Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.As the pumpkins, sweet-wrappers and ghostly garbs are cleared away, forecasters expect American Halloween spending bills to have broken records. The average shopper was projected to spend $108 on sweets, costumes and decorations during this trick-or-treating season — with total expenditure set to exceed $12bn. But even before the October 31 festivities, it has been clear that the US consumer is experiencing a sugar rush.America’s economy grew at a 4.9 per cent annualised rate in the third quarter; the fastest since 2021. With consumer spending accounting for two-thirds of the economy, much of the jump is down to a surprise shopping spree. Retail sales registered their sixth-straight month of growth in September. The resilience of the US consumer defies the gloomy economic backdrop — 18 months of high inflation, rising interest rates and plenty of uncertainty. Real consumption spending has grown almost 2 percentage points more than private forecasters expected this time last year.What explains the robustness? Bank of America thinks a phenomenon that it calls “funflation” is responsible. It notes a greater willingness to spend on live entertainment and experiences, stemming from pent-up demand, savings and changing consumer preferences. Indeed, over the summer, the dual release of movies Barbie and Oppenheimer, dubbed “Barbenheimer”, became one of the biggest openings on record, despite scepticism over the cinema industry’s prospects following Covid-19. Morgan Stanley estimated that Barbenheimer and concert tours by Taylor Swift and Beyoncé added $8.5bn to the US economy in the third quarter.But consumer resilience comes down to more than the “fear of missing out” on the buzz surrounding box office events. Though the jobs market is now cooling, employment and wages have held up better than expected, despite the US Federal Reserve’s tightening. The lowest paid Americans have experienced the strongest pay growth too. Many have also tapped into savings accumulated during the pandemic, which were bolstered by government stimulus checks. This has driven stellar spending on electronics, furniture and home equipment since 2020. Meanwhile, the prevalence of long-term fixed-rate mortgages has sheltered homeowners from higher rates.There are signs of strain. Consumer confidence has dipped, partly on the back of higher gasoline prices. Credit card delinquency rates are rising, lockdown savings are being drained, and student loan repayments are back, after a three-year pause. Higher interest rates will bite more in the coming months and squeeze spending on goods, and services — which account for the bulk of personal consumption.Beyond the inevitable Fed-induced economic slowdown, “funflation” could prove to be more than just a pandemic hangover. The latest confidence data showed that while buying plans for items such as cars, homes and appliances had fallen, as expected with high borrowing costs, vacation intentions were at their highest since 2020.Generational preferences are a factor. A recent survey by Experian, a credit scoring company, found that around 60 per cent of young Americans — the so-called Gen Z and Millennials — would prefer to spend money on “life experiences” now rather than save. As they age, they will exert a greater influence on spending patterns. Yet, targeted social media marketing, the rapid growth in celebrity fan bases via apps such as TikTok, and the faster online transmission of the “fomo” effect suggests that demand for experiences — including travel, concerts and dining out — could be more intergenerational and price inelastic than economists expect. If that is indeed the case, the Fed will need to add another one to the list of potential long-term inflationary pressures. More

The automaker’s mechanics in Sweden are striking for a collective agreement, and dockworkers say they will support the battle. Tesla is expected to join the talks on Monday.More than a week after Tesla mechanics in Sweden began a strike to compel the U.S. automaker to accept a collective labor agreement, union officials said Tesla representatives would meet with the union on Monday.Tesla did not respond to a request for comment.Tesla doesn’t make cars in Sweden, and the country is a relatively small market for the automaker. But the job action by dozens of mechanics is beginning to reverberate. Dockworkers at the country’s four largest ports said they would stop unloading shiploads of Teslas on Tuesday in support of the strikers.The trade union IF Metall has for years called on the automaker to enter into talks about adopting a collective agreement that would set the basis for wages and benefits for the roughly 120 mechanics who are employed by Tesla to work at its service facilities in Sweden. About 90 percent of all workers in Sweden are covered by such agreements.Since the union called the strike on Oct. 27, dozens of the mechanics who are union members have been staying home, disrupting service appointments for some Tesla drivers. Not all of the union members have taken part, said Jesper Pettersson, a spokesman for IF Metall, acknowledging reports that some service facilities appeared largely unaffected.“It is not an easy thing to be on strike,” he added.But the action, combined with the threat of other unions getting involved, appeared to be enough to force Tesla to the bargaining table. A meeting between the union and company representatives was scheduled for Monday, Mr. Petterson said.Despite its relatively small size, Sweden has the world’s third-highest share of electric vehicle sales, at 32 percent, after Norway and Iceland, according to the World Resources Institute, a research organization. Tesla enjoys a growing fan base and its Model Y, a sport-utility vehicle manufactured in Germany, has been the top-selling electric vehicle in Sweden this year.Tesla’s owner, Elon Musk, has for years resisted efforts to unionize Tesla workers, and in 2018 threatened the compensation of U.S. employees seeking to join a union, (a statement later found to violate labor laws). German Bender, a labor market analyst at Arena, a think tank in Stockholm, said Tesla may “see this small conflict in Sweden as posing a risk of contagion to other markets.” In Germany, IG Metall, a union affiliated with Sweden’s IF Metall, has been seeking to organize Tesla’s factory in Grünheide, outside of Berlin. And in the United States, on the heels of the significant gains in wage and benefits won by the United Automobile Workers after a six-week wave of walkouts at the three big Detroit automakers, union’s leaders have set their sights on Tesla’s U.S. workers as part of a wider push to organize nonunion factories across the United States.The power of organized labor in Sweden is considerable. About 70 percent of the country’s work force belongs to a union, and Swedish law allows for solidarity strikes in support of other unions’ efforts.That is what happened in 1995, when another well-known U.S. company started doing business in Sweden. Toys “R” Us was unwilling to accept a collective labor agreement, and its retail workers in Sweden went on strike. Although the company employed only 80 people in the country, other unions rallied to their cause, including postal, transport and municipal workers who disrupted mail delivery and trash removal. After three months, the company signed an agreement.In support of IF Metall, the Swedish Transport Workers’ Union said that, starting at noon on Tuesday, dockworkers would not unload any more Tesla cars.“When IF Metall asks for Transport’s support, it is both important and obvious that we help, to stand up for the collective agreement and the Swedish labor market model,” the transport workers’ union said.IF Metall has not requested support from any other unions, pending the outcome of Monday’s talks, Mr. Pettersson said.Sweden relies on collective agreements hammered out between employers and unions within each industrial sector, to set basic terms for employment. Under the agreement that IF Metall is seeking, Tesla workers would gain a broader insurance package, guaranteed training to transition to a different job if theirs is cut and annual wage increases, the union said. Even workers who do not belong to a union are covered by collective agreements.Foreign-based firms are not the only ones reluctant to support the country’s century-old model of collective bargaining agreements. Some homegrown enterprises, like Klarna, the buy-now-pay-later giant, and the streaming provider Spotify have pushed back against them, citing the need to remain flexible and nimble in the rapidly changing tech industry.After eight months of negotiations, two of the unions representing employees at Klarna had threatened to walk off their jobs next week. They were able to secure an agreement late Friday, avoiding a strike, the company said. More

SEOUL (Reuters) -South Korea from Monday will re-impose a ban on short-selling shares at least until June to promote a “level playing field” for retail and institutional investors, financial authorities said on Sunday.The ban was lifted in May 2021 for trades involving the shares of companies with large market capitalisation included in the KOSPI200 and KOSDAQ150 share price indices. The restriction has remained in place for most other stocks.Short-selling involves selling borrowed shares to buy back at a lower price and pocket the difference.”The measure is aimed at fundamentally easing ‘the tilted playing field’ between institutional and retail investors,” Financial Services Commission (FSC) Chairman Kim Joo-hyun told a news briefing.”Amid continued uncertainty in financial markets, major foreign investment banks have been engaged as a matter of practice in unfair trades … and we determined that it would be impossible to maintain fair trading discipline,” Kim said.The FSC will review market activity in June to decide whether there is significant improvement to allow the ban to be lifted, he said.The regulator last week said it would establish a team of investigators to probe short-selling by foreign investment banks for illegal activity including so-called naked short-selling.Naked short-selling – in which an investor short-sells shares without first borrowing them or determining they can be borrowed – is banned in South Korea.The Financial Supervisory Service in October said it would likely fine two Hong Kong-based investment banks it determined had engaged in naked short-selling transactions worth 40 billion won ($29.58 million) and 16 billion won respectively.Earlier in the year, the regulator fined five foreign firms including Credit Suisse for naked short-selling.Officials and market watchers alike have cited uncertainty around short-selling regulation as among factors needing to be resolved for influential index provider MSCI to upgrade South Korea to developed-market status. More

The daily said the estimate, equal to 10% of gross domestic product, was premised on the war lasting between eight to 12 months; on it being limited to Gaza, without full participation by Lebanon’s Hezbollah, Iran or Yemen; and on some 350,000 Israelis drafted as military reservists returning to work soon.Calcalist described the ministry as deeming 200 billion shekels an “optimistic” estimate. But the ministry said it does not stand by Calcalist’s data.Hamas gunmen from Gaza launched the deadliest attack on Israel’s civilians in the country’s history on Oct. 7 and Israel has since bombarded Gaza with the goal of eliminating the group.Calcalist said half of the cost would be in defence expenses that amount to some 1 billion shekels a day. Another 40-60 billion shekels would come from a loss of revenue, 17-20 billion for compensation for businesses and 10-20 billion shekels for rehabilitation.Finance Minister Bezalel Smotrich has previously said Israel’s government was preparing an economic aid package for those impacted by Palestinian attacks that will be “bigger and broader” than during the COVID-19 pandemic.On Thursday, Prime Minister Benjamin Netanyahu said the state was committed to helping everyone affected.”My directive is clear: Open the taps and channel funds to whoever needs them,” he said without giving figures. “Just like we did during COVID. In the past decade, we have built here a very strong economy and even if the war exacts economic prices from us, as it is doing, we will pay them without hesitation.”In the wake of the war, S&P cut its outlook for Israel’s rating to “negative”, while Moody’s (NYSE:MCO) and Fitch put Israel’s ratings on review for possible downgrade.($1 = 3.9119 shekels) More

The finance ministry will steadily promote the resolution of local government debt risk and increase efforts to better leverage the role of special bonds to boost the economy, Xinhua cited Foan as saying. “The Ministry of Finance will continue to implement a proactive fiscal policy, focus on improving efficiency, and better play the effectiveness of fiscal policy,” said Lan, who also noted the “complex domestic and international situation”.Some new local government debt quotas for 2024 have been issued in advance to reasonably ensure local financing needs, he said.Lan, a 61-year-old technocrat with little central government experience, was named finance minister in state media last month, at a time when the government is ramping up fiscal stimulus to revive the world’s second-biggest economy.He succeeded Liu Kun who had held the position since 2018. Previously, Lan was party chief of the northern province of Shanxi.His appointment comes as the central government draws on a well-used playbook that relies heavily on debt and state spending but that analysts said falls short on deeper reform.The top parliamentary body last month approved the issuance of 1 trillion yuan ($137 billion) in sovereign bonds in the fourth quarter to fund rebuilding of areas affected by floods, state media reported.The economy grew faster than analyst estimates in the third quarter, improving the chances the government can meet its full-year growth target of around 5%.But headwinds persist as a property crisis deepens and private firms are reluctant to spend amid weak confidence.The ruling Communist Party will step up leadership of China’s $61 trillion finance industry and strengthen efforts to reduce local debt risk, state media reported, citing a twice-a-decade financial policy meeting held Oct. 30-31.($1 = 7.3005 Chinese yuan renminbi) More

SHANGHAI, China (Reuters) -China will further expand market access and increase imports, its premier told a trade fair in Shanghai on Sunday, amid criticism from European firms who said they wanted to see more tangible improvement in the country’s business environment. Li Qiang told the opening ceremony of the annual China International Import Expo that the country was committed to opening up its economy, and that imports of goods and services were set to reach a cumulative $17 trillion within the next five years.”No matter how the world changes, China’s pace of opening up will never stall, and its determination to share development opportunities with the world will never change,” Li said.China will promote coordinated development of trade in goods and services, protect an international business environment, and relax market access including lifting restrictions on foreign investment in manufacturing, he said.The import expo was launched by President Xi Jinping in 2018 to promote China’s free trade credentials and counter criticism of its trade surplus with many countries. However, participation in the past three years was curtailed by the COVID-19 pandemic.This year’s event drew criticism from the European Chamber of Commerce in China on Friday, which branded it a “political showcase” and urged authorities to enact more tangible measures to restore confidence in the country among European businesses.China’s imports have slumped this year amid a slowdown in the world’s second largest economy, although data released last month indicated that the downtrend could be starting to ease. Li in his speech cited examples of businesses that had benefited from the show – including an Afghan carpet maker and Japanese pharmaceutical firm, though without identifying them – and said out of the roughly 3,400 companies participating this year, over 200 had been repeat attendees for the past six years. Countries including Australia and the United States have sent large delegations to the event, which runs over Nov. 5-10. Participants include Micron Technology (NASDAQ:MU), Nestle, Burberry and L’Oreal, state media reported.On Sunday, Australian Prime Minister Anthony Albanese, at the start of the first visit to China by a leader of his country in seven years, told the opening ceremony that dialogue and cooperation was “in all our interests”.Last year, $73.52 billion worth of so-called intentional deals were signed at the fair, up 3.9% from the previous year.China will “actively promote” its application to join the Comprehensive Progressive Trans-Pacific Partnership (CPTPP), Li also said in his speech on Sunday. Taiwan, Ukraine, Costa Rica, Uruguay and Ecuador have also applied to join.The CPTPP is a landmark trade pact agreed in 2018 between 11 countries including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.Britain earlier this year became the 12th member of the pact, which cuts trade barriers. China’s application is next in line to be considered by the 12 members if they are dealt with in the order they were received. More

When the heads of cabinets of the EU’s 27 commissioners huddled in the Belgian countryside in late August for their back-to-work retreat, all were invited to talk about what they thought should be the priority for the autumn.The standout theme was clear, and unexpected.“People mentioned ongoing support for Ukraine, but it wasn’t top of anyone’s list,” says a person present in the room. “Everyone, over and over again, kept on coming back to competitiveness, and fixing the state of the EU’s economy.”Three weeks later, Ursula von der Leyen, the commission president, took to the dais in the European parliament in Strasbourg and delivered her annual State of the Union speech, a laundry list of past accomplishments and future ambitions for the EU’s executive branch. The headline announcement was a surprise initiative: former Italian prime minister and European Central Bank chief Mario Draghi was returning to the fray to write a report on the state of the EU’s competitiveness and how to fix it.While acknowledging “the birth of a geopolitical Union”, citing support for Ukraine and a tougher line against China, von der Leyen dedicated around a third of her speech to reshaping the EU’s economy.“We need to look further ahead and set out how we remain competitive,” she said, introducing Draghi by rehashing his 2012 declaration that is seen as the turning point in the eurozone sovereign debt crisis: “Because Europe will do ‘whatever it takes’ to keep its competitive edge.”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 headline numbers are stark. The EU economy, in dollar terms, is 65 per cent of the size of the US economy. That’s down from 91 per cent in 2013. Per capita, US gross domestic product is more than twice the size of the EU’s, and the gap is increasing.Drill down into the details and the story is the same. Take the list of the global top 20 technology companies; or the world’s top universities; or semiconductor manufacturing capacity: Europe lags behind.Longstanding structural issues undermining the effectiveness of the EU’s single market, which is theoretically supposed to make 27 individual markets into a single frictionless one, have been compounded by years of crisis.The Covid-19 pandemic, which bled into Russia’s war against Ukraine, pushed up energy prices and costs. Demographic pressures and educational bottlenecks have created a skilled labour shortage. And there is a burden of red tape and bureaucracy that small and medium business owners and EU diplomats both say crushes growth potential.“There needs to be seriousness [in Brussels] about fixing the single market, because you cannot just talk about it as the ‘crown jewels’ of the union without treating it like that,” says Markus Beyrer, director-general of BusinessEurope, which represents business lobby groups from across the EU. “People don’t understand at the moment how important it is . . . both the general public and policymakers.“We will need to find a narrative and a way to make it exciting again,” adds Beyrer. “Because the real technical work is unexciting, to go through all the regulations, and the barriers, and work out the things that would reverse the negative trends.” At the same time, efforts to help the EU weather the worst short-term impacts of the twin Covid and Ukraine crises have created medium-term risks.An outpouring of state aid and financial support from Brussels to European companies has radically altered the “level playing field” between countries and their businesses once guarded as the central pillar of the single market. EU state aid expenditure rose from €102.8bn in 2015 to €334.54bn in 2021. Between March 2022 and August this year, Europe approved €733bn in state support, according to unofficial commission figures seen by the FT.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.That push has been exacerbated by a desire to speed up the continent’s green transition away from fossil fuels and to invest in new, low-carbon technologies. It is also a response to competing programmes such as Joe Biden’s $369bn Inflation Reduction Act (IRA), and longstanding state support offered by Beijing to Chinese rivals.As such, while Draghi assesses competitiveness, another former Italian prime minister, Enrico Letta, is preparing a separate report on the state of the internal market, due to be presented in March.Letta, the president of the Jacques Delors institute, has embarked on a tour of European capitals to, as he puts it, “come out of the Brussels bubble to listen to worries on the ground”. Europe’s dilemma is preserving the strength of the single market, and the freedoms of movement, capital, goods and services, while competing with America, China, India and others, says Letta.“How do we push on the power button while developing the four freedoms and not destroying the spirit of the four freedoms? Because we want to work on European sovereignty, on a new industrial policy, on a strong capacity for Europe to flourish and be powerful,” he says. The desire for Europe to compete with the US, China and emerging powers like India, makes it “easy to destroy what we have built”, he adds. That is in Letta’s view, “this idea of a level playing field and free competition, which has been very, very important until now.” Disunity in the unionOne moment of truth for the EU was in the early 2000s, when the internet technology boom created dozens of major US conglomerates, but hardly any in Europe. In the decades since, EU companies have failed to come even close to the likes of Apple, Alphabet or Amazon, or challenge the scale of Chinese rivals such as Alibaba.Now EU policymakers are very concerned that the next technology revolution — in artificial intelligence and quantum computing — will similarly pass Europe by and further widen the gulf with the world’s two economic superpowers.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Part of the reason for that gulf, say officials and analysts, is a question of scale, and of failing to fully realise the potential of the EU’s population of 450mn — a group larger than the US population of 332mn. Another part is a lack of co-operation between EU innovators, companies and finance from across the 27-country bloc.Both are about the failure of the single market to truly function as one entity, rather than 27 individual markets bridged by various agreements, but held apart by national bureaucracy, protectionist policies and poorly-implemented EU rules.Every industry has its bugbears. Retailers say barriers are ultimately hitting consumer prices. Ahold Delhaize, a Netherlands-headquartered supermarket active across seven European countries, told the FT in May that it regularly noticed different purchase prices on branded products made in the same factories but sold in different countries. Top of the list of corporate gripes, alongside a shortage of skilled labour and high energy prices, is the regulatory burden imposed by Brussels, says Beyrer.Many cite an increasing number of reporting restrictions they face as part of the bloc’s “Green Deal” — a push to rapidly transition the EU to environmentally friendly technologies.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.“‘Let’s cut red tape!’ they say, and then a day later pass a new set of due diligence legislation,” says one senior EU diplomat with a smile and a shrug.In her State of the Union speech, von der Leyen acknowledged this complaint, promising that each new piece of EU legislation required “a competitiveness check by an independent board”, and pledging new laws that would reduce “by 25 per cent” the reporting regulations at an EU level for companies.State aid unleashedTo some member state diplomats, the biggest challenge to the bloc’s competitiveness has not been long-term trends or the inexorable rise of external rivals. Instead, the threat comes from internal decisions made in the heat of crises.The Covid-19 pandemic and then Russia’s war against Ukraine posed threats to the EU’s economy, society and physical borders that Brussels had never before experienced. Von der Leyen responded by assuming a more external-facing role than any of her predecessors, taking unprecedented control of the commission’s power levers, and promising a “geopolitical” commission that would see Europe throw its weight around more than ever before.“This geopolitical commission means it hasn’t been an economic commission, and there’s also a lack of natural interest and competence in economic areas at the top of the machine,” says one senior EU diplomat. “Which means areas like competitiveness, single market, etc, haven’t been taken care of.” To support the fight against Covid, and the war against Russia’s invasion of Ukraine, Brussels threw the economic rule book into the fire. Rules on the permissibility of state aid and national subsidies were lifted and EU oversight of its members’ deficits and debts were suspended. The EU’s state aid rules were drawn up to protect poorer states with less fiscal firepower from the richer states that would otherwise be able to pump cash into their national champions and give them an unfair advantage.That, say some officials from mainly southern and eastern countries, is exactly what has happened. Governments in countries such as Germany and France, in the name of economic stability for the entire bloc, have given their own companies the financial clout to outcompete their EU rivals, trampling on the safeguards of the single market in the meantime.Of the €733bn in state support that Europe approved between March 2022 and August this year, Germany accounted for almost half.“All of the states did some pretty strange things during the pandemic and the war, and basically all realised they had carte blanche to do what they wanted,” says one official who participated in critical meetings where decisions were taken to effectively relax the rules given the unprecedented crises.During her State of the Union address in September, European Commission president Ursula von der Leyen announced that former Italian prime minister Mario Draghi was to write a report on the EU’s competitiveness and how to fix it More

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