Economy

The Mexican economy grew 3.3% in the quarter on an annual basis, in line with expectations, according to a Reuters poll.A breakdown of the GDP figures showed that all sectors grew on a quarter-on-quarter basis. Primary activities such as farming, fishing and mining saw the strongest gain at 2.6%. The secondary sector, which covers manufacturing, grew 1.3% and the tertiary or services sector grew 0.9%.Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said industrial activity was the main driver of the increase in GDP. This was supported by nearshoring and rising infrastructure spending, and a decent manufacturing recovery.The final data confirmed a “better-than-expected start to H2”, due to solid labour market conditions, gradually falling inflation and increased public and private investment, Abadia also added.Mexico’s central bank kept interest rates steady at 11.25% this month, where they have sat since March after a nearly two-year tightening cycle. Central bank governor Victoria Rodriguez has ruled out cuts to the key rate for the rest of 2023, but opened the door for the board to begin discussing possible cuts ahead. More

The country has been grappling with severe financial difficulties, which culminated in a dramatic bankruptcy declaration in April 2022. The situation led to essential services being disrupted, but recent developments indicate that these services have now been restored. Despite these improvements, higher taxes introduced as part of the recovery strategy have sparked public dissent.In September, the IMF emphasized the need for Sri Lanka to enhance its tax administration to aid in its economic recovery. This recommendation came after the country had already received initial capital from the IMF following a March agreement. The disbursement was part of a broader $2.9 billion bailout package aimed at addressing critical supply gaps and supporting structural reforms.The financial collapse last year not only strained Sri Lanka’s economy but also led to significant political upheaval, with protests forcing President Gotabaya Rajapaksa to step down. In the aftermath, China’s Export–Import Bank agreed to financial terms that are necessary for securing additional Official Creditors Committee (OCC) creditor approvals, which are crucial for the continuation of the IMF bailout program.As Sri Lanka awaits further disbursement, there is growing anticipation that continued support from international partners like the IMF will help bolster its economic stability and prevent future lapses in oversight and debt management. The government’s commitment to reforming its tax system is seen as a key step towards ensuring long-term fiscal sustainability and regaining the confidence of both domestic and international stakeholders.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Akhtar noted that despite assumptions of sustainable debt under an IMF program, Pakistan faces increased vulnerability to global shocks, such as commodity price rises and tighter liquidity conditions. She pointed out that current fiscal policies are untenable, with significant revenue gaps and unproductive spending compounded by a substantial shortfall in climate funding. The IMF has projected that public debt may rise to Rs81.8 trillion or 77.3% of GDP by June 2024, necessitating enhanced resource mobilization and curbed losses from state-owned enterprises (SOEs).In addressing external debts, Akhtar mentioned that while multilateral agency debts are non-negotiable and commercial debts involve complex negotiations with numerous stakeholders, bilateral debts have seen some relief post-COVID-19, including a $2.4 billion restructuring by the Chinese Exim bank under G-20 initiatives.Despite these challenges, Akhtar highlighted signs of economic recovery with GDP growth projected at up to 3% for FY2024 according to Pakistan Bureau of Statistics (PBS) data, driven by improved agricultural output and manufacturing activity. She also pointed to Pakistan’s potential growth trajectory as estimated by the World Bank—a $2 trillion economy by 2047—and emphasized the need for lowering the tax-to-GDP ratio currently at 10%.To address these issues, Akhtar affirmed Pakistan’s commitment to an IMF staff-level agreement essential for macroeconomic stability and mentioned ongoing reforms aimed at separating tax policy from administration duties. She also spoke of engaging provinces in expenditure sharing discussions for social welfare schemes like the Benazir Income Support Programme (BISP) as well as Public Sector Development Programme (PSDP) development projects.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The financial markets are aligning with the ECB’s signals, expecting high interest rates to continue. This is in line with the ECB’s commitment to prevent any unwarranted easing in financial conditions. In a unanimous decision, the ECB’s council has resolved to maintain restrictive policy rates until inflation objectives are achieved.Current monetary policy suggests that the period of aggressive rate hikes may be coming to an end, transitioning instead to a sustained phase of elevated rates. While not explicitly ruled out, further rate increases appear less likely given the economic challenges and signs of disinflation. These developments imply that the ECB might consider rate reductions sooner than previously anticipated.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

LONDON (Reuters) – The pound rose on Friday nearing its highest in almost three months, lifted in part by a broad-based retreat in the dollar, but also by a rise in UK bond yields after this week’s budget update included a forecast of higher government debt issuance.Also bullish for sterling was a reading of consumer confidence on Friday that showed people in Britain turned more optimistic about the outlook for the economy and their personal finances this month, although sentiment is a long off where it was before COVID struck in early 2019.Sterling rose to a high of $1.2575 on Thursday, taking advantage of lower trading volumes because of the U.S. Thanksgiving holiday to make inroads against the dollar.By Friday, the pound traded around $1.257, up 0.28%. Against the euro, sterling was up 0.2% at 86.84 pence.Currency markets are caught up in shifting expectations for the timing of the first central bank rate cuts. Money markets show traders believe the Fed could move as soon as May, while the Bank of England is expected to cut later and by less.This, in theory, should support sterling, but if the concern among investors is over the economic outlook, that complicates the picture, Trade Nation senior market analyst David Morrison said. “It’s very difficult for the Bank of England, in particular, because the economic data hasn’t been great – a bit like the euro zone – growth is pretty tepid and yet inflation remains way above target,” he said. “I just don’t see us escaping a recession here. That’s in my bones.”BUDGET BLUESOn Wednesday, Finance Minister Jeremy Hunt unveiled a series of tax boosts to support the UK economy, but estimates of both growth and inflation were more pessimistic than previously forecast. Headline inflation subsided to 4.6% in October. A year ago it was at 11%, but it is still double the BoE’s target of 2% and well above consumer inflation rates in either the United States or the euro zone.The Office for Budget Responsibility, the UK’s budget watchdog, forecast inflation to reach 2.8% in 2024, compared with a forecast of 0.9% in March.Separately, the Debt Management Office cut its gilt issuance remit for 2023/24 to 237.3 billion pounds ($295.7 billion) from 237.8 billion pounds previously.The 500 million-pound cut was smaller than any primary dealer predicted in a Reuters poll, which has sent 10-year gilt yields up 20 basis points this week to their highest since Nov 14.”If we start seeing some bad GDP numbers and if we do start to see unemployment going up, given everything else, you’ve then got the Bank of England maybe having to cut rates,” Morrison said. Data from market research firm GfK on Friday showed UK consumer confidence index was stronger than anticipated in November, increasing to -24 from October’s three-month low of -30. November’s reading was above the -28 forecast in a Reuters poll of economists, and follows a sharp fall the month before.”Recent ups and downs in confidence have underlined the nation’s topsy-turvy economic mood as encouraging news about falling inflation and wage growth is offset by high personal taxation, alongside costly fuel and energy bills,” Joe Staton, GfK’s client strategy director, said. More

MOSCOW (Reuters) – Chinese car sales in Russia appear to have peaked as domestic production recovers after the exodus of Western automakers, data shared with Reuters showed, but recent growth in the market may stall as high import costs and interest rates begin to bite.The figures are early indicators that Russia’s car market, and China’s role in it, have stabilised after nearly two years of upheaval caused by sanctions placed on Moscow and Western companies’ sudden exit in the wake of the invasion of Ukraine.But the sector, which saw an almost 60% slump in sales in 2022 and production sink to a post-Soviet low, is still a long way from its pre-invasion levels. Sales and output in 2023 are set to be among the lowest in the last 10 years.Prior to the February 2022 invasion, Chinese cars accounted for less than 10% of the Russian market. In August this year, Chinese brands’ share of sales peaked at almost 56%, data from analytical agency Autostat and its partner consulting company PPK showed.That percentage has now levelled off, with Chinese brands selling around 60,000 units each month since August, corresponding to a 53% share in September. Sales include imported vehicles and those made inside Russia.Chinese carmakers such as Haval, Chery and Geely are capitalising on the departure of Western players that used to dominate the market before the invasion of Ukraine, showing Moscow’s increasing dependence on Beijing and growing economic ties with China as the West shuns Russia over the war.Russia has jumped from 11th place to become China’s largest export market for cars, reaching a value of $9.4 billion in January-October, Chinese customs data showed. In the same period of last year, car exports to Russia amounted to $1.1 billion. Overall, monthly car sales in Russia are now more than double what they were a year ago, Autostat data showed, while separate data from federal statistics service Rosstat showed car production was nearly three times higher in September year-on-year, underlining the sector’s partial recovery.Chinese carmakers were crucial in that process, but with demand now largely satisfied there is a ceiling for their further expansion in the sector, Autostat Executive Director Sergei Udalov told Reuters. “The market has reached a state of equilibrium – the main Chinese brands have come to Russia and (pent-up) demand is satisfied,” Udalov said. Russia’s leading carmaker Avtovaz, which produces the most popular Lada cars, is catering to demand for cheap cars, while Chinese brands are filling the gap left by Western producers for more expensive vehicles, Udalov added.That trend could change should either Avtovaz or Chinese carmakers seek to dip their toes into different pricing categories, Udalov said, but for now, despite depressed sales and production, the market’s prospects for growth are slim.’UNSTABLE, SHAKY’ MARKETSanctions against Russia contributed to lower car production and sales most notably in 2022, but also after Moscow annexed the Crimean peninsula from Ukraine in 2014.Sales have not topped 2 million vehicles since 2014 and production has been lower, too. Just over 626,000 new cars were sold in Russia in 2022 and almost 830,000 were sold in January-October this year. A modest recovery is underway from 2022’s lows, but the loss of Western technology and expertise is hurting the sector, analysts say, even as Chinese carmakers bed in at some of the factories vacated by their Western counterparts.In the first three quarters of 2023, Russia produced only a few thousands more cars than in the same period of last year, Rosstat’s data showed, but the figures are now trending upwards.”The growth of pent-up demand that started in late spring and lasted through August started to run out of steam in September,” said economist Natalia Zubarevich, a professor at Moscow State University.Wages have been rising, partly due to above-target inflation, but four interest rate hikes since July to 15% mean that although people have more money, credit is far more expensive.”The (key) rate should have a depressing effect (on car loans), and this should reveal itself in October and November,” Zubarevich said. Meanwhile, the rouble’s slide to 100 against the dollar this year has made imports more expensive, depressing purchases of Chinese cars. It has since recovered to around 90.The central bank this month said a ban on imports of some Japanese cars, combined with rouble weakening, was pushing up prices of foreign cars. Avtovaz last week lowered its 2023 production forecast of 400,000 Lada cars by up to 10% in response to U.S. sanctions on Russian industry in September, which specifically targeted Avtovaz.”The market is in a highly unstable, shaky state,” said Zubarevich. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Europe Express newsletter. Sign up here to get the newsletter sent straight to your inbox every weekday and Saturday morningGood morning. A Financial Times analysis has found that Turkey’s exports of microchips and other critical goods for Russia’s war machine have soared this year, disrupting EU efforts to curb Moscow’s ability to arm its military. Today, I’ve got an overview of the latest faultlines in the fraught debate on the EU budget rebate (spoiler: they haven’t moved much). And my colleagues explain why France is critical of Chinese imports, but happy to welcome Chinese investors.Disaster budgetThe latest proposal on how to cover the EU’s ballooning budget needs once again showcases how tense things can get when it comes to anything involving a euro sign. Context: Capitals have been critical of the European Commission’s proposal to top up the EU budget by €100bn until 2027, including some €66bn in new funds paid by member states. About €50bn of the total would be earmarked for Kyiv, while the rest would go towards repaying debt, migration measures and other areas.EU ambassadors yesterday discussed a proposal by the current Spanish EU presidency with different scenarios for repurposing existing funds to supplant fresh spending.According to the paper seen by the FT, the EU could transfer money from a dedicated Brexit fund, a fund for workers displaced by globalisation and other areas — without touching precious agricultural funds and money for regional development. Depending on how painful the cuts are, the EU could in this way scrape together up to €23.1bn, the paper estimates.But member states were not that impressed with the proposal. Several EU diplomats said the discussion on redeploying existing funds needed to get more serious and cover broader areas of the EU budget. “To be able to discuss further details, all pieces of the puzzle need to be on the table,” one diplomat said. EU ambassadors also talked about an increase of disaster aid, for instance in cases of flooding. Countries including Italy, Slovenia and Greece have been hit by climate-related disasters this year.Another EU diplomat said the proposal was needed “in any case, in order to ensure adequate EU capacity to respond to both . . . natural disasters within the EU and emergencies outside the EU”.But countries such as Germany and the Netherlands say further discussions are needed on where to find the funds. Germany, the EU’s biggest net contributor, is in trouble over its domestic budget following a bombshell court ruling last week. “If money were to grow on trees, we’d be fine with it,” a third EU diplomat remarked, adding that it was “very difficult to find fresh money for anything else than Ukraine”.Aid for Kyiv seems to be the one area on which member states — except Hungary — agree. Yesterday’s approval by the commission to pay a first €900mn to Budapest from frozen funds might help discussions.So prepare for long nights when EU leaders meet to seal the budget deal in December — with some diplomats saying they might fail and haggling continue into the new year. Chart du jour: Shock resultYou are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Far-right leader Geert Wilders’ victory in Wednesday’s Dutch elections is also a triumph for nationalist, anti-establishment politicians in other European countries. Although Wilders’ Freedom party may struggle to find coalition partners, the liberal-conservative VVD and the centrist New Social Contract have not ruled out working with him. Read our profile of Wilders, a man known for his xenophobic and Islamophobic views. Home-madeFrance talks tough on trade with China, while at the same time rolling out the red carpet for Chinese investors, write Andy Bounds and Alice Hancock.Context: France was one of the biggest advocates of the EU’s investigation into Chinese subsidies of electric cars sold in Europe. Paris now wants those same manufacturers to set up shop in the country.Trade minister Olivier Becht told the FT in an interview that France was attracting huge amounts of investment in battery and car factories and was happy for Chinese companies to join in. “We are open for the production of vehicles and of batteries in France. So everybody is welcome to produce in France and add jobs — American companies and Chinese companies,” Becht said.Stellantis, which owns Peugeot of France, is exploring a partnership with China’s CATL to build low-cost electric car batteries in Europe.Becht said France had also attracted ProLogium of Taiwan to invest €5.2bn, creating 3,000 jobs. “Sustainability is our priority,” he said. Meanwhile, China remains livid about the bloc’s probe into its exports.At an event in Brussels yesterday, Fu Cong, China’s EU ambassador, said the anti-subsidy investigation was “not fair”, adding: “We know that the two sides are also talking on this. We do hope that common sense can prevail.”However, Maria Martin-Prat, deputy director-general in the European Commission’s trade department, disagreed: “We don’t have a problem with anyone selling goods [in Europe]. We have a problem when there are practices that distort the level playing field.” What to watch today Second day of EU-Canada summit.EU ministers for culture and sports meet in Brussels. Now read theseRecommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up hereAre you enjoying Europe Express? Sign up here to have it delivered straight to your inbox every workday at 7am CET and on Saturdays at noon CET. Do tell us what you think, we love to hear from you: [email protected]. Keep up with the latest European stories @FT Europe More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.One of the big expenses for the UK government this year has been how much it has had to fork out to the owners of its inflation-linked debt.In this week’s Autumn Statement, the Office for Budget Responsibility predicted the UK would have to spend an additional £64bn on index-linked government debt on top of its March forecasts over the next four years — by virtue of the UK’s stubbornly high rate of inflation. With bumper payouts on these inflation-proof products set to continue, should private investors be buying it? And how do so-called “linkers” compare with conventional gilts? What’s available? The UK currently has 62 conventional gilts and 33 index-linked gilts in issue, according to the Debt Management Office’s website, with the latter making up about a quarter of the value of the UK’s debt pile. Both types are traded on the London Stock Exchange. They typically pay coupons on a semi-annual basis and can be bought across the UK’s largest do-it-yourself investment platforms, some of which, including AJ Bell and Interactive Investor, only facilitate index-linked gilt purchases by phone. Myron Jobson, a personal finance campaigner at Interactive Investor, said fewer than 5 per cent of gilt purchases on the platform this year have been for the index-linked versions.“The inflation-adjusted element of index-linked bonds could have a significant impact on the returns, which is why retail investors typically prefer the certainty of holding a conventional gilt to maturity,” he said. Hargreaves Lansdown, the UK’s largest investment platform, said its conventional gilt sales had risen more than six fold over the past 12 months, compared with a 72 per cent rise for index-linked gilts. What’s the difference between standard gilts and linkers?Conventional gilts redeem at £100 and your returns will be determined by the price paid for the bond as well as any coupons paid, which are fixed and stated in the title of the gilt. If the price of the gilt is lower than £100 when you buy it you will receive a profit at maturity. For index-linked gilts, both the coupon payments and the principal payments are adjusted in line with the retail price index (shifting to the consumer price index from 2030). Most index-linked gilts link payments to inflation with a three-month lag, with a handful issued before 2005 bound to an eight-month lag.  The yield on index-linked gilts shows what return you will get in excess of inflation. For example, the index-linked gilt which matures in August 2028 has a yield of 0.45 per cent, meaning returns will be 0.45 per cent above the retail price index — which was 6.1 per cent for the year to October — over the next five years. Conventional five-year gilts currently yield 4.24 per cent. Which will deliver better returns?It depends on whether inflation turns out to be higher or lower than market expectations. You can work out what market expectations are for inflation by subtracting the yield on index-linked gilts from the yield on a conventional gilt, which is known as the “break-even rate”, although it is complicated for gilts maturing after 2030, owing to the inflation index transition. The UK’s five-year break-even rate — the expectation for average RPI over the next five years — is currently 3.8 per cent. So if inflation is higher over that period, index-linked bonds would deliver better returns; if lower, you’d have been better off with conventional gilts.If you sell the bond before it matures its price will depend on market conditions at the time.   “Index-linked gilts are only suitable for experienced investors,” said Laith Khalaf, head of investment analysis at AJ Bell. “They are complicated. The data is not particularly widespread and it’s a market that is very dominated by institutional buyers that are not price sensitive.” How does the tax treatment work?There can be tax advantages for buyers of both index-linked and conventional gilts. Unless you hold the gilt within a tax wrapper, any coupon payments will be subject to income tax while the difference between the price of the bond when you buy it and when you sell it (or when it matures) is free from capital gains tax. This is why short-dated conventional gilts with low coupon rates have been so popular among wealthy investors this year as an alternative to cash: most of the returns can be paid out tax free.  Khalaf said it is not clear, however, whether linkers or conventional gilts would prove more tax efficient, as it will depend on the terms of an individual bond, the price paid and the coupon level.  More