Economy

MEXICO CITY (Reuters) – The U.S. wants Mexico’s government to build strong institutions to protect worker rights as companies aiming to avoid supply chain disruptions in far-off production spots bring more jobs to the country, a top U.S. labor official told Reuters.Mexico has begun to benefit from “nearshoring” in which companies seek to move production closer to the U.S. market while maintaining competitive costs.The trend is further testing a trade deal known as the U.S.-Mexico-Canada Agreement (USMCA), in effect since July 2020. The pact has tougher labor rules than its 1994 predecessor and underpins new Mexican laws that empower workers to push for better wages and conditions after years of stagnant salaries and pro-business union contracts.Three years into the deal, experts say, some workers have begun to benefit but broad impacts are still far off. “Hopefully that will ensure that Mexico doesn’t become a dumping ground for companies looking for cheap labor and lax regulations,” said Thea Lee, U.S. Deputy Undersecretary for International Labor Affairs who polices USMCA compliance.She said in an interview that Mexico was working to fulfill its commitments, backed by leadership keen on helping workers.Mexico’s new regulations favor companies taking on higher ethical standards, she said.”Maybe 20 years ago it was okay for a multinational corporation to throw up their hands and say, ‘we have no idea what’s in our supply chain, what the labor conditions are,'” she added.”That doesn’t seem to be acceptable anymore.”Mexico has made progress improving labor courts, resolving worker complaints faster and easing union organization, but needs to do more, Lee said.”Our hope is that Mexico will be well-poised to take advantage of nearshoring … if they continue on the path towards really building labor institutions that work, where workers can have confidence.”Since 2020, several U.S. labor complaints in Mexico have paved the way for independent unions to land pay raises and even expand. Lee said such examples inspire workers who in the past may have feared threats or dismissals for trying to organize. Four more cases are under review: At a garment factory, an auto parts plant, a Goodyear tire plant, and a mine owned by conglomerate Grupo Mexico.Yet one employer that faced two USMCA complaints, U.S.-based VU Manufacturing that makes interior car parts in the northern city of Piedras Negras, recently dismissed dozens of employees just months after a new union, La Liga, pressed for better wages. VU did not respond to a request for comment.Lee said the company risks penalties if it does not uphold an agreement around worker rights. But La Liga members have already been laid off, and fear the company aims to discourage organizing, said union leader Cristina Ramirez, who lost her job.”It’s very disappointing and frustrating,” Ramirez said. “We wanted to fight for things to improve.” More

Wildfires are hurting many industries and could strain households across Canada, one of many countries reckoning with the impact of extreme weather.Canada’s wildfires have burned 20 million acres, blanketed Canadian and U.S. cities with smoke and raised health concerns on both sides of the border, with no end in sight. The toll on the Canadian economy is only beginning to sink in.The fires have upended oil and gas operations, reduced available timber harvests, dampened the tourism industry and imposed uncounted costs on the national health system.Those losses are emblematic of the pressure being felt more widely as countries around the world experience disaster after disaster caused by extreme weather, and they will only increase as the climate warms.What long seemed a faraway concern has snapped into sharp relief in recent years, as billowing smoke has suffused vast areas of North America, floods have washed away neighborhoods, and heat waves have strained power grids. That incurs billions of dollars in costs, and also has longer-reverberating consequences, such as insurers withdrawing from markets prone to hurricanes and fires.In some early studies of the economic impact of rising temperatures, Canada appeared to be better positioned than countries closer to the Equator; warming could allow for longer farming seasons and make more places attractive to live in as winters grow less harsh. But it is becoming clear that increasing volatility — ice storms followed by fires followed by intense rains and now hurricanes on the Atlantic Coast, uncommon so far north — wipes out any potential gains.“It’s come on faster than we thought, even informed people,” said Dave Sawyer, principal economist at the Canadian Climate Institute. “You couldn’t model this out if you tried. We’ve always been concerned about this escalation of damages, but seeing it happen is so stark.”Nonetheless, Mr. Sawyer and his colleagues did try to model it out. In a report last year, they calculated that climate-related costs would mount to 25 billion Canadian dollars in 2025, cutting economic growth in half. By midcentury, they forecast a loss of 500,000 jobs, mostly from excessive heat that lowers labor productivity and causes premature death. Then there are the increased costs to households, and higher taxes required to support government spending to repair the damage — especially in the north, where thawing permafrost is cracking roads and buildings.The recent fires have forced some lumber mills to idle. It’s not clear how widespread the damage will be to forest stocks.Jen Osborne for The New York TimesIt is too early to know the cost for the current fires, and several months of fire season remain. But the consulting firm Oxford Economics has forecast that it could knock between 0.3 and 0.6 percentage points off Canada’s economic growth in the third quarter — a big hit, especially since hiring in the country has already slowed and households have more debt and less savings than their neighbors to the south.“We already think we’re teetering into a downturn, and this would just make things worse,” said Tony Stillo, director of economics for Canada at Oxford. “If we were to see these fires really disrupt transportation corridors, disrupting power supply to large population centers, then you’re talking about even worse consequences.”Estimates of the overall economic drag are built on damage to particular industries, which vary with each disaster.The recent fires have left some lumber mills idle, for example, as workers have been evacuated. It’s not clear how widespread the damage will be to forest stocks, but provincial governments tend to reduce the amount of timber they allow to be harvested after large blazes, according to Derek Nighbor, chief executive of the Forest Products Association of Canada. Infestations of pine beetles, which have flared up as milder winter temperatures fail to kill off the pests, have curtailed logging in British Columbia.Although lumber prices have been depressed in recent months as higher interest rates have weighed on home construction, Canada is confronting a housing shortage as it works to bring in millions of new immigrants. Reduced availability of wood will make its housing problem more difficult to solve. “It’s safe to say there’s going to be a supply crunch in Canada as we work through this,” Mr. Nighbor said.The tourism industry is also being hit, as the fires erupted just as operators were going into the crucial summer season — sometimes far from the fires. Business plunged in the peninsula town of Tofino, a popular destination for whale watching off Vancouver Island, when its only highway access was cut off by a fire two hours away. The road has since reopened, but only one lane at a time, and drivers need to wait up to an hour to get through.Sabrina Donovan is the general manager of the Pacific Sands Beach Resort and the chair of Tofino’s local tourism promotion organization. She said that her hotel’s occupancy sank to about 20 percent from 85 percent in the course of June, and that few bookings were coming through for the rest of the year. Employers commonly house their staff during the summer, but after weeks without customers, many workers left for jobs elsewhere, making it difficult to maintain full service in the coming months.“This most recent fire has been pretty devastating for the majority of the community,” Ms. Donovan said, noting that the coast had never in her career had to deal with wildfires. “This is something we now have to be thinking about in the future.”The wildfires could depress spending when households are already strained.Jen Osborne for The New York TimesRegardless of the severity of any particular episode, the costs mount as disasters get closer to critical infrastructure and population centers. That is why the two most expensive years in recent history were 2013, when major flooding hit Calgary, and 2016, when the Fort McMurray fire wiped out 2,400 homes and businesses and hamstrung oil and gas production, the area’s main economic driver.This year, most of the burning has been in rural areas. While some oil drilling has been disrupted, the damage overall to the oil industry has been minor. The greater long-term threat to the industry is falling demand for fossil fuels, which could displace 312,000 to 450,000 workers in the next three decades, according to an analysis by TD Bank.But there is still a long, hot summer ahead. And the insurance industry is on alert, having watched the increasing damage in recent years with alarm. Before 2009, insured losses in Canada averaged around 450 million Canadian dollars a year, and now they routinely exceed $2 billion. Large reinsurers pulled back from the Canadian market after several crippling payouts, increasing prices for homeowners and businesses. That is not even counting the life insurance costs likely to be incurred by excessive heat and smoke-related respiratory ailments.Craig Stewart, vice president of federal affairs for the Insurance Bureau of Canada, said climate issues had become a primary concern for the organization over the past decade.The mounting cost of catastrophic events in CanadaPayouts including adjustment expenses by property and casualty insurers for disasters that total more than $30 million, in 2021 Canadian dollars.

Source: Insurance Bureau of CanadaBy The New York Times“Back in 2015, we sent our C.E.O. across the country to talk about the need to prepare for a different climate future,” Mr. Stewart said. “At the time, we had the Calgary floods two years before in the rear view mirror. We thought, ‘Oh, we’ll get another event in two to three years.’ We never could’ve imagined that we’re now seeing two or three catastrophic events in the country per year.”That’s why the industry pushed hard for the Canadian government to come up with a comprehensive adaptation strategy, which was released in late June. It recommends measures like investing in urban forests to reduce the health effects of heat waves and developing better flood maps that help people avoid building in vulnerable areas. Fire and forestry experts have called for the forest service, decimated by years of austerity, to be restored, and prescribed burns to be scaled up — all of which costs a lot of money.Mike Savage, the mayor of Halifax, doesn’t have to be convinced that the spending is necessary. His city was the largest to sustain fire losses this spring, with 151 homes burned. That calamity came on the heels of Hurricane Fiona last year, which submerged much of the coastline. Mr. Savage worries about the fate of the isthmus that connects Nova Scotia to New Brunswick, and the power systems that now peak in the hot summer instead of the frigid winter.“I certainly believe that when you invest in mitigation there’s a dramatic positive impact from those investments,” Mr. Savage said. “It’s going to be a challenging time. To think we got through this fire and say, ‘OK, that’s good, we’re done,’ that would be a little bit naïve.” More

Today’s top storiesSaudi Arabia and Russia, the two most powerful members of the Opec+ cartel, announced new cuts to oil production in a renewed effort to boost the price of crude.Currency speculators have boosted bullish bets on the pound to the highest level for nine years despite signs that sterling’s recent rally is flagging. Markets now think the Bank of England will have to raise interest rates further just as other big central banks are nearing the end of their tightening cycles, pushing the interest rate-sensitive two-year UK government bond yield to a 15-year high.UK drivers are paying more for fuel because of weakening competition between petrol station owners, the country’s competition watchdog warned. The CMA also called for a government-backed scheme to give motorists access to real-time pump prices for ease of comparison.For up-to-the-minute news updates, visit our live blogGood evening.The second visit of a high-ranking US official to Beijing in just a fortnight and a Chinese charm offensive on US business highlight increasing efforts between the two countries to fix a relationship in its worst state since the establishment of diplomatic ties in 1979.The US Treasury department confirmed yesterday that Janet Yellen would visit the Chinese capital later this week. Her visit follows the delayed trip by secretary of state Antony Blinken last month and aims to improve US-Sino relations, which have been damaged by rising trade and military tensions this year. Yellen’s visit aimed to “deepen and increase the frequency of communication between our countries moving forward and to stabilise the relationship to avoid miscommunication and expand collaboration where we can”, said a Treasury official.The US rhetoric of “decoupling” may have been replaced by “de-risking” but this too was criticised by China last week as a “politicisation of economic issues”. The situation had not been helped by US president Joe Biden referring to his Chinese counterpart Xi Jinping as a “dictator”.Beijing, meanwhile, has passed a new foreign relations law that deepens Xi’s control, making it easier to enact “countermeasures” against western threats to national and economic security, following earlier crackdowns on foreign consultancies.At the same time, China has been making overtures to US business leaders, including Tesla’s Elon Musk and Apple’s Tim Cook, as its economic recovery falters. At the weekend, it appointed a western-trained risk firefighter to lead the People’s Bank of China, a move expected to provide some certainty to markets. It is also determined to ramp up its exports, led by a huge assault on Europe’s car market, as it utilises a quarter-of-a-century’s expertise in electric vehicles. China dominates the production of almost every resource, material and component used to make them.Many global businesses nevertheless are looking to pivot from China and de-risk their supply chains. Countries such as Vietnam are beginning to emerge as part of a “China plus one” strategy, where production is being supplemented with expansion in other nearby countries. World Trade Organization director-general Ngozi Okonjo-Iweala said last week there was evidence that investment was shifting.China is also facing increased hostility from other countries following the lead of the US and Japan in imposing tough curbs on tech exports. The latest example comes from the Dutch government, which has placed restrictions on ASML chipmaking machines to prevent them being used for “advanced military applications”. China, in turn, hit back today with restrictions on exports of two key metals used in chipmaking and communications equipment. But with a meeting between Xi and Biden on the cards for later this year, the delicate dance between their two countries looks set to continue, as Washington’s security concerns vie with Beijing’s attempt to show that the country is open for business. Need to know: UK and European economyThe UK is to take action over banks blacklisting customers who hold controversial views after leading Brexiter Nigel Farage claimed his account had been shut down without explanation. Upbeat trading updates from UK clothing chains have confounded policymakers who have been trying to tame inflation by lifting interest rates. Summer clothes, shorter breaks and occasional treats are in but household appliances are out. FT writers analyse where embattled consumers are spending their money.Ukraine’s finance minister Serhiy Marchenko in a Financial Times interview urged the US and other powers to follow the EU’s four-year €50bn aid pledge to fund his country’s recovery and reform plans. The FT revealed that the EU was considering allowing a sanctioned Russian bank to reconnect to the global financial network to safeguard the Black Sea grain deal.Sanctions have left Belarus ever more reliant on Russia’s economy. Our Big Read examines President Alexander Lukashenko’s claim that he can be loyal to Moscow while staying independent.Need to know: global economyPimco, the world’s largest active bond fund manager, said markets are too optimistic about central banks’ ability to dodge a recession as they battle inflation in the US and Europe and should prepare for a “harder landing”.This October, after a three-year break, 27mn Americans with student debt will once again have payments due, the effects of which are likely to ripple through the US economy.There are several ways of measuring a country’s success other than gross domestic product. Life expectancy is the simplest and most directly comparable, argues columnist Sarah O’Connor.

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Need to know: businessApple has been hit by manufacturing problems involving its Vision Pro headsets, which were unveiled just last month after seven years in development.Blue Origin, the rocket company owned by Amazon founder Jeff Bezos, is on the hunt for a site where it can build an international launch facility as it looks to compete with Elon Musk’s SpaceX. The crisis at Thames Water could deter foreign investment in the UK, ministers and industry figures warned, as the company tries to raise at least £1bn to shore up its finances. Columnist Helen Thomas says the financial problems of water companies are largely to do with private equity rather than private ownership. Japan hopes a $6.4bn government-backed deal will strengthen its arsenal in the global chip wars. JSR, the Tokyo-based company that controls a critical link in the global semiconductor supply chain, last week accepted an unexpected buyout offer from JIC — a fund overseen by Japan’s powerful Ministry of Economy, Trade and Industry.Netflix is revamping its advertising strategy as it seeks to boost revenues, including the introduction of “episodic” ad campaigns, which would avoid the common complaint from customers that they are shown the same ad multiple times.The world of workThe shift to remote working has brought many changes to office life, including limiting the face-to-face experience of summer internships and frustrating those hoping that a placement at a big bank, law firm or accountancy group will lead to a lucrative City career.Voiceover and performance artists are facing a threat to their livelihoods as generative AI developments make voice cloning more accurate, leading to an erosion of their work and rights, and leaving them in effect competing with themselves.Categorising people into age-related groups such as “snowflake millennial narcissists” and “greedy boomer technophobes” can feed real generational hostility in the workplace, argues columnist Pilita Clark.Some good newsNew images from the James Webb Space Telescope capture much more detail of Saturn’s shining rings as well as three of its moons, Dione, Tethys and Enceladus.A new image of Saturn and three of its moons, captured by the James Webb Space Telescope © AP More

China has hit back at US-led semiconductor restrictions by seeking to throttle exports of two metals used in chipmaking and communications equipment as the geopolitical tit-for-tat between the two superpowers steps up. Gallium and germanium will be subject to export restrictions in order to “safeguard national security and interests”, China’s Ministry of Commerce and Administration of Customs said on Monday. Exporters will have to apply to the ministry for permits from the beginning of August, it said. Both materials can form alternatives to traditional silicon wafers in specialised applications, as well as for components used in military and communications equipment. The Chinese measures come days after the Netherlands announced its plans to apply the latest set of controls that will limit the sale of high-end chipmaking equipment abroad, in a move that is expected to prevent dozens of ASML’s immersion lithography machines from reaching Chinese companies. The Dutch controls, which are nominally “country neutral”, are due to be enforced from September 1 and follow similar restrictions on semiconductor manufacturing equipment from the US and Japan. The Netherlands’ announcement comes on the heels of Washington’s block on the most advanced US chips needed for artificial intelligence from being sold to China. The US is weighing further limits on exports of AI chips made by Nvidia and AMD, people familiar with the matter said last week. Beijing’s most pointed response to date to these attacks on its tech sector had been its move in May to ban the use of US memory chipmaker Micron’s products in “critical national infrastructure”, citing security risks that the US commerce department has argued have “no basis in fact”. China is the world’s leading producer of gallium and germanium, according to the US Geological Survey, so any reduction in its output to the rest of the world is likely to slow production or increase prices for manufacturers and their clients in the tech, telecoms, energy and automotive sectors. Gallium is used in compound semiconductors, offering faster operation with lower power consumption or greater heat resistance, although it is harder for manufacturers to work with than silicon. Gallium nitride is already widely used in the chips that power 5G network base stations, as well as by the military in radar systems and, increasingly, in electric vehicle chargers. Gallium arsenide is used in some components for wireless communications and lasers. Germanium, which was used to make the first transistors in the mid-20th century, is sometimes added in small quantities to silicon to facilitate more advanced chip structures. It is widely used in fibre-optic cables, solar panels and LEDs, as well as in thermal imaging cameras by the military. Some Chinese companies are worried that the export controls may backfire. “It may affect the business of Chinese manufacturers instead during the economic downturn, but with a limited impact on the international market in the short term,” said an executive from a Chinese semiconductor material company. More

The Financial Times is planning the sixth edition of the FT High-Growth Companies Asia-Pacific ranking, to be published in March 2024 — and this is your chance to seek inclusion. Our ranking, compiled with data partner Statista, will aim to identify those Asia-Pacific businesses with the strongest revenue growth between 2019 and 2022 — the period in which the Covid-19 pandemic disrupted the global economy. So we are looking for companies in the region that found ways to harness technology or adapt their business models to keep expanding. To determine whether your company should be included in this high-profile list, we invite you to submit your revenue figures for 2019 through to 2022, along with some additional information — including your company’s headcount at the end of each of those years (see eligibility criteria below). Additional checks will be made if your company is not a legal entity or has an unusual structure. Potential candidates will be contacted by Statista or can put their names forward for consideration via this registration form. Please register and provide the necessary data by 31 October 2023.We will publish the final ranking in a special report in a weekday edition of the FT newspaper and on FT.com. The 2023 report, including an interactive version of the ranking, can be found here.Why should my company participate? NEW BUSINESS OPPORTUNITIES Inclusion in the list is a visible and public acknowledgment of your company’s performance that extends far beyond your specific industry and country. It will also generate attention for your business on the part of potential partners, customers, and investors around the world. EMPLOYER BRANDING Corporate growth usually generates demand for new employees. Being featured in the high-profile ranking will not only increase awareness of you as an employer, it also gives potential employees an understanding of your company’s future potential. EFFECTIVE MEDIA COVERAGE The ranking will be covered in a special report, a section within the weekday edition of the FT newspaper and on FT.com. While the full ranking will be published online, FT reporters will focus on particularly interesting companies, sectors and trends in the articles of the report that will appear in both print and on FT.com. REPUTATION Winners will also have the opportunity to license a special logo that states they are one of APAC’s High Growth Companies¹. Who is eligible? In order to be included in the ranking your company must meet the following criteria: Headquartered in one of the following 14 Asia-Pacific locations: Australia, Hong Kong, India, Indonesia, Japan, Macau, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand or VietnamRevenues of at least $100,000 in 2019²; Revenues of at least $1mn in 2022²; Independent, ie not be a subsidiary;Revenue growth between 2019 and 2022 that was primarily organic, not primarily via acquisitions; A share price that has not experienced irregularities or fallen 50 per cent or more in the past 12 months (if the company is listed on a stock exchange)³. Please note: additional checks will be made if your company is not a legal entity or has an unusual structure.How do I register? Please register with Statista by October 31 by filling out this online registration form, as mentioned above. After you have registered, your company’s revenue will need to be verified on a separate form signed in person by a managing director or a member of your executive committee (CEO or CFO). More

LONDON (Reuters) – British billionaire Richard Branson severely damaged Virgin Group’s reputation by residing in a tax haven while UK-based airline Virgin Atlantic sought a government bailout during the pandemic, according to internal Virgin emails cited in a $250 million London lawsuit on Monday.The emails were cited by lawyers for U.S. train operator Brightline, which is being sued by the Virgin Group after cancelling a deal to use the Virgin brand in 2020, just over 18 months after it was signed.Under the deal Brightline operated a rail line in Florida using the name Virgin Trains USA.Brightline says it cancelled the deal because the Virgin brand had been hit by negative press coverage of Branson’s 2020 claim that Virgin Atlantic would need a bailout from the British government to survive the pandemic.Brightline’s lawyers cited internal Virgin Group emails describing group founder Branson being based in the British Virgin Islands for tax purposes as “a reputation killer”, while one email from an external public relations adviser said: “Richard needs to show he’s not a ruthless, tax-evading billionaire.”In an April 2020 email, Virgin Group CEO Josh Bayliss referred to Branson’s tax residency in relation to the request for a bailout, saying: “Richard cannot escape the criticism. The truth is he has paid as little tax as possible”.Virgin argues its brand was not materially damaged by the group’s handling of COVID-19, meaning Brightline was not entitled to cancel the licensing deal without paying an exit fee of up to $200 million. The company is also seeking unpaid royalties.Virgin’s lawyer Daniel Toledano said in court filings that the brand suffered some negative press in Britain in 2020 following Virgin Atlantic’s request for government support, but its reputation quickly recovered and was unaffected in the United States.Brightline’s lawyer Nigel Tozzi, however, said the deal had entitled his client to a brand with a high international reputation, like Coca-Cola (NYSE:KO) or leading European soccer teams Real Madrid and Barcelona.”It is the Beatles, not the Bay City Rollers,” he said in court filings. More

Services such as tourism and telecommunications generate more than two-thirds of global GDP but barriers for services trade are higher than for goods, the joint report by the two institutions entitled ‘Trade in Services for Development’ said.The WTO has a mandate to liberalise services but its member states have not collectively improved market access since 1997 when deals were struck on telecommunications, it said. “There is a need to reignite international cooperation in the services sector,” said World Bank President Ajay Banga and WTO Director-General Ngozi Okonjo-Iweala in the report’s foreword.”Such efforts need to expand trade and investment, reduce trade costs, bring about greater transparency and predictability on trade policy regimes and, ultimately, increase the participation of developing economies…,” it said.The report did not give prescriptive solutions, saying its aim was to “recall the benefits of advancing the negotiating agenda on trade in services and the opportunity costs of doing nothing”. The two bodies stand ready to help governments, it said. Banga began as World Bank president last month and asked staff to double down on development and climate efforts to accelerate the bank’s evolution to tackle global problems. More

The writer is an FT contributing editorThe successive shocks we’ve experienced over the past three years have had a lasting impact on the global economy. But according to John Williams, president of the New York Federal Reserve, and his co-authors Kathryn Holston and the late Thomas Laubach, the economy may not have transformed as much as we think. They find no evidence suggesting that the pandemic and Russia’s war in Ukraine have ended the era of low inflation and interest rates in the US, Canada and eurozone over the medium term. But I would pause before breathing a sigh of relief.For over 20 years, Williams and company have been estimating the long-run neutral (or natural) rate — known to economists as r-star. This is the interest rate at which the economy is humming along at its potential, with full employment and inflation at 2 per cent. R-star is a guiding light for central banks. Interest rates above it mean the monetary policy stance is restrictive, and below it, accommodative.Estimates of r-star show the long-run neutral rate broadly falling for the US and other advanced economies from the mid-1980s up until the pandemic. Given how volatile the data was during Covid-19, Williams et al suspended their estimates until May. When they re-ran their new, improved models, they determined r-star had barely budged despite everything. The implication for central banks is massive. If r-star is as low as it was pre-pandemic, then we can expect inflation and rates to fall again once the dust has settled on all the successive shocks. Episodes of monetary policy where rates remain mired at the lower levels could become more frequent.Williams is not alone in his projection. In its latest World Economic Outlook, the IMF also concludes that advanced economy interest rates will revert to pre-pandemic levels, as does Bank of Finland Governor Olli Rehn. It’s also reflected in the Federal Reserve’s median long-run fed funds rate projection, which was once again 2.5 per cent in June: 2 per cent inflation and a 0.5 per cent long-run neutral rate.However, the problem with using r-star as a guiding light is that it is a concept, not something that can be observed. As Williams warned in his speech last month, “Estimates of the natural rate of interest, however, are very imprecise and subject to real-time measurement error.”Furthermore, this tightening cycle hasn’t had the predicted impact on real economies. One possible explanation is that unusual things are happening because of pandemic-related scarring. The US labour market, for example, has remained strong in the face of aggressive rate hikes partly because of significant labour hoarding as companies recall the nightmare of recent recruitment. But another explanation is that r-star has in fact risen and the monetary policy stance isn’t as tight as central bankers think.It is too early to know which explanation is right. But even if r-star hasn’t already risen, that doesn’t mean it won’t. A number of factors could influence it. According to the Laubach-Williams model, slowing potential GDP growth has been a significant driver of a lower long-run neutral rate over the past few decades. R-star also reflects the balance between saving and investment in an economy over the medium- to long-term, with a savings glut weighing on the long-run neutral rate.There are reasons to expect waning productivity growth and the global savings glut could change in the medium- to long-term. In many parts of the developed world, people are no longer saving for retirement but are in it, and spending more than they are earning. This is particularly true following the pandemic, given many workers over 50 seem to have chosen to permanently leave the labour force. Elsewhere, investment in green infrastructure and subsidies may not only pare global savings but could generate a wave of innovation that boosts productivity. Investment in defence should also have tech spillovers. Meanwhile artificial Intelligence and machine learning developments are likely to progress exponentially, and their impact on productivity and growth may come sooner than expected. All of this could boost potential growth and send r-star higher.Given that r-star is driven by long-term, secular factors, it is possible that the models are right and the long-run neutral rate has barely moved over the course of just a couple of years. But it would be a mistake for central bankers to take comfort in the notion that inflation and rates will automatically go back to the low levels we saw before the pandemic. This is their challenge for the future. More