Economy

“As the Reserve Bank forecasts and the Treasury forecasts have inflation moderating over the coming months, they do have a tick up in unemployment as well,” Chalmers told the Australian Broadcasting Corp.Amid stubbornly high inflation, the unemployment rate in May edged lower to 3.6%, when analysts had expected a steady 3.7%.The Reserve Bank of Australia (RBA) has said the jobless rate would need to rise to about 4.5% – still well below pre-pandemic levels – to bring the economy back into balance.Unemployment was expected to lift “a bit as the economy slows as a consequence of higher interest rates and global economic uncertainty”, Chalmers said ahead of attending a meeting of Group of 20 (G20) finance ministers and central bankers in India with outgoing RBA Governor Philip Lowe. The RBA this month kept the cash rate at an 11-year high of 4.10%, having lifted rates by 400 basis points since May last year, but warned that further tightening might be needed.The decision came after June data from the Australian Bureau of Statistics showed Australia’s economy grew at the weakest pace in 1-1/2 years in the last quarter, while emerging signs pointed to further softness ahead. More

This is part of a series, “Economists Exchange”, featuring conversations between top FT commentators and leading economistsIn the past decade, the number of national industrial policies globally has more than doubled. Challenges such as the pandemic, the cost of living crisis and climate transition have reignited an appetite for governments to play a more active role in shaping domestic economies. Meanwhile, geopolitical tensions have spurred a drive towards strategic autonomy in sensitive sectors such as defence. Billion-dollar packages including subsidies and investment incentives such as the US’s Inflation Reduction Act and Chips Act are already shaping business decisions and threaten a global subsidies race.Now that government programmes are also leaning towards more protectionist elements, this wave of national industrial policy contrasts with decades of globalisation underpinned by free trade. According to the World Economic Forum’s latest Chief Economists’ survey, most experts think this paradigm shift will become the de facto approach to economic policy over the coming years. Yet, more than two-thirds think it will stifle competition and lead to problematic increases in sovereign debt levels — few think it will lead to an increase in global activity or resilience. Adam Posen, president of the Peterson Institute for International Economics, has been a rare vocal critic of what he dubs the rise of “zero-sum economics”. In an op-ed earlier this year, he outlined four fallacies of agendas like US president Joe Biden’s IRA: “That self-dealing is smart; that self-sufficiency is attainable; that more subsidies are better; and that local production is what matters.” We discussed the comeback of government interventionism, the flaws of programmes such as the IRA and what a more effective approach to industrial strategy and the climate transition might look like. Posen also offers his thoughts on how the UK ought to shape its own long-term economic agenda.Tej Parikh: How did we get to this moment — when arguing for a more interventionist role for government in our economies has become mainstream?Adam Posen: I think there was a legitimate delegitimisation of excessive reliance on market outcomes. The financial crisis of 2008 was largely the result of deregulation and supervisory failures. Then some came out very strongly against austerity, arguing that secular stagnation and low rates meant there was room for fiscal spending. I think those two things created the groundwork, but ultimately it is political self-delusion. You’ve got people throughout the west who are falsely claiming that the economic downsides of activist industrial policy are avoidable and that the main problem has been foreign trade.TP: Recent shocks like the pandemic and cost of living crisis, all of which justifiably involved state support, also give the narrative staying power. Plus, the urgency of the climate transition needs a joint public-private effort.AP: Yes. And once you put narrow government interventions into place, they tend to stick around, expand and get distorted by entrenched special interests. But over time, they tend not to serve what they were initially supposed to do. That to me is part of the argument against the Biden administration’s economic policy — and the UK Labour party’s current proposals, if we look at Rachel Reeves’ recent speech — they think that over time their programmes are not going to be subject to corruption or engender retaliation from other countries outweighing the benefits. That is mistaken.TP: Industrial policy has been around for a while — what do you see as the most egregious elements of this wave?AP: What makes today’s version worse isn’t just that they are large-scale and wasteful. The first big problem is viewing industrial competition as zero sum; the idea that you can create lasting comparative advantage so that your locally headquartered companies dominate an industry. The reason that’s bad is because a) it doesn’t usually work, and b) it just invites retaliation. Second, today’s industrial policy efforts are being combined with a bunch of antitrade measures, not just on tariffs, but also local content requirements and barriers to investment.

Third, about green technology, the most important thing is to get the best technologies out and as widely adopted as possible. This subsidies war combined with trade barriers and domestic investment incentives means we’re likely to see a repeat of what happened with vaccines, which is rich countries hoarding them, and developing countries having to go cap in hand to the big blocs. As a result, we will get far too piecemeal, far too slow a spread of the best green tech, and a lot of resentment, leading to slower take-up of it.The final thing is cost, in the US case in particular, because much of the IRA and Chips Acts spending is open-ended producer subsidies. They’re not putting in this much money to create this factory or that infrastructure. They’re saying the more you produce, the more money you’ll get, and that’s open-ended.TP: Is this the end of comparative advantage as an organising principle for the global economy?AP: No, not the end. As we’ve seen when Napoleon tried with the Continental System to blockade the British Isles over 200 years ago, and other embargo attempts since, comparative advantage is real, not easily denied or created. There is a reason why the supply chains pre-Covid developed organically. In the end, cost-advantaged or desirable products will get through by some means, as with smuggled drugs or counterfeit movies. There will be less variety and availability, and prices will be higher which makes everyone worse off. But you are unlikely to create a whole new industry out of these measures that will move the needle long-term and the futile effort is going to be costly.TP: Still, it feels like the notion of comparative advantage needs reiterating. So, what do you think are the economic fallacies at the heart of agendas like the IRA?AP: Evidence supports the idea that government spending on R&D, worker training, infrastructure and expedited regulation of innovations is positive. Once politicians start handing out money to individual companies for specifically located production, though, and they start favouring those companies over potential rivals, it becomes a bad dynamic.There’s nothing like having the state as your de facto guarantor. A host of bad things happen to society as a result. We’ve discussed how on the international front it leads to retaliation, shutting out of poor countries, reduced adoption of new technologies, and corruption.But the domestic effect on any country that goes down this path is worse. You end up with entrenched incumbent companies becoming a political sacred cow, as we have seen with state-owned enterprises in China. This spirals because when you don’t have enough competition in key industries, not only do consumers overpay, you slow innovation. You have unfairness from incumbents’ political weight being thrown around. You crush new entrants and dynamism.TP: Yes, and trying to replicate entire supply chains is enormously inefficient. Duplicating green or chip technology supply chains runs into the trillions.AP: Trying to achieve self-sufficiency in any major industry that isn’t a simple extractive one like a mine is self-defeating. The reason is the value of diversification. Yes, attenuated supply chains, dependent upon potentially hostile hosts, are a vulnerability. But so is having all or most of one’s production at home, subject to natural disasters, climate shifts, unstable politics, domestic terrorism, and undependable or deficient production due to the corruption of too-big-to-fail local producers. Russia and North Korea have worked very hard to be self-sufficient, with limited supply chains, and it has not worked out well for them.TP: So, hypothetically, let’s assume that this type of industrial policy will remain the new status quo across the world. What will things look like in 10 years’ time?AP: The real damage from decoupling and conflict between the US, China and other economic blocs is reduced productivity growth. We would see less diversification both financially and in inputs, including of ideas and business practices, along with less competition, which directly diminishes productivity. We would also see further restrictions of migration, foreign direct investment, flows of information and technology once economic nationalism is entrenched. 

So, if we continue down this path, we’re looking at a meaningfully bleaker outlook for average growth in the world. It’s going to be harder for the developing world to break through except through political pandering to China, EU or US, which they cannot depend on. There’ll be the occasional country that has a temporarily critical mineral supply or whatever which will try to play off the three in a bidding war, but that never lasts as an advantage. The lasting large magnitude decline in average global productivity growth will hamper our response to climate change.TP: It will also exacerbate existing problems with limited fiscal space.AP: Yes, public spending needs to increase over the next 10 years for defence and for dealing with ageing populations too. If we are in a subsidies war between the EU, US and China, and some others try to play as well, then the fiscal crunch becomes even worse. It is far more constructive for our societies to spend public monies on these priorities rather than chasing manufacturing white elephants.TP: A big debate right now is how to help developing countries meet the demands of climate change — could agendas like the IRA add to that burden?AP: For all the talk about how ashamed so-called neoliberal economists should be about trade and inequality, the fact is, the people pushing for manufacturing jobs in specific places in the UK or the US are immorally slighting just how important trade, cross-border investment, migration, and technology transfer has been to billions of people in the developing world. This isn’t just about China. This is hundreds of millions of people in India. This is people in Poland, Turkey, Indonesia and Vietnam, and southern Africa and large parts of South America. This has not been at the expense of average western middle-class people — in the US, domestically-driven tax and public spending cuts did that regressive harm, as austerity did in the UK, not trade with developing economies. Many in developing economies are feeling once again disappointed, if not betrayed, by the shift in western views. When US or UK officials say not just we need growth, but that their government’s priority is making sure formerly imported goods are produced in specific electoral districts, whether it’s the north of England or the west of Pennsylvania, they are adding to that burden.TP: Do you think the expectations around domestic job creation for reshoring are realistic?AP: As has become very evident in the creation of the semiconductor fabrication plants in the US, we do not currently have the right workers for a lot of these jobs. Over time we may accumulate them through retraining and shifting workers. If this is a national security vulnerability, though, why not allow legal guest workers or migration or offshore to allies to make it happen more quickly? Even if we retrain the required workers, medium term we are talking about potentially increasing manufacturing employment in the US by about 1 per cent of the total workforce. That is not trivial, maybe 1.5mn new jobs, but this is not some fundamental transformation of the economy or blue-collar workers’ prospects.TP: On that point, some point to high levels of investment in postwar West Germany, South Korea and Japan as examples of how governments can, so to speak, create comparative advantage. What are your thoughts on that argument?AP: Well, South Korea’s industrial policy only really kicked in after the country was well developed, and the same was true in Japan. The actual role of the Ministry of Economy, Trade and Industry in Japanese postwar development was helping workers exit declining industries, which is good, and wasting money, which is bad. Germany offered some subsidised financing to industry, but, like Japan and South Korea, mostly benefited from an undervalued exchange rate for an extended period combined with US defence-driven booms requiring imports.In all three of these countries as well as Taiwan, what you see is that over-dependence on a few favoured sectors and a small number of protected large companies has not been an unalloyed good. It caused entrenchment and corruption. We should not understate how much concern for the German auto industry, or BASF (the world’s largest chemicals group), led to Germany’s extreme dependence on Russia for cheap energy too. One should not understate how much the chaebol (business conglomerates) in South Korea have been ripping off Korean consumers, and overtly corrupting national politics.

Now, South Korea has a recent different kind of industrial policy success: the booming exports of cultural products, from K-pop to soap operas to film to cuisine, like Cool Britannia under Blair and Brown, but bigger. This did have a government investment aspect, but it was about investing in training, talent and marketing. It did not involve restrictions saying Korean teens couldn’t import J-pop recordings, or Korean Americans couldn’t produce gochujang in the US.TP: So how do we set the boundaries of when to use subsidy-driven industrial policy?AP: I think there should be boundaries around both the nature of the subsidies and where to use them. In terms of the nature, they should enhance supply of useful factors of production, meaning human capital, access to financial capital, infrastructure, stable availability of key inputs, and the creation of incentives to allow a market to grow, which includes competition policy. It also should spend on helping workers out of declining industries. It should not be open-ended subsidies tied to the amount a selected company produces of a specific product. It should not be open-ended in duration, either. It should not exclude competition either or move production from abroad — except on a very narrow definition of what are critical national security needs, tied equally to export controls.TP: Your own work also suggests that the focus for subsidisation should be around new technologies and on adoption over production.AP: That to me is the biggest economic lesson of technology policy. What matters is how well an economy adopts and encourages change as the result of innovation, not the production of the innovative product itself. This is what we saw with the last round of large-scale subsidies for semiconductors in the 80s and 90s. It didn’t matter much which of Japan, Korea, US or Taiwan-based companies produced the chips over time. What mattered was that when the internet, fibre-optic cable and highly effective dispersed computing came along, enabled by semiconductors, it was the US that adapted its industries and its behaviours really quickly to take advantage.When this was mistakenly thought about with respect to vaccines, what matters was not that a US or Chinese-produced product was better, but that most of the world’s people did not get the most effective vaccines in a rapid manner. Similarly, on green technology going forward, it should not matter whether it’s an American or a Chinese or a European innovation that leads to the most energy-efficient housing or the best retention of charge in an electric battery or the cleanest way to create hydrogen for fuel. What matters is that as many people in as many places as possible get access to and adopt that technology.TP: Can a global subsidies race be a good thing?AP: The EU has been leading the world in responding to climate change. This is because it has emphasised things like its carbon pricing scheme; the shift of solar panel and some wind turbine components production from Europe to China enabled their rapid growth in renewables, which if blocked would have also blocked that progress. So, the world would be better if the US, the UK and China were to emulate European practices and possibly conform over time to them. Sadly, that is unlikely to happen anytime soon.Therefore, I have sympathy when Biden administration officials argue that they could not let more years go by without the US doing anything on climate. But its current approach will probably undercut some of the effectiveness of the European position. When you have subsidies competing with carbon pricing, the outcome is pretty suboptimal, and the net impact on decarbonisation is unclear at a longer horizon.TP: Some argue that if the US can produce climate technologies at scale, then the developing world can benefit from them, potentially at a lower cost.AP: When we think about developing countries and their access to the best green technologies, the IRA is unlikely to be helpful. The US’s priority is claiming credit for jobs in specific electoral districts, and appearing to be tough against foreigners. There is no excuse for the hoarding and slow dissemination during Covid of quality medical equipment and then vaccines to the developing world. There is no reason to think, barring significant changes in policy with that as a priority, that it will be any different with green technology. In fact, having competing subsidised blocs will probably drive up the prices of diffusing green tech, and American elected officials will want to claim big surpluses in comparison to China, EU and others.TP: So what is the alternative to programmes like the IRA?AP: If you have to go with subsidies instead of carbon pricing, what you want to do is subsidise three things. First, productive factors like human capital, R&D and infrastructure. That includes creating sufficient public-sector demand through purchases and regulation for a market at scale for technological green innovation.The second thing you want to subsidise is uptake of green technologies as they become available. So instead of incentivising the producers of green tech, subsidise the consumers, which means both household and other businesses. The less carbon they use, the more money they get back.

Then the third priority is to forge an international agreement that for every dollar, euro, yuan you put in subsidies for domestic production, you also put several cents in a common kitty, pre-committed to spread green technology and needed adaptation to the developing world.TP: How do economists reassert the case for comparative advantage?AP: Talk about evidence. But we cannot lie or overpromise. That is part of why there has been an excessive repudiation of evidence-based positions, because there was some overpromising, and now the advocates of alternatives are lying and overpromising.TP: Regarding the UK, which you know very well from your time on the Monetary Policy Committee, if it did have an industrial strategy, what should it look like?AP: The UK is a large, important economy, but it cannot compete in a manufacturing subsidies war with China, US and EU, nor should it. The UK should lean into being the best place to benefit from business services, higher education, cultural exports and some forms of R&D. That would change what migration policy should be and increases the importance of alignment with the EU on services regulation. That focus might initially worsen some of the UK’s regional divergence issues, although since business services work and some education can be done remotely, that should be soluble. Making remote work disperse income across the UK would cost a lot less than pointless manufacturing subsidies.TP: Right. It is OK for countries to specialise in what they do well, and import otherwise.AP: Of course the UK should not be solely dependent on the Square Mile. But it is logical that the UK should lean into being the English-language, rule-of-law, stable place that is conducive to work in fields that engage with higher education, that do not require large fixed capital investment, and that benefit from the ongoing globalisation that will continue, whatever happens between China and the US.The above transcript has been edited for brevity and clarity  More

For many Britons, Brexit was a one-off event involving a vote in the 2016 referendum, but for UK exporters such as Brandauer, a Birmingham-based specialised components maker, trading outside the EU has been a journey of continuous adaptation.From handling German value added tax to mastering the intricacies of six-digit EU customs codes, Brandauer chief executive Rowan Crozier said his small company has managed to retain its EU customers thanks to precision components used in a wide range of industries including carmakers, construction and pharmaceuticals.But Crozier is aware that in many ways Brandaeur’s Brexit journey is only just beginning as the EU introduces rules on carbon border taxes, plastic waste management and supply chain monitoring.This means EU rules are starting to diverge from UK equivalents. “Divergence is an ongoing headache,” he said.Rowan Crozier, chief executive of Brandauer: ‘Divergence is an ongoing headache’ © Charlie Bibby/FTTrade and industry experts warn the rising volume of future EU regulations is leading to “Brexit 2.0” as the 27-nation bloc introduces rules that — even when they are mirrored by the UK — create fresh barriers to trade.“We’re getting new [EU] legislation continuously,” said Fergus McReynolds, director of EU affairs at the manufacturers’ trade body Make UK. “So as the UK stays static, you’re having to treat the EU and the UK as two completely different markets from a regulatory perspective.” McReynolds said Make UK’s members are focused on three main EU regulations: the bloc’s upcoming carbon border tax, implementation of plastic packaging rules and draft supply chain due diligence laws being discussed by member states.The introduction of the EU carbon border adjustment mechanism is likely to have a significant effect on companies trading with the bloc, according to George Riddell, director of trade strategy at consultancy EY, who is helping UK businesses that export to the EU prepare for the measure.From October this year EU companies will have to compile reports on the carbon emissions attached to some imported goods, including steel, aluminium and fertilisers, with businesses having to buy certificates to cover emissions embedded in products from 2026.The paperwork and costs associated with the carbon tax will land on UK companies who supply components to EU businesses covered by the regulation — which affects products as prosaic as nuts and bolts. As a result, some of these UK companies will be more difficult to trade with for EU businesses. “From 2026, there will be cost pressures factored into where you choose your suppliers,” said Riddell.Staff operate machines at the Brandauer manufacturing factory in Birmingham © Charlie Bibby/FTThe British government is consulting industry over introducing a UK version of the EU carbon border tax, but without legally binding linkage between the two schemes, domestic businesses will still need to demonstrate compliance with the bloc’s rules, said William Bain, head of trade policy at the British Chambers of Commerce.“[The EU carbon border adjustment mechanism], packaging legislation, supply chain legislation are becoming an issue for UK companies on how they best order their compliance without incurring huge additional costs,” he added.British MPs were warned at a meeting in Brussels this month that they needed to track EU legislation to help UK companies respond. Nathalie Loiseau, a senior French MEP who co-chairs the UK-EU parliamentary partnership assembly, said the two sides have “started to diverge”. “There is lots of legislation going through at the EU level . . . and we need to be aware of the impact,” she said. “Businesses on both sides of the Channel are saying the same thing: we want high standards and we do not want to diverge too much.”The issue affects services companies too. Accountants MHA warned that EU tax rules for virtual services will change in January 2025, meaning British businesses providing online facilities to consumers will have to pay VAT where the customer resides rather than in the UK, as now. Sue Rathmell, partner at MHA, said: “UK businesses providing virtual [business to consumer] services to the EU, such as webinars, online conferences or advertising software, require swift input from [HM Revenue & Customs] in response to the EU’s intention to overhaul place of supply rules from January 2025.”McReynolds said one of the biggest challenges for business was the widely differing approaches of individual EU member states to implementing regulations such as the bloc’s requirement to recycle plastic packaging. Some countries, including Spain, apply rules more strictly than others, with some EU businesses now insisting that UK companies provide proof that plastic components of manufactured goods also comply with the regulations, he added.When the UK was an EU member, such rules were transposed automatically on to the British statute book and companies were presumed to have complied for the entire single market.As a non-member, that presumption of compliance has been removed. “Post-Brexit British firms have to comply with the domestic interpretation of EU directives of 27 different regulatory regimes,” said McReynolds.Both Make UK and British Chambers of Commerce say that now the UK is no longer automatically transposing EU law, the British government needs to do more to assess the impact of the bloc’s future regulations, as well as using the Trade and Cooperation Agreement between the two sides to co-ordinate better with Brussels.Boris Johnson signs the EU-UK Trade and Cooperation Agreement at 10 Downing Street in 2020 © Leon Neal/Getty ImagesThe UK Department for Business and Trade said the agreement was “opening up new opportunities” for British businesses in the EU.“We will continue to assess the impact new EU laws could have on our trade interests, as we do with other trading partners.”However, Bain said there needed to be much broader discussion about regulatory developments on both sides. “We need to get a lot better at this. Everybody has to up their game.”Make UK has called for the government to create a central register of impending EU laws and to help British companies with analysis of what they mean for business.The alternative for British companies is a repeat of the chaotic and costly learning curve that followed the implementation of the Trade and Cooperation Agreement in January 2021, barely a week after the eleventh-hour deal was struck between the UK and the EU, said Crozier.Based on past form, he was not optimistic. “We’ve been flying blind all the way through as manufacturers. We didn’t know what Brexit we were going to get until the very last minute, and I’ve no faith that it won’t be the same scenario all over again.” More

Global companies are accelerating their push to decouple China data in response to the country’s increasingly stringent data and anti-espionage laws, as relations between Washington and Beijing deteriorate. The drive for full localisation of data in China and separation of information technology systems from the rest of the world has accelerated over recent months as Beijing strengthens its control and regulation of data. US consulting firms including McKinsey, Boston Consulting Group and Oliver Wyman are splitting their IT systems, according to a half-dozen staff at the companies.“Multinationals are concerned . . . it’s named the anti-espionage law and espionage naturally gets people a bit worried,” said Alex Roberts, a data compliance expert at law firm Linklaters in Shanghai.On July 1, Beijing put into effect an expanded anti-espionage law to strengthen national security. A series of raids and sanctions on US consultancies such as Bain & Company and Mintz Group, along with semiconductor giant Micron Technology, have put more pressure on companies operating in China.Roberts said the wording in the updated anti-espionage law unveiled in April introduced the possibility of criminal sanctions and being policed by the country’s state security agency for sharing information deemed sensitive. The revised law and the raids “have businesses scrambling to understand their current compliance footing”, he said.In the past, western companies were concerned about taking electronic devices into the country over fears that China could access their data. Now they are equally concerned about sensitive data leaving China for fear of violating Beijing’s rules.An executive at a US consultancy said his company started reorganising its systems months ago, creating a costly “for China” version of nearly every digital tool. Staff were banned from taking their China-issued laptops out of the country and the company is creating Chinese servers and second email addresses ending in “.cn” for local team members.“We’ve got two IDs now basically,” said the consultant, adding that the data issue “goes to the heart of why it’s hard to do business in China”. The company has not figured out what to do about phones, he added.Four staff at Big Four accounting firms KPMG and EY said their groups had started reorganising IT systems in China around the time Beijing rolled out several data security and cyber laws in 2021. At EY, the costly second IT system has led to a fee dispute between the China arm and headquarters.

The growing push to localise data also comes as China’s internet regulator, the Cyberspace Administration of China, has started to conduct data security assessments to control the flow of outbound data. The reviews — the first of their kind — apply to any group sending abroad “important data” or the “sensitive personal information” of more than 10,000 Chinese people over a two-year period. They were supposed to be completed by the end of March, but for many companies they are still not finished.“While it’s not entirely clear if they must, companies are finding it easier and less risky to localise data within China as much as possible instead of sending data across borders. They want to avoid risks,” said Sally Xu, manager of government affairs at the British Chambers of Commerce in China. Almost 10 per cent of roughly 500 European companies surveyed this spring by the European Union Chamber of Commerce in China said they were completely decoupling their China IT systems from the rest of the world. Three-quarters said they had localised their IT systems and data storage to some degree. Compliance costs will be “unmeasurable” for financial institutions if they fully comply with China’s data laws, said the American Chamber of Commerce in China in April. Banks such as JPMorgan, which can now run its own securities arm in the country, are building separate infrastructure for China, according to two people briefed on their operations.Mutual fund managers like BlackRock and Neuberger Berman, which have approval to manage local mutual funds for domestic Chinese investors, are prohibited under sector-specific rules from sharing information on their shareholdings or research from local units to their parent organisations.Carolyn Bigg, head of DLA Piper’s Asia data privacy team, said the data localisation drive even extended to retailers’ global loyalty programmes, where some companies were moving to cut out Chinese customers.McKinsey, BCG, Oliver Wyman, KPMG, EY and BlackRock did not respond to requests for comment. JPMorgan and Neuberger Berman declined to comment.Nian Liu contributed reporting from Beijing and Cheng Leng from Hong Kong More

After a strong start to the year following the dismantling of tough COVID-19 measures, recent data have pointed to a sharp loss of economic momentum due to weak demand at home and abroad and a protracted slump in the country’s property market, traditionally a significant growth driver.The world’s second-largest economy likely managed just 0.5% growth in the second quarter compared with three months earlier, on a seasonally adjusted basis, according to economists polled by Reuters, with separate data for June expected to show industrial output, retail sales and investment continuing to cool.Some economists have blamed the “scarring effects” caused by years of strict COVID measures and regulatory curbs on the property and technology sectors – despite recent official efforts to reverse some curbs to support the economy.With uncertainty running high, cautious households and private businesses are building up their savings and paying off their debts rather than making new purchases or investments. Youth unemployment has hit record highs.Compared with a year earlier, gross domestic product (GDP) may have grown 7.3% in April-June from a year earlier, compared with growth of 4.5% in the first quarter, economist said.However, that reading will be heavily skewed by a sharp slump in activity last spring, when parts of the country were in paralysing COVID-19 lockdowns.Data on Thursday showed China’s exports fell the most in three years in June, slumping a worse-than-expected 12.4% year-on-year, as cooling global demands adds more stress on the economy.New home prices were unchanged in June, the weakest result this year, with rises slowing nationwide in continued weakness for the property sector, which accounts for one-fourth of economic activity.Producer prices fell at the fastest pace in over seven years in June and consumer prices teetered on the verge of deflation, data showed earlier in the week.Authorities are likely to roll out more stimulus steps including fiscal spending to fund big-ticket infrastructure projects, more support for consumers and private firms, and some property policy easing, policy insiders and economists said. But analysts say a quick turnaround is unlikely.China’s central bank will use policy tools such as the reserve requirement ratio (RRR) and medium-term lending facility to weather the challenges, a senior bank official said on Friday.Analysts polled by Reuters expect the central bank to cut banks’ reserve requirement ratio (RRR) by 25 basis points in the third quarter, freeing up more funds for lending, while keeping benchmark lending rates steady.The central bank cut the RRR – the amount of cash that banks must hold as reserves – in March.China also cut its benchmark lending rates by a modest 10 basis points in June, the first such reduction in 10 months.But the central bank is likely to be wary of cutting lending rates further. A reluctance to borrow among private companies and households means that continued policy easing could hurt banks that are already battling margin pressures, analysts said.Aggressive easing could also trigger more capital outflows from China’s struggling financial markets and pressure the yuan currency, which recently skidded to eight-month lows. More

Prices are high, but Americans are opening their wallets for international flights and hotels. It’s the latest evidence of consumer resilience.Forget Emily. These days, a whole flood of Americans are in Paris.People spent 2020 and 2021 either cooped up at home or traveling sparingly and mostly within the continental U.S. But after Covid travel restrictions were lifted for international trips last summer, Americans are again headed overseas.While domestic leisure travel shows signs of calming — people are still vacationing in big numbers, but prices for hotels and flights are moderating as demand proves strong but not insatiable — foreign trips are snapping back with a vengeance. Americans are boarding planes and cruise ships to flock to Europe in particular, based on early data.According to estimates from AAA, international travel bookings for 2023 were up 40 percent from 2022 through May. That is still down about 2 percent from 2019, but it’s a hefty surge at a time when some travelers are being held back by long passport processing delays amid record-high applications. Tour and cruise bookings are expected to eclipse prepandemic highs, with especially strong demand for vacations to major European cities.Paris, for example, experienced a huge jump in North American tourists last year compared with 2021, according to the city’s tourism bureau. Planned air arrivals for July and August of this year climbed by another 14.4 percent — to nearly 5 percent above the 2019 level.“This year is just completely crazy,” said Steeve Calvo, a Parisian tour guide and sommelier whose company — The Americans in Paris — has been churning out visits to Normandy and French wine regions. He attributes some of the jump to a rebound from the pandemic and some to television shows and social media.“‘Emily in Paris’: I never saw so many people in Paris with red berets,” he said, noting that the signature chapeau of the popular Netflix show’s heroine started to pop up on tourists last year. Other newcomers are eager to take coveted photos for their Instagram pages.“In Versailles, the Hall of Mirrors, I call it the Hall of Selfie,” Mr. Calvo said, referring to a famous room in the palace.Robust travel booking numbers and anecdotes from tour guides align with what companies say they are experiencing: From airlines to American Express, corporate executives are reporting a lasting demand for flights and vacations.“The constructive industry backdrop is unlike anything that any of us have ever seen,” Ed Bastian, the chief executive officer at Delta Air Lines, said during a June 27 investor day. “Travel is going gangbusters, but it’s going to continue to go gangbusters because we still have an enormous amount of demand waiting.”Transportation Security Administration data shows that the daily average number of passengers who passed through U.S. airport checkpoints in June 2023 was 2.6 million, 0.5 percent above the June 2019 level, based on an analysis by Omair Sharif at Inflation Insights.And in many foreign airports, the burst of American vacationers is palpable: Customs lines are packed with U.S. tourists, from Paris’s Charles de Gaulle to London’s Heathrow. The latter saw 8 percent more traffic from North America in June 2023 than in June 2019, based on airport data.“This year is just completely crazy,” said Steeve Calvo, a tour guide in Paris.Jessica Chou for The New York Times In a weird way, the rebound in foreign travel may be taking some pressure off U.S. inflation.International flight prices, while surging for some routes, are not a big part of the U.S. Consumer Price Index, which is dominated by domestic flight prices. In fact, airfares in the inflation measure dropped sharply in June from the previous month and are down nearly 19 percent from a year ago.That is partly because fuel is cheaper and partly because airlines are getting more planes into the sky. Many pilots and air traffic controllers had been laid off or had retired, so companies struggled to keep up when demand started to recover after the initial pandemic slump, pushing prices sharply higher in 2022.“We just didn’t have enough seats to go around last year,” Mr. Sharif said, explaining that while personnel issues persist, so far this year the supply situation has been better. “Planes are still totally packed, but there are more planes.”And as people flock abroad, it is sapping some demand from hotels and tourist attractions in the United States. International tourists have yet to return to the United States in full force, so they are not entirely offsetting the wave of Americans headed overseas.Domestic travel is hardly in a free fall — July 4 weekend travel probably set new records, per AAA — but tourists are no longer so insatiable that hotels can keep raising room rates indefinitely. Prices for lodging away from home in the U.S. climbed by 4.5 percent in the year through June, which is far slower than the 25 percent annual increases hotel rooms were posting last spring. There is even elbow room at Disney World.Even if it isn’t inflationary, the jump in foreign travel does highlight something about the U.S. economy: It’s hard to keep U.S. consumers down, especially affluent ones.The Fed has been raising interest rates to cool growth since early 2022. Officials have made it more expensive to borrow money in hopes of creating a ripple effect that would cut into demand and force companies to stop lifting prices so much.Consumption has slowed amid that onslaught, but it hasn’t tanked. Fed officials have taken note, remarking at their last meeting that consumption had been “stronger than expected,” minutes showed.The resilience comes as many households remain in solid financial shape. People who travel internationally skew wealthier, and many are benefiting from a rising stock market and still-high home prices that are beginning to prove surprisingly immune to interest rate moves.Those who do not have big stock or real estate holdings are experiencing a strong job market, and some are still holding onto extra savings built up during the pandemic. And it is not just vacation destinations feeling the momentum: Consumers are still spending on a range of other services.“There’s this last blowoff of spending,” said Kathy Bostjancic, chief economist for the insurance company Nationwide Mutual.It could be that consumer resilience will help the U.S. economy avoid a recession as the Fed fights inflation. As has been the case at American hotels, demand that stabilizes without plummeting could allow for a slow and steady moderation of price increases.But if consumers remain so ravenous that companies find they can still charge more, it could prolong inflation. That’s why the Fed is keeping a close eye on spending.Ms. Bostjancic thinks consumers will pull back starting this fall. They are drawing down their savings, the labor market is cooling, and it may simply take time for the Fed’s rate increases to have their full effect. But when it comes to many types of travel, there is no end in sight yet.“Despite economic headwinds, we’re seeing very strong demand for summer leisure travel,” said Mike Daher, who leads the U.S. Transportation, Hospitality & Services practice at the consulting firm Deloitte.Mr. Daher attributes that to three driving forces. People missed trips. Social media is luring many to new places. And the advent of remote work is allowing professionals — “what we call the laptop luggers,” per Mr. Daher — to stretch out vacations by working a few days from the beach or the mountains. Mr. Calvo, the tour guide, is riding the wave, taking Americans on tours that showcase Paris’s shared history with France and driving them in minivan tours to Champagne. “I have no clue if it’s going to last,” he said. More

BEIJING (Reuters) -China’s new home prices were unchanged in June, the weakest result this year, data showed on Saturday, increasing pressure on policymakers for more stimulus as economic recovery falters.The flat result from a month earlier, with rises slowing nationwide, was below May’s 0.1% gain, according to Reuters calculations based on National Bureau of Statistics (NBS) data. Prices were also unchanged from a year earlier, retreating from a 0.1% increase in May.The property sector, accounting for one-fourth of activity in the world’s second-biggest economy, slumped sharply last year as developers defaulted on debts and suspended construction of presold housing projects.The central and local governments and regulators have announced a slew of policies over the past year to prop up the sector.Measures have ranged from extended financial support for developers to multi-pronged incentives for home buyers. But the uncertain economic outlook and persistent weakness in the sector have dented confidence and home demand, dampening hopes for any quick revival.Weakness in home prices and falling exports are adding to pressure on policymakers to take do more to prop up the real estate and revive sluggish demand.Markets widely expect more stimulus around a meeting of the ruling Communist Party’s Politburo late this month, setting the tone for economic policies in the second half of the year.”The property market is in dire need of strong policies to boost confidence as small-scale policies can no longer rescue the dwindling sentiment,” said analyst Chen Xiao at property data provider Zhuge House Hunter.Policies such as boosting employment and incomes must strengthened to support home buying, Chen said.Thirty-one of the 70 cities monitored by NBS recorded month-on-month rises in new home prices, down from 46 in May. Prices were flat after rising in May in tier-one cities including Beijing and tier-two cities. They fell 0.1% in tier-three cities.There is room for “marginal optimisation” of property polices considering profound changes in supply and demand in the real estate market, Zou Lan, a senior official at the People’s Bank of China (PBOC), said on Friday.”PBOC officials hinted at further property policy easing in the press conference on Friday, and we expect the July Politburo meeting to emphasise the need to stabilise the property market,” Goldman Sachs (NYSE:GS) economists wrote in a research note. The central bank on Monday extended until the end of 2024 some policies in a November rescue package for the cash-strapped sector. But the uncertain economic outlook and weakness in the sector have dented confidence, dampening hopes of any quick revival.A quarterly PBOC survey showed 16.5% of households believe housing prices will fall in the third quarter, down from the previous quarter, when 14.4% of households expected a decline. More

“There’s been progress made over the years and we want to advance that progress further,” Chalmers told ABC television, referring to the meeting Monday and Tuesday of G20 finance ministers and central bankers.More than 140 countries were supposed to start implementing next year a 2021 deal overhauling decades-old rules on how governments tax multinational corporations. The rules are widely considered outdated as digital giants like Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN) can book profits in low-tax countries. But several countries have concerns about a multilateral treaty underpinning a major element of the plan, and some analysts say the overhaul is at risk of collapse.”This is a really important opportunity to make sure that we get the multinational tax arrangements right so that companies pay the tax where they make their profits,” said Chalmers, who will attend with outgoing Reserve Bank of Australia Governor Philip Lowe. “Countries like ours stand to be beneficiaries and that’s why we want to be part of it.”The first part of the two-pillar deal aims to reallocate taxing rights on about $200 billion in profits from the biggest and most profitable multinationals to the countries where their sales occur.The second pillar calls on governments to end competition on tax rates between governments to attract investment, by setting a global minimum corporate tax rate of 15% from next year. More