Economy

Coalition party leaders are due to meet on Wednesday evening to thrash out a path to the 2024 budget. The size of the gap will determine whether it can be offset by savings or if the country’s debt brake must be suspended for another year.Finance Minister Christian Lindner and his Free Democrats (FDP) have spoken of a figure in the low double-digit range.The SPD’s Katja Mast spoke out in favour of suspending the constitutionally enshrined debt brake, which limits a government structural budget deficit to 0.35% of gross domestic product.”The SPD is convinced that a justification can be found” to declare an emergency situation, which would allow the brake to be suspended, she said, referring to the war in Ukraine and the subsequent costs for Germany, the transformation costs for a climate-neutral economy and maintaining social cohesion. Mast said she expected the coalition committee to deal with the issue on Wednesday, but “the whole package will not be on the table by this evening.”According to German bank Berenberg, the government will cover a shortfall of roughly 30 billion euros to 40 billion euros($33-$44 billion) in 2024 compared with previous plans. A total of 175 billion euros in spending for 2023 through to 2027 could be at stake following the court ruling, Berenberg said. Germany’s constitutional court ruled on Nov. 15 that the coalition government’s decision to re-allocate 60 billion euros of unused debt from the pandemic era to its climate and transformation fund was unconstitutional.The ruling is expected to heighten tensions in Scholz’s already fractious three-way coalition, which has seen support slump since taking office nearly two years ago as it tackles a series of crises, in part due to public infighting.($1 = 0.9114 euros) More

PARIS (Reuters) -The global economy will slow slightly next year but the risk of a hard landing has subsided despite high levels of debt and uncertainty over interest rates, the Organisation for Economic Cooperation and Development said on Wednesday.Global growth is set to moderate from 2.9% this year to 2.7% in 2024 before picking up in 2025 to 3.0%, the Paris-based policy forum said in its latest Economic Outlook.Growth in advanced economies that make up the OECD’s 38 members was seen headed for a soft landing, with the United States holding up better than expected so far.”Our central projections are for a soft landing, but that cannot be taken for granted,” OECD chief economist Clare Lombardelli told a news conference.”Monetary policy needs careful calibration to bring inflation to targets while minimising the impact on growth. These judgements are now harder than earlier in the cycle and the risks of policy errors are greater,” she added.The OECD forecast U.S. growth would slow from 2.4% this year to 1.5% next year, revising up its estimates from September when it predicted U.S. growth of 2.2% in 2023 and 1.3% in 2024.Though the risk of a hard landing in the United States and elsewhere had eased, the OECD said that the risk of recession was not off the table given weak housing markets, high oil prices and sluggish lending.China’s economy was also expected to slow as it grapples with a deflating real estate bubble and consumers save more in the face of greater uncertainty about the outlook.Its growth was seen easing from 5.2% this year to 4.7% in 2024 – both marginally higher than expected in September – before slowing further in 2025 to 4.2%, the OECD forecast.In the euro area, growth was seen picking up from 0.6% this year to 0.9% in 2024 and 1.1% in 2025 as Germany – the region’s largest economy – emerged from a recession this year. Nonetheless, the OECD warned that, because of the high level of bank financing in the euro zone, the full impact of interest rate hikes remained uncertain and could weigh more on growth than expected.Meanwhile, Japan, the only major advanced economy yet to hike interest rates in the current cycle, was expected to see growth slow from 1.7% this year to 1.0% in 2024 before picking up to 1.2% in 2024.While countries’ growth outlooks were diverging, they shared similar fiscal pressures, with debt burdens projected to keep rising for years to come in G7 countries, the OECD warned.”Governments need to act to prevent unsustainable debt paths. Needed reforms include medium-term plans to curb deficits over time, reducing the cost of ageing and to preserve spending that is effective and efficient,” Lombardelli said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK mortgage approvals rose more than expected in October, according to official figures published on Tuesday that point to a stabilisation in the property market after a prolonged period of low house sales. Net mortgage approvals for house purchases rose to 47,400 in October from 43,700 in September, Bank of England data showed. The number was well above economists’ expectations of 45,000 and the highest since July, but about 28 per cent below its level in October 2019, before the pandemic.Net approvals for remortgaging increased to 23,700 from 20,600 in the same period. Mortgage approvals provide a timely measure of the health of the housing market, which affects the wider economy via house-related spending and household confidence. The data released on Wednesday suggests an easing in the housing downturn, after a fall in the cost of some popular mortgage products following the BoE’s decision to leave interest rates at 5.25 per cent in September and November. Jason Tebb, chief executive of property search website OnTheMarket.com, said it was “clear that the pause in interest rate hikes has boosted market stability and buyer confidence”.Two-year fixed mortgage rates with 60 per cent loan-to-value eased from 6.2 per cent in July to 5.5 per cent in October, the BoE said, while rates on popular five-year deals have also declined since the summer. Last month, mortgage providers Halifax and Nationwide reported a month-on-month rise in house prices in October, although the average property was less expensive than in the same month in 2022. Nevertheless, last month all popular mortgage products remained between two and five times more than expensive than in 2021. Meanwhile, the average rate on new mortgages rose to a 15-year high of 5.25 per cent in October, leaving house sales well below their pre-Covid average. The BoE data also showed that consumer credit eased only slightly to £1.3bn last month from £1.4bn in September. The figure has remained largely stable over the past two years, although a particularly low number in October 2022 pushed the annual comparison to the highest since 2018.Paul Dales, chief UK economist at the consultancy Capital Economics, said resilient consumer credit data suggested that “higher interest rates are yet to significantly crimp unsecured borrowing”. However, its strength could also be a result of households being forced to borrow to fund spending, he added. Consumers also saved more last month, which could negatively affect spending and economic growth. Households deposited £4.6bn in banks and building societies, according to the BoE, the highest since November last year. The rise was driven by flows into fixed-term accounts, which usually pay more interest than instant access accounts. Samuel Tombs, economist at the consultancy Pantheon Macroeconomics, said he expected spending to rise soon as savings stabilised. “Households’ saving rate . . . will not increase further, enabling the recovery in real disposable income to feed through to spending,” he said. More

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The writer is professor of public policy at the University of Cambridge and a research theme lead at The Productivity Institute Why are economists — and politicians — obsessed with productivity? For two reasons. The first is that unless productivity is rising, living standards stagnate; productivity growth reflects businesses and public services using inputs of labour, capital and materials more effectively, producing more for less. That is what drives economic progress.The second is that productivity is flatlining in the UK, diverging sharply from its previous year-by-year growth. Other economies have also experienced a productivity growth slowdown since the mid-2000s, but the UK now has lower levels and weaker growth (or both) than other G7 countries. The succession of economic shocks — the financial crisis, the pandemic, Russia’s invasion of Ukraine — help explain the general slowdown, as does demographic change. But what explains the UK’s specifically dismal productivity problem?Some culprits will be depressingly familiar. A new report from The Productivity Institute (TPI) documents the consequences of the decade of declining spending per capita on education at all levels above primary school, the way expenditure on research and development as a share of GDP has fallen far behind other G7 economies and the confusing mishmash of small business support schemes. There is no shortage of diagnostic evidence about the wide range of productivity-limiting challenges. But two overarching weaknesses stand out: long-term under-investment and policy churn.Investment in the UK has been lower, as a share of GDP, than in other G7 countries for decades. This is true whether investment by businesses in equipment and buildings, or by public and private sector alike in R&D, or in human capital through education and health. Recent TPI work shows that even industries we think of as Great British success stories, such as finance or software, invest less as a share of their own value added than their global comparators. Increasing investment is a top priority for a more prosperous economic future. The second UK weakness is part of the explanation for this dire investment record: policy churn has been widely documented in areas including taxation, education, local and regional government and industrial policy. Policies are not well co-ordinated, either across departmental boundaries or between national, devolved and local government. Edicts from the centre land on under-resourced regional authorities with insufficient regard for local needs and strengths. The combination of the confrontational Westminster style of politics and the UK’s extreme political and economic centralisation seem to make the churn worse than elsewhere. No wonder the uncertainty deters investors, whose time horizon is far longer than that of politicians.  This political economy context is why this week’s report, which captures the views of many of the UK researchers investigating productivity, calls for a new independent and statutory body to monitor, evaluate and report on policies for productivity and growth. This institution would parallel the Office for Budget Responsibility, with a remit covering supply-side policies. It would co-ordinate across areas of policy and levels of government, with a focus on spatial economic growth, and would involve relevant stakeholders in its assessments. And it would need to be protected from policy churn itself with a statutory footing.Many other countries, such as Australia, have now established similar commissions that can offer insights on how to design an authoritative and expert body. This would not solve the UK’s productivity problem — sadly, there really is no silver bullet. But it would help curtail the damaging uncertainty that is deterring investment in productivity and hence our future standard of living. More

SEOUL (Reuters) – Once a North Korean experiment in limited capitalism, the Rason Special Economic Zone appears to be the epicentre of the isolated country’s growing cooperation with Russia, experts say, including possible shipments of arms for the war in Ukraine. With apartment blocks and booming markets flooded with imported goods, the Rason SEZ, established in the 1990s on the border with China and Russia, was a dream destination for many North Koreans before tighter sanctions hit and pandemic-era border closings choked off nearly all trade and tourism, two experts who study Rason said.In recent months, there have been clear signs that the area is poised for a comeback, with ships docking there for the first time since 2018, and satellite imagery suggesting a spike in trade from both the port and a rail line to Russia.Although China – with its vastly larger economy and deeper historic ties with North Korea – might seem the obvious driver of a recovery in Rason, experts say the country’s deepening cooperation with Russia may make a more immediate impact.”Now that North Korea and Russia are becoming very close against the backdrop of the Ukraine war, Russia might send more tourists to North Korea, which can reinvigorate tourism (in Rason),” said Jeong Eunlee, a North Korea economy expert at South Korea’s government-run Korea Institute for National Unification.Russia can also sell coal, oil, and flour through Rason, Jeong said, and if more North Korean workers are allowed to cross the border, they can send Russian medicine and other goods home for relatives to sell. The Russian Federal Customs Service said it had “temporarily suspended the publication of foreign trade statistics”.China accounted for 97% of North Korea’s overall trade in 2022, according to South Korea’s Korea Trade Investment Promotion Agency (KOTRA).But Russia resumed oil exports to North Korea in December 2022 and had exported 67,300 barrels of refined petroleum to North Korea by April, United Nations data shows, the first such shipments reported since 2020.Lee Chan-woo, a North Korea economy expert at Teikyo University in Tokyo, said Russian wood cut by North Korean loggers could be resold to China through Rason, a town of about 200,000 people.Cho Sung-chan of Hananuri, a South Korean nonprofit that has financed a food-processing factory in Rason, predicted Russian influence there would grow.”Assuming North Korea and Russia’s honeymoon period becomes a long one, North Korea could get Russian support on food, energy and infrastructure through Rason,” Cho said.The two countries discussed expanding trade and testing delivery of meat products next year, Russia’s natural resources minister Alexander Kozlov said on his Telegram channel after meeting with North Korean officials in Pyongyang in November.MILITARY LOGISTICS Since August, Rason’s port has seen visits from Russian ships linked to that country’s military logistics system, according to U.S. and South Korean officials and reports by Western researchers citing satellite imagery. Those ships are suspected of military supplies from North Korea to Russia, the reports said. The Kremlin has denied such shipments. From Rason’s port, North Korea has sent Russia an estimated 2,000 containers suspected of carrying artillery shells, and possibly short-range missiles, South Korean military officials have told reporters. Since late 2022, activity has been spotted around Rason’s Tumangang station, which has rail links to Russia, said Chung Songhak, a senior researcher at the Korea Institute for Security Strategy who analyses satellite imagery around Rason. More train carriages were spotted after the Russian defence minister visited Pyongyang in July, Chung said, citing satellite imagery, adding that possible new cargo depots popped up in May.When leader Kim Jong Un visited Russia in September, he discussed restarting a stalled joint logistics project in Rason, building a new road bridge connecting it with Russia and additional grain supplies, Kozlov said.’GLOBAL HUB’Since Kim’s grandfather Kim Il Sung designated Rason a special zone in 1991 after the Soviet Union’s collapse and as China opened further, North Korean officials have tried to attract investment there.Rason, the oldest and largest of North Korea’s 29 economic development zones, has been central to the country’s push to attract foreign investment.It has one of North Korea’s first and biggest markets, was the site of the country’s first mobile network, and is the only place where North Korea legalised buying and selling homes in 2018, according to experts and North Korea’s government publications.The other zones have had poor results because of shaky infrastructure and international sanctions, according to South Korea’s National Institute for Unification Education.Abraham Choi, a Korean American pastor who works on religion exchanges with North Korea, said that when he last visited Rason in 2015, he saw both Chinese and Russian tourists.South Korean media reports said that the Rason border with China had reopened in January 2023 and that trucks were trickling in. Choi said there were no signs yet of large groups of foreign tourists visiting Rason. Lee of Teikyo University said that whichever outside country helped reinvigorate the special economic zone, it offered a potential bright spot for North Koreans after years of pandemic restrictions.”Rason took a harder hit than other places in North Korea because it used to be on the front lines of the opening,” Lee said. “Now many businesses have collapsed there, but as soon as the border fully reopens, North Koreans might think that the paradise can come back.” More

The report stresses the critical role of clean energy sources, including solar, wind, nuclear, and geothermal power, in achieving the International Energy Agency’s net-zero goals. It also highlights the importance of investing in carbon capture, utilization and storage (CCUS) technologies and the development of hydrogen production through electrolyzers. These technologies are expected to reach commercial maturity after 2030.To facilitate the adoption of these technologies, the report suggests the formation of public-private partnerships. As advocated by Muqsit Ashraf from Accenture (NYSE:ACN) Strategy, these collaborations are essential for ensuring equitable access to affordable clean energy solutions while considering economic impacts. They are envisioned to create supportive environments for shared infrastructure and innovation in low-emission technologies.The call for investment and policy support comes at a time of increased activity and demand in energy-intensive industries. Despite an annual emission rise of 8%, there is a push towards adopting renewable sources and CCUS technologies. The report’s findings indicate that meeting the net-zero targets will require not just a shift in energy sources but also a comprehensive overhaul of industry practices and support mechanisms.The World Economic Forum’s recommendations include promoting clean power tech advancements, creating shared infrastructures, standardizing low-emission product frameworks, aligning global emission reduction requirements, and enhancing transparency around eco-friendly alternatives.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

LONDON (Reuters) – Britain’s government should tighten its budgetary belt, the OECD said on Wednesday, advice that is unlikely to be welcomed by Prime Minister Rishi Sunak who is expected to cut taxes again before a 2024 election.A week after finance minister Jeremy Hunt announced tax sweeteners for workers and businesses, the Organisation for Economic Co-operation and Development said the government should do more to shore up the public finances after the huge hits from the COVID pandemic and last year’s energy price surge.”Maintaining and strengthening current fiscal efforts is essential against the challenging backdrop of high borrowing and debt, and as higher debt interest payments have eroded fiscal headroom,” the OECD said in a report on the world economy. Sunak and Hunt are expected to offer another round of tax giveaways in a budget plan expected in February or March to help close the opposition Labour Party’s lead over the ruling Conservatives in opinion polls.The OECD recommended reforming Britain’s triple-lock system for increasing state pensions by whichever is the highest of workers’ earnings, consumer price inflation (CPI) or 2.5%.”Reforming the costly triple-lock uprating of state pensions would help, by indexing pensions to an average of CPI and wage inflation, and by providing direct transfers to poor pensioners to mitigate poverty risks,” it said.The OECD also recommended reforms to increase the number of people seeking work in Britain’s tight labour market and make the planning system to help the country meet its net zero targets.The group forecast gross domestic product (GDP) to grow 0.7% next year – down slightly from its previous forecast of 0.8% – and by 1.2% in 2025. Both forecasts were roughly in line with those for Germany and France.The OECD’s forecast of 0.5% growth in Britain’s economy in 2023 represented an upgrade of its September forecast of 0.3% but was the second-weakest performance among its Group of Seven peers after Germany.It said it expected the Bank of England would keep interest rates unchanged at 5.25% until 2025 when they would start a drop to 4% by the end of that year. Financial markets are currently fully pricing a first quarter-point rate cut in August 2024. More