Economy

TOKYO (Reuters) -Japan’s government on Thursday forecast inflation sharply exceeding the central bank’s 2% target this year, acknowledging broadening price rises that may keep alive market expectations of an end to ultra-low interest rates.The estimates come ahead of closely watched Bank of Japan policy meeting next week, when the board will revise its quarterly forecasts and debate progress on sustainably meeting its price target.In its mid-year review, the government expects overall consumer inflation to hit 2.6% for the fiscal year that began in April, up sharply from 1.7% projected in January. Inflation last year was 3.2%.The government projects inflation to slow next fiscal year but, at 1.9%, stay close to the central bank’s target.”The government’s inflation forecasts are well in line with market forecasts. It wouldn’t surprise me if the BOJ revises up its price projections this month,” said Masamichi Adachi, an economist at JPMorgan Chase (NYSE:JPM).Underscoring the fragile nature of Japan’s recovery, the government slashed its economic growth forecast for this fiscal year. It expects the economy to expand 1.3% this fiscal year, below the 1.5% estimated in January, due to a hit to exports from slowing global demand.”Japan’s economy is recovering moderately” with positive signs emerging, such as steady wage hikes and strong corporate spending appetite, Prime Minister Fumio Kishida said.”It’s important to ensure Japan makes steady progress in exiting deflation, and shift to a society where wage hikes become a norm,” he told the government’s top economic council.After more than two decades of deflation and stagnant wage growth, Japan has seen inflation exceed the central bank’s 2% target for more than a year as firms continued to pass on rising raw material costs to households via price hikes.Companies offered pay raises unseen in three decades at this year’s wage negotiations with unions, heightening market expectations of a tweak to the BOJ’s yield curve control (YCC) policy, which caps long-term interest rates around zero.BOJ Governor Kazuo Ueda has brushed aside the chance of a near-term exit from ultra-loose policy, arguing that the recent cost-driven rise in inflation must be replaced by price gains driven more by robust domestic demand and higher wage growth.But an upgrade to its inflation forecasts will likely keep alive market expectations that Ueda will soon start to phase out his predecessor’s massive stimulus programme.In its April forecasts, the central bank predicted core consumer inflation – which strips away the effect of fresh food costs – to hit 1.8% this fiscal year and 2.0% the following year. More

China is importing record volumes of oil despite a weak economy as it takes advantage of cheap Russian crude to build stockpiles and export refined products.The rise in oil imports to record levels this year comes against the backdrop of a faltering recovery in the world’s second-largest economy.It shows how sanctions on Russia are reshaping global oil markets, with China getting a double benefit of cheap crude for itself and the opportunity to boost exports.For the first half of 2023, China imported 11.4mn barrels per day of crude oil, up 11.7 per cent year on year and up 15.3 per cent compared with pre-Covid levels, according to Financial Times calculations based on customs data.“The short answer is crude stocks have been building in China,” said Mukesh Sahdev, head of oil trading at Rystad Energy, a research group. “They’re importing for the future . . . and in advance of a potential stimulus. People are all talking about a second-half story.”

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China imported 2.57mn bpd of Russian crude last month, breaking a record set in May, official data showed on Thursday.In the first half of 2023, China imported 2.13mn bpd of oil from Russia, ahead of 1.88mn bpd from Saudi Arabia, making Russia the top crude supplier to China so far this year.Analysts differed on the rationale underpinning the stock build, with geopolitical risk another possible explanation.Sanctions on Russia following its full-scale invasion of Ukraine have brought energy security into sharp relief for Chinese policymakers. “China could be preparing for some geopolitical situation,” said Sahdev, “a Russian tailspin or a crisis in Taiwan.”

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Michal Meidan, head of China energy research at the Oxford Institute of Energy Studies, played down the security narrative.“There’s certainly a perception in China that the external environment is deteriorating and they’re preparing for sanctions, but that’s been the subtext for years,” said Meidan.China’s customs data implies that Russian imports have been cheaper than those from other Opec+ countries since the war in Ukraine started.Compared with the unit price of Saudi Arabian crude, Russian oil enjoyed a discount of $9 a barrel at the end of 2022 and $11 a barrel in June.But analysts noted the discount on Russian oil was smaller than that on Iranian or Venezuelan products, given the growth of an opaque non-dollar-denominated trade in Russian crude.

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A rotation towards Russia appears to be opportunistic, rather than a systemic change. “I don’t think China’s going to go all in on Russia,” said Meidan. “This is a short-term move away from Saudi feedstocks. The Chinese are pretty keen to keep a balance between their suppliers.”“It’s price-driven by market realities,” Meidan added. “They have these plans and a state machinery, but then they optimise around this in a way that is very sophisticated and capitalistic. One thing that isn’t appreciated in the west is how fierce competition is between the [Chinese] majors.”Analysts at market data provider Kpler pointed to a strong incentive for Chinese refiners to keep up production, given their margin advantage of as much as $3 a barrel over Asian rivals.Kpler expects China’s advantage from cheap Russian feedstock will allow it to flood the market, putting pressure on Korean and Japanese producers. More

The brokerage previously expected the country’s economy to grow at 5.7%.It also lowered China’s growth forecast for 2024 to 4.8% from the earlier 5%.”The downward revision reflects our more cautious view on both investment and consumption growth, esp. in 3Q,” the Wall Street bank said in a note.”But as more signs of growth pressure emerge, policy makers will likely ramp up easing efforts by late 3Q, leading to a modest pick-up of growth momentum in 4Q.” More

Jeffries Ncube looks around Zimbabwe’s second city and fallen industrial heartland and observes that, for all President Emmerson Mnangagwa’s promises to resurrect a ruined economy, many of Bulawayo’s factories have turned into places to pray for the next life, not to profit in this one.“If you go around the industrial area you notice that several companies have closed down and some are now being used as churches,” said Ncube, 55, who formerly worked at a large garment factory.Bulawayo used to supply food as far afield as Europe, as its warehouses and railheads knitted Zimbabwe into supply chains across southern Africa. All this was destroyed amid decades of economic chaos under the late Robert Mugabe, with little improvement since Mnangagwa overthrew his former boss six years ago.As Mnangagwa bids for re-election next month, international judgment on the vote’s fairness will determine whether the one-time spy chief can turn around the economy and reboot the re-engagement that was undermined by his Zanu-PF party’s reversion to violence and corruption during and after the last poll in 2018.In particular the August 23 vote will be critical to the success of African-led negotiations to end Zimbabwe’s financial isolation and clear decades of unpaid loans that make up the bulk of its $14bn external debt, according to analysts.“This is one of the clearest and best opportunities that [the regime] have had or they’re likely to get,” said Ringisai Chikohomero, a Zimbabwe-based researcher at the South African Institute for Security Studies.The August 23 vote will be critical to the success of African-led negotiations to end Zimbabwe’s financial isolation © Aaron Ufumeli/EPA-EFEMugabe stopped paying the World Bank and others years ago, and there have been many failed endeavours since to clear the debts in return for reforms. Without a deal there are limits on new loans needed to revitalise Zimbabwe and rebuild its foreign reserves, leaving its economy stricken. Ncube, the former garment factory worker, is just one of countless Zimbabweans now forced to rely on odd jobs and street vending to feed their families.Yet analysts say this time is different, with the 80-year-old Mnangagwa boxed in by triple-digit inflation and a collapsed currency. Chikohomero said the president had “no strategy but a string of survival tactics that are short-term and immediate.” Zimbabwe has become an economic basket-case, wracked by shortages, high-level graft by figures linked to Mnangagwa and Zanu-PF and a patronage system based on artificial exchange rates that has wrecked the central bank and the Zimbabwe dollar.“[Mnangagwa] has failed to arrest corruption which has seen the country losing billions of dollars to inflated prices of goods and services and the smuggling of minerals,” said Farai Muguwu, director of the Harare-based Centre for Natural Resource Governance. He also noted how Zimbabwe used a “surrogate currency that’s not accepted anywhere else in the world and is rejected even by some government agencies.”One difference now is that the brokers of these talks — African Development Bank president Akinwumi Adesina and Joaquim Chissano, former leader of Mozambique from Zanu-PF’s cousin liberation movement Frelimo — have clout with both the creditors and the ruling party.Zimbabwe’s neighbours have also become frustrated that Harare has effectively blocked regional hopes for greater integration — enough for them to pressure Zanu-PF to commit to political liberties and compensation for Mugabe-era land seizures, even as they call for rollback of western sanctions on the party’s elite.Nicole Beardsworth, politics lecturer at Johannesburg’s Wits university, said the “chorus from the continent against sanctions has been almost unanimous,” calling it “perhaps the most successful part of Zimbabwe’s re-engagement drive”.Yet she also stressed that Mnangagwa had “little interest in reform” at home. Rights groups have condemned his ‘Patriotic Bill’ which they say is the latest attempt to stifle political opposition. The bill, signed last week, threatens the death penalty for anyone “wilfully injuring the sovereignty and national interest of Zimbabwe”.Yet analysts say that even western governments are likely to set a low bar for what counts as a fair vote next month — although a repeat of the violent crackdowns that marred the 2018 election would not be accepted.An armed soldier stands guard at the country’s first China-owned lithium ore processing plant © Aaron Ufumeli/EPA-EFEThey also note that, despite Zimbabwe’s economic woes, investment has begun to trickle in. Zimbabwe recorded about $150mn of foreign and local investment in the first three months of 2023, according to the country’s investor promotion agency. The list is dominated by Chinese investors and includes the issuance of dozens of licences for lithium mining and exploration. Mnangagwa this month spoke of the desire to exploit a “favourable business environment for win-win outcomes” as he marked the commissioning of his country’s first China-owned lithium ore processing plant.Zanu-PF is expected to win next month’s election, although few believe it will offer a true picture of voter sentiment. The party can call upon the powerful state apparatus while the main opposition Citizens Coalition for Change (CCC) has been denied access to mainstream media and its rallies have been banned.One poll by the country’s Mass Public Opinion Institute indicated 35 per cent support for Zanu-PF and 27 per cent for the CCC, but large numbers of people were also unable to express a preference.If Zanu-PF did feel the election was slipping away, or if it unexpectedly lost, the party could return to the violence of five years ago, when soldiers shot dead civilian protesters.Yet Mnangagwa knows that doing so risked closing off the international community, possibly for good. “It remains to be seen if . . . they still have an appetite or desire for reforms,” said Chikohomero.“How much are they willing to pay to get this re-engagement going?” More

The EU should seek “constructive engagement” with Turkey in response to president Recep Tayyip Erdoğan’s re-election and the geopolitical ramifications of Russia’s war against Ukraine, the bloc’s diplomatic arm has proposed.Erdoğan last week called for Brussels to re-engage with Turkey after years of frozen progress on its formal bid to become an EU member, linking the demand to his decision to lift a veto on EU member Sweden joining Nato.Russia’s full-scale invasion of Ukraine has forced a rethink of the EU’s attitude to its neighbours. Ukraine and Moldova have both been designated official candidate countries and the long-stalled accession talks with six western Balkan states have gained fresh impetus.The new demand from Erdoğan — which EU officials said boiled down to his wish for greater access to the EU customs union, visa liberalisation for Turkish citizens and an extension of aid to Ankara linked to migration management — will be discussed on Thursday by EU foreign ministers and informed by the diplomatic arm’s proposal. The ministers’ conclusions will form the basis of a European Commission report on the EU-Turkey relationship that will be discussed by EU leaders later this year. “We’re not swallowing the membership demand line whole,” said a senior EU official. “But there’s definitely a willingness from many of us to see where we can do more together.”A €3bn funding package linked to Turkey’s hosting of Syrian refugees and discouraging them from travelling to Europe expires this year, but two EU officials said an extension of that was already baked into calculations over Brussels’ future budgetary requirements.Progress on both visa liberalisation and Turkey’s participation in the bloc’s customs union is possible, according to people involved in the talks. But this would require movement from Ankara on issues such as data-sharing and anti-terror legislation, and trade measures seen as protectionist by Brussels.EU members Cyprus and Greece are opposed to closer relations that do not include progress from Ankara on a UN-led initiative to normalise relations over the divided Mediterranean island. Some eastern EU states are also irritated by Erdoğan’s failure to adopt western sanctions against Russia and expand his trade relationship with Moscow. Others also remain concerned about closer ties with a country where the EU has stated that rule of law and the protection of human rights are “key concerns”.Yet the paper by the bloc’s diplomatic arm, seen by the Financial Times, called on foreign ministers to look at where “the EU could concentrate efforts on consolidating or increasing its leverage in relations with Turkey”, given Ankara’s new “geopolitical relevance” since Russia’s invasion.“In the light of the shifting geopolitical context it is important to discuss the way forward on EU-Turkey relations in the short to the medium term,” it said.A second EU official noted “certain change in approach from the new [Turkish] government, and we want to see where we might be able to go with that”. Erdoğan’s U-turn on Sweden was one a number of moves over recent weeks that have “de-escalated” tensions between Ankara and the west, as Turkey seeks to lure back foreign investors and stem its economic crisis. “[Turkey] at least wants an open and frank decision on the difficult issues where we have differences,” the official added.As a result, the bloc’s foreign ministers should discuss “further opportunities for the EU to build on existing strands, such as economic co-operation, migration management and climate change,” according to the paper, “and consider steps of constructive engagement that would allow the EU to be more effective in . . . exploring possibilities for cooperation.”“The current geopolitical situation could trigger bridging divergences or opening new opportunities for targeted co-operation on the basis of convergence of the EU and Turkey foreign policy interests,” it added. More

The US will not be able to resolve its steel dispute with Europe through a deal that discriminates against other countries, the EU’s trade commissioner has said, underlining the challenge of finding a compromise to end the stand-off. Valdis Dombrovskis told the Financial Times that he was hopeful of a breakthrough to end the threat of renewed tariffs on EU steel imports ahead of a meeting with Katherine Tai, the US trade representative, on Thursday. Without a deal, the tariffs, lifted temporarily, would return in December along with retaliatory measures from the EU.But the commissioner insisted that the EU would not sign up to any agreement that breaches global trade standards. Experts have argued that elements of Washington’s proposed solution could unfairly discriminate against imports from some countries. “As the EU, we’re committed to multilateralism, to the rules-based global order,” Dombrovskis said. “We would like to avoid engaging in agreements which manifestly violate World Trade Organization rules.”The section 232 tariffs of 25 per cent on steel and 10 per cent on aluminium were imposed by former US president Donald Trump on national security grounds, outraging EU capitals.The two sides paused the dispute two years ago and promised to form a sustainable steel club that would prioritise low-carbon metal, tackle global overproduction, and Chinese subsidies. However, they have struggled to find an agreement on this Global Arrangement on Sustainable Steel and Aluminium (GSA) ahead of a deadline in October. The US has proposed allowing club members to set emissions standards, and levy tariffs on those who do not meet them, according to media reports.Independent analysts say such a proposal, which favours domestic producers, would probably break WTO rules. For its part, Brussels is introducing a carbon border adjustment mechanism (CBAM), which will levy tariffs on imports according to how much carbon they emit. It wants this to form the basis of the club. But the US has no national carbon pricing system and is unlikely to adopt one soon.“We respect the EU’s concerns but we continue to wait for a proposal from their side that meets our high level of ambition and addresses our shared concerns on climate change and overcapacity,” said Sam Michel, a spokesperson for the US trade representative’s office. Dombrovskis declined to speculate on whether the two sides could prolong the truce if there were no agreement by October. “Currently, we are focusing on delivering plan A,” he said. Dombrovskis also said he would discuss the US Inflation Reduction Act, which ties many American subsidies to domestic production. He is seeking a mandate from EU members to negotiate a deal to have critical raw materials mined or processed in the EU and used in batteries as qualifying for US consumer credits. He expected to clinch a deal before an expected EU/US summit later this year. “Given the fact that we already have extensive discussions on this component of the agreement before, we should be able to make rapid progress once we have a mandate,” he said.However, many member states want the agreement to include all 50 metals covered by the IRA, not just the five offered by the US. Dombrovskis emphasised the importance of transatlantic trade, describing it as “the artery of the world economy”. He warned that there was a risk of fragmentation in global trade as some countries raise barriers to flows of products and services. “We think it’s important to avoid this fragmentation,” he said. He added: “For this, we need to stick with multilateralism and we need to defend the rules-based global trading order. And we need to preserve the relevance of the WTO.”Additional reporting by Aime Williams More

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VANCOUVER (Reuters) – Dock workers on Canada’s Pacific coast said they have revoked a strike notice issued for Saturday, after Prime Minister Justin Trudeau directed a crisis meeting to pursue all options to ensure the stability of supply chains as he stressed the critical role of port operations.The strike notice revoked had been issued earlier Wednesday just hours after a federal watchdog ruled the workers’ current stoppage was illegal.”Effective immediately the strike notice dated July 22 for 9:00am has now been removed,” the International Longshore and Warehouse Union (ILWU) Canada said in a post on its website on Wednesday.Amid mounting calls for resolute government action to end the strike, Trudeau convened a meeting of the Incident Response Group, which is comprised of senior officials and ministers and meets only in cases of crisis. In a statement released following the meeting, the Prime Minister’s Office said Trudeau had stressed the critical importance of operations at the ports resuming as soon as possible, and said that workers and employers across Canada cannot face further disruptions.”He asked ministers and senior officials their advice toward achieving this goal and directed them to pursue all available options to ensure the stability of our supply chains and to protect Canadian jobs and our economy,” the statement said.The strike has upended operations at Vancouver and Prince Rupert, two of Canada’s three busiest ports, which are key gateways for exporting natural resources and commodities and bringing in raw materials.The Canada Industrial Relations Board (CIRB) watchdog said the strike must end because the International Longshore and Warehouse Union (ILWU) had not provided the required 72-hour notice before pulling workers off the job on Tuesday. The union responded by issuing a new 72-hour strike notice, an ILWU official told Reuters by phone, before that notice was later revoked.Some 7,500 dock workers have been picketing the two ports almost non-stop since July 1. A Reuters witness said there was no sign of pickets at Vancouver’s port on Wednesday.On Tuesday the ILWU leadership rejected a tentative four-year contract deal agreed with employers less than a week ago that ended a 13-day strike.The employers association accused the union of “holding the Canadian economy hostage.”The walkout is estimated to have disrupted C$6.5 billion ($4.9 billion) of cargo movement at the ports, based on the industry body Canadian Manufacturers & Exporters’ calculation of about C$500 million in disrupted trade each day.”My patience has run out,” Transport Minister Omar Alghabra told reporters when asked whether the government would pass back-to-work legislation, a politically tricky move. Ministers, he added, were exploring all options.Legislation forcing workers back to their posts was favored by the premiers of Alberta and Saskatchewan, the Canadian Chamber of Commerce, and the Canadian Manufacturers and Exporters.But David Eby, the left-leaning New Democratic Party (NDP) premier of British Columbia, said passing such legislation would take too long and urged the two sides “to sort it out at the table as quickly as possible.”The leader of the official federal opposition Conservative Party, Pierre Poilievre, earlier said Trudeau should come up with a plan to end the strike within 24 hours, but did not say whether he would support back-to-work legislation.The federal NDP, a left-leaning opposition party that traditionally enjoys union backing, has been helping Trudeau’s minority government pass legislation. Its leader, Jagmeet Singh, ruled out support for a law to end the strike.That means Trudeau would need the votes of the Conservatives, who have been trying to court workers and unions, or the separatist Bloc Quebecois. It also means the Liberal-NDP deal that is keeping the government going could be put under strain if Trudeau ends up forcing workers back to the job. ($1 = 1.3181 Canadian dollars) More