Economy

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesFor up-to-the-minute news updates, visit our live blogGood evening.US President Joe Biden and Chinese President Xi Jinping meet on Wednesday in a new effort to stabilise relations against a backdrop of what a top oil executive has called the most delicate geopolitical climate in 50 years.The Biden-Xi talks in San Francisco aim to repair ties between the countries, which have been in a bad way since a suspected Chinese spy balloon flew over the US in February. On the agenda will be China’s intentions towards Taiwan, Beijing’s anger at US tech export controls, artificial intelligence and other issues such as China’s exports of ingredients for fentanyl, responsible for a deadly overdose crisis in the US.  The summit, said former White House official Evan Medeiros, marked the acceptance by both sides that they were in the opening phase of long-term geopolitical competition. “They are now beginning the complex process of negotiating the terms of this competition — where and how to compete, what risks to run and what costs to pay”.China expert Bonnie Glaser said the country’s economic situation had raised incentives to ease tensions. “Beijing wants to buy time to cope with China’s economic problems and boost innovation in technologies hampered by American restrictions. The US wants to demonstrate the efficacy of its proposed model for managed competition with China, which the administration hopes will last at least through the 2024 US presidential election.” Others, such as FT columnist Rana Foroohar, are less optimistic about the outcome, while economics commentator Martin Wolf believes all bets are off if Donald Trump gets back in the White House.The crisis in the Middle East and Russia’s war in Ukraine leave the world facing its most significant geopolitical risks since the 1973 oil embargo, according to Lorenzo Simonelli, head of oil services business Baker Hughes. Concerns about surging oil prices if the conflict in Gaza widens have, however, eased a little as bearish economic data damps anticipated demand. In addition, Chevron today said it had restored production at the Tamar offshore gasfield in Israel, ending the disruption caused by the start of the war on October 7. Geopolitics are still, however, having a damaging effect on the semiconductor industry. SMIC, China’s biggest chipmaker, warned last week that tensions were creating a global glut. SMIC and others have been struggling to navigate the tightening of US export controls on advanced chips and the equipment used to make them. Meanwhile, Washington has been supporting an expansion of production in the US and among its allies, as well as a reworking of the semiconductor supply chain.China’s beefed-up anti-espionage and data laws are also fuelling a decoupling with Europe by making it difficult for foreign companies to invest, according to lobby group BusinessEurope. Within Europe, the crisis over Ukraine shows no sign of ending. As our Europe Express newsletter (for Premium subscribers) reports today, the EU appears to be dragging its feet over the next package of sanctions against Russia. The need is pressing, reports Brussels bureau chief Henry Foy. The price cap on Russian crude oil is leaking, and as the FT reported this weekend, a covert operation has found ways to evade EU export controls on importing microchips into Russia.Need to know: UK and Europe economyThe UK’s investment screening powers are to be pared back to make them more “business friendly” less than two years after they were introduced. Separately, plans to overhaul the supervision of anti-money laundering rules would be counter-productive and damaging to the fight against dirty money, accounting bodies have warned. A lack of deals means the UK’s Takeover Panel, the regulator funded by fees charged on transactions and filings, has recorded its first loss since 2014.UK Prime Minister Rishi Sunak is set to reach his target of halving inflation, one of his “five priorities”, when new figures are published on Wednesday, contributing to a more positive backdrop to the Autumn Statement next week.A carbon border tax is being planned for the UK. Chancellor Jeremy Hunt is proposing to introduce levies on imported carbon-intensive goods from countries with weaker climate regulations, mirroring measures being introduced by the EU. Portugal’s central bank chief Mário Centeno is facing an independent ethics review after he was proposed as the next prime minister by Socialist premier António Costa, who quit last week over a corruption scandal. Iceland declared a state of emergency after earthquakes raised fears that a volcanic eruption would damage residential areas in the Nordic country for the first time in 50 years.Need to know: global economyUN proposals on global tax are being “rubbished” by the EU and the UK, according to critics. The plans seek to give more voice to developing countries in international tax negotiations.Libertarian economist, former sex coach and cosplay enthusiast Javier Milei is struggling to rebrand himself as a “normal guy” ahead of his run-off vote against economy minister Sergio Massa in Argentina’s presidential election.Need to know: businessCarmakers are stepping up discounts on electrical vehicles as global demand starts to slow. Continental, one of the world’s largest suppliers to the car industry, announced thousands of job cuts as an “initial” step at improving competitiveness in the EV era. India is considering slashing EV tariffs to lure Tesla into building a plant in the country.A Big Read examines the choice facing the crypto industry following the trial of Sam Bankman-Fried: become mainstream or retreat to the fringes.The food industry said it was running out of time to prepare for new EU rules to cut carbon emissions from the supply chains of commodities such as palm oil, coffee and beef. The rules will oblige companies to prove their goods have not been produced on recently deforested land. Small packages are causing big problems in the US, where ecommerce has become a route for drugs, banned products and counterfeit goods, writes global business columnist Rana Foroohar.OpenAI chief Sam Altman said in an FT interview that the company was seeking new funds from its biggest investor, Microsoft, to build “superintelligence”. Analysts are turning to artificial intelligence to glean the truth behind executives’ soothing words on earnings calls.Join the FT Future of AI summit on November 15-16 in London and online to get the big picture and details from early adopters on how best to explain, apply, govern, integrate, scale and commercialise AI.The world of workThe dearth of decent, affordable childcare has long been identified as a leading factor driving women from the US workforce, notes the Lex column (for Premium subscribers). And although subsidised care might play badly with US conservatives, there is a good business case for it: about $122bn of economic output is lost every year because of the lack of affordable provision.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The WeWork implosion is a salutary warning to investors that working practices, like other elements of culture, are never fixed in stone, says columnist Gillian Tett.The UK government is seeking to recruit more external staff to the civil service in an attempt to help boost the public sector’s longstanding productivity problem. John Burn-Murdoch delves into the data around generative AI and the use of tools such as ChatGPT and what it means for white-collar workers.Technology is transforming the age-old tradition of colleagues chipping in for a farewell gift, writes columnist Pilita Clark. The online whipround, however, brings with it the risks of jealousy (“Why did she get so much more money than me?”) and insecurity (“Did I give enough for my boss’s baby shower?”). Some good newsNew trial data suggests weight-loss drug Wegovy could also address aspects of heart disease.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from Work & Careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer, a founding partner of Independent Economics, was formerly head of economic forecasting at the OECDThere has been much comment on the current resilience of the US economy. Gross domestic product grew 2.9 per cent over the 12 months to Q3, while employment growth remains strong (non-farm payrolls up 150,000 in October) and unemployment low (3.9 per cent).This resilience seems surprising given that it comes in the face of the largest cumulative increase in official interest rates in 40 years: the fed funds rate has been hiked by 525 basis points since March 2022 — 425 points in 2022 and 100 this year.The quantitative effects of monetary policy — both in magnitude and timing — are notoriously uncertain. That said, a central rule of thumb is that each percentage point increase in official interest rates reduces aggregate demand by 1 percentage point, with the major effect coming in the following year. On that basis, the effects of the monetary tightening to date would reduce GDP by around 4 per cent this year, with a further 1 per cent or so in 2024, relative to what it would have been otherwise.Some estimates are higher. A recent study by the Chicago Fed, which takes into account both actual and expected interest rate changes, calculates that by Q3 this year the Federal Reserve’s tightening has pushed real GDP down by 5.4 percentage points, with a further 3.1 percentage point reduction to come by the end of 2024.However, the effects of monetary policy, though important, are only part of the story: the other and much more neglected element is fiscal policy. And this has been imparting a quantitatively important effect in the opposite direction. At the moment it has two principal elements.The first, and smaller, of these is the tail-end of the big fiscal boost during the pandemic. Donald Trump’s 2020 and 2021 stimulus cheques, which totalled some $814bn, or around 3 per cent of current GDP, initially went largely unspent. Subsequently, households started to run these excess savings down, but there is still a significant stock left — in August the San Francisco Fed put the value at some $500bn, or nearly 2 per cent of GDP. It is unclear how fast these unprecedented excess savings will be spent. The San Francisco Fed expects that “those funds could be available to support personal spending at least into the fourth quarter of 2023”.The second fiscal policy element is a large expansion in government spending due to a variety of programmes this year. The size of the impulse, estimated on the basis of IMF calculations, is around 2 percentage points of US GDP. And the final effect on aggregate demand stands to be somewhat larger.Taking all these influences into account, the present resilience of the US economy does not look very surprising. The negative influence of monetary policy by 4 to 5 per cent of GDP is being offset in large part by this year’s fiscal expansion and the running-down of much of the remaining excess savings cushion.Next year may well be another matter, however. The spending of excess savings will largely be over and fiscal policy moves into restrictions of around 1 per cent of GDP. Meanwhile the delayed effects of the last two years of monetary tightening stand to be -1 per cent to -3 per cent of GDP.Of course, policy settings could change. But with the present fiscal deficit approaching 6 per cent of GDP, and given the mood of Congress, any major reversal of fiscal policy in the US looks unlikely. Monetary policy could well ease, particularly if inflation falls sharply, and indeed the market currently expects the Fed to cut rates by 1.4 percentage points over the coming two years. But even if they do, bond yields, now standing at 4.6 per cent for the 10-year, are likely to prove a dampener on demand.  Either way, we can expect 2024 to bring less talk about the surprising resilience of the US economy. More

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MEXICO CITY (Reuters) – Executives from Mexico’s start-up sector say it should receive a boost in coming months, particularly in e-commerce and logistics related to nearshoring, as inflation eases and interest-rate cuts loom on the horizon. “We’re going to start seeing two big waves of growth” in Mexican startups, said Eric Perez-Grovas, co-founder of venture capital fund Wollef, in an interview, adding an earlier slowdown in financing activity was starting to reverse.Mexico’s startups are looking to recover after a lackluster year, hit by rising inflation and high interest rates, dampened investment prospects.By October, 12-month headline inflation for Latin America’s second-largest economy dipped to 4.26%, inching closer to the central bank’s target range. Startup Melonn, a logistics company for online sellers, is already betting on booming sales as Mexico’s “Buen Fin” – similar to Black Friday – kicks off later this week. “In November, we very well could move twice the volumes we moved a year ago,” said Melonn co-founder Andres Felipe Archila, adding that consumers’ purchasing power is increasing.”The economic outlook is really, really positive, inflation is coming down and employment is steady. So we have a really favorable environment,” he said. Business-to-business startups are looking to capitalize on nearshoring as more of the manufacturing production chain lands in Mexico to capitalize on the country’s closeness to the U.S., low labor costs and beneficial trade pacts. Perez-Grovas pointed to startup Pulsar, which specializes in electricity efficiency, as an example.”These huge firms are arriving and they have to widen their line of providers,” Perez-Grovas said. “But there’s the pressure to do that as cheaply as possible, and electricity is expensive. So a service like Pulsar’s, helping small and medium businesses cut energy costs, becomes much more relevant.”As inflation eases and some Latin American central banks cut interest rates, funding is trickling back.Nexu, an auto-financing startup, landed a $20-million investment round last month, adding onto $53 million it had previously raised. Before the slowdown, “that could have been double,” said Abdon Necif, the firm’s co-founder and co-CEO. “So you need to take into account what current expectations are.”Nexu’s round was oversubscribed and had buy-in from foreign investors, however, showing market appetite is increasing, said Perez-Grovas. More

October retail sales, excluding autos and gas, fell by 0.08%, according to the new CNBC/NRF Retail Monitor.
The Retail Monitor is a joint product of CNBC and the National Retail Federation based on 9 billion annual credit and debit card transactions collected and anonymized by Affinity Solutions.
The October data, accounting for more than $500 billion in sales, showed weakness in gas station sales, electronics and appliances and furniture and home stores.

A customer shops at a Costco store in San Francisco on Oct. 2, 2023.
Justin Sullivan | Getty Images

The consumer took a spending break ahead of the holiday season, with October retail sales, excluding autos and gas, falling by 0.08%, and core retail, which also removes restaurants, declining by 0.03%, according to the new CNBC/NRF Retail Monitor.
The new Retail Monitor, debuting Monday, is a joint product of CNBC and the National Retail Federation based on data from Affinity Solutions, a leading consumer purchase insights company. The data is sourced from more than 9 billion annual credit and debit card transactions collected and anonymized by Affinity and accounting for more than $500 billion in sales. The cards are issued by more than 1,400 financial institutions.

The data differs from the Census Bureau’s Retail Sales report as it is the result of actual consumer purchases, while the Census relies on survey data. The government data is frequently revised as additional survey data become available. The CNBC/NRF Retail monitor is not revised as it’s calculated from actual transactions during the month. It is, however, seasonally adjusted, using the same program employed by Census.

Arrows pointing outwards

“The CNBC/NRF Retail Monitor will modernize how retail sales are tracked and measured, and Affinity Solutions’ vast dataset of how, what and where the consumer is spending will identify how key demographics and channels are performing for the industry generally and for specific retail sectors,” said NRF President and CEO Matthew Shay.
“Our audience, investors and executives alike, will now be armed with dynamic insights that go beyond headline numbers to show emerging trends and critical detail,” CNBC Senior Vice President of Business News Dan Colarusso said.

Weakness in electronics and furniture

The October data shows a cooling of consumer spending, in line with the consensus of Wall Street forecasts. Year over year, overall retail and core retail sales are both up 2.6%.
The October data showed weakness in gas station sales, electronics and appliances and furniture and home stores. There was strength in sporting goods and hobby stores and non-store retails, or internet sales, along with health and personal care.

Starting modestly before the pandemic, and accelerating amid the outbreak, economists turned to real and high-frequency private sector data to gauge the economy. In some cases, it was due to the absence of government data, with some agencies unable to gather information and others finding response rates limited. In other cases, economists looked to data that was not readily available from government sources, like subway ridership data or how much consumer spending occurred “with card not present” to gauge whether Americans continued to shun shopping in person.
While the pandemic passed, the move toward actual, high frequency and private sector data has continued to expand.
“The Retail Monitor heralds a new era of retail intelligence, where data isn’t just a resource – it’s a roadmap to understanding and engaging with the modern consumer,” Affinity Solutions CEO and founder Jonathan Silver said. Affinity is also a leading provider of data to Wall Street.
In coming months, the Retail Monitor will provide demographic breakdowns of spending by age, income and geography. More

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COLOMBO (Reuters) -Sri Lanka’s government projected a lower-than-anticipated budget deficit for 2024 on Monday on the back of a significant jump in revenues which are crucial to keep its bailout programme from the International Monetary Fund afloat.The government set a fiscal deficit target of 2.85 trillion Sri Lankan rupees ($8.73 billion) in 2024, or 9.1% of GDP, higher than the revised 8.5% of GDP in the current year. The original target for this year was 7.9%.Next year’s deficit target, however, is smaller than the 12% backed by the IMF, after the fund warned of revenue shortfalls when reviewing the country’s finances as part of the $2.9 billion bailout package.The government also projected total tax revenue at 4.1 trillion rupees for 2024, sharply higher than 2.85 trillion rupees in the current year, with the biggest jump coming from the goods and services tax receipts, the budget document showed.”This is a budget to build the foundation of Sri Lanka’s recovery. We cannot continue as a people who depends on others,” President Ranil Wickremesinghe, who is also the island nation’s finance minister, told the parliament.”To ensure that Sri Lanka does not collapse again we have to renew and recreate our economic and political systems.”Sri Lanka’s economy contracted 7.8% in 2022, forcing it to default on its foreign debt in its worst financial crisis since Independence in 1948. Budget expenditure has been set at a record 6.98 trillion rupees in 2024, an increase of nearly 33% compared to 2023, with capital expenditure more than doubling and 450 billion rupees reserved for bank recapitalisation. “The budget deficit is lower than anticipated but if we add the allocation for bank recapitalisation the deficit increases,” said Dimantha Mathew, head of research, First Capital Research. The island will allocate 3 trillion rupees to repay international sovereign bonds in 2024 after ongoing debt restructuring talks with bondholders are finalised, Wickremesinghe said, proposing to raise Sri Lanka’s debt ceiling by 3.45 trillion rupees to 7.35 trillion rupees.The central bank expects growth of 3.3% in 2024, when the country will hold presidential elections.The cabinet had already approved raising Value Added Tax (VAT) by 3% from Jan. 1 and broadening collection.The government has projected a primary account deficit of 0.6% of GDP, slightly smaller than 0.7% in 2023, with the IMF requiring the nation to reach a primary surplus of 2.3% by 2025 and reduce its debt to GDP to 95% by 2032.The debt to GDP ratio stood at 113.8% as of end-December. ($1 = 326.5000 Sri Lankan rupees)(Additional reporting and writing by Swati Bhat; Editing by Shri Navaratnam, Miral Fahmy and Bernadette Baum) More

The IMF’s African Department Director Abebe Aemro Selassie indicated that despite efforts to stabilize public debt and address macroeconomic imbalances, significant obstacles remain. One of the main concerns is the risk of high debt service ratios and increased repayment costs potentially crowding out crucial development spending. This is particularly troubling as median revenues in Sub-Saharan Africa hover around 17% of GDP, a stark contrast to the 40% seen in developed markets.Uganda provides a case in point, where its stock of debt has risen from $21 billion in June 2022 to $23.6 billion by June 2023. This increase means debt repayments now consume a substantial 23% of tax revenues, posing serious repayment challenges for the government.To combat these issues, African nations are turning to Value Added Taxes (VAT) as a reliable source of revenue. This strategy is supported by measures aimed at formalizing economies, reducing tax expenditures, and refining tax design to boost collection efficiency.The IMF’s Regional Economic Outlook report underscores the ongoing financial difficulties facing Sub-Saharan Africa, with external factors exacerbating internal economic pressures. As countries like Uganda demonstrate, without significant changes to both revenue generation and debt management strategies, the path to sustainable growth and development will remain fraught with challenges.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More