Economy

When the former US president Donald Trump was found liable of the sexual abuse of journalist E Jean Carroll last month, some observers might have hoped this would make him less appealing to American voters. Not so. If you look at a Quinnipiac poll released in late May, Trump now has the backing of 56 per cent of Republicans for the 2024 race, over twice that of his nearest rival, Florida governor Ron DeSantis. Admittedly, some 56 per cent of the voters surveyed say they disapprove of Trump, but a similar proportion also disapprove of President Joe Biden. A Pew survey also suggests that 56 per cent of Americans currently think that the US cannot solve its own problems, up from 41 per cent last June. To top it off, the survey finds that “roughly three-quarters of the public say they have little or no confidence in the wisdom of the American people in making political decisions, up from 62 per cent in 2021”.What explains this level of dysfunction? We’re often told that US politics is in the grip of dark forces fed by political manipulation and Big Tech as misinformation undermines democracy. That may be partly true. However, for another view it is worth pondering some of the ideas advanced by Peter Turchin, a biologist and complexity scientist who employs Big Data to study ecosystems. Applying those methods to analyse the rise and fall of complex societies is an approach he’s dubbed “cliodynamics”. Clio was the Greek muse of history.Turchin uses reams of economic and sociological information from history to explore the cycles of political economies over thousands of years around the world. This led him to the conclusion that there is a fundamental pattern: an elite grabs power, then over time tries to protect that by grabbing more and more resources. That inevitably ends up leaving poor people even poorer (“popular immiseration”) and spawning an “over-production of the elite” — too many elites chasing too few roles — which, in turn, leads to extreme frustration, anxiety and in-fighting.The result is usually a social explosion and political disintegration, with Turchin’s models suggesting that such structural shifts typically occur about every 100 years in complex societies. Even before Trump’s election in 2016, he predicted that the US and western Europe were destined for a “turbulent Twenties”.Turchin’s ideas are controversial. Twenty years ago his theory of empires, outlined in the book Historical Dynamics, provoked pushback from historians. “Sophisticated mathematics will not improve naive social theories,” argued one critic. But with Trump trying to stage a return, Turchin is back too. His new book, The End Times: Elites, Counter-Elites and the Path of Political Disintegration, argues that the dynamics he predicted previously are only intensifying. Decades of falling real wages have had an impact, he says, as shown by the declining life expectancy data of poor Americans. Meanwhile, elite overproduction is surging, as the number of graduates explodes and competition for jobs gets ever more intense, fuelling insecurity and resentment at the 1 per cent, even among the top tier.Indeed, when Turchin runs a cliodynamic model based on the past 60 years of economic and sociological US trends, his results suggest — even without factoring in other details about Trump and Biden — that “by 2020 both immiseration and elite overproduction . . . reach very high levels [in America]. The radicalisation curve starts to grow after 2010 and literally explodes during the 2020s. So does political violence.” In this world, events such as the January 6 insurrection could just be foreshocks.In plain English, this suggests that a figure such as Trump is a symptom, rather than the cause of the US’s turmoil. The only way to shift this trajectory, based on the data, is to replay the New Deal policies of the 1930s and the immediate postwar years in the US, using redistribution to reduce inequality. In the 1950s, for example, the top rates of federal income tax in the US jumped to 90 per cent, compared with 7 per cent in 1913 or 37 per cent today. Such calls would horrify many American elites, so much so that they might reject these forecasts out of hand or point out that relying on mechanistic models is dangerous. But Turchin is not the only contemporary Cassandra; even hedge-fund billionaire Ray Dalio, another believer in cyclical shifts, is warning that rising inequality could create social explosions.So it would be foolish for US leaders to ignore Turchin. If nothing else, the concept of elite overproduction is a good way to explain why elite US education is now so costly, competitive and damaging for would-be elite kids and adults alike.Follow Gillian on Twitter @gilliantett and email her at [email protected] @FTMag on Twitter to find out about our latest stories first More

BUENOS AIRES (Reuters) – Brazil’s economy likely surged back to growth in the first quarter of the year, powered by record-breaking crops and solid crude oil output that more than offset the drag of subdued manufacturing activity, a Reuters poll of economists showed.Strong exports by commodities-producing sectors were seen adding to resilient private consumption in lifting gross domestic product (GDP), despite the negative effects of high interest rates and a worrying rise in government debt.GDP is forecast to increase 1.3% in January-March over the fourth quarter, after a 0.2% contraction in the last three months of 2022, according to the median estimate of 18 forecasts taken between May 24 and 30. The data is due on Thursday. “Economic activity indicators have been surprising to the upside throughout 1Q23. The agriculture sector has been performing very well and Brazil is set to have a record high harvest of grain this year,” HSBC analysts wrote in a report.The country logged big trade surpluses at the start of 2023, derived from extraordinary yields in its harvest of soybeans and corn. This coincided with a boom in oil exports as drilling operations multiply.Meanwhile, consumer spending has remained firm thanks to a pause in inflationary trends this year that is giving Brazilian households a boost and driving higher than expected retail sales.President Luiz Inacio Lula da Silva’s initiative to reinforce welfare programmes is also expected to be reflected in last quarter’s figures, with rising public expenditure pushing primary deficits above estimates.But industrial production in general stayed relatively muted in the first three months, struggling to gather steam in the face of the central bank’s reluctance to cut its benchmark rate that, at a steep 13.75%, is choking credit.Such high financial costs, besides Lula’s increased social spending, is causing Brazil’s debt trajectory to worsen further. This has prompted the government and its allies to press on with the approval of new fiscal rules in Congress.Improving sentiment is leading to upgrades in growth estimates for this year and 2024. Last week, JPMorgan (NYSE:JPM) raised its 2023 GDP growth forecast to 1.7% from 0.9% and next year’s projection to 1.0% from 0.8%.Investors are giving Lula’s government the benefit of the doubt so far, which has translated into a spell of calm in financial markets. Stats agency IBGE is set to publish GDP data on Thursday at 0900 local time (1200 GMT). (Reporting and polling by Gabriel Burin; Editing by Jonathan Cable, Ross Finley and David Holmes) More

By Trixie Yap and Florence TanSINGAPORE (Reuters) – Finnish refiner Neste expects renewable fuels from its new facilities in Singapore and the U.S. to drive its growth this year despite expectations of lower oil product margins in the second quarter, its chief executive said on Wednesday.”The macroeconomic situation is something that is affecting many businesses,” Matti Lehmus said in an interview.”We, for example, also highlighted that in our oil products business, we would expect the refining and margin environment in the second quarter to be clearly lower than in the first quarter,” he added.However, the company has opened a second 1.3 million tonne-per-year (tpy) renewable fuels plant in Singapore, bringing total capacity of sustainable aviation fuel (SAF) to 1 million tpy at the site.”For Neste, it is a year of growth. We are just starting up our expansion here in Singapore,” Lehmus said.The Singapore plant is ramping up production after it was started up in mid-April, said Lehmus. “It will take several quarters for it to come to 100% (nameplate) production.”Neste will also start up the second and third phases of its U.S. renewable diesel joint venture with Marathon Petroleum Corp (NYSE:MPC) in autumn that will include a feedstock pre-treatment unit, Lehmus said.In Singapore, Neste said on Wednesday it was buying a stake in a fuel storage and infrastructure joint venture at Singapore’s Changi Airport for SAF blending and supply to airplanes.Neste has also previously supplied SAF to a number of airports in Japan and New Zealand, Lehmus said.Neste produces renewable fuels, mainly from waste and residues such as used cooking oil and animal fat from food industry waste.The company expects waste and residues to account for over 90% of its feedstock for the foreseeable future, Lehmus said, while it continues to research new ones such as algae and hydrogen.Sourcing for sustainable raw materials is a major challenge faced by biofuels producers. Separately, Neste expects to make a final investment decision on its green hydrogen project at its Porvoo refinery in Finland in early 2024. If it goes ahead, production of the renewable fuel could start in 2026 and be primarily used in its refinery’s processes, replacing fuel produced from fossil feedstocks, the company said.”Longer term, if the availability of green hydrogen can be scaled up, it offers then the possibility to also further convert green hydrogen into fuels or chemicals,” added Lehmus.The production of synthetic fuels from green hydrogen and carbon dioxide hasn’t been commercialised and is costly. More

“We expect lower rents will eventually be reflected in inflation data as new leases make their way into the calculations,” Bowman said in prepared remarks to a “Fed Listens” community event in Boston focused on the job market and affordable housing.Fed policymakers have for several months said they were counting on easing rental inflation to eventually lower the headline inflation numbers, since rents are factored into the data using a yearly average. But potentially offsetting that, “the residential real estate market appears to be rebounding,” Bowman said. Home prices have been “leveling out recently, which has implications for our fight to lower inflation.” Bowman, who has been among the more hawkish Fed officials, did not say how a housing rebound might influence her policy views or the Fed’s decision of whether or not to raise interest rates at its June 13-14 meeting.It does suggest skepticism, however, about one of the aspects of inflation that Fed officials have expected to turn in their favor.When the Fed began to signal it was going to raise rates in the fall of 2021, and then followed through with an aggressive rate hiking cycle that kicked off in March of the following year, home mortgage rates also escalated. A slowdown in sales and a drop in prices followed.But that process may have reached a bottom, with the S&P CoreLogic Case-Shiller national index of home prices rising in February and March on a month-over-month basis.Building starts and permits may have also reached their low points, and sentiment among home builders has been improving. More

BENGALURU (Reuters) – Home prices in Germany are forecast to correct modestly this year and decline a bit more in 2024 as a series of interest rate rises further cools hot demand for property during the pandemic, according to analysts polled by Reuters.Higher borrowing costs, along with still-elevated consumer inflation, dragged average residential prices down 3.6% in the final quarter of 2022 on a year earlier, their biggest decrease since the 2007-08 financial crisis.Rate rises have also pushed Europe’s biggest economic engine into a mild recession. But the recent decline in home prices is small compared to around a 25% surge since the COVID pandemic began.With the European Central Bank widely expected to deliver at least two more 25 basis point rate hikes, the cost of owning a home for the first time could remain prohibitive for many prospective buyers.Average home prices are expected to decline 5.5% this year, according to the median view from a May 16-31 poll of 10 property experts, broadly unchanged from a February survey.That would be the biggest annual fall since official data was first published a little over two decades ago. House prices were forecast to decline another 2% next year.”Higher interest rates significantly reduce the demand and therefore lead to price reductions … in this and the next few years. Nevertheless, supply will remain short, which prevents housing prices from slipping off,” said Sebastian Schnejdar, senior real estate analyst at BayernLB.”Despite light price reductions, home prices will still be high. Therefore, German first-time homeownership rates will stay low.”The median forecast for peak-to-trough fall was 10.0%, slightly lower than the 11.5% predicted in a February poll, with the steepest forecast at 12.5%.Over three-quarters of respondents, seven of nine, said a significant downturn was more likely than a rebound in home prices for the rest of 2023. But a tight supply indicates any decline in prices could be limited.Building permits for homes plummeted nearly 26% annually during the first quarter of 2023 partially due to high material costs, according to the Federal Statistics Office.Still, respondents were split on whether purchasing affordability for first-time home buyers would worsen or improve over the coming year.”Although house prices have fallen and wages have risen, affordability has continued to worsen,” said Carsten Brzeski, global head of macro at ING. “Looking ahead, house prices are not expected to fall sharply enough or wages to increase significantly enough to compensate for the rise in financing costs.” (For other stories from the Reuters quarterly housing market polls:) More

Dimon is on his first visit to China since the beginning of the COVID-19 pandemic and his first since he joked in 2021 that JPMorgan will outlast China’s Communist Party, sparking outrage in China and prompting him to express regret.”If you have more uncertainty, somewhat caused by the Chinese government . . . it’s going to not just change foreign direct investment. It’s going to change the people here, their own confidence to invest,” Dimon said in an interview with Bloomberg TV.The world’s second-largest economy is emerging from three years of pandemic lockdowns, but the recovery has been uneven. China’s factory activity shrank faster than expected in May on weakening demand, according to data released on Wednesday.A two-year long crackdown on the technology sector has also led to some uncertainty about business prospects in the country. China has since eased the crackdown and stepped up support for private companies.Dimon, who has in recent years boosted JPMorgan’s China presence, also said that he favours East-West “derisking” rather than decoupling.”Let’s not try to decouple. Let’s not try to hurt China, the Chinese people,” he said at the three-day JPMorgan Global China Summit in Shanghai.”I liked the fact that Janet Yellen, Secretary of Treasury, President Biden, the National Security Adviser, and Secretary of State have been talking about derisking,” Dimon said.The CEO of the biggest U.S. bank said the countries’ disputes over security and free and fair trade issues are all “resolvable.””You’re not going to fix these things if you are just sitting across the Pacific yelling at each other. So I’m hoping we have real engagement,” Dimon said.The communist party chief of Shanghai shook hands with Dimon on Tuesday, telling him the city hoped the bank would continue to promote investment in the financial hub by international financial institutions.However, expansion in China is not all smooth sailing and is taking longer than the U.S. bank anticipated. “It will be a longer journey than we would wish to gradually build up scale and reputation to do business,” its China CEO Mark Leung said in a Bloomberg interview on Wednesday. More

It urged nations to offer global financial support on job creation and social protection to help narrow the gap.While global unemployment is expected to fall below pre-pandemic levels to 191 million this year, a rate of 5.3%, low-income countries lag in the recovery process, said the ILO’s 11th edition of the Monitor on the World Of Work. Low-income countries in Africa and the Arab region are unlikely to recover to pre-pandemic levels of unemployment this year, with the jobless rate in North Africa expected to be 11.2% compared to 10.9% in 2019, said the report. Rising debt levels compound challenges facing developing states, making policy intervention more difficult, said the ILO, which is launching a Global Coalition for Social Justice to push social justice as a national, regional and global policy.”Investing in people through jobs and social protection will help narrow the gap between rich and poor nations and people,” said ILO Director-General Gilbert F. Houngbo. More

The figure for this month slumped to 91 points from 101.5 in April, falling below the 100 reading that signals a neutral underlying level of economic activity. “The decline in economic output in the winter has been greater than expected and the recovery is also likely to be more timid than previously assumed,” says Timm Boenke, co-head of the economic team at DIW Berlin. Stubbornly high inflation and interest rate hikes by the European Central Bank are dampening purchasing power and lending, said Geraldine Dany-Knedlik, co-head of DIW’s economic team.While the economy has weathered the energy price crisis “surprisingly well so far,” a strong recovery is not in sight, added another DIW economic expert, Guido Baldi. German industry had a strong first quarter, benefiting from the easing of supply chain constraints and a backlog in orders. However, incoming orders have recently declined, the experts said. “Many companies are unsettled and are currently limiting themselves to maintaining their business activities at the current level rather than expanding them,” said DIW’s economic expert Laura Pagenhardt. In the services sector, persistently strong price increases continue to massively reduce household purchasing power and inhibit consumption, clouding over the expectations of service providers, DIW experts said. High employment levels are providing support, though wage increases have barely kept pace with inflation, the DIW added. More