also by whether and how quickly job growth slows.Minutes of the Fed’s December decision showed emerging concern about the risks ahead, with a few officials pointing to a difficult “tradeoff” possibly approaching between further inflation control and marked job losses, and “several” Fed officials worried the economy “could transition quickly…to a more abrupt downshift.”There’s no evidence of that yet, with the latest data showing solid monthly job gains and the unemployment rate below 4% for nearly two years, the best such stretch since the late 1960s.But it may be just below the surface.Sarah House, senior economist with Wells Fargo Corporate and Investment Banking, last week pointed to “cracks” in the job market including a steady decline in temporary workers, something that has signaled previous business cycle turns, and a drop in average hours worked. She expects employment gains this year to fall below the roughly 100,000-per-month pace needed to keep the unemployment rate steady.Such data “doesn’t bode well for momentum as we head into 2024,” she said.’HARDER FROM HERE’For now, though, the underlying sense among policymakers including Powell is the labor market remains in a healthy transition from the outsized job and wage gains of the pandemic to something more sustainable while the inflation fight remains incomplete. At his December press conference Powell noted the comfortable space the Fed has operated in of late, with “the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment.”Yet it was largely due, he said, to improvements in the supply side of the economy, including an unexpected surge of workers into the job market and a jump in productivity. None of that is guaranteed to continue. “At some point you will run out of supply-side help,” Powell said. “We kind of assume that it will get harder from here.””Harder,” in the current context, means completing the inflation fight would still require the sort of old-school blow to demand that could cause rising joblessness.Past U.S. experience navigating that process has not been pleasant. Increases in the jobless rate of half a percentage point over the course of a year, for example, are historically associated with recession, and are typically followed by further increases in joblessness – a “hard landing” rather than the gentle descent from high inflation the Fed hopes to oversee.Monetary policy can be slow to impact the economy, with a hard-to-estimate time lag between Fed decisions to change interest rates and the borrowing, spending, and employment decisions of businesses and households that influence inflation.Those lags concerned the Fed when it came to controlling inflation that erupted in 2022 to a 40-year high. They remain in play as inflation slows and central bankers anticipate how much further they need to restrain economic activity without going too far.”We should normalize rates as the economy gets back to normal,” Richmond Fed President Thomas Barkin told reporters last week, but added he was still building “confidence and conviction” that the easing of price pressures would spread broadly through the economy.”I don’t have any objection conceptually to toggling rates back towards normal levels as you build increasing conviction and confidence that inflation is on a convincing path back to your target,” he said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The boss of shipping giant AP Møller-Maersk has warned it could take months to reopen the crucial Red Sea trading route, risking an economic and inflationary hit to the global economy, companies and consumers.Vincent Clerc, Maersk’s chief executive, told the Financial Times on Thursday that the closure of the Red Sea to most container shipping after a series of attacks from Yemen’s Houthi militants was “brutal and dramatic”. He added there were “no winners” as a result of the situation, which has forced vessels to take long and costly detours around South Africa.“It’s unclear to us if we are talking about re-establishing safe passage into the Red Sea in a matter of days, weeks or months . . . It could potentially have quite significant consequences on global growth,” he said.Maersk is a bellwether of global trade, carrying about a fifth of ocean freight. Clerc urged the international community — led by the US — to do more to allow the Red Sea to reopen for ships following a recent escalation of attacks in the region. In an indication that threats have also spread to the Gulf, an oil tanker off the coast of Oman was seized on Thursday by what UK maritime authorities said were people in black military-style uniforms.While no one has yet claimed responsibility for the incident, Tanker Trackers, a private maritime intelligence service, suggested it was likely to be Iran.A Maersk vessel was attacked in mid-December, causing the Danish group to suspend journeys through the Red Sea, a crucial link between Asia and Europe. The group restarted trips a few days later after a US-led military coalition tried to create safe passage, but it suffered a further attack at the end of December. Last week, Maersk said it would divert ships from the Red Sea around Africa “for the foreseeable future”.Diverting container ships via the Cape of Good Hope adds about 13,000km in distance for an Asia-Europe round trip, and hundreds of dollars per container, Clerc said.“At this time when inflation is a big issue, it’s putting inflationary pressure on our costs, on our customers, and ultimately on consumers in Europe and the US,” he added. “In the short run, it could cause significant disruptions at the end of January, February and into March.”Maersk’s fuel bill will be 50 per cent higher as a result of ships taking the longer route. If unresolved, ships will soon be out of position, threatening logistics and global supply chains, Clerc said. “We are urging the international community to mobilise and do what it needs to do to reopen the [Bab-el-Mandeb] strait. It is one of the main arteries of the global economy, and it is clogged right now. “It could have wider ranging consequences not only for the industry but for end consumers, product availability, the global economy as a whole,” he added.Maersk’s share price has risen by a quarter in the past month as container freight rates have shot up.Asked how it felt to be making more money from a situation that was hurting his customers and the global economy, Clerc replied: “Let me be completely unambiguous: our goal is to establish safe passage and go back to a normal trading pattern. That is what we are deploying all our assets in doing. While we are doing this, we have to sail around the Cape of Good Hope and there are consequences of this.”He added that Maersk had little visibility over the security situation around the Red Sea as it was “morphing” all the time as well as being linked to the Israeli-Palestinian conflict.“The modus operandi evolves. The type of weapon evolves. The geographical range expands. There are a lot of things for us that make the risk levels hard to assess. So we need to be prudent,” Clerc said. More

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This article is an on-site version of Martin Sandbu’s Free Lunch newsletter. Sign up here to get the newsletter sent straight to your inbox every ThursdayGreetings. This month, it is 25 years since 12 EU countries merged their currencies and the euro was born. It took another three years for euro banknotes and coins to replace the francs and marks, pesetas and lire that preceded them, their exchange rates had been irrevocably fixed and the monetary system was running on euros everywhere but in the shops. Below are some reflections on how it has turned out differently from what might have been expected. But first, don’t forget that the FT’s charity auction is still running — and there are some bargain deals (lunch with me!) to be snapped up!At an event this week, I and the other participants were set the following “essay” question: “The euro is not what we expected it to be. Discuss.” The answers, of course, must depend on who you take “we” to be.I start by assessing the expectations of the critics of monetary union. They predicted that merging the currencies of such different economies would make it much harder to protect against asymmetric shocks. The harshest of them concluded that the euro would surely disintegrate, unless it was complemented by a great leap of fiscal integration and transfers from creditor to debtor states — on which, see the next point.They focused, however, on the wrong shocks. Few had thought through how balance of payments crises would work out, nor had many predicted that the euro would have the misfortune to be born into the biggest global credit bubble of all time, as I described in my book on the single currency. As for conventional asymmetric shocks (changes in relative goods prices, say, or idiosyncratic downturns), the euro made little difference, and the balance of payments crises were, of course, managed (albeit badly) without setting up a fiscal union. So the most unexpected thing, from one starting point, is that the euro is still there, intact and, in fact, growing. I remember a colleague, who shall remain nameless, forecasting after Greece’s near-exit from the eurozone in 2015, that at least one country would leave the single currency within 10 years. But not a single member has left, despite the repeated Greek crises of 2010-15, and many new countries have joined, the last being Croatia a year ago.The second point is that both the detractors and many supporters expected monetary unification to force the emergence of a fiscal and transfer union whose members put large budgets in common, the richer subsidising the poorer. Look to the US, the argument often went, whose federal budget leads to much more redistribution between states than takes place between EU members. The monetary union would be “incomplete” without such a system. A leap of fiscal integration did take place in Europe in 2020. But it was for the EU as a whole, not for the eurozone: the establishment of an €800bn post-pandemic resilience and recovery fund, which would go on to make grants (and loans) to member states backed by previously unthinkable common bonds. And the political and economic motivations that made it happen related not to the single currency, but to the single market. The fear was that national budget support for companies and workers in the pandemic would be so uneven between countries that it would destroy the competitive “level playing field” and the single market itself. (This fear has returned in the case of national subsidies for green and chips infrastructure and energy subsidies.)That the logic of the single market proved stronger than the logic of the single currency is no small thing. The euro itself was in part motivated by the need to make the single market work better: “One market, one money” the slogan went.And note the parallels between today’s subsidy wars and the pre-euro competitive devaluations in how they are felt to undermine the level playing field in the single market. In the 1980s, the worry was that competitive devaluations — stealing your neighbour’s demand to boost your economy — would undermine the attempt at unifying the real economy. Monetary unification got rid of nominal exchange rate changes within the bloc. But the same beggar-thy-neighbour impulse has today returned in the race to subsidise green industry, with economic and political effects similar to the old competitive devaluation problem. The threat posed by the subsidy race, however, is again to the single market as a whole, not to the monetary union. Hence the discussion on how the integrity of the single market requires either more discipline on subsidies or — more likely at a time when domestic cutting-edge green industry is a political imperative — more common spending on subsidies at the EU level. Remembering the single market helps us realise that some of the policies and reforms without which monetary union supposedly cannot function, are really policies and reforms required for an integrated economic bloc — regardless of currency arrangements — to perform well. Take banking union (unification of banking regulations, a harmonised approach to resolution and deposit insurance, and removal of barriers to cross-border banking). The project is now seen in the context of making the monetary union work well, but the EU contemplated it in its own right long before the euro. It could well have been put in place sooner — and the eurozone crisis may have played out differently if it had.Or, take the case for transfers between richer and poorer states — that, too, may be necessary to equalise the gains of economic integration and to maintain public support for it, even between countries that do not join a common currency. Again, then, this is a motivation for fiscal integration that is more strongly mobilised by the single market than the euro.This is not to say that there aren’t some policy or institutional imperatives that are unique to the euro. One is the need to achieve the correct aggregate fiscal stance of the eurozone countries put together, which becomes challenging once monetary policy is unified but fiscal policy remains national. The reform of the EU’s fiscal rules (which I am generally modestly optimistic about) missed an opportunity to put in place a robust mechanism to ensure that the eurozone countries collectively determine the fiscal stance they think appropriate. But even if it is not ensured, it is possible, and it is to be hoped that the opportunity to do so will be seized in the eurozone’s budgetary politics going forward.Another is the forthcoming digital euro — the retail central bank digital currency that I am confident the European Central Bank will start issuing within a few years (in fact I’m on the record predicting it by the end of 2025, which may be a little ambitious but perhaps not so much). Over at FT Alphaville, Bryce Elder has a nice piece on how the digital euro project is, however, stymied by the ECB’s keenness not to disrupt legacy banks even one little bit. As he puts it: “If a European CBDC doesn’t break a few [banks], what’s the point?” In any case, I think the digital euro will, in time, have a greater impact than many seem to believe now — mostly positive even if, or even because, it is disruptive — if it is allowed to do so.Most discussions of what the euro “needs”, however, are really about the demands flowing from economic integration generally, which is to say, the single market. Being lucid about that could make those discussions more constructive.Other readablesNumbers newsRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. 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

ISTANBUL (Reuters) -Turkey, Romania and Bulgaria signed an agreement on Thursday on a joint plan to clear mines floating in the Black Sea as a result of the war in Ukraine, following months of talks between the NATO allies.Turkish Defence Minister Yasar Guler, his Romanian counterpart Angel Tilvar and Bulgaria’s Deputy Defence Minister Atanas Zapryanov signed a memorandum of understanding in Istanbul to form a trilateral initiative to clear the explosives.”With the start of the war, a threat of floating mines in the Black Sea has arisen. To combat it … we agreed to form a Black Sea mine counter-measures task group,” Guler said at the signing ceremony.Sea mines have posed a threat to Ukraine’s export routes via the Black Sea since Russia’s invasion in February 2022 and several commercial ships have been hit, including a bulk carrier heading to the River Danube port to load grain in December.Three minehunting ships from each country and one command control ship, will be assigned to the initiative, a Turkish defence ministry official said.Naval commanders of the three countries will form a committee to run the operation, Guler said, adding that it might include other Black Sea states after the war in Ukraine ends.Guler said Turkey viewed potential contributions to this initiative by non-Black Sea NATO allies as “valuable” but that it will only be open to ships of the “three littoral allied countries.”Turkey said last week it would not allow two minehunter ships donated to Ukraine by Britain to transit its waters en route to the Black Sea since it would violate the 1936 Montreux Convention, an international pact concerning wartime passage of the Bosphorus and Dardanelles straits.”As Turkey, we have implemented the Montreux Convention carefully, responsibly and impartially, which ensures the balance in the Black Sea,” Guler said.NATO spokesperson Dylan White welcomed the deal in a post on social media platform X, saying that it was “an important contribution toward greater freedom of navigation and food security in the region and beyond.”Defence ministers from the three Black Sea countries held talks on the mine clearing plan at a NATO meeting in Brussels in October last year and in Ankara in November as they worked to finalise the initiative.Ankara, which maintains good ties with both Kyiv and Moscow, is also working with the United Nations, Ukraine, and Russia to revive the Black Sea grain initiative which Moscow quit last year, though there have been no public signs of progress on those talks. More