Economy

The economic growth outlook for Pakistan has been scaled back to 2%, a significant drop from the government’s earlier forecasts. This revision reflects concerns over the country’s economic trajectory and emphasizes the urgency for structural reforms. Additionally, the inflation rate projection has been lowered from an initial estimate of 25.9% to 22.8%.Pakistan’s finance ministry had previously reported economic figures that were not accepted by the IMF during their discussions, prompting a recalibration of these numbers. Despite the challenging economic conditions, Pakistan has secured a total of $6 billion in loans within the first four months of the fiscal year, including an extra $70 million installment from a larger $3 billion loan agreement, of which $2 billion was received in July.These financial inflows are critical for Pakistan as they provide necessary relief amidst cash shortages. However, they also highlight the importance of implementing reforms and maintaining disciplined fiscal management to ensure sustainable economic health. As Pakistan navigates through its financial challenges, debt rollovers are expected to reach a sum of $12.5 billion, contributing to the country’s strategy for managing its obligations.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

MADRID (Reuters) – Spain’s Socialist Prime Minister Pedro Sanchez retained Nadia Calvino as his economy minister on Monday, revealing a largely unchanged new cabinet he said would be more adept at negotiating with parliamentary allies to pass key legislation.Calvino, who is the frontrunner for the top job at the European Investment Bank scheduled to be announced at the end of the year, will also keep her position as first deputy prime minister, Sanchez said in a televised statement.The 55-year-old, who served as a European Commission technocrat, is currently leading negotiations for a new package of fiscal rules in the eurozone as part of Spain’s presidency of the European Council. Sanchez, who won a vote in parliament to clinch another term last week after months of negotiations, begins his new legislature with a cabinet in which most of the senior ministers retain their positions, an unusual move for a premier previously known for springing surprises in his reshuffles.Energy Minister Teresa Ribera, Budget Minister Maria Jesus Montero, Foreign Minister Jose Manuel Albares and Labour Minister Yolanda Diaz, the head of far-left junior coalition partner Sumar, also kept their jobs. “It’s a high-profile political team for a high-profile political legislature,” Sanchez said. “They are people capable of governing but also of reaching agreements.”The coalition government with the hard-left platform Sumar has just 152 seats in the 350-seat parliament, so it will need to make agreements with regional parties to pass key legislation, such as a budget for 2024 and raising the minimum wage. Given the anticipated difficulty of passing laws with a minority government, Budget Minister Maria Jesus Montero will be promoted to be one of four deputy prime ministers. Cabinet Minister Felix Bolanos will take over the justice portfolio to implement the amnesty law that allowed the Socialists to secure another term. He will also be responsible for the relationship of the government with parliament.Ana Redondo will replace Irene Montero of the far left Podemos party as equality minister while Podemos leader Ione Belarra has also been demoted.Sanchez maintained his record cabinets of having more women (12) than men (10) as ministers. His four deputy prime ministers are all female.In total, Sanchez added nine new faces to the 22-person cabinet.Junior coalition partner Sumar got five portfolios, keeping its share of power within the cabinet. 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 Trade Secrets newsletter. Sign up here to get the newsletter sent straight to your inbox every MondayWelcome to Trade Secrets. After most of a century in thrall to one self-destructive economic ideology, Argentina’s evidently decided to have a shot at another. Yesterday it elected as president Javier Milei, who wants to dollarise the economy despite not having the dollars to do so, and to savage the size of the state. That’s not to mention his unpleasant associations and objectionable eccentricities in other areas. How a country manages to hop straight from Peronism to reactionary anarcho-capitalism without ever having a go at boring old liberal social democracy is a wonder to behold.Given Milei has said he wants to withdraw from Mercosur, this certainly adds a bit of spice to the EU’s push to finalise ratification of its trade deal with the South American bloc over the next few weeks. Brussels is trying to get it done by December 6, when Brazil hands over the presidency of Mercosur to Paraguay. Milei will be sworn in on December 10. Ladies and gentlemen, place your bets please!The rest of today’s newsletter looks at Washington resiling a bit further from its ambitions to set rules for trade in the Asia-Pacific, and examines whether the UK’s Labour opposition is making any more sense over trade policy than the Tory government. Charted waters is on the falling dollar.Get in touch. Email me at [email protected] a terrible trade deal! And such small portions!If a mainly blank sheet of paper falls into the Pacific Ocean, does it make a sound? Last week’s meeting of the Asia-Pacific Apec grouping principally served as the location for the Joe Biden-Xi Jinping bilateral, at which Biden bizarrely caught some flak for speaking the obvious truth and noting that Xi is a dictator. Any other hope of substance disappeared when, with the White House already having taken the digital bits out of the Indo-Pacific Economic Framework (Ipef) agreements it’s been pushing in the region, congressional Democrats stalled the trade Ipef initiative altogether, citing familiar objections about not enough protection for labour standards.This wasn’t exactly the worst tragedy to befall the global trading system since the Smoot-Hawley Tariff Act. I’ve said in the past the Ipef is more a Trans-Pacific Partnership (TPP) re-enactment society than an actual trade deal, with no new market access.But as it happens there was one section — digital and data — that some of America’s Asia-Pacific partners seemed vaguely keen on. There’s a web of digital deals already being created in the region and it would make sense to have the US join in. This would mean Washington catching up the ground it lost after pulling out of the CPTPP, which created provisions securing the free cross-border flow of data. The likes of Indonesia might also have been able to use the Ipef framework to get a critical minerals agreement with the US, which has its beady eye on the country’s nickel exports.Given the loss of credibility with America’s Asia-Pacific allies it would honestly have been better not to have tried Ipef to begin with. What lessons do we draw from the framework being put on hold?One: the toxicity of trade deals in Washington, and particularly Capitol Hill, extends to things that aren’t even trade deals and don’t necessarily (opinions differ) need to go through Congress anyway.Two: the administration has created unrealistic expectations for what trade deals can do. Repeatedly call your trade policy “worker-centred” and the labour unions and their friends in Congress will be all over it like a wildcat strike. Labour standards provisions will be too low for them while being complex and invasive for trading partners. This is also bedevilling what ought to be a simple agreement with the EU on critical minerals.UK Labour party: better tactics but still a flawed strategyMind you, when it comes to signing pointless pieces of paper there are few countries to touch the UK. Conservative ministers love agreeing non-binding memoranda of understanding (MoUs) with individual US states and pretending that they’re Brexit dividends (they aren’t) which mean something economically (they don’t, see Section 11 here). The latest Tory to use MoUs as a campaign prop is business secretary Kemi Badenoch, aspirant leader of the Conservative party (she has a chance), who last week scooted over to Florida to sign a piece of paper with some warm words on it alongside fellow anti-woke warrior Florida governor Ron DeSantis, who wants to be US president (no chance).From the way the opinion polls are looking, by this time next year it’s going to be a Labour government’s turn to try running a post-Brexit UK trade policy. Last week Kemi Badenoch’s opposite number, the new shadow business secretary Jonathan Reynolds, gave a nicely detailed speech on the subject. The good bits: it correctly identified some of the problems with the government’s current approach — pursuing a big range of deals (see the MoUs) for the sake of it, not listening properly to businesses or outside experts, not focusing sufficiently on those areas that would particularly benefit the UK.The problem: its solutions aren’t very realistic. They’re quite similar to this (actually very good) report from the Resolution Foundation think-tank earlier this year, proposing that the UK should pursue nimbler deals on issues such as mutual recognition and digital trade, which directly benefit Britain’s service sector exporters. Nice idea, but substantive, binding, standalone mutual recognition agreements don’t really exist. They usually only function as part of a wider and denser economic relationship such as the Australia-New Zealand Trans-Tasman arrangements or, er, the EU single market. Why would the UK’s trading partners agree separate deals that so obviously play to Britain’s comparative advantage in services? As for data and digital, any agreement will be constrained by the need to retain the data adequacy finding from the EU.However constructive the government in charge, the logic of prioritising ever-closer economic integration with the EU over fiddling about with deals elsewhere remains. If it’s true, as Reynolds says, that “Brexit is a settled matter” and Labour won’t be seeking to rejoin the single market or the customs union, its approach promises smarter tactics and hopefully fewer meaningless photo-ops but not a fundamentally better strategy.Charted watersFurther to last week’s Trade Secrets column about the strange absence of a currency war, further evidence that the dollar is behaving like a normal currency ought to, weakening as it becomes clearer that inflation in the US is on the way down and interest rates will at some point be following it.Trade linksRises in wages relative to prices mean the cost of a US Thanksgiving dinner in terms of weekly earnings is at its second-lowest ever.  A terrific piece from FT Brussels colleague Andy Bounds on how some in the EU (certainly Karel De Gucht, trade commissioner at the time) think the bloc didn’t fight a trade war early and hard enough against Chinese solar panels a decade ago and should be speedier and tougher over electric vehicles now.Good news in transatlantic talks, as Washington reportedly wants to extend the steel and aluminium stalemate with Brussels for two more years. (I’ve argued before that this is the least bad option.) Let’s hear it for messy fixes that keep the global trading show on the road.Ruchir Sharma, chair of Rockefeller International, argues in the FT that China’s rise as an economic superpower may be reversing.The South China Morning Post describes how US semiconductor export restrictions are hurting Alibaba and Tencent.The US policy-relevant academic Dan Drezner says that weaponised economic interdependence and “economic statecraft” are maturing into subjects of serious scholarly debate.Trade Secrets is edited by Jonathan MoulesRecommended newsletters for youEurope Express — Your essential guide to what matters in Europe today. Sign up hereChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up here More

The Bundesbank’s latest forecast suggests that Germany’s economy will continue to face difficulties in the final quarter of 2023. This period marks an extension of the industrial downturn that has been exacerbated by the ongoing war against Ukraine, rising energy prices, and increasing interest rates. Out of all quarters this year, only one has experienced growth, highlighting the severity of the economic headwinds. However, there is a glimmer of hope on the horizon for 2024. The Bundesbank notes solid employment figures and wage increases that could underpin an eventual upturn. Tentative signs of recovery in foreign demand and an anticipated boost in real consumption from higher net incomes are also among the positive factors cited. Yet, even with these potential drivers, there is still no definitive sign of a rebound in global industrial activity as new orders continue to decline and overall demand remains weak. The economic report also mentioned that the exchange rate has remained stable post-publication, with EUR/USD trading at 1.0930.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Xi made the comments in a phone call with French President Emmanuel Macron, Chinese state television reported, fortifying ties with its European trading partner after Macron visited China in April.China faces an electric vehicle subsidy investigation by the European Union and a looming probe into its steelmakers. Meanwhile, several European countries have complained about China’s opaque laws and rules regarding foreign companies in the country.”China is willing to maintain high-level exchanges with the French side,” Xi said, adding that he welcomed more French products entering the Chinese market.Xi also said China was willing to strengthen cooperation with France at the United Nations and other multilateral institutions. China took over the presidency of the U.N. Security Council (UNSC) this month.The leader of the world’s second-largest economy also called on France to play a constructive role in promoting the positive development of China-EU relations, as ties have been strained over issues ranging from the EU’s push to reduce supply chain reliance on China to the war in Ukraine.”China and the European Union should remain partners for mutually beneficial cooperation,” Xi said in the call. The two leaders also exchanged views on the conflict in Gaza, and agreed that it was imperative to avoid a further deterioration of the situation, in particular an even more serious humanitarian crisis, state television reported. More

Suffering a deep industrial recession, Germany has been among the weakest economies in Europe this year as high energy costs, weak global orders and higher interest rates took their toll.”Economic output is likely to once again decline slightly in the fourth quarter of 2023,” the Bundesbank said about the 20-nation currency bloc’s biggest economy. “The German economy is set to recover only arduously from the period of weakness that has persisted since the outbreak of war against Ukraine.”Germany recorded quarterly economic growth just once this year and indicators in the final three months of the year have mostly surprise on the downside. Still, the central bank was cautiously optimistic about next year, pointing to high employment, strong wage growth and stabilising sentiment indicators.”Tentative signs of a slight improvement after the turn of the year are beginning to emerge,” the Bundesbank said. “The underlying trend in new orders suggests that foreign demand may have bottomed out.”Still, it also warned that there is no evidence of a sustained improvement in global industrial activity, with surveys pointing to a drop in new orders and weak demand overall.German firms’ order books are slowly being reduced and this too could be a drag on the output, the bank added. The boost will instead come from households, who may be cautious initially in spending their cash but rising net incomes will eventually fuel a rise in real consumption. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Good morning. Argentina has elected self-described “anarcho-capitalist” Javier Milei to the presidency. He has promised to take a “chainsaw” to government spending and to dollarise the economy in an effort to stop triple-digit inflation. Whatever you think of Milei’s ideas, he clearly adds a layer of complexity to an already confusing geopolitical scene. Email me your thoughts: [email protected] kind of slowdown is this, anyway?It is no surprise that US economic growth is slowing. No one thought that the astonishingly strong third-quarter gross domestic product result was sustainable. At Unhedged we first noted a softening in growth almost two months ago. The number of positive surprises in the economic data peaked and started to decline in August. In September credit card spending slowed a bit, subprime consumer delinquencies were rising and a few consumer-facing companies began to warn of weakening demand.Even so, last week’s third-quarter earnings report from Walmart provided the market with a bit of a shock. The stock (market cap $420bn) fell 8 per cent on Thursday and Friday. Two messages from the company’s conference call have had an effect on Wall Street’s mood: we may be in a deflationary environment, and consumer demand looks a bit wobbly. Here’s the company’s CEO:General merchandise prices continue to come down. GM is down low to mid-single digits versus last year. That enables us to roll back pricing . . . In the US, we may be managing through a period of deflation in the months to come.And the CFO:We see our customers showing ongoing discretion and making trade-offs to be able to afford the things they want, given the sustained high cost of the things they need. Recently, we’ve experienced a higher degree of variability in weekly performance and between holiday events in the US, including seeing a softening in the back half of October that was off-trend to the rest of the quarter.Walmart is the biggest retailer by sales in the country, so these comments matter. But keep them in context. Remember that they came along with a strong third-quarter report, and Walmart did not cut its sales targets for the year. Executives also said November was looking better than October.Remember, too, that personal consumption expenditures contributed a meaty 2.7 percentage points to US GDP growth in the third quarter. If that falls by a percentage point or so in the fourth quarter, which many economists expect, that would be a significant slowdown that is consistent with Walmart’s comments, and it would mean growth would be just fine, by historical standards, in the fourth quarter.Indeed, Walmart’s comments about demand are consistent with the longer term trends in retail sales we see in the government data: a gentle slowdown with quite a lot of variety among different retail categories. Some goods categories (building materials and furniture) seem to be giving back the growth from the pandemic boom while others (food, clothing) seem to be setting into normal trend-level growth (“general merchandise” in the chart below includes big box stores like Walmart).Walmart’s comments about deflation should not come as a surprise, ether, given that producer prices fell in October. But hearing the word from the mouth of Walmart’s CFO will make the reality of goods deflation vivid for analysts who might otherwise have waved off the government data for technical reasons.A complicating factor is that you cannot read directly from Walmart’s results the state of the American consumer. Walmart is a well-run company with immense scale and a strong ecommerce operation, which has taken share from rivals. Because its prices are low it gets the benefit of trading down when households are under pressure. So it is worth looking at what other major retailers are saying, too.An interesting example is BJ’s Wholesale, a members-club bulk retailer that is popular among a wide range of consumers. It had something to say about the demand among different income groups:Our mid- and higher-income members continued to increase both spend and trips [in the third quarter but] waning government aid has been a strain on our lower income members this year. These members continue to exhibit similar shopping behaviour, maintaining trip frequency versus last year as well as using other forms of tender to supplement their purchases. However, despite [this] . . . third quarter sales from our lower income cohort dipped below last year levelsLike Walmart, BJ’s is seeing price deflation in certain categories. Retailers that lack the structural advantages of Walmart and BJ’s have been making comments about the stretched consumer for several quarters now. Walmart’s rival Target is typical of this. Here’s an excerpt from its call last week:Consistent with prior quarters and overall industry trends, discretionary categories were the driver of [the] decline [in same-store sales] . . . Overall, consumers are still spending, but pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings rates, have left them with less discretionary income, forcing them to make trade-offs in their family budgetsSimilarly, department-store operator Macy’s said last week: “The consumer is still under pressure, that is nothing new on that.” Like BJ’s, Macy’s serves a wide range of households, but it noted that even high-end products were seeing weaker demand, too: “There’s no doubt that there’s a normalisation happening in the luxury sector.” Williams-Sonoma, which sells high-end kitchen goods and high-ish-end home furnishings, more or less echoed that sentiment and emphasised its efforts to sell more value-priced items.But again, it is important to bear in mind that retailers’ views of the economy depend on their product offering and the structural advantages and disadvantages of their businesses. The discount clothing chains TJX and Ross Stores reported strong same-store sales and good margin performance in the third quarter. Their consumer is just fine.How to sum up the message from the macro data and retailers’ third-quarter reports? We are in a consumer slowdown, but it is a mild one so far, as reflected by the good results at the stronger retail chains. The slowdown is more severe in, but not confined to, the lower end of the income spectrum. Given how strong growth was in the middle of this year, none of this is surprising. The trend in goods prices is generally disinflationary and, in spots, outright deflationary. All of this is consistent with a soft or softish landing rather than outright recession, but the trends bear watching. On to the Christmas season.One good readThoughts on drug decriminalisation from a tolerant but mildly grouchy New Yorker. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU and the Mercosur bloc of South American nations are pushing to finalise a long-delayed trade treaty by early December, according to diplomats involved in the negotiations, as both sides seek to capitalise on a moment of converging political interests. “It is important for the Brazilian presidency of Mercosur to try to seal it before the end of our term [on December 7],” said a senior Brazilian diplomat. “It is down to a few details . . . we will need a political decision on a couple of issues. [President Luiz Inácio Lula da Silva] will certainly get involved.”An EU official, meanwhile, said Brussels had “ramped up the frequency and intensity of negotiations in the belief that a landing zone for political agreement is only achievable under the Brazilian Mercosur presidency”. Despite progress in the talks, the outcome of presidential elections in Argentina on Sunday cast fresh doubt on the process. The winning candidate, radical libertarian Javier Milei, has previously pledged to withdraw the country from Mercosur.Negotiations over the landmark “cows for cars” accord between the EU and the Mercosur bloc of Brazil, Argentina, Uruguay and Paraguay have dragged on for more than 20 years. A treaty was agreed in principle in 2019, but was derailed when the EU demanded additional environmental commitments from South America before signing. The Mercosur nations rejected this as protectionism from European nations fearing competition from South American agricultural and wine exports.Brazilian President Luiz Inácio Lula da Silva and European Commission President Ursula von der Leyen discussed possible partnerships and an agreement between Mercosur and the EU this year More