Economy

UK construction activity beat investor expectations in February to register its highest growth rate in nine months as an improving global outlook boosted commercial projects.The S&P Global/Cips UK construction purchasing managers’ index, which measures monthly changes in total industry activity, registered 54.6 in February, up from 48.4 in January.The reading published on Monday was stronger than the 49.1 forecast by analysts in a Reuters poll and above the 50 mark that indicates a majority of businesses reporting an expansion. It was also the highest since May 2022. The data “paints a bright picture of progress in the construction sector with a robust jump in output last month”, said John Glen, Cips chief economist. The figures follow similar positive surprises from the PMI services and manufacturing indices published last month. Martin Beck, chief economic adviser to the EY Item Club, a forecasting house, said that combined with upbeat official data on tax receipts, the latest “PMIs suggest the risk of recession is easing”. The PMI all-sectors index — which combines manufacturing, services and construction — rose to 53.2 in February, up from 48.5 in the previous month and the highest since June 2022. Construction order books expanded for the first time since November 2022 and input price increases were the slowest since November 2020. Builders also continued to hire workers.In February, about 46 per cent of respondents anticipated a rise in construction activity in the next 12 months, compared with 13 per cent predicting a decline. Business expectations for the year ahead improved sharply from the previous month and from the 31-month low in DecemberTim Moore, economics director at S&P Global Market Intelligence, said softer inflationary pressures and shorter delays in delivery times meant “construction companies appear increasingly confident about the year ahead business outlook”.Commercial construction was the best-performing area registering a reading of 55.3, which indicated the fastest pace of expansion in nine months. Moore notes that builders attributed that success to renewed confidence in the sector thanks to “fading recession fears and an improving global economic outlook”.Civil engineering activity also returned to growth in February, with a reading of 52.3, supported by work on key infrastructure projects such as the HS2 rail line.However, builders noted a fall in residential building work for the third consecutive month in February to 47.4. Builders linked the contraction to higher interest rates as well as cutbacks to new housebuilding projects in anticipation of weaker demand.Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said he expected “housing construction to fall over the next six months, as the recent weakness in mortgage approvals ripples back up the supply chain”. More

Hello and welcome to Trade Secrets. So, a cracking start to India’s chairing of the G20 leading economies this year, with a fractious meeting of foreign ministers last week that failed even to agree a joint statement. As usual, I’m not expecting a great deal of actual progress out of the economics and trade bits of the G20 either. It might be interesting to see where discussions come out on the rise of industrial policy, a measure of the shifting intellectual centre of gravity if nothing else. That’s the subject of the second item in today’s newsletter, the first being some slightly good news among the bad about the global sovereign debt issue.The persistence of original sinBad luck if you thought the emerging market sovereign debt stresses were easing. Unhelpfully for governments with dollar-denominated debt, the US currency has just strengthened again after weakening in January. The latest numbers from the Institute of International Finance’s debt monitor show an overall sharp fall in debt-to-GDP numbers in 2022, but they’re still rising for emerging markets.

Nor are governments creating a coherent way of restructuring defaulted bonds, which I wrote about last summer, especially given the problems with China having emerged as a major creditor. After three years of talks, poor old Zambia has yet to get a clean exit from its default, as its finance minister protested about last month in an FT interview. The great brains of the sovereign debt markets are seeking creative solutions: my colleagues at Alphaville discuss one intriguing suggestion here.But hold on, wasn’t there a solution to being exposed to dollar movements? Weren’t emerging markets supposed to eschew the “original sin” of borrowing in dollars and issue debt in domestic currencies instead? Well, yes, and it has happened somewhat. The Bank for International Settlements has just published a paper showing progress: local-currency bonds have taken a markedly bigger share of overall and foreign holdings.

This is definitely a positive move, but there are two caveats. One, the move to local currency issuance is much stronger in some of the bigger leading middle-income countries such as Brazil, Mexico and Chile (India and China now borrow almost exclusively in their own currencies), while the smaller and poorer nations have been much slower to shift. Second, there’s volatility involved in local currency issuance too. Even if there’s no automatic rise in the debt burden in response to the exchange rate, the BIS says it turns out that investors targeting returns in dollars are less willing to buy debt denominated in local currency if it weakens against the dollar. Having your original sin absolved doesn’t automatically get you into paradise.So: have EMs made progress in insulating themselves against a strong dollar? Somewhat, yes. Is that enough to stop the wave of defaults? Sadly, no.Subsidies, maybe — tariffs, noIndustrial policy is the big issue of the moment, and I’ll have plenty to say about it — as indeed I already have, see here, here and here — as the big trading powers shell out their subsidies and write their regulations. There has been some really good writing on this recently, especially the tendency for such policy to try to hit too many goals at once. See the Wall Street Journal’s Greg Ip on the history of US industrial policy here and two contributions from the FT — a Swamp Notes newsletter on the subject and a wise opinion from our editorial board.Here I want to focus on a particular issue, the use of trade instruments in industrial policy. There was a surge of interest in this around the beginning of the Covid-19 pandemic and it’s got bigger since. I wrote a Trade Secrets column last week about India’s attempts to boost manufacturing: while New Delhi’s production subsidies are probably wasteful, its tariffs designed to protect an in-country supply chain are actively pernicious.If subsidies go too far they end in overproduction, which is trade-distorting and inefficient but not intrinsically restrictive, and the cost becomes obvious to taxpayers. By contrast, tariffs and other trade restrictions are deliberately restrictive of competition and often function without direct fiscal outlay, so don’t similarly alert the public that they’re being ripped off. The really bad examples of US industrial policy down the decades (textiles, steel, the Jones Act for shipping) have used trade restrictions and created fiercely well-organised lobbies.By contrast, successful recent examples of industrial policy in emerging markets often include voluntary trade liberalisation. Perhaps the most striking episode was the great wave of unilateral tariff-cutting by developing countries in the late 1980s/early 1990s, as they grasped the opportunities available from joining the international supply chains juiced by the information technology revolution. See this chart from Richard Baldwin’s writing on the subject here.

I’m no unabashed fan of President Joe Biden’s Inflation Reduction Act, but it should be noted that at least most of it is less restrictive than the infamous electric vehicle tax credits with their domestic production requirements. The impact of industrial policy is all in the design, and trade instruments are very frequently a bad way to do it.As well as this newsletter, I write a Trade Secrets column for FT.com every Thursday. Click here to read the latest, and visit ft.com/trade-secrets to see all my columns and previous newsletters too.Trade linksThe European Commission’s plan (in my view absolutely indefensible) to link trade preferences for developing countries with the return of asylum seekers is deservedly attracting more criticism.Remember last year’s crisis in the US baby formula market that trade restrictions were making worse? Well, the folks at the Cato Institute say the problem’s still there.The Peterson Institute argues that India’s discovery of a huge deposit of lithium (Iran also reckons it’s found one) could ease the global scramble for the metal, which is becoming a big supply chain issue. But the fact that the deposit is in the contested region of Kashmir on the border with Pakistan complicates matters somewhat.Michael Froman, former US trade representative under Barack Obama during the long-ago era when the US actually tried to sign trade deals, has been given the very nice job of president of the US Council on Foreign Relations think-tank.Trade Secrets is edited by Jonathan Moules More

Investing.com — China sets its lowest growth target in over 30 years, suggesting that Beijing won’t resort to its past tactics of pump-priming this year. Oil and base metals prices fall in response. The European Central Bank’s chief economist warns that the ECB is going to have to keep raising rates beyond March. U.S. stock markets don’t want to rouse from their weekend sleep, although the sound of another Norfolk Southern train derailment may wake up some. Tesla is cutting prices again, but only for its premium models. Here’s what you need to know in financial markets on Monday, 6th March.1. China growth forecastIndustrial commodities weakened after China’s annual parliamentary session ended with the government setting a growth target of around 5%, the lowest in over 30 years.Premier Li Keqiang, who is making way for a successor more closely allied with President Xi Jinping, said the government’s overriding objective was to restore economic stability, which some took as a sign that there will be no return to the debt-fueled growth of previous years. Budget spending will rise only 5.6%, giving a deficit of 3% of GDP.Recent reports indicate that Xi also intends to install Zhu Hexin, head of one of China’s largest state-owned banks, at the helm of the People’s Bank of China, further consolidating his control over the main levers of economic power. 2. ECB’s Lane flags more rate hikesA top European Central Bank official signaled there will be more interest rate hikes after the expected 50-basis-point move at next week’s policy meeting.Chief economist Philip Lane warned that underlying price pressures appear to be strong and that the price shocks from the pandemic and the war in Ukraine are only unwinding gradually. Lane, one of the more dovish voices on the ECB’s council, made his comments less than a week after data showed core inflation accelerating to 5.6% on the year in February – nearly three times the ECB’s 2% target.In 2021, Lane had been the foremost of those arguing that the inflation spike was likely to be transitory.3. Stocks set for slow start; Norfolk Southern derailed againU.S. stocks are set for a muted opening later, with little in the way of either earnings or economic data to move the dial.Dow Jones futures, S&P 500 futures and Nasdaq 100 futures were all effectively unchanged as of 06:30 ET, holding on to gains made on Friday on a market-wide bout of short-covering.Stocks likely to be in focus later include railroad operator Norfolk Southern (NYSE:NSC), which suffered a second derailment in the last few weeks with a train outside Springfield, Oh., at the weekend. In contrast to the first derailment, this one didn’t result in any spill of hazardous materials.4. Tesla cuts prices again – for Model S and Model XTesla (NASDAQ:TSLA) has cut its prices again, less than two months after its last round of discounting.The EV maker cut the starting price for its Model S and Model X cars by $5,000 and $10,000 respectively, in the latest sign that customers are gagging at cost levels in an increasingly constrained economic environment.The company has gained some breathing room on price, thanks to the sharp drop in lithium prices in recent weeks, which promises to bring down the cost of EV batteries over the coming months.Lithium Carbonate prices in China have fallen 40% from their November highs and hit their lowest in 14 months last week.5. Oil falls on weak Chinese growth forecast; still unsettled by UAE reportCrude oil prices fell in response to China’s economic growth target announcement, which deflated hopes for a big pickup in demand between now and the end of the year.By 06:45 ET, U.S. crude futures were down 1.5% at $78.50 a barrel, while Brent crude was down 1.5% at $84.52 a barrel.The market has been unsettled by a report at the end of last week by The Wall Street Journal suggesting that the cohesion of the group of major exporting countries is starting to fray. While Russia has announced a cut in output to reduce the discount it is having to accept on its crude exports, the WSJ reported that the United Arab Emirates is considering leaving the “OPEC+” group, seeking the freedom to use the additional capacity it has built in recent years. More

KARACHI, Pakistan (Reuters) -Pakistan will be required to give an assurance that its balance of payments deficit is fully financed for the fiscal year ending in June to unlock the next tranche of IMF funding, the fund’s resident representative said on Monday.The funding is critical for the South Asian economy, which is facing a balance of payments crisis, with its central bank foreign exchange reserves dropping to levels barely able to cover four weeks of imports.The International Monetary Fund has been negotiating with Islamabad since early last month to clear its ninth review, which if approved by the board will issue $1.1 billion of a $6.5 billion bailout agreed in 2019. That bailout ends at the close of this fiscal year, which concludes June 30.Finance Minister Ishaq Dar had said last week that the external financing assurance was not one of the IMF’s conditions for clearance of the funding. “All IMF programme reviews require firm and credible assurances that there is sufficient financing to ensure that the borrowing member’s balance of payments is fully financed … over the remainder of the programme,” the fund’s Esther Perez Ruiz told Reuters in an e-mailed response to questions.”Pakistan is no exception.”Pakistan has completed almost all other measures needed except for the external financing requirement, officials say. Dar said last week that Pakistan will need $5 billion external financing to close its financing gap this fiscal year ending June 30, adding the IMF believed it should be $7 billion.Longtime ally China is the only country that has so far committed a refinancing of $2 billion. Out of that $1.2 billion has already been credited to Pakistan’s central bank.Dar said hoped more external financing will be coming as Pakistan signs the IMF deal this week. The IMF has not given any timeline. INTERNATIONAL BONDS FIRMPakistan’s international bonds rose on Monday – broadly in line with other smaller, riskier emerging markets. Pakistan’s 2026 bond added as much as 1.2 cents to trade at just over 44 cents in the dollar, Tradeweb data showed. Some analysts were upbeat on Pakistan’s immediate prospects. “After fulfilling a long ‘to-do’ list in an effort to get the IMF program back on track, we believe the resumption of Pakistan’s EFF (Extended Fund Facility) program is imminent,” said Anna Friedemann at Deutsche Bank (ETR:DBKGn) in London.She, however, added that a restructuring at some point was “almost certain”.The rupee, whose value has been depreciating amid delays in the funding deal with the IMF, also rose in interbank trading on Monday, extending a recovery from Thursday’s 6% drop against the dollar.”The exchange rate has moved significantly in recent days, which has narrowed the informal FX market premium bringing the rates closer together in a similar way to that seen around January 26,” the IMF Luiz said in her email. “This should result from the unconstrained operation of the foreign exchange rate market.”On Jan. 25, foreign exchange companies removed a cap on the currency, saying it caused “artificial” distortions for an economy in desperate need of IMF help. Ruiz noted that the difference in foreign exchange rates between the open and informal markets has been very damaging for Pakistan, resulting in shortages of foreign exchange and consequently imported goods.She also said that Pakistani authorities were also planning a permanent power surcharge on consumers to address the energy sector’s debt.”The power sector CD [circular debt] flow for FY23 is expected to largely overshoot expectations under the EFF-supported program by a sizable margin due to a significant under-collection from delays in regular tariff adjustments, declining recovery rates, and unbudgeted subsidies,” she said. More

The new agency, which is set to become the top Chinese regulator on various data-related issues, will be discussed and approved at the National People’s Congress during its annual session on March 13, the report said, citing people familiar with the matter.The new national data bureau would set and enforce data-collection and sharing rules for businesses and decide whether multinational companies can export data generated by their operations in China, it said.It would also investigate various issues in the digital domain and identify data-security vulnerabilities that are prone to cyberattack, the newspaper reported.Chinese regulators recently eased some deadline pressure on multinational companies struggling to comply with new rules requiring them to seek approval to export user data. More

Philip Lane’s words are likely to cement investor expectations for more ECB hikes after March — which investors have been betting on for weeks amid stronger data and hints from other policymakers.”The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting,” he added.The ECB has effectively pre-announced another 50-basis-point increase at March 16 meeting, when it is also expected to give some guidance about future moves.Investors expect the central bank for the 20 countries that share the euro to increase the rate it pays on bank deposits from 2.5% currently to 4% by the end of the year.Lane said the “calibration” of future rate hikes will depend on the ECB’s new economic forecasts, which come out next week, and on incoming data.He flagged easing price pressures from raw materials, economic activity and supply bottlenecks, partly offset by food and labour costs.”The heatmap suggests still strong inflationary pressures, but some signs of easing are emerging,” Lane said.He expected wage growth to drive core inflation this year, with 4%-5% salary increases “plausible”, as workers try to catch up with the higher prices.On the flipside, he expected corporate margins, which have been boosted by constrained capacity and pent-up demand after the COVID-19 pandemic, to come down, “translating into lower inflationary pressures”. More

Good morning, welcome to the week.One of Credit Suisse’s longest-standing supporters, US investment firm Harris Associates, has sold its entire stake in the scandal-hit Swiss bank. The chief investment officer of Harris Associates explains his decision — scroll down for more.To split or not to split? EY partners will soon have to vote on whether to separate the Big Four firm’s audit and advisory businesses. The Financial Times breaks down the proposed plan in today’s Big Read.Today I’m keeping an eye on:Economic data: US factories will report orders for January. WTO meeting: The general council of the World Trade Organization convenes, with sanctions against Russia on the agenda.Any thoughts on today’s FirstFT? Let us know at [email protected]. Today’s top news1. EXCLUSIVE: Harris Associates has sold its entire stake in Credit Suisse after years of scandal and an exodus of clients at the Swiss lender. Last year the firm held 10 per cent of the bank, now Harris has raised questions about “the future of the franchise”.2. BP is not slowing its green transition to cash in on high oil prices, the boss of its US business insisted, despite the company announcing a scaling back of climate goals last month after record profits. Read our full interview with Dave Lawler, chair of BP America.3. Fed officials are growing more hawkish. The most recent example was Mary Daly, president of the San Francisco Fed, who joins a growing cast of governors hinting rates will need to stay higher for longer. High borrowing costs are driving companies away from buying debt to avoid a hit to their credit ratings.4. Global minimum tax could eat up US green subsidies according to a group of multinationals. The combination of the new global minimum tax of 15 per cent and the special green tax credits could lead to a costly combination for foreign companies. 5. EXCLUSIVE: Beijing has told Hong Kong’s elite to give up their western passports if they want a seat in China’s rubber-stamp parliament. Here’s why it matters.Related: China has set a 5 per cent economic growth target, the lowest in three decades.The Big Read

To split or not to split? That is the question facing EY’s partners when a plan to spin off the Big Four firm’s advisory arm from its audit business goes up for a vote. EY’s bosses believe partners understand the rationale for the deal, but falling company valuations have changed the landscape.We’re also reading . . . Battle of the regulators: America is toppling the EU from its regulatory throne, writes Rana Foroohar, with US agencies becoming more ambitious.The coming neurotech disaster: The advent of “neurotechnology” could mean apps will know how we think, that’s bad news for humanity argues Camilla Cavendish. ‘Unsmoke the world’: Philip Morris chief Jacek Olczak speaks to Oliver Barnes about his mission to detoxify the world’s largest tobacco group.Chart of the dayDriven by dissatisfaction with the current Republican leadership, a new class of megadonors are giving millions to far-right groups such as the anti-tax Club for Growth and allowing them to wield outsized influence within the party.

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Take a break from the newsThis week’s Lunch with the FT is with Miss Malaysia-turned-movie star Michelle Yeoh, who talks about what an Oscar would mean to Asian actors — and why she really, really wants to bring that statue home.

Michelle Yeoh © Ciaran Murphy

Additional contributions by Tee Zhuo and Annie Jonas More

PARIS (Reuters) -French Finance Minister Bruno Le Maire has reached a deal with the country’s main supermarket chains to help shoppers cope with food price inflation, he said on Monday.Food retailers have agreed to offer shoppers “the lowest possible prices” for a three-month period on a selection of items left to them to decide, Le Maire told a news conference after he met retail bosses.The discounts are expected to cost retailers “hundreds of millions of euros”, Le Maire said.From June, retailers and government officials will reassess the situation and may ask large consumer goods suppliers to re-negotiate prices with retailers, he added.French annual inflation rose unexpectedly to 7.2% in February from 7.0% in January, partly as a result of higher food prices, preliminary figures from the INSEE statistics body found. INSEE has forecast that food price inflation would remain at 13% for the first half of the year.The basket of anti-inflation groceries is the government’s latest effort to show political support to lower-income citizens. Initially, the government sought to establish a harmonised basket of everyday items, but supermarkets held out to be able to determine which groceries would be included.On Sunday, Carrefour (EPA:CARR), Europe’s largest food retailer, pre-empted the government announcement by saying it would offer its own selection of 200 low-cost items and that there was no need for the government to impose a unified basket. Its CEO Alexandre Bompard told Le Journal du Dimanche that 200 items will be offered at less than 2 euros, from March 15, and the price would be frozen until June 15. Smaller rival Casino on Monday also said it would offer its a selection of 500 low-cost items at less than one euro from March 15 with prices frozen for three months.Michel-Edouard Leclerc, the head of unlisted hypermarket giant E.Leclerc, however, told CNEws on Monday he saw no need to attend Monday’s meeting with Le Maire and was not waiting for political talks to cut prices.”My goal is to offer the lowest prices on all products,” he said.Carrefour shares were down 1.3% at 17.86 euros as of 1039 GMT while Casino shares were off 0.7% at 9.64 euros. More