Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.European Central Bank policymakers agreed to keep the option open of another interest rate rise, even if it was not part of their “baseline scenario”, when they met last month.Stressing the need to be “both persistent and vigilant”, ECB governing council members meeting in Athens a month ago recognised they had “to avoid an unwarranted loosening of financial conditions”, according to the official account of the decision published on Thursday.Since that gathering, when the ECB ended an unprecedented 10 consecutive rate increases, several council members have declared that they will need to keep borrowing costs high for a prolonged period to bring inflation down to their 2 per cent target. They have said the “last mile” will be the hardest.ECB president Christine Lagarde warned this week that it was too early to “start declaring victory” in the fight against inflation, calling for rate-setters — and markets — to “allow some time” to see how fast disinflationary forces take effect.However, with eurozone inflation falling rapidly from its peak of 10.6 per cent a year ago, and expected to hit 2.6 per cent in November when that figure is released next week, investors are increasingly betting against the ECB raising its benchmark rate from its current level of 4 per cent.Instead markets are pricing in a rising chance of a cut in borrowing costs by June.The risk — most clearly expressed by Belgian central bank governor Pierre Wunsch on Thursday — is that the more investors bet on an early rate cut, the more it loosens financial conditions, which may keep inflation high and force the ECB to do the opposite.Wunsch, one of the more hawkish members of the council, said in an interview with German newspaper Börsen-Zeitung that markets pricing in 1 percentage point of cuts by the ECB next year were “very optimistic and it even increases the likelihood that we will have to raise interest rates further”.German central bank president Joachim Nagel became the latest ECB rate-setter to say that while inflation has been falling rapidly, this was not expected to continue.“For some months to come, the road ahead will probably be a bumpy one with many ups and downs,” the Bundesbank president said in a speech on Thursday. “Our job is not done yet.”He cited IMF research on past episodes of high inflation that found some countries had “celebrated prematurely”, warning this was a “clear and present danger” for the eurozone.The account of the ECB’s last meeting showed that most council members thought they had done enough to tame inflation in the next couple of years.“Most indicators of underlying inflation appeared to have passed their peak and continued to decline, a signal for which the governing council had been waiting for months,” it said.Policymakers agreed they should still be ready “for further rate hikes if necessary, even if this was not part of the current baseline scenario”, it said.However, some rate-setters pointed out that “domestic inflation was stubbornly high and longer-run inflation projections still seemed to be above the governing council’s target”.There were also warnings that Israel’s war with Hamas meant “risks to energy prices were skewed to the upside”. Any increase could have a knock-on effect on inflation by intensifying calls by workers for higher pay “with a large number of wage agreements being negotiated at the start of the coming year”. More

Polish truckers have extended their blockade along the border with Ukraine to protest against competition from Ukrainian drivers, some of whom have been stuck for 17 days in freezing temperatures, in a further blow to Kyiv’s trade and war efforts against Russia.Backed by local Polish farmers and their tractors, lorry drivers on Thursday blocked the key border crossing at Medyka, expanding a protest that started at three other crossings on November 6. Two Ukrainian truckers waiting to cross have since died, according to officials and labour unions in Kyiv, as queues stretching as far as 25 kilometres formed on both sides of the border at several crossings. More than 1,000 Ukrainian trucks were already queueing at Medyka early on Thursday, local media reported. Only passenger vehicles and trucks carrying military equipment or humanitarian aid were allowed to cross unobstructed. Protesters have warned that their blockade could be maintained until January. Early last year Medyka was one of the main gateways for refugees fleeing Ukraine to Poland and other parts of the EU. The border crossing is also close to the south-eastern Polish city of Rzeszów, which became a big transit hub for military and humanitarian aid to Ukraine following Russia’s full-scale invasion. Ukrainian officials criticised the protest’s escalation. Taras Kachka, deputy economy minister for trade, said the dispute should be solved “at the negotiating table . . . but not on the road during the winter where damage is caused not only to the economies but to the health and life of drivers stuck there”. “There is snow and freezing temperatures on the roads, with people stuck without access to proper sanitary conditions,” Kachka said on Ukrainian television on Thursday. Following the casualties, Ukraine’s embassy in Warsaw issued a fresh demand to Polish authorities to break up the protest. “It is extremely important to save lives, stop the blocking of motor vehicles and give drivers the opportunity to return home without hindrance,” the embassy said in a note.Ukraine’s association of road cargo truckers warned €400mn in revenue has been lost because of the blockade. The situation could worsen given that truckers in neighbouring Slovakia have also temporarily blocked border crossings with Ukraine, it said.“The situation is the same both in Poland and Slovakia — what they are doing is violating the European Union treaty [that prohibits] blocking the checkpoints,” said Volodymyr Balin, vice-president of Ukraine’s truckers association.On Wednesday, long queues formed at the main Hungarian border crossing with Ukraine, as drivers sought to circumvent Poland and Slovakia. Ukraine’s ambassador to Poland has called the protest “a painful stab in Ukraine’s back” and the government in Warsaw has urged the drivers to lift their blockade.But the outgoing government led by the rightwing Law and Justice (PiS) party, which has stalled the comeback to power of Donald Tusk as prime minister, is avoiding a full-on confrontation with truckers who are the logistical cornerstone of the Polish economy. Tusk is expected to return to office after leading a coalition of parties to victory in parliamentary elections in October.The Polish truckers have written to the European Commission to demand that the EU restore transport quotas for Ukrainian trucks that were lifted last year to help Kyiv’s war against Russia. The commission has said this was a bilateral issue.“It is good that the European Union decided to open the border in a critical war situation, but this should not last and allow Ukrainian carriers to establish themselves on our market,” Jan Buczek, president of the Polish association of international road carriers, told the Financial Times.Poland has the EU’s largest truck fleet and its drivers’ complaints are also seen as a harbinger of the tough trade negotiations awaiting Ukraine before it can join the EU. Ukraine’s exports to the EU are transported increasingly by road since Russia’s full-scale invasion last year. Road transport accounted for 43 per cent of the overall value of Ukrainian exports to the EU, according to Natalia Shpygotska, deputy head of research at Kyiv-based investment bank Dragon Capital. The Polish blockade hurts particularly Ukrainian exports of wood and furniture, car parts and vegetable oils. It is also endangering the one-quarter of imported fuel supplies that Ukraine transports by road via Poland, Shpygotska added.Tymofiy Mylovanov, president of the Kyiv School of Economics and an adviser to Ukraine’s government, said some Ukrainian businesses had already been pushed into crisis by the Polish blockade, citing the example of a building materials producer that lost 60 per cent of its export business as a result.The blockade also deepens a trade dispute between Warsaw and Kyiv after imports of Ukrainian grain were banned to protect Polish farmers, despite that measure violating the EU’s common trade policy. Ukraine’s Black Sea ports in the Odesa region continue to function despite Russian attacks, making Poland less important for Ukrainian grain exports, say analysts.Chicago wheat futures climbed 1 per cent to a near two-week high on Wednesday in response to the latest Russian attacks on Odesa rather than the near-closure of the Polish border, said Andrey Sizov, managing director of Black Sea grain consultancy SovEcon.Additional reporting by Andy Bounds in Brussels More

BEIJING (Reuters) – Uruguayan President Luis Lacalle Pou said he wanted to “accelerate” negotiations over a free trade agreement between Uruguay, China and the Mercosur trade bloc while meeting China’s Premier Li Qiang on Thursday, according to Chinese state media.China, the world’s second-largest economy, is already a major investor in South America, and has offered tariff-free access to its huge consumer market to four countries. But a free trade agreement (FTA) with Mercosur would be a prize worth pursuing for Beijing as it could pressure Paraguay, the last remaining South American country with ties to Taipei, into reconsidering its links with Taiwan, which China considers part of its territory.Lacalle Pou first proposed a FTA with China in 2021 to secure similar opportunities for its exporters as those enjoyed by Chile, Costa Rica, Ecuador and Peru, but faces opposition from fellow Mercosur members Argentina, Brazil and Paraguay who want to settle an FTA with Europe instead. “Uruguay is firmly committed to close relations with China and active participation in the Belt and Road Initiative (BRI),” Lacalle Pou said, according a readout of the meeting in state media, “and is willing to… accelerate establishing a FTA between Uruguay, Mercosur and China.”China received 27% of Uruguay’s exports in 2022, United Nations COMTRADE data shows, while Brazil purchased 17% of its outbound shipments, and Argentina and the United States 6% each.On Wednesday, China and Uruguay upgraded their bilateral ties to a “comprehensive strategic partnership,” elevating Montevideo’s ties with Beijing to those of Argentina and Brazil.The elevation of ties puts pressure on agriculture-dependent Paraguay, whose main exports include beef and soybeans, and which does not have ties with Beijing. Li said China and Uruguay should: “take the signing of BRI cooperation documents as an opportunity to promote a continuing increase in bilateral trade.”Last November, Argentina, Brazil and Paraguay warned Uruguay that they could take “measures” against it if it forged ahead with its plans to unilaterally negotiate an FTA with China.The South American country has also applied to join a major trans-pacific free trade pact that China also aspires to join, but both Montevideo and Beijing must overcome significant political hurdles before they can accede to the agreement. At present, Uruguayan beef, which constituted 67% of the South American country’s exports to China in 2022, according to COMTRADE data, is subject to a 12% tariff.By comparison, other major beef exporters Australia and New Zealand, which have FTAs with China, pay tariffs at 3.3% and 0%.Under the Mercosur “Common External Tariff,” Chinese exporters must pay tariffs at 9%, should they wish to export to Uruguay.Uruguay came close to signing an FTA with the United States in 2006, but its government at the time eventually rejected the deal over fears of expulsion from Mercosur if it did so.According to a study conducted by the National Meat Institute of Uruguay in 2021, if China signs an FTA with Uruguay, the meat industry can implement a 0% preferential tariff, which will reduce tariffs by $150 million. More

The largest of these International Development Association (IDA) programs in Bangladesh, with a total commitment of $16.46 billion across various projects, aims to foster inclusive growth and sustainable development. The collaboration was formalized today by Bangladesh’s Economic Relations Division led by Sharifa Khan and the World Bank represented by Abdoulaye Seck.The funding is distributed across several critical areas:These strategic projects are part of the World Bank’s ongoing support to Bangladesh, which has surpassed $40 billion since the country gained independence. The initiatives represent a comprehensive approach to addressing some of the most pressing challenges faced by Bangladesh as it works towards achieving its long-term development goals.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The ECB broke a streak of 10 straight rate hikes last month and guided markets for steady policy ahead, fuelling bets that the first rate cut could come as soon as April. “We are faced with the most difficult part of our journey forward,” Nagel said in a speech in Milan, largely repeating his earlier comments. “We need the patience to wait for the full effect of policy tightening on inflation to materialise.”ECB President Christine Lagarde earlier said that rates could stay steady for several quarters and she warned against premature celebration as price growth, now below 3%, could rise again soon, primarily on technical factors.Disinflation would then pick up pace again later in 2024 and the ECB could hit its 2% target in late 2025.”Even if energy prices remain where they are, I expect the inflation rate to rise again somewhat,” Nagel said. “For some months to come, the road ahead will probably be a bumpy one with many ups and downs.” More

The EBRD’s investment plan includes a new €2 million Youth in Business (YiB) credit line designed to assist business leaders under the age of 35. This initiative was unveiled during an EBRD assembly attended by representatives from the National Bank of the Republic of North Macedonia, civil servants, commercial banks, startups, and accelerators. The YiB program, which receives support from Sweden, Italy, and Luxembourg, has an ambitious goal to invest €100 million into regional ventures over the next five years.In tandem with the YiB, the EBRD is also providing a €7 million Green Finance Facility (GFF) credit. This facility targets Small and Medium-sized Enterprises (SMEs) that are undertaking renewable energy projects. The GFF is supported by additional backing through grants from the Joint SDG Fund and the North Macedonian government under the framework of the United Nations Development Programme (UNDP). These grants, which can go up to 10%, are intended to encourage investments that will contribute to reducing greenhouse gas emissions and combating climate change effects.Since joining the EBRD in 1993, North Macedonia has seen substantial financial support from the bank, receiving over €2.6 billion for more than 180 projects. These investments have largely focused on expanding the private sector and transitioning towards environmentally friendly practices. The latest funding announcement by the EBRD serves to further these efforts, demonstrating a continued commitment to fostering sustainable economic development in the Western Balkans region.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

BRUSSELS (Reuters) -The European Union executive on Thursday approved 900 million euros ($1 billion) in advance payments to Hungary under its hitherto frozen share of recovery funds, as the bloc seeks to overcome Budapest’s veto of aid to Ukraine.The EU’s Brussels-based executive, the European Commission, locked Hungary out of the bloc’s post-pandemic economic stimulus due to concerns over corruption and backpedalling on democratic checks and balances under veteran Prime Minister Viktor Orban. In turn, Hungary has blocked EU decisions otherwise expected next month to grant Ukraine 50 billion euros in economic aid through 2027 and start accession talks with Kyiv. Budapest also stalled a plan to extend 20 billion euros in EU military aid to Kyiv, and is against sanctions over Russia for waging the war. EU support is crucial to Ukraine, which has been struggling to push back a full-scale Russian invasion since February 2022. Orban, who touts his ties with Moscow, says Hungary is no more corrupt than other EU countries. Budapest has rolled out a billboard campaign vilifying the European Commission, and Orban’s Fidesz party is pushing a bill on “protecting national sovereignty” from foreign meddling – both moves raising the stakes in Hungary’s clashes with the EU.A Budapest currency trader put the muted reaction on the forint to the news partly on the U.S. market holiday for Thanksgiving on Thursday. “Also, markets understand that this is only the beginning, and may need a bigger impulse to put the forint on a firming path,” said the trader, who declined to be named.BARGAINING WITH HUNGARYThe advance payments – which do not require meeting rule-of-law conditions otherwise attached to EU financial aid – come under RePowerEU, part of the post-pandemic EU stimulus meant to support energy transition away from fossil fuels.EU officials said Hungary’s amended recovery plan is worth a total of 10.4 billion euros over several years – or about 5% of Hungary’s 2023 GDP – including 4.6 billion euros under RePowerEU: 0.7 billion euros in grants and 3.9 billion in loans.EU officials said Hungary would use the RePowerEU money to modernise its electricity sector through smart metres and digitalisation of energy companies. The Commission’s decision on Thursday to give the nod to Hungary’s amended recovery plan must now be approved by other EU countries, possibly as soon as during Dec. 8 talks among the 27 member states’ finance ministers. EU officials expected two payments of around 460 million euros each to follow next year.The officials insisted Hungary must meet EU conditions on fighting corruption and ensuring judicial independence, among others, to access any more of the funds.EU officials told Reuters last month that the bloc was considering unlocking aid for Hungary to win Budapest’s support for Ukraine. More recently, however, sources involved in preparing a Dec. 14-15 EU leaders’ summit to discuss Ukraine channelled increasing scepticism that Orban could be swayed. ($1 = 0.9168 euros) More

MOSCOW (Reuters) – Russian private lender Sovcombank has applied to the U.S. Treasury for a licence to make membership payments to a United Nations climate funding programme while its activities are blocked by U.S. sanctions, a senior bank executive told Reuters. Sovcombank, one of Russia’s 13 official “systemically important” credit institutions, was placed under U.S., UK and European Union sanctions soon after Russia launched what it calls a “special military operation” in Ukraine in February 2022.The Treasury’s Office of Foreign Assets Control (OFAC) placed Sovcombank on its Specially Designated Nationals (SDN) list, effectively kicking it out of the U.S. financial system, banning trade with Americans and freezing its U.S. assets.But the bank is now seeking a licence to pay membership fees for the United Nations Environment Programme Finance Initiative, testing the waters in Washington for special exemptions for certain transactions by Russian banks. “We have applied to OFAC with a request to issue a licence so that our payments are accepted,” Mikhail Avtukhov, head of Sovcombank’s corporate and investment banking division, said on the sidelines of a financial forum in Moscow. “We have funds in foreign currency for these payments, but we have not received any response from them yet, unfortunately.” The U.S. Treasury declined to comment. Avtukhov said Sovcombank was in dialogue with the UN on the matter. The UN did not immediately respond to a request for comment. “We have not suspended our membership in international organisations,” Avtukhov, who also sits on Sovcombank’s board, said. “We continue working with them, despite all the difficulties that arose last year.” “The bank has not suspended any initiatives within the UN framework. There are certain difficulties with making payments in general for Russian participants of this programme,” Avtukhov said. “But the UN treats this with understanding.” Asked whether the bank might try to pay in currencies other than dollars or euros, Avtukhov said the bank did not want to be accused of trying to circumvent sanctions and wanted to pay in “the usual way”. More