Economy

SEOUL (Reuters) – South Korea’s government will put its focus on supporting people’s livelihoods and managing risk factors, as it cut the country’s 2024 GDP forecast and raised its inflation projection.In its biannual economic policy plan released on Thursday, the finance ministry expected the economy to grow 2.2% in 2024, down from 2.4% seen in July, after expanding 1.4% in 2023 which was a three-year low.The ministry expected consumer prices to rise 2.6% this year, up from its previous forecast of 2.3%. In 2023, prices rose 3.6%. “The economic recovery will be stronger (than last year) amid improvements in global trade and demand for semiconductors, but there will be difficulties in domestic demand and people’s livelihoods due to persistently high inflation and interest rates,” the ministry said.The government will primarily focus on economic recovery for the common people, while managing potential risk factors, it said. South Korea’s exports rose for a third straight month in December as demand for chips started to pick up, raising hopes for an economic recovery driven by semiconductor exports. The country’s central bank has maintained its policy interest rate at 3.5%, the highest since late 2008, since the last hike in January 2023, in its continued fight against slowly easing, but still high inflation. The finance ministry said it aims to bring down inflation, which stood at 3.2% in December, to the 2% level within the first half of 2024, with more policy measures, such as tax and tariff cuts, and freezing public utility costs.To boost consumption, the government plans to raise tax exemptions on credit card spending and continue efforts to attract more foreign tourists, including the exemption of visa issuance fees for group tourists from China and other Asian countries. For companies, the ministry said it will introduce new temporary tax cuts on investments in research and development and extend existing tax breaks on facility investments until end-2024.The ministry said it will expand liquidity support measures if needed to prevent a credit crunch in builders and real estate projects. Last month, a mid-sized builder applied for a debt restructuring, raising concerns over the construction sector. More

BEIJING (Reuters) – China’s state planner has issued new rules on strengthening the integration of new energy vehicles with the electric grid, as the world’s biggest market for electric vehicles (EVs) aims to manage its power demand amid a transition to renewable energy.The notice, published on Thursday by China’s National Development and Reform Commission, calls for the creation of initial technical standards governing new energy vehicle integration into the grid by 2025. New energy vehicles will become an important part of the country’s energy storage system by 2030, it said.As electricity demand surges due to the increasing popularity of new energy vehicles, solutions are being sought by governments and other stakeholders to prevent power networks from being overwhelmed.Charging during off-peak hours as well as ‘vehicle-to-grid’ charging – where millions of EV owners could sell their EV batteries’ juice back to grid operators during peak hours – have been seen as potential solutions.China is seeking to use those strategies to manage peak power demand through the integration of electric vehicles into the power system, according to the NDRC.By 2025, NDRC said it would set up over 50 pilot programs in regions where conditions for vehicle-grid integration are relatively mature, including in the Yangtze River Delta, Pearl River Delta, Beijing, Sichuan and Chongqing. More

Consumer borrowing grew by a net 2.0 billion pounds ($2.5 billion), the most since March 2017 and more than any forecast in a Reuters poll of economists, after an increase of 1.4 billion pounds in October.Official data published last month showed much stronger-than-expected sales by retailers in November, boosted by Black Friday seasonal discounts. The BoE data showed loans for home purchases totalled 50,067 in the month, higher than a median forecast of 48,500 in the Reuters poll.The British central bank raised interest rates to a 15-year high of 5.25% in August and has said it expects to keep them elevated for “an extended period of time” to ensure that the risks posed by the surge in inflation in 2022 are snuffed out.A separate survey published at the same time as the BoE data showed Britain’s services firms grew more strongly in December than initially thought and optimism hit a seven-month high.Sterling was strengthened to be up about 0.5% against the U.S. dollar after the BoE data and the survey were published.  The surge in borrowing costs caused a slowdown in the housing market over much of 2023. Thursday’s data showed the annual growth rate for net mortgage lending slowed to 0.3% in November, the lowest since the monthly series began in March 1994.But changes in the total value of mortgage lending typically lag the more forward-looking approvals numbers.Ashley Webb, an economist with Capital Economics, said the resilience of the approvals data suggested that falls in recent weeks in mortgage interest rates would encourage new borrowing to buy a home.But the creeping impact of higher borrowing costs – which will push up the cost of around 1.5 million existing fixed-rate mortgages that are due to expire in 2024 – would take its toll on consumer spending, Webb said.The BoE data showed households were continuing to move savings into higher interest, fixed-term accounts.($1 = 0.7868 pounds) More

SHANGHAI/SINGAPORE (Reuters) – China’s local government financing vehicles (LGFVs) are repaying their bonds early at the fastest pace since 2018, taking advantage of a Beijing-backed debt swap programme aimed at slashing localities’ borrowing costs.The redemptions have jumped since October, when Beijing allowed local governments to issue special refinancing bonds, estimated to be worth over 1 trillion yuan ($139.85 billion), which could replace their higher-yielding LGFV debt.However, investors are opposing the redemptions for fear of losing out on their gains from the higher-yielding LGFV bonds and a lack of alternative products with equal returns. The objections are adding to the fiscal struggles of the local governments, who face a wall of maturing bonds in 2024 amid a sluggish economy and wobbly property market. LGFVs, set up by local governments to fund infrastructure projects such as bridges and roads, made early redemptions worth 37.8 billion yuan in December, the biggest monthly amount in five years, according to data from Financial China Information & Technology Co. But bond holders are unwilling to concede to the early redemptions as “re-investing the money would generate lower returns,” said Huang Xuefeng, credit research director at Shanghai Anfang Private Fund.Only 59% of such early redemption proposals were backed by investors at bondholder meetings in 2023, data from Caitong Securities shows. Some LGFVs have been trying to incentivize the redemptions with extra monetary benefits. Analysts said the investors approving these redemptions were primarily state-owned banks or entities.The low approval ratio “reflects the tussle between LGFVs and bondholders, and restricts the progress of early redemptions,” said Caitong analyst Fang Duo.Hengyang Urban Construction Investment, Yingkou New Area City Development and Construction Investment and Nanchong Liniang Oriental Investment Group are among the LGFVs whose early bond redemption proposals were rejected by investors, according to filings. Still, 128 LGFV bonds have been redeemed since October, as local governments, laden with nearly $9 trillion of debt, scramble to replace the LGFV bonds, yielding 6%-8% in most cases, with the new refinancing bonds that bear a coupon of roughly 3%. As a result, LGFV net financing slumped to a negative 12 billion yuan in December, following a deficit of 2 billion yuan the previous month.”This means the existing pool of LGFV bonds may trend lower,” said Yao Yu, founder of credit analysis firm Ratingdog.It’s not yet clear exactly how much support local governments will continue to get from Beijing to avoid defaulting, as a record 4.2 trillion yuan of LGFV bonds are due to mature this year, according to data from Financial China.UBS forecasts another 2-3 trillion yuan of local government bonds will be issued to replace the LGFV debt, while the central bank may continue providing emergency liquidity support to heavily-indebted regions. U.S. consultancy Rhodium Group forecast that China’s economy will grow just 3%-3.5% in 2024, more slowly than the mainstream forecast.”Beijing could choose to boost growth by selling additional central government debt and giving money to the provinces to spend on infrastructure” rather than letting provinces finance this spending with their own bond issuance, Rhodium analysts led by Daniel Rosen wrote.($1 = 7.1506 Chinese yuan renminbi) More

1. Futures inch higherU.S. stock futures pointed into the green on Thursday, with investors looking ahead to fresh labor market data this week and digesting minutes from the Federal Reserve’s latest policy meeting.By 04:57 ET (09:57 GMT), the Dow futures contract had added 37 points or 0.1%, S&P 500 futures had climbed by 5 points or 0.1%, and Nasdaq 100 futures had risen by 31 points or 0.2%.The main averages on Wall Street all closed lower in the prior session, as a dismal start to the new year for equities extended into a second day. The benchmark S&P 500 and 30-stock Dow Jones Industrial Average both slipped by 0.8%, while the tech-heavy Nasdaq Composite dropped by 1.2% — its fourth straight negative session.Stocks are coming off a solid 2023 performance, including a late-year rally that was driven in part by hopes that signs of easing inflation in the U.S. may persuade the Fed to soon begin stepping away from an aggressive series of rate hikes. The central bank’s December meeting, at which officials at the central bank unveiled a more dovish outlook than previous projections, helped feed this enthusiasm.2. Fed minutes appear to temper early rate cut enthusiasmMinutes from the Fed’s gathering last month has seemingly poured cold water on much of the optimism, although analysts noted that the release on Wednesday did not have a major impact on markets.The account showed that while policymakers believed rates were “as likely at or near [their] peak,” there was still an “unusually elevated” amount of uncertainty lingering around the U.S. economy heading into 2024.Officials at the rate-setting Federal Open Market Committee (FOMC) also suggested that more evidence would likely be necessary to confirm that inflation was sustainably moving down towards their stated 2% target. Quelling sticky price pressures has been the central focus of a long-standing tightening cycle by the Fed that has pushed borrowing costs up to more than two-decade highs.”[T]here is a broad consensus that inflation will decline, but also that the FOMC will keep rates high in case of more persistent price pressures,” analysts at ING said in a note.On Thursday, monthly private payrolls data may provide fresh insight into the U.S. jobs picture, which the Fed has identified as a possible fuel source for inflation. The figures will serve as a precursor to the publication of the all-important December non-farm payrolls report on Friday.3. SpaceX illegally fired workers critical of Musk, U.S. labor agency saysSpaceX illegally fired eight workers for distributing a letter calling founder Elon Musk a “frequent source of distraction and embarrassment,” according to a complaint issued by a U.S. labor agency.A regional official with the National Labor Relations Board said that the rocket and satellite company violated federal labor law protecting employees’ rights to call for better working conditions.The letter, which was sent to SpaceX executives in 2022, argued that a series of tweets by Musk did not align with the firm’s diversity and workplace misconduct policies. They also encouraged SpaceX to speak out against the social media posts.The employees were subsequently interrogated over the letter, the complaint claimed, while other workers were threatened with dismissals if they voiced similar concerns. The NLRB, which is tasked with protecting collective bargaining rights, said it would seek a settlement prior to a scheduled court hearing on March 5.SpaceX did not immediately respond to a request for comment from Reuters, the news agency reported.4. Fitch downgrades four Chinese national asset managersFitch said on Thursday it had downgraded the issuer default ratings (IDRs) of four Chinese national asset management companies and flagged more potential downgrades on expectations of weaker government support and headwinds from a property market slump.The ratings agency lowered the IDRs of China Cinda Asset Management and China Orient Asset Management to ‘A-’ from ‘A’, and the ratings of China Huarong Asset Management and China Great Wall Asset Management were cut to ‘BBB’ from ‘BBB+’.Fitch also left China Cinda’s outlook at ‘stable’, while the other three asset managers were placed on Rating Watch Negative, a move that potentially heralds a further downgrade to their IDRs. The ratings agency said it was awaiting financial results for end-2023 to gauge whether there was any further deterioration.Fitch noted that the downgrade was driven by increased uncertainty over possible government support for China’s major national asset managers, along with a change in the criteria under which it viewed their standalone credit profiles.5. Oil rises amid Middle East supply worriesOil prices rose Thursday, adding to the previous session’s sharp gains on continued concerns over supply from the Middle East.By 09:58 ET, the U.S. crude futures traded 1.0% higher at $73.44 per barrel, while the Brent contract climbed 0.8% to $78.85 a barrel.Both contracts surged around 3% on Wednesday after protests over high fuel prices caused Libya’s El Sahara oil field to halt production, with the field producing about 300,000 barrels per day. The news came as worries persist over Yemen’s Iran-backed Houthis targeting shipping in the Red Sea.The market was also supported by data from the American Petroleum Institute, which showed that U.S. crude stocks fell by a bigger-than-expected 7.4 million barrels last week. Official numbers from the Energy Information Administration are due later Thursday. More

The Biden administration said its second grant under a new program would help Microchip Technology expand its facilities in Oregon and Colorado.The Biden administration on Thursday announced plans to provide $162 million in federal grants to Microchip Technology, an Arizona-based semiconductor company that supplies the automotive, defense and other industries.The agreement is the second award announced under a new program intended to help ensure that American companies that rely on semiconductors have a stable supply. Last month, the Biden administration announced a $35 million grant for BAE Systems, a defense contractor.The investment will enable Microchip to increase its production of semiconductors that are used in cars, airplanes, appliances, medical devices and military products. The administration said it expected the award to create more than 700 jobs in construction and manufacturing.“Today’s announcement with Microchip is a meaningful step in our efforts to bolster the supply chain for legacy semiconductors that are in everything from cars to washing machines to missiles,” Commerce Secretary Gina M. Raimondo said in a statement.Microchip plans to use $90 million to modernize and expand a facility in Colorado Springs and $72 million to expand a facility in Gresham, Ore. The administration said the funding would help Microchip triple its output at the two sites and decrease the company’s reliance on foreign facilities to help make its products.The company’s chips aren’t cutting-edge but are key components of nearly every military and space program. Microchip is one of the largest suppliers of semiconductors to the defense industrial base and a designated trusted foundry for the military. It also plays a crucial role in industries that are important for the national economy, U.S. officials said.That role became more obvious during the pandemic, when a global chip shortage cast a spotlight on domestic suppliers like Microchip. With foreign chip factories shut down to help contain the virus, automakers and other companies scrambled to secure supplies. As a result, demand for Microchip’s products surged.Those shortages also helped motivate lawmakers to pull together a funding bill aimed at shoring up American manufacturing and reduce reliance on foreign chips. The 2022 CHIPS and Science Act gave the Commerce Department $53 billion to invest in the semiconductor industry, including $39 billion for federal grants to encourage chip companies to set up U.S. facilities.The Commerce Department is expected to begin announcing larger awards in the coming months for major chip fabrication facilities owned by companies like Intel and Taiwan Semiconductor Manufacturing Company, known as TSMC.Microchip previously announced plans to increase its capacity in both Oregon and Colorado, but the government funding would be used to expand those enhancements and bring more production back to the United States, officials said. According to its filings, Microchip relies on outside facilities to make a significant proportion of its products — roughly 63 percent of its net sales in 2023 — a relatively common practice in the industry.While attention has focused on ensuring that U.S. facilities can manufacture some of the world’s most advanced chips, there are growing concerns about Chinese investments in less advanced semiconductors, also known as legacy chips, which help power cars, computers, missiles and dishwashers.U.S. officials are questioning whether such investments could increase the United States’ reliance on China or allow Chinese firms to undercut competitors. The Commerce Department has said it plans to begin a survey this month to identify how U.S. companies are getting their legacy chips and reduce security risks linked to China.The deal announced Thursday is a nonbinding preliminary agreement. The Commerce Department will carry out due diligence on the project before reaching the award’s final terms.The department said it had received more than 570 statements of interest and more than 170 pre-applications, full applications and concept plans from companies and organizations interested in the funding.Don Clark 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.Inflation is expected to have jumped back up across much of Europe, casting doubt over investors’ hopes that the European Central Bank will start cutting interest rates as early as March.French figures released on Thursday morning showed inflation rising in line with economists’ expectations to 4.1 per cent in the year to December, up from 3.9 per cent in November after a phase out of energy subsidies.Inflation is likely to rise more sharply in Germany, where data due to be released on Thursday afternoon is expected to show a jump in annual consumer price growth to 3.8 per cent in December, up from 2.3 per cent a month earlier, according to economists polled by Reuters.Consumer price growth in the eurozone has been slowing for six months, bringing it close to the ECB’s 2 per cent target. Bond and equity markets rallied in the final weeks of 2023 as investors bet borrowing costs would start to fall in the spring.However, the reduction of government subsidies on gas, electricity and food that began last year is expected to trigger a re-acceleration of annual inflation in much of Europe. The pick-up in inflationary pressure reflects a comparison with a year earlier when Berlin paid the gas bills of most households and Paris heavily subsidised electricity costs — driving down the cost of utility bills temporarily. Prices also look set to be pushed up after the German government was forced to scrap several other subsidies and increase taxes to help fill a €60bn hole in its budget plans left by a constitutional court ruling against its use of off-balance sheet funds.“The expected increase in German inflation in December, but also the prospects of a further re-acceleration of German inflation as a result of the fiscal woes should be enough to push back markets’ rate cut expectations,” said Carsten Brzeski, global head of macro at Dutch bank ING.One area where prices could rise in response to lower government subsidies is eating out, after Berlin raised the VAT rate on restaurant meals from a temporarily reduced level of 7 per cent back up to 19 per cent at the start of this year. Figures for the overall eurozone, due on Friday, are expected to show inflation rose from 2.4 per cent in November to 3 per cent in December, ending six months of consecutive declines.Investors will be watching the figures closely for signs of how soon the ECB is likely to start cutting rates, after raising its benchmark deposit rate sharply from below zero to 4 per cent in response to the biggest surge in prices for a generation.Swap markets are pricing in about 1.6 percentage points of rate cuts by the ECB this year, with a 60 per cent chance of cuts starting in March.However, the ECB last month pushed back against speculation about imminent rate cuts, forecasting inflation in the bloc would rise from an average of 2.8 per cent in the fourth quarter of last year to 2.9 per cent in the first quarter of this year.Isabel Schnabel, an ECB executive board member, said last month that inflation may “pick up again temporarily” because of energy prices and the withdrawal of various government support measures.She predicted inflation would then “gradually” drop to the ECB’s 2 per cent target by 2025, adding: “We still have some way to go.”Almost 60 per cent of respondents in a Financial Times survey of economists last month predicted eurozone inflation would slow to the 2 per cent threshold in 2024, although some said it was likely to speed back up again from there.  More