Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.(verb) the act of diversifying supply chains to avoid relying too heavily on one geography In 2023, the G7 nations decided to drop the dreaded word “decoupling,” when referring to their policy approach to China, and pick up another, more benign phrase: “de-risking”.The term “de-risking” is defined on the US state department website as “the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk”.But since the pandemic and the war in Ukraine, risk has been associated less with the financial sector and more with corporate supply chains. The word de-risking is thus increasingly being used to refer to the ways in which countries and companies are diversifying their supply chains, by sourcing from multiple geographies and companies rather than just one. This makes sense, as supply chain disruption has been increasing in frequency for the last decade. The classic example is that of Taiwan — until recently, 92 per cent of all high-end semiconductor chips were made in the island, which is particularly vulnerable to geopolitical strife and natural disasters. No wonder countries and regions such as the US, Europe and China are now building their own chip industries, as well as attempting to create more independence in areas such as rare earth minerals, electric vehicles, pharmaceuticals and other crucial goods.The results so far have been mixed — a recent Bank for International Settlements report found that while supply chains were lengthening, they weren’t necessarily diversifying. This brings home the fact that these chains — like financial networks — remain far too opaque and difficult to track. The issue will remain a pressing one for leaders in 2024. [email protected] More

The central bank had initially projected inflation in 2023 would end at 3.8%, before adjusting its forecast to 3.1% last month following a string of promising inflationary indicators that saw a quicker-than-expected recovery.Data from national statistics agency INEI showed the key prices index – based on the metropolitan region of Lima – rose in December by 0.41%.The 2023 inflation rate is the lowest rise since 2020, when prices in the mining nation rose 1.97% for the year, and also stands as one of the lowest rates in Latin America.The latest data brings Peru’s inflation within a breath of the central bank’s target range of 1% to 3%, which it had not officially forecast to reach until the end of the first quarter of 2024. At the start of 2023, consumer prices in Peru had risen 8.66% in the 12 months through January.It comes after the central bank cut its reference interest rate to 6.75% in mid-December for the fourth consecutive month.Nonetheless, the world’s second-largest copper producer is struggling with the adverse effects of the El Nino weather phenomenon, lower private investment mainly in mining and the threat of more anti-government protests.The central bank has warned that the fight against inflation could be hampered by a stronger El Nino in 2024.INEI said in a statement that inflation in December was driven by price hikes in restaurants and hotels (6.64%), education (6.40%) as well as food and non-alcoholic drinks (3.74%).Analysts at BBVA (BME:BBVA) at the start of the year had predicted 2023 inflation would end above 4%. More

Figures from property consultant CoreLogic out on Tuesday showed prices nationally jumped 8.1% in 2023, but well below the 24.5% surge recorded in 2021. Prices in December nudged higher by 0.4%, the smallest monthly gain since February.Sydney boasted a 11.1% annual rise but were still 2.1% below their January 2022 peak, with a median home value of just under A$1.13 million ($769,530).Most other cities surged, with Perth up 15% and Brisbane 13%, while Melbourne prices rose only 3.5%.But CoreLogic analysts said along with higher rates and inflation, affordability challenges, rising advertised stock levels and low consumer sentiment have taken some heat out of the market through the second half of last year.That is expected to continue into the first half of 2024, CoreLogic Research Director Tim Lawless said in a research note.The Reserve Bank of Australia (RBA) had in November hiked rates by a quarter point to 4.35% amid worries inflation expectations could become un-moored. It has jacked up interest rates by a whopping 425 basis points since May last year.Australian households are under broad financial pressure from high inflation, which spiked as high as 7.8% last December, before slowing to 5.4% in the third quarter, but RBA believes the vast majority of borrowers can service their mortgages.The trajectory of interest rates through 2024 will be a key factor influencing housing trends though data suggests another hike was “looking increasingly unlikely”, Lawless said, adding any rate cuts could help stoke demand later in the year.”If interest rates do move lower, there is a good chance we will see a lift in consumer sentiment and a more positive trend in housing activity and values through the second half of the year.” ($1 = 1.4684 Australian dollars) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK and the US have stepped up pressure on Houthi rebels as the Yemeni movement targets commercial vessels passing through the Red Sea, disrupting a critical maritime trade route.UK defence secretary Grant Shapps said on Monday that Britain was willing to take “direct action” against the Iranian-aligned group to “deter threats to freedom of navigation in the Red Sea”.Writing in the Daily Telegraph, Shapps said: “If we don’t protect the Red Sea, it risks emboldening those looking to threaten elsewhere, including in the South China Sea and Crimea”.His comments came a day after US Navy helicopters returned fire against small Houthi boats that were attacking an AP Moller-Maersk container ship in the Red Sea, sinking three of the rebels’ vessels and killing the crews. The Houthis said 10 of its members were dead or missing. The US military’s Central Command said the Houthis had fired on the helicopters as they responded to a distress call from the Maersk ship. Maersk said it was pausing all sailing through the Red Sea for 48 hours after the attack, the latest in a string of assaults by the Houthis in the waterway. A Houthi helicopter flies above a cargo ship in the Red Sea More

While managing inflation remains the top priority, it is important to find the right policy mix as South Korea approaches the end of its long fight to bring consumer prices under control, Rhee said in a New Year message.He cited doubts about the integrity of commercial real estate loans in major countries and a mid-sized local developer that was forced to restructure its heavy debt load as some of the warning signs for the economy.”There is a need to be thoroughly prepared for the possibility of financial instability that can arise as tightened policy continues,” he said.”We need to pay particular attention to make sure credit risks do not grow around what is a weak link in our economy.”Rhee met with Finance Minister Choi Sang-mok and financial regulators on Friday and pledged to provide liquidity support after an announcement by Taeyoung Engineering & Construction to restructure its debt caused market jitters.The country’s 16th largest builder has 4.58 trillion won ($3.6 billion) of debt, including project financing loans.The central bank’s inflation target of 2% remains valid although external and domestic factors require more fine tuning to determine the optimal interest rate path and how much longer to maintain tightened monetary policy, Rhee said.South Korea’s annual consumer inflation eased for a second month in December to 3.2%, supporting the BOK’s view on the inflation path, which is that price pressure will ease gradually to its target level of 2% towards the end of 2024.President Yoon Suk Yeol said on Monday that pressure on prices is expected to ease further in 2024 and the government will take measures to ensure the financially more vulnerable, including small business owners, see the benefits of a pull back in inflation. 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.Big multinational companies will from Monday be subject to a global minimum tax for the first time, as landmark cross-border tax reforms go live, seeking to raise up to $220bn in extra annual revenue. Almost three years after 140 countries struck a deal to close glaring loopholes in the international system, some major economies will from January start to apply an effective tax rate of at least 15 per cent on corporate profits. Under a series of interlocking rules, if profit by a multinational is taxed below this rate in one country, other countries will be able to charge a top-up levy. The OECD, which drove the reforms, estimates it will increase annual tax revenue by as much as 9 per cent, or $220bn worldwide.Jason Ward, principal analyst at the Centre for International Corporate Tax Accountability and Research pressure group, praised the “super smart design” of the reform. “It will reduce incentives from companies to use tax havens and incentives for countries to be tax havens,” he said, adding that it puts “a serious brake on what was a race to the bottom”.The first wave of jurisdictions implementing the global minimum tax from January include the EU, UK, Norway, Australia, South Korea, Japan and Canada. The rules will apply to multinational companies with an annual turnover of more than €750mn.Several countries long seen as havens by multinationals will take part, including Ireland, Luxembourg, the Netherlands, Switzerland and Barbados, which previously had a corporate tax rate of 5.5 per cent. Neither the US nor China have introduced legislation to do so yet despite backing the deal in 2021. But the global reforms are designed to still have a significant impact. South Korea is among those implementing the global minimum tax More

SEOUL (Reuters) – South Korea’s exports rose for a third month in December but at a slower pace as weaker demand for Korean goods in China offset robust global sales for semiconductors, data showed on Monday.Exports by Asia’s fourth largest economy gained 5.1% to $57.66 billion in December, slowing from a rise of 7.7% in November and also below 6.6% gain seen in Reuters poll of economists. Export data out of Asia’s fourth largest economy is a closely watched indicator to gauge momentum for global trade.Policymakers are pinning hope on recovering exports for an estimated 2.1% of economic expansion in 2024 as high borrowing costs and sticky inflation keep consumer spending sluggish. Chip exports turned a corner in November, rising for the first time in 16 months as slump in semiconductor demand began to ease. In December, chip exports surged 21.8% year-on-year after a jump of 12.9% a month earlier. Exports to China declined 2.9% on year.Imports declined 10.8% in December on-year, better than a 11.4% of drop seen in the poll and easing after a 11.6% of drop in November.That took the preliminary trade surplus for December to $4.48 billion.For the whole 2023, exports declined 7.4% as restrictive monetary policies in many countries and a slowing Chinese economy weakened demand for Korean goods, trade ministry said. More