Economy

When Germany enshrined a “debt brake” in its constitution in 2009, it was celebrated as a victory for fiscal rectitude and a definitive break with the profligacy of the past.Fourteen years later, with Olaf Scholz’s government in the throes of a burgeoning budget crisis, the strict curb on public deficits does not seem such a great idea after all.“It was the biggest mistake in German economic policy in the last 20, 30 years,” said Jens Südekum, professor of international economics at Heinrich Heine University in Düsseldorf. “The stupid thing is now in the constitution and you can’t get rid of it.”Doubts about the debt brake — which Germany has sought to impose on other eurozone countries, too — have proliferated since last week’s bombshell ruling by its constitutional court that threw spending plans into disarray and plunged Scholz’s fragile coalition into the worst crisis of its two-year reign. Talks on next year’s budget have been postponed indefinitely and future funding for Ukraine and other major spending lines frozen, with the three ruling parties at odds over what to do next.The court blocked a government move to transfer €60bn of unused borrowing capacity from its pandemic budget to a “climate and transformation fund” (KTF) that finances projects to modernise German industry and fight climate change.A balloon bearing the likeness of Christian Lindner, finance minister, at a demonstration in June calling on the government to stick to its sustainable development goals More

Bargain-hunting Americans are expected to turn out in record numbers for the start of the US holiday season, but their fatigue at higher prices is making retailers cautious and putting strain on the nation’s economic engine.Black Friday — the day after Thanksgiving — traditionally kicks off America’s biggest annual shopping spree with retailers touting alluring discounts. This year, some are planning steeper markdowns to draw inflation-weary consumers into stores.The National Retail Federation expects 182mn people to shop between Thanksgiving and Cyber Monday. That would be 16mn more people than last year and the most since the NRF began tracking the data in 2017.Their average outlay over those days will be 13 per cent higher than last year at $567 per person, Deloitte estimates. But spending for the entire season is only set to keep pace with inflation: S&P Global Market Intelligence sees holiday sales growing 3.3 per cent, below the 3.9 per cent pre-pandemic average and the higher rates seen in more recent years.Despite inflation cooling in October, “cost fatigue — the perception that the cost of everything is higher than pre-pandemic” remains, said Gregory Daco, EY’s chief economist in a report. That is dampening shoppers’ desire to spend.Consumers have surprised economists with their resilience this year, as their spending defied inflation, soaring interest rates, and the resumption of student loan repayments. But the October jobs report showed a softening in labour market trends, and a November poll from the University of Michigan showed consumer sentiment at a six-month low.The “arsenal of excess savings” households built up during the pandemic is also starting to deplete, Jason Pride, chief of investment strategy and research at Glenmede Trust, noted in a report.Retailers’ third-quarter earnings reports showed signs of the warier mood. Home Depot and Lowe’s both pointed to a drop in spending on large home-improvement projects, Kohl’s missed sales estimates as spending on non-essentials declined, while Best Buy said demand had been “even more uneven and difficult to predict”.Walmart, the country’s biggest retailer by sales, went as far as to say it “may be managing through a period of deflation” in the coming months.Nearly 80 per cent of consumers are looking to “trade down” for holiday shopping this year, swapping planned purchases for cheaper alternatives or forgoing them altogether, a McKinsey study found. The desire to trade down has risen five percentage points from July 2022, even though that marked the moment when inflation hit a 40-year-high at 9.1 per cent.Retailers have responded by offering much steeper discounts in some categories, according to an Adobe Analytics assessment of ecommerce pricing. Average peak discounts for apparel sold online are up from 19 per cent to 25 per cent, it found, while markdowns on televisions are up from 10 per cent to 24 per cent.The easing of pandemic era supply-chain issues two years ago that left stores with inventory gluts means that some retailers are under less pressure to discount prices. Target noted that its improved inventory position meant it did fewer markdowns, while Walmart chief financial officer John David Rainey told the Financial Times: “I don’t think we expect to have a more promotional holiday period than what we saw last year.”But S&P expects prices to rise just 0.5 per cent this holiday season, compared with the “blistering” retail inflation of 6.1 per cent seen in 2022.Even with inflation easing, Stephanie Cegielski, vice-president of research at the International Council of Shopping Centers industry group, pointed to an increase in younger shoppers, especially, choosing more flexible buy now, pay later payment options.Buy now, pay later use online is up 14.5 per cent compared with last year, according to Adobe, which called 2023 a “breakout year” for such short-term financing offers.Retailers are also placing a heavier emphasis on their more affordable private label brands, said Lauren Beitelspacher, a marketing professor at Babson College. “As a consumer, it’s important to do your due diligence this year,” she said.The more price-sensitive mood was in evidence among shoppers in midtown Manhattan this week.“Everything is just so expensive that it’s hard to have any extra money to spend on anything,” said Jack O’Keefe, a 29-year-old banker from New York while perusing Manhattan’s Bryant Park holiday market. He added, however: “I’ll definitely do Black Friday, for sure. I’m still trying to get everyone the best gift I can get, you know?”“Prices have just become so unrealistic,” echoed Jessica Prenda, 25, a tech consultant from Brooklyn who was shopping at the Macy’s flagship store. “But I feel it more with day to day spending like grocery shopping,” she said. Prenda, who recently lost her job, has cut her holiday gift budget from $2,500 to $400 for her family of four. “It’s a big difference from last year,” she said.Margaret Ennis, 54, an office assistant from Brooklyn, was planning on cutting her Christmas shopping by half compared with last year because of higher food costs.“I’m changing what I buy: what is needed versus what I want. Kids always need clothes,” she said while shopping for her grandchildren at Macy’s. It would take a discount of 75 per cent to turn her eye, she added: “Because you can find it, you know. You just have to look. See, I’m a shopper and a couponer also.” 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.From defaulting to the World Bank to making it a literal criminal offence to publish accurate inflation statistics, there are few bounds of good governance that Argentina hasn’t gleefully crashed through over the decades. The election of soi-disant “anarcho-capitalist” Javier Milei as president, replacing the leftish populist Peronism of Alberto Fernández, promises a new and exciting chapter in the story.The headline source of cataclysm is Milei’s proposed domestic economic shock therapy — replacing the peso (which he describes as “excrement”) with the US dollar and slashing government spending by 15 percentage points of GDP — which promises to make him a Latin American Liz Truss raised to the power of 10. His camp’s disturbing links to Argentina’s dictatorial past also threaten to inflame divisions in an already fractious country. The electoral endorsement of his economic ideas in a fairly prominent member of the “Global South” — Argentina, a member of the G20 of large economies, has applied to join the “Brics” emerging markets grouping — erodes a little more the idea that said category of nations has any enduring common geoeconomic orientation. Under Fernández, Argentina has embarked on borrowing renminbi through swap lines from the People’s Bank of China, part of a supposed de-dollarisation of the global financial system. The election of a president hankering for adopting the US currency is a massive and abrupt reversal.In reality, it’s unlikely Milei will get support for his monetary and fiscal shock therapy through the Argentine congress. His international policies, though, will still disrupt the idea of a “Global South” order. Milei has described the government of China as an “assassin” and called President Luiz Inácio Lula da Silva of Brazil “corrupt” and a “communist”. More substantively, he’s threatened to pull out of the South American four-nation Mercosur trade bloc, currently in highly delicate late-stage negotiations to ratify a draft trade deal with the EU.Leaving Mercosur isn’t Milei’s craziest idea. The bloc has not been a successful engine of liberalisation and growth. It has enough trouble reducing barriers to trade between its members, let alone opening their economies up to the rest of the world. Its trade deal with the EU took 20 years of talks to get to signing stage in 2019, and ratification has since been held up over Brazil’s wish to change the deal to retain more control over public procurement, together with EU concerns about deforestation of the Amazon.The situation, though, potentially presents a narrow opening for the forces of moderate economic liberalism in Argentina to assert themselves and at least make a gesture to a co-operative middle way between statist populism and scorched-earth libertarianism — and between advanced and emerging economies. Milei’s minimal representation in the congress means he will be heavily reliant on the supporters of Mauricio Macri, his predecessor-but-one as president — perhaps the reason for the financial markets’ optimistic reaction to Sunday’s result.Macri’s presidency was a big missed opportunity. He had many of the right ideas, finally concluding the sovereign debt restructuring from a sovereign debt default in 2001 and signing the EU-Mercosur deal. But he lost his nerve and backslid on controlling inflation.If Macri can nudge Milei in the direction of co-operation, something of use might emerge. Concluding the EU-Mercosur deal, for one, would show that richer and poorer countries can cooperatively liberalise trade while protecting their respective values.The timing here is intriguing. Paraguay, whose president favours the deal, will take over the presidency of Mercosur on December 7 and insists that any revised deal must be finalised before then. Milei’s swearing-in date of December 10 creates the intriguing proposition of bouncing him into agreeing a revised EU-Mercosur agreement rather than trashing the trade bloc altogether.Lula, who previously sounded highly sceptical about the EU-Mercosur deal, has engaged closely in negotiations with Brussels in recent weeks, aiming at the December 7 deadline. There’s still not a great chance of success on this timescale, given the suspicions that have to be overcome. Milei will also have to swallow his own climate change denialism at record speed, given the pact’s environmental commitments. But agreeing it would be an effective way of showing that emerging and advanced economies can co-operate.To be realistic, given the disastrous legacy of high inflation, low growth and a collapsing currency he’s inherited, the Milei government will probably crash like most of his predecessors. The last Argentine president to promise deregulation and a tough currency regime failed badly. Carlos Menem, in power between 1989 and 1999, fixed the peso to the dollar in 1991 and went on a privatisation spree, but uncontrollable government spending meant the experiment ended in default and devaluation a decade later.But if Milei wants to pick his battles — and his allies — with considerably more finesse than he has shown hitherto, there are at least some things he could do along the way. Scoring some successes for economic rationality in Argentina is improbable, but Mercosur’s trade deal with the EU is one that’s not entirely out of the question. [email protected] More

With markets shut in Japan and the United States for the Thanksgiving holiday, currencies barely moved and cash U.S. Treasuries weren’t traded in Asia.The dollar index rose overnight, bouncing from a 2-1/2 month low, after economic data showed the number of Americans filing new claims for unemployment benefits fell more than expected last week. At the same time, orders for long-lasting U.S. manufactured goods fell more than expected in October, signalling an economy cooling considerably after hot third-quarter growth.In another worrying indicator for the Federal Reserve, a survey from the University of Michigan showed consumers this month anticipate higher inflation both in the near and long term, particularly inflation over the next five years.”The dollar has partially rebounded after recent weakness…markets are reminded from the University of Michigan survey that inflation expectations for the next 1 and 5 years stay sticky, and that rates could stay higher for longer,” said Jeff Ng, head of Asia macro strategy at Sumitomo Mitsui (NYSE:SMFG) Banking Corporation. The dollar’s rebound comes after a three-week long spell of weakness driven by evidence of a slowing economy and disinflation, leading markets to price out any additional Fed rate hikes. U.S. Treasuries had rallied too, with 10-year Treasury yields down nearly half a percentage point this month.Markets have dialled back expectations of Fed rate cuts in 2024, with futures now showing a 27% chance that the Fed cuts its target rate at the March 2024 policy meeting, a likelihood that increases to 40% when policymakers meet in May, according to CME Group’s (NASDAQ:CME) FedWatch tool.The weakness in the dollar has buoyed the yen, along with expectations the Bank of Japan may shift away from its ultra-loose monetary policy next year. After pulling back from the brink of 152 per dollar at the start of last week, the yen hit a two-month high of 147.155 on Tuesday. It was last traded at 149.33.The dollar index was just 0.03% lower at 103.84, with the euro unchanged at $1.0887. The Australian dollar was flat too at $0.654.The European Central Bank (ECB) releases minutes of its October policy meeting later in the day. In recent days, policymaker Mario Centeno has said he expected macroeconomic conditions would lead to a reversal in the bank’s recent cycle of rate hikes in the near future. Governing Council member Joachim Nagel said rates in the euro zone are close to their peak in the current cycle or may have already reached it.The forward-looking flash November purchasing manager indexes (PMIs) are also due out globally on Thursday and should help investors assess recession risks and how quickly rate cuts will begin. The euro zone PMI is already below the 50 number, suggesting economic activity is contracting. It is the same in Britain, while the U.S. Oct manufacturing PMI contracted sharply.Sterling fell on Wednesday and UK’s FTSE 100 fell for the third straight session after UK finance minister Jeremy Hunt unveiled a series of tax cuts and other measures to boost growth in his autumn budget, but forecast a far more sluggish economic outlook than previously expected.In cryptocurrency world, Binance chief Changpeng Zhao has stepped down and pleaded guilty to breaking criminal U.S. anti-money laundering laws as part of a $4 billion settlement resolving a years-long investigation into the world’s largest crypto exchange. Bitcoin rose nearly 5% on Wednesday and is last at $37,450. Currency bid prices at 0043 GMTDescription RIC Last U.S. Close Pct YTD Pct High Bid Low Bid Previous Change Change Session Euro/Dollar $1.0889 $1.0888 +0.02% +1.63% +1.0890 +1.0884 Dollar/Yen 149.3700 149.5800 -0.14% +13.82% +149.5250 +149.3700 Euro/Yen 162.66 162.84 -0.11% +15.94% +162.8400 +162.5900 Dollar/Swiss 0.8837 0.8839 -0.01% -4.42% +0.8841 +0.8838 Sterling/Dol 1.2491 1.2495 -0.03% +3.29% +1.2494 +1.2490 lar Dollar/Canad 1.3690 1.3688 +0.03% +1.05% +1.3692 +1.3691 ian Aussie/Dolla 0.6544 0.6544 +0.05% -3.95% +0.6548 +0.6540 r NZ 0.6024 0.6021 +0.07% -5.10% +0.6027 +0.6020 Dollar/Dolla r More

The SBA Preferred Lenders’ status has been crucial in streamlining the approval process for many applicants, enhancing the efficiency and accessibility of funding. In a focused effort to support construction and equipment purchases, the SBA 504 program also made a substantial impact by disbursing over $6.4 billion across more than 5,900 loans, with the average loan size surpassing $1 million.The Community Advantage program has shown notable growth from the previous year, lending more than $141 million to approximately 800 small businesses. This initiative targets underserved markets and is on track to become a permanent fixture by the next fiscal year.In addition to traditional banking options, fintech companies have carved out a niche for those who may not meet conventional lending criteria. Fundible offers alternative financing solutions for businesses with lower credit scores or less operational history. Creditfy caters to enterprises without stringent requirements on operational history or revenue generation. Lendio serves as a marketplace that brings together various lending options, including microloans and traditional SBA loans, catering to diverse financial needs.This dynamic financial ecosystem underscores a robust framework that supports small business growth across different sectors and financial standings. With an eye on the future, there are anticipations of program expansions designed to further empower entrepreneurs in underserved communities.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.Leading battery makers are scaling back their North American investments and laying off workers as the US electric vehicle industry wrestles with sluggish demand. LG Energy Solution, one of the world’s top three EV battery producers that has joint ventures with General Motors, Honda and Hyundai in the US, announced this month it was laying off 170 workers at its plant in Michigan. Fellow South Korean battery maker SK On, which signed an $11bn deal with Ford in 2021 to help electrify the US carmaker’s fleet, said it was also putting workers on furlough as it reduces output at its plant in Georgia. SK laid off more than 100 workers at the same plant in September and is delaying the launch of a second plant in Kentucky, a joint venture with Ford, which was scheduled to begin operation in 2026.“The market seems to be going through a correction,” said Lee Hang-koo, president of Jeonbuk Institute of Automotive Convergence Technology (JIAT). “There is growing concern about overcapacity, as too much investment has been made in the sector in a short period of time.”Aided by tax credits under President Joe Biden’s flagship climate legislation, the South Korean battery companies have made themselves integral to EV manufacturing in the US, setting up joint ventures with North American carmakers to produce batteries.But in recent months Ford, GM and Tesla have all paused their plans to expand their EV manufacturing capacity, as consumer demand has proven weaker than expected.In a statement, LGES said it was laying off almost 10 per cent of the workforce at its wholly owned site in Holland, Michigan. It said this was partly due to “automakers realigning the speed of the EV transition”. “LG Energy Solution continues to grow and has a bright future in the automotive industry,” the company said, adding that it planned to hire about 1,000 more workers once its plant expansion in Michigan is completed in the third quarter of next year.Tim Bush, a Seoul-based battery analyst for UBS, said legacy carmakers Ford and GM bear the greatest responsibility for the slump in demand. UBS analysts last month slashed their projection for growth in the US EV market next year from 45 per cent to 10 per cent.“They’re not selling affordable EVs,” said Bush, noting that the $7,500 tax incentive contained in Biden’s Inflation Reduction Act was designed to help make entry-level EV models more accessible. “They’re selling SUVs and pick-up trucks and cars that cost around $80,000, but they have very little in the way of an entry-level or mass-market vehicle.”As a result, Bush said battery makers who aligned with South Korean and Japanese car manufacturers with large stables of hybrid and EV cars and Tesla were better placed to weather the slowdown. “LG is relatively better positioned because they’re reprioritising investment towards Hyundai and Tesla, which are making vehicles that actually people want to buy and doing so profitably,” said Bush. “SK on the other hand is more exposed to Ford, which doesn’t yet have a competitive offering.”Japan’s Panasonic has cut back its automotive battery production at home, where it produces batteries for the more expensive Tesla models including the Model S and Model X. But it is continuing to invest in its Nevada plant in the US, where it produces batteries for cheaper Teslas that benefit from the IRA.The Japanese company is considering the possibility of a third US factory in addition to a second site it is building in Kansas.“They [Panasonic] don’t have to cut back. They have to scale up. They have to plan for a third factory now,” said Atul Goyal, an analyst at Jefferies. More

(Reuters) -Millions of Americans crowded into airports or hit the road on Wednesday ahead of Thanksgiving Day, creating the busiest travel day since the pandemic virtually shut down the tradition of visiting friends and family over the long holiday weekend. A sprawling storm that brought downpours and gusting winds to much of the eastern U.S. on Tuesday was moving offshore on Wednesday, according to the National Weather Service, easing fears of significant flight delays.Between Nov. 17 and Nov. 27, U.S. airlines will carry a record high 29.9 million passengers, according to Airlines for America, an industry forecaster, or 9% more than a year earlier and up 1.7 million passengers from the levels seen before the COVID-19 pandemic.On Tuesday, 2.6 million passengers were screened at airport security checkpoints, the highest ever for a Tuesday before Thanksgiving, according to the U.S. Transportation Security Administration. Wednesday was expected to be even busier.As of midday on Wednesday, the major U.S. airlines had few flight cancellations, boding well for the rest of the day, said Mike Arnot, a spokesperson for aviation analytics company Cirium.On Wednesday afternoon, a vehicle exploded at the Rainbow Bridge connecting the United States and Canada at Niagara Falls, prompting authorities to shut down all four crossings between western New York and Ontario.Buffalo Niagara International Airport was closed to international flights, and domestic travelers were subject to enhanced screening, airport officials said, including security checks of all vehicles entering the airport.TRAVEL REBOUNDOn the highways, the American Automobile Association expects 55.4 million travelers to head 50 miles (80 km) or more away from home from Wednesday to Sunday, up 2.3% over last year. That is the third highest since the motorists group began tracking holiday travel in 2000 – though still lower than the number recorded in 2019, before COVID shut down the country.Falling gasoline prices and airfares have made travel more affordable as inflation has eased. Gas prices have dropped 15% since mid-September, according to GasBuddy, a tracking website, while the travel site Hopper showed that flights for Thanksgiving week were 14% cheaper than last year.The two major airports in Houston, Texas were expecting to shatter their record of air travelers from Nov. 16-28. Some 2.4 million people were expected to fly through Houston, up 11% from that period in 2022, the airports’ management said.Most of the severe weather that dropped inches of rain across the Eastern seaboard was expected to clear by Thursday, when millions of Americans will gather for the traditional turkey meal and watch American football on TV.A “white Thanksgiving” was still likely for parts of New England, the National Weather Service said, where some New Hampshire towns woke up on Wednesday to as much as six inches (15 cm) of snow.Out West, a snowstorm in the northern and central Rocky Mountains and adjacent High Plans will likely affect Thanksgiving travel from Wednesday night through Friday, the weather service said. More