Economy

President Joe Biden’s administration in October asked Congress for nearly $106 billion to fund ambitious plans for Ukraine, Israel and U.S. border security.Republicans control the House of Representatives with a slim majority, and funding for Ukraine has become politically controversial with some right-leaning lawmakers.Young said in a letter released by the White House that cutting off funding and a flow of weapons to Ukraine would increase the likelihood of Russian victories.”I want to be clear: without congressional action, by the end of the year we will run out of resources to procure more weapons and equipment for Ukraine and to provide equipment from U.S. military stocks,” she wrote. “There is no magical pot of funding available to meet this moment. We are out of money — and nearly out of time.” More

Euro zone inflation tumbled to 2.4% last month, coming well below expectations for the third straight month, fuelling market bets that European Central Bank interest rates will come down much quicker than the bank now guides.De Guindos said that central banks needed to be cautious and that “it was too early to declare victory”.”There is a base effect, there could be a potential inflationary impact of the withdrawal of government measures … and wage developments … could have an inflationary impact,” De Guindos told a financial event.He did not elaborate on the path of future rate decisions apart from saying decisions would be data-dependent, adding that the current level of interest rates if sustained in time should be enough to return to ECB’s mid-term 2% inflation target.He said that the markets were expecting both a soft landing and a prolonged disinflation process in the euro zone, but warned: “Such an assumption may not be confirmed in reality due to high uncertainty.”Investors see the first cut in April and a total of 115 basis points of moves in 2024, even as ECB President Christine Lagarde and several other policymakers are making the case for several quarters of steady rates to fully extinguish inflationary pressures.The ECB raised its deposit rate to a record high 4% via ten straight moves ending in September and sees inflation inching up in the coming months before coming back to its target in the second half of 2025. More

Despite a recent 9.4% decrease in China’s FDI to CNY 987 billion (USD 138.3 billion) until October, influenced by broader global investment slowdowns and strict US tech sector regulations, there is optimism for a rebound. UBS Wealth Management, in agreement with Deutsche Bank Group, anticipates a resurgence of China’s FDI after the earlier dip this year. These financial institutions foresee a strong annual economic growth for China between 5% and 10.4% over the next five to ten years. The expected growth is attributed to rising mass consumption, green policy initiatives, technological advancements, and industrial upgrading.Contributing to this positive outlook are key policies such as the expansion of free trade zones, liberalization measures like easing QFII/RQFII rules for trading, and lowering barriers on foreign investment access by revising the negative list. Investments from countries including Canada and France have notably increased during this period, while new foreign enterprise registrations in China have risen by 1.10%. Notably, American direct investment into China has also climbed this year despite broader trends.China is looking at an annual economic expansion rate of 4-4.5% for the next decade, driven by trends in mass consumption, ecological innovation efforts, and advancements in technology sectors.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is global chief economist at CitigroupUS fiscal performance has reached new depths of dysfunction. In recent months, the country has endured a stressful debt-ceiling episode, Fitch has downgraded the US sovereign credit rating and the risk of a government shutdown remains on the table. Equally concerning, the federal government is swimming in a sea of red ink, with budget deficits near 6 per cent of gross domestic product likely in the years ahead. As a result, the government’s debt is poised to rise to 115 per cent of gross domestic product over the next decade, surpassing its peak after the second world war.These large deficits and rising indebtedness pose risks to the economy. On reasonable estimates, the Treasury will need to issue $20tn of debt in the coming decade. The magnitude of this issuance is not lost on market participants. In recent months, the most frequent question during my meetings with investors around the world is “who’s going to buy this massive issuance of Treasuries?”This question is often followed by two others: how much debt is simply “too much”? And what might a full-blown crisis in the US Treasury market look like? The UK gilt crisis last year stands as an important template in this regard. Could something similar — and perhaps even more sustained — occur in the US?In sync, Treasury yields have risen sharply from a year ago. Propelled by the Federal Reserve’s “higher for longer” policy stance and heightened concerns about fiscal sustainability, 10-year yields reached a peak of about 5 per cent in October. More recently, rates have retreated to the mid-4 per cent range, as Fed rhetoric has become more balanced and inflation readings have moderated.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Our research on the US public debt situation from historical and international perspectives suggests several conclusions. First, the question of who will buy the newly issued debt is inherently speculative. But, in our view, the desire of the ageing population to hold safe long-duration assets as a store of value for retirement is likely to be the main source of demand. Such purchases, either directly from retail investors or through their intermediaries, are likely to be more price sensitive than before the pandemic.Second, there is no way to predict danger thresholds or the amount of debt that is simply “too much”. It is possible that US debt could rise to 150 per cent of GDP or even higher with limited adverse effects. But it is unwise for policymakers to experiment or test where the thresholds might be. The prudent path for fiscal policy is, at a minimum, to not push debt ratios further upward from today’s elevated levels.Even so, there is little likelihood of meaningful remedial action. A successful strategy would probably require some combination of higher taxes and reduced expenditures. Notably, getting traction on expenditures will require tough reforms to entitlements and defence, which comprise roughly three-quarters of US federal spending. Republicans are broadly unwilling to entertain discussions of tax rises, while Democrats are similarly unwilling to contemplate entitlement reforms, so the fiscal situation has remained in stalemate. The headwinds to growth that would likely accompany fiscal retrenchment are a further source of reluctance.Third, last year’s UK gilt crisis offers a cautionary tale. The hallmark of an adverse scenario in the Treasury market would be a sharp, unexpected deterioration in investor demand for securities. The result would be surging Treasury yields and rising risk premiums in credit and equity markets. Given the dollar’s status as a global reserve currency, these stresses would be transmitted to financial markets abroad.Nevertheless, the most likely scenario is that investor discomfort regarding the debt eventually recedes, and the situation reverts to the more relaxed pre-Covid configuration. If so, any premiums the market requires to absorb the forthcoming issuance would be modest.The core strengths of the US economy — including the dollar’s reserve currency status, the Fed’s credibility and the strength of the overall national balance sheet — should give investors the confidence to purchase the additional debt. At the end of the day, there are few alternatives to Treasuries, and the high US debt levels are an unfortunate, but unavoidable, fact of life.Even so, there is little scope for complacency. Investor patience has limits. The markets are likely to issue the US a reprieve — but not a full, unconditional pardon. More

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NEW DELHI (Reuters) -If India needed any more proof that it was in the midst of a huge housing boom, it got in this week’s GDP data, heightening expectations that the industry will continue to power the economy for years to come.The construction sector grew 13.3% in July-September from a year earlier, up from 7.9% in the previous quarter and its best performance in five quarters, the data released on Thursday showed.That helped India expand at a forecast-beating 7.6%, making it one of the world’s fastest-growing major economies. In contrast, Western economies have been squeezed by high interest rates and energy prices, while China has been hobbled by a debt crisis in its property sector.The long-awaited boom – which has created millions of jobs – comes after about six years of debt and pandemic-induced downturn before the construction sector began improving last year and hitting its stride this year. It has been driven by rising incomes for many Indians, a severe housing shortage in big cities and strong population growth.The world’s most populous nation had an urban housing shortage of around 19 million units last year – and that is expected to double by 2030, according to government estimates.”The robust growth in construction has significantly contributed to the economic growth – and is likely to play the same role in next couple of quarters,” said Sunil Sinha, an economist at India Ratings and Research, an arm of rating agency Fitch.Builders are bullish long-term with many saying the boom could last two to three years and some even more optimistic.”The housing market could continue to perform well for another three to four years,” Sanjeev Jain, managing director at Parsvnath Developers, a leading real estate company, noting that India is in the initial stages of a housing growth cycle.Home sales in India’s seven largest cities, including Mumbai, New Delhi and Bangalore, rocketed 36% in the July-September quarter from a year earlier to more than 112,000 units, despite an 8%-18% increase in prices, according to real estate consultancy Anarock.There was also a 24% increase in new residential projects being launched, data from the consultancy showed.”The home sales are driven by first-time buyers, and nearly 80% of the houses have been bought by end users,” said Prashant Thakur, head of research at Anarock, adding that there was also strong demand from existing home owners to move to more spacious apartments.In Mumbai, for example, demand has been strong despite an increase in interest rates of about two percentage points, according to Jayesh Rathod, director of Mumbai-based Guardian Real Estate Advisory.His company has sold over 5,500 flats in Mumbai and on its outskirts in Thane so far this year, a jump of more than 50% compared to the same period a year ago, he said.Underpinning demand has been salary hikes for workers in big cities. Average hikes for sectors such as e-commerce, healthcare, retail and logistics have remained above 10% for a second straight year, according to EY estimates.Home prices in India are expected to rise faster than consumer inflation next year, according to a Reuters poll, with property analysts saying growth will be driven by higher earners snapping up newly built luxury residences in cities.Housing demand has also picked up significantly in smaller cities in the southern states of Tamil Nadu, Karnataka and Prime Minister Narendra Modi’s home state of Gujarat, according to construction companies who say demand has been spurred by increases in incomes and the migration of workers from rural areas.The government is also trying to boost the availability of affordable housing by providing subsidies, which is encouraging construction in India’s smaller towns and cities.Shares in property companies have naturally surged.The Nifty realty index is up some 67% for the year to date compared with a 12% gain for the blue-chip Nifty 50 index.Notable gainers include Prestige Estates Projects which has jumped some 120%, DLF which has climbed 67% and Godrej Properties which is up 52%.($1 = 83.3143 Indian rupees) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK living standards have fallen far behind a group of five peer countries following a decade and a half of paltry growth, leaving typical households facing an annual £8,300 gap that will only be narrowed with a radical shift in policy, according to research by the Centre for Economic Performance and the Resolution Foundation think-tanks. The country needs to capitalise on its strengths as a “superpower” in services sectors such as education, banking, the arts, and architecture as part of its effort to address the gulf in living standards with Germany, France the Netherlands, Canada and Australia, they argue. Tackling the UK’s “toxic combination” of low growth and high inequality would also require the country to address its status as the G7’s investment laggard, they said in a report published on Monday that concludes the think tanks’ Economy 2030 Inquiry, a project funded by the Nuffield Foundation. The authors added that if UK business investment had reached the average level of the US, Germany and France since 2008, its gross domestic product would be almost 4 per cent higher, lifting wages by approximately £1,250 a year.“For decades, the UK has felt the effects of high inequality, hindered growth and economic stagnation,” said Stephen Machin, professor of economics at the London School of Economics and director of the Centre for Economic Performance. “But this can change.”Chancellor Jeremy Hunt in last month’s Autumn Statement claimed the government’s plan for the economy was paying off, as he unveiled tax cuts and regulatory reforms that he said would “remove barriers to investment”. But the announcement was accompanied by a downgrade in the UK budget watchdog’s estimate of the country’s potential growth. UK labour productivity increased by 0.4 per cent a year in the 12 years following the financial crisis, half the rate of the 25 richest OECD countries. The productivity gap with the US, Germany and France has doubled to 18 per cent since 2008, according to the report.Meanwhile, income inequality is higher than any other large European country and has persisted despite increases in the national minimum wage. If the UK managed to close its average income gap and reduce inequality to the levels of the peer group of five countries the typical household would be 25 per cent, or £8,300, better off, according to the report’s findings. The poorest households would be in line for income gains of 37 per cent. But the report said that addressing the UK’s problems would require a multi-faceted strategy that builds on its economic strengths. Among those are the country’s status as the second-largest exporter of services in the world after the US. The report recommended that Britain should strike services trade agreements with countries including Singapore, Australia, Canada, Switzerland and Japan while boosting services activity domestically in cities outside London — especially Birmingham and Manchester. It also said that the UK country needed to find ways of bolstering higher-productivity areas, such as chemicals and transport manufacturing, that are reliant on integrated European supply chains and are under threat following Brexit. The report also advocated changes to the policy framework to increase the ability of policymakers to respond to future downturns, including allowing interest rates to fall below zero and lifting the inflation target to 3 per cent from 2 per cent when the current spell of rapid price growth has subsided. “Some might question how achievable a material increase in growth or reduction in inequality is for a relatively small and mature economy like the UK,” the report said. “Such fatalism misjudges the UK’s room for improvement; we have a lot of catch-up potential.” A Treasury spokesperson said: “With inflation now falling, we are taking the long-term decisions needed for growth, which is why we have cut national insurance contributions for 29mn working people . . . and [are] backing businesses to invest through the biggest business tax cut in modern British history.”  More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Toyota is exploring two investments in the UK, including a new model at its Derbyshire car plant and the mass manufacturing of hydrogen fuel cells, after the government pushed back a ban on the sale of new hybrid cars, a senior executive has said. The UK’s decision to allow new petrol, diesel and hybrid car sales to continue until 2035 and to make it easier for carmakers that miss EV sales targets to avoid fines, has helped the Japanese group “remain competitive,” Matt Harrison, head of operations for Toyota in Europe, told the Financial Times.“We are not facing any premature discontinuation or ban of hybrid [technology], and there’s a little bit more pragmatism,” he added.The company has been a longtime proponent of hybrid vehicles as a way of reducing emissions in the shorter term. But it also plans to launch at least six battery-only models in Europe by 2026, to keep pace with rising demand in the region, and to sell only zero-emission vehicles across Europe by 2035.Harrison told the FT that the market was changing quickly and that Toyota anticipated “a tipping point . . . around 2027, where our centre of gravity will start to shift” towards electric vehicles. Decisions on possible new UK investments were not “imminent” though, he said. The first EV to be made by Toyota in Europe is unlikely to be an electric version of the Corolla, the model manufactured by its Burnaston plant in Derbyshire.The group has also not yet decided whether to replace the current Corolla with a hybrid or fully electric model, he added. Every other major carmaker in the UK has announced new spending or production of electric vehicles this year. Nissan last month announced £2bn of spending on new models and a battery factory, while BMW has pledged £600mn to build electric Minis at its Oxford plant. Vauxhall owner Stellantis started production of electric vans at Ellesmere Port, while JLR announced eight new electric models and its owner Tata Motors has committed £4bn to a UK battery factory.The Society of Motor Manufacturers and Traders calculated that around £20bn of spending has been announced over the year, more than the previous seven years combined.“The UK wasn’t investible, now it is again,” SMMT chief executive Mike Hawes told the industry body’s annual dinner last week.As well as making a new car model at its Derby plant, Toyota is exploring investment in manufacturing hydrogen fuel cells, which would be exported for use in larger Toyota vehicles or to other industries such as shipping. The business is trialling hydrogen fuel cells in some Hilux pick-up trucks that could be used by UK commercial vehicle customers for long distance journeys that are less suitable for battery models. “Part of scaling up is not just moving into industrialisation, but developing the supply chain, so we have to understand the dynamics of the fuel cell supply chain as well as the electric vehicle supply chain,” said Harrison. The carmaker’s engine plant in Deeside, North Wales, “would be naturally the starting point to think about producing [hydrogen cells],” he added. More