Economy

BOGOTA (Reuters) – The decision by Colombia’s leftist President Gustavo Petro to replace three ministers this week, as well as the forecast costs of a health reform making its way through Congress, sowed uncertainty in markets on Tuesday, prompting falls in the stock market and peso.On Monday Petro removed ministers from their positions in the ministries of education, sports, and culture. The changes were followed by Colombia’s currency slumping 2.29% to 4,869 pesos per dollar, while the MSCI COLCAP stock index fell 0.13% to 1,204.63 points.At the same time, TES public debt bonds maturing in May 2042 declined in value, their yields rising to 13.517%, from Monday’s close of 13.372%. Now ex-Education Minister Alejandro Gaviria – who served as Health Minister in the government of former President Juan Manuel Santos – disagreed with the main elements of Petro’s controversial health reform, which looks to increase access to services, raise salaries of healthcare workers, and combat corruption by eliminating payment intermediaries. His removal from Petro’s cabinet was taken particularly negatively by analysts, who said it could have repercussions in debates concerning the reform in Congress. “Gaviria’s exit suggests Petro is willing to lean further left, but could further limit congressional support.(…), which we think is not likely to be received well by market participants,” New York based Citi analyst Esteban Tamayo said.Petro also plans to present other reforms on labor and pensions, and is also eyeing plans to implement subsidy programs for students who cannot pay to access university as well as for poor families.Economists also questioned how the health reform will be financed, after Colombia’s Finance Ministry reported the bill would cost from $1.87 billion to $2.66 billion per year for the next 10 years, without saying where the money will come from.Changes to the health system will see additional costs in the construction of new entities to manage healthcare, said Camilo Perez, manager of economic research at bank Banco de Bogota, adding that lower quality care would also push costs upwards. More

When Rishi Sunak and Ursula von der Leyen unveiled the Brexit deal that reset Britain’s broken relationship with the EU on Monday, it was the culmination of almost four months of diplomacy that began on the shores of the Red Sea and ended in the shadow of Windsor Castle.Von der Leyen, European Commission president, called the UK prime minister “Dear Rishi” as the pair launched the “Windsor framework”, the agreement which aims to end the bitter dispute over Northern Ireland’s post-Brexit trade regime.Relations had been far more confrontational with Boris Johnson, the UK former prime minister who negotiated the Northern Ireland protocol with the EU in 2019 and who has spent the last three years trying to scrap it. “There was no trust in him here,” recalled one EU official. But when von der Leyen met Sunak at the Egyptian resort of Sharm el-Sheikh on November 7 2022, less than a fortnight into the British leader’s premiership, something clicked. “They both realised they were serious people who could do this together,” said one British official.British diplomats say the meeting on the fringes of the COP27 climate change summit was pivotal after the confrontation and mutual contempt that characterised EU-UK relations during Johnson’s chaotic premiership.Initially the conversation focused on the war in Ukraine and climate change, two areas where Britain and Brussels were already co-operating.

Rishi Sunak, right, meets Ursula von der Leyen during the COP27 climate conference in Sharm El Sheikh, Egypt, in November © Steve Reigate/Getty Images

By the time the discussion turned to the Northern Ireland protocol — an issue bedevilled with disputes about customs checks at Irish Sea ports and rules for chilled meat imports — officials from both sides could see the mood shifting.“They could see what they had in common, what actually counts,” said an EU official. Tackling the stand-off in Northern Ireland might not only help fix political and business tensions in the region, it would also reboot the EU-UK relationship.Some of the groundwork for a better relationship was already being laid by James Cleverly, a jovial former Army reservist appointed as foreign secretary during Liz Truss’s brief premiership, who quickly got to know Maroš Šefčovič, the European Commission vice-president.Šefčovič, the Brussels lead on the Northern Ireland protocol, had been bruised in his previous talks with Britain, notably his exchanges with former UK Brexit negotiator Lord David Frost. Cleverly had to reassure the commission vice-president that this time, Britain was serious. “We wanted to know if they still wanted to punish us over Brexit,” said one Cleverly ally. “They wanted to know if we were just doing this for domestic consumption, so that we could blame Brussels if things didn’t work out. And we both wanted to know if we could talk candidly without it leaking.”British diplomats noted Cleverly, unlike his two predecessors at the Foreign Office — Truss and Dominic Raab — actually seemed to like diplomacy. In Šefčovič he found a counterpart who shared his sense of humour — and love of the BBC political comedy Yes Minister.To further defuse tensions, Sunak quietly parked the Northern Ireland protocol bill — legislation introduced by Johnson to unilaterally rewrite the treaty with the EU — in the House of Lords. “It was a loaded gun on the table,” said one senior EU diplomat. “We couldn’t talk in those circumstances.”In the new year, officials began holding regular — and secret — talks in an obscure EU building in Brussels called Philippe Le Bon, often used for office functions.

Commission vice-president Maroš Šefčovič, right, welcomes British foreign secretary James Cleverly in Brussels © Johanna Geron/Reuters

British officials often spent entire weeks in Brussels, sometimes negotiating into the early hours, trying to agree ways to lessen trade friction between Great Britain and Northern Ireland, which under Johnson’s deal remained part of the EU single market and therefore partly under EU law.“There were orange walls, soulless rooms with often-broken coffee machines,” said one UK official. “We’d sit there battering away on things like the export of seed potatoes and plants for garden centres.”In January there was a crucial breakthrough on the sharing of trade data, but at times talks seemed close to breaking down. Sir Tim Barrow, Britain’s former ambassador to the EU and now Sunak’s national security adviser, is said to have played a key role in “calming nerves”.Šefčovič nonetheless became gloomy, and at one point this month told EU ambassadors the deal was “unravelling”, one EU diplomat said. As recently as February 19 he warned in a meeting with Ireland’s foreign minister Micheál Martin that the talks could fail, suggesting they open a bottle of whiskey to cushion the blow, said one person with knowledge of the matter.The EU lead in the intense, secret discussions — known in Brexit parlance as “the tunnel” — was Stéphanie Riso, von der Leyen’s deputy chief of cabinet who had negotiated the original protocol. “She knows it inside out,” said an EU official. The EU side immediately recognised Sunak’s willingness to plunge into the details of potential solutions. The prime minister, a former Goldman Sachs banker, is a self-confessed data nerd: during his time as chancellor he impressed officials with his grasp of US rail freight statistics.While negotiators grappled with tough issues such as the trade in sausages and seed potatoes, the most sensitive part of the deal — and politically the most crucial — was being put together at a very high level and in conditions of top secrecy.The decision to grant Stormont a say in new EU rules was viewed by both sides as critical in bringing the Democratic Unionist party on board and — hopefully — persuading Northern Ireland’s largest pro-UK force to end its boycott of the region’s assembly. Sunak and von der Leyen discussed the Stormont brake early on, according to UK officials, who added that even some negotiators did not know about the plan, which would require an amendment to the original treaty, despite the EU’s public refusal to renegotiate it.Northern Ireland secretary Chris Heaton-Harris, a former MEP and staunch Brexiter, was key in convincing the commission to cede more ground by explaining the sensitivities of the region’s politics, UK officials say. Von der Leyen and Šefčovič decided not to brief national capitals about the details of the negotiations, fearing that the idea would leak and gambling — correctly — that Brexit fatigue meant member states had little interest in micromanaging the negotiations. “They were very relaxed as long as we safeguarded the internal market,” said a commission official.

The agreement is announced at Windsor on Monday in front of a portrait of King George V © Chris J. Ratcliffe/Bloomberg

As a result, the details remained secret until the agreement was announced on Monday, with the idea of calling the deal the “Windsor framework” reached last week. Von der Leyen and Sunak made the announcement in front of a portrait of King George V, who inaugurated Northern Ireland’s parliament in 1921 with an appeal for unity. The EU chief, controversially, had tea with King Charles after sealing the deal.The agreement was hailed by US president Joe Biden and Emmanuel Macron, president of France, amid claims it could revitalise the UK-EU relationship. More than 24 hours later, not a single Tory MP had publicly condemned the deal; the DUP was considering what to do next.David Lidington, former de facto deputy prime minister to Theresa May, said the deal showed the merits of “working constructively with the EU, rather than pick[ing] fights”. For Sunak and von der Leyen, the deal was widely praised as a significant political achievement.Former prime minister Johnson, the joint author of the Northern Ireland protocol, was nowhere to be seen as Sunak announced his deal to a packed House of Commons. One cabinet minister told the FT: “This could all have been done months ago, but it was him.”Additional reporting by Jim Pickard in London More

Electric-car maker Tesla will build a factory in the northern Mexican city of Monterrey, ending doubts over whether the investment could be cancelled over conditions imposed by the government.Mexico’s president Andrés Manuel López Obrador announced the new plant on Tuesday after conversations with Tesla chief executive Elon Musk, suggesting he had dropped earlier calls to redirect the investment to less industrialised parts of the country.“It’s good news, yes, the company Tesla is coming,” the populist president said in his morning news conference. “The battery part is still on hold but [its] the whole auto plant, which I understand will be very big.”“He [Musk] was very receptive, understanding our concerns and accepting our proposals which will be known from tomorrow,” he added.Tesla did not immediately respond to a request for comment but is expected to outline more details of the project at an investors’ day on Wednesday. The value of the deal was not immediately disclosed.Tesla’s investment is the latest in electric vehicles in Mexico after the country was included in billions of dollars’ worth of green subsidies under Washington’s Inflation Reduction act. US president Joe Biden’s legislation has caused tension with Europe, which argues they could unfairly draw investment away from the region.“Without IRA I doubt it would have happened,” said Carlos Serrano, chief economist at bank BBVA Mexico, adding that the legislation meant the US, Mexico or Canada were the best options for Tesla. “Between those Mexico has advantages in competitiveness, a qualified workforce and a sophisticated industry of suppliers.”While López Obrador’s government aims to establish Mexico as a hub for the “nearshoring” of investment, he has also tried to influence the investment decisions of large companies in ways the private sector says has dented confidence in the economy. He imposed significant conditions on Citigroup’s sale of its Mexican retail bank and has cancelled permits and projects that he disagrees with.His supporters say he is cleaning up suspected corruption in investments approved by previous governments and trying to make development more sustainable. The government has vowed to increase investment in poorer southern states to address vast regional inequalities, and pressed companies to relocate.López Obrador last week suggested he might not award Tesla permits if it pressed ahead with plans for a plant in Monterrey because of the city’s acute water shortage problems. But on Tuesday he said the company had committed to using recycled water at the new plant.The northern half of the country’s proximity to the US, educated workforce and superior infrastructure mean it has attracted the lion’s share of industrial investment. Since 2005, the population of the Monterrey metropolitan area has grown more than 40 per cent.“Mexico won, NL [Nuevo León] won, we all won!” Samuel García, the governor of Nuevo León state where Monterrey is located, tweeted on Tuesday.Tesla’s investment cements Mexico’s position as a key beneficiary of companies building factories closer to the US amid supply chain disruptions and trade tensions with China.Biden’s $369bn IRA legislation allows electric cars assembled in Mexico and Canada to qualify for US subsidies. Tax credits are also available for EV battery sourcing and critical minerals for Mexican companies.Earlier this month German carmaker BMW said it would invest €800mn in Mexico to expand electric vehicle production.A plant in Monterrey, a few hours’ drive from the Texas border, would be Tesla’s first in Latin America. The company has four US factories and one each in China and in Germany. More

State retirement savings programs, such as CalSavers and Illinois Secure Choice, are attempting to close the racial savings gap by offering workers an opportunity to enroll in auto-IRA programs.
Some $735 million has been saved in these programs, as of the end of January, according to data from the Georgetown Center for Retirement Initiatives.
Sixteen states have enacted new savings initiatives for private-sector workers. Since 2012, at least 46 states have sought to implement a new program, study program options or consider legislation to do so.

Maskot | Maskot | Getty Images

The income and wealth gaps between people of color and white households are wide, but state-run retirement programs are attempting to help workers find parity.
As many as 67% of private-industry workers had access to retirement plans in 2020, according to the U.S. Bureau of Labor Statistics. A significant number of employees, however, remain left out of these programs — and it tends to be workers of color who are missing out.

Indeed, about 64% of Hispanic workers, 53% of Black workers and 45% of Asian American workers have no access to a workplace retirement plan, according to AARP. Small employers are also less likely to offer retirement plans to their workers, with about 78% of those who work for companies with fewer than 10 employees lacking access to a plan, AARP found. 
State-facilitated individual retirement account savings programs have stepped in to attempt to close that racial savings gap.

Arrows pointing outwards

Federal Reserve Board, 2019 Survey of Consumer Finances

“It’s preliminary at this point, but the idea was to close the retirement savings gap for people who are left out, and that tends to be lower-income workers, workers of color,” said Michael Frerichs, Illinois state treasurer.
Sixteen states have enacted new initiatives to help private-sector workers save and 11 of them have auto-IRA programs, according to Georgetown University’s Center for Retirement Initiatives. As of the end of January, there were more than $735 million in assets in these state-facilitated retirement savings programs, the center found.
“An important part of the purpose of the nationwide movement to have states play a supporting role for the private pension system has been this: to narrow the racial and gender and white-collar versus blue-collar savings gaps,” said J. Mark Iwry, nonresident senior fellow at The Brookings Institution.

He coauthored former President Barack Obama’s “auto-IRA” legislative proposal, a push to expand access to retirement savings through automatic enrollment in IRAs, and pioneered the nationwide state-facilitated retirement savings movement starting more than 20 years ago.

How it works

Rather than competing against large corporate retirement plans, state-facilitated retirement savings programs turn their focus to an underserved corner of the market: small businesses.
Most of these state programs require businesses to either offer a workplace retirement plan or help automatically enroll their workers into the state’s program.
Typically, the savings program is a Roth IRA — which means employees are saving money on an after-tax basis — and they can put away 4% to 6% of their compensation through an automatic payroll deduction, according to Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. Employers themselves aren’t paying for the programs, and an investment firm is managing savers’ accounts.
The upshot of using a Roth IRA to save is that the funds grow free of taxes and can be withdrawn tax-free in retirement, subject to certain conditions. In the event participants need to pull money out for an emergency, they can take their own contributions — but not the earnings — tax-free.
Among the participants in Illinois’ Secure Choice program, about half are Black or Hispanic, according to Frerichs. The program has been running since 2018 and recently expanded access to firms with as few as five employees.

“We’re getting the people who fell through the cracks and don’t have a safety net,” he said, noting that this includes employees at bars, restaurants and grocery stores.
Perhaps the most powerful attribute of the auto-IRA plans is the automatic payroll deduction. “This is the ‘set it and forget it’ mentality,” said Fiona Ma, California state treasurer. It’s easy for employees to spend the money that lands in their checking accounts, so having a portion of it go directly toward retirement allows their funds to grow.
Workers joining CalSavers begin with a default contribution of 5% of their pay, and they’re subject to an annual automatic escalation of 1 percentage point until they are saving 8% of their salary, according to Katie Selenski, executive director of the program.
“Being able to save and have it accumulate has been a game changer in trying to decrease the wealth gap,” Ma added. She noted that two out of three workers eligible for the program in California are people of color.
On Jan. 1, the state expanded its CalSavers program to businesses that have one to four employees. If they don’t already offer a 401(k) plan to employees, those employers are required to have a payroll deposit savings arrangement that would allow workers to participate in CalSavers by the end of 2025.

Strengthening savings

The wealth disparity between households of color and white households is the result of generations of discrimination, including practices such as redlining — that is, the denial of loans to prospective homebuyers in minority neighborhoods. That means these state IRA programs mark a step toward closing the gap.
Legislators have pushed for more progress in the form of a measure in the Secure Act 2.0. A provision in the proposal would establish a federal matching contribution for lower-income workers saving in a qualified retirement account, starting in 2027. This match would be a maximum 50% of up to $2,000 in contributions — a maximum of $1,000 per person.
“For low-income workers, if they can put away $2,000 and get a 50-cent match for each dollar, that’s a significant boost to them,” said Monique Morrissey, economist at the Economic Policy Institute. “That will help, but it’s several years into the future. So right now, we see that these [auto-IRA] plans help in terms of convenience.”

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Disruption from a ransomware attack on a little-known supplier to the world’s largest semiconductor equipment manufacturers will continue into March, in a new setback to chip production after years of coronavirus-related delays. US-based MKS Instruments told investors and suppliers this week that it had yet to fully recover from a “ransomware event”, first identified on February 3, in an attack that has strained supply chains for the global chip industry. “We’ve begun starting up the affected manufacturing and service operations,” MKS chief executive John Lee said in a call with analysts and investors on Tuesday.MKS’s customers include many of the largest companies that produce semiconductors and the specialised equipment necessary to manufacture them, including TSMC, Intel, Samsung and ASML. The company had revealed on Monday that it could still take “weeks” more to restore operations and would cost hundreds of millions of dollars in lost or delayed sales. Most ransomware victims are able to recover in about three weeks, according to industry estimates. The attack affected “production-related systems” as well as critical business software, MKS said earlier this month, forcing it to suspend operations at some of its facilities. The Massachusetts-based company makes lasers, vacuum systems and other specialised equipment vital to chip manufacturing. Lee has said the attack “materially impacted” its systems, including its ability to process orders and ship products in its two largest divisions, photonics and vacuum. After delaying publication of its latest financial results, which were released on Monday, the company has now told the US stock market regulator that it is unable to file its annual report on time. Missing the extended deadline could result in a fine.Its forecast of “at least” a $200mn hit to its current quarter’s revenues is about a fifth of the $1bn in sales that it had forecast before the attack. Analysts at Cowen, a broker, estimate the final impact on quarterly sales could total as much as $500mn — more than half what Wall Street had previously predicted. “The full scope of the costs and related impacts of the incident has not yet been determined,” MKS said, though it hoped to “substantially recover” the lost revenue by the end of the second quarter. The company’s most recent annual report lists Applied Materials and Lam Research as its two largest customers, accounting for more than a quarter of its net revenues in 2021. Applied Materials, the chip equipment manufacturer, warned earlier this month that it faced a potential $250mn shortfall to its current quarter’s revenues due to a “cyber security event recently announced by one of our suppliers”, widely believed to be MKS. Lam Research did not respond to requests for comment on any impact on its business. Another semiconductor industry supplier, Ultra Clean Holdings, has also blamed a cyber attack on an unnamed supplier — which analysts believe is MKS — for an anticipated $30mn hit to its quarterly revenues. Many of MKS’s products are highly specialised parts or tools in the early part of the chip manufacturing supply chain. These include components that become part of machines then purchased by chip manufacturers, said Joe Quatrochi, a director of equity research at Wells Fargo, such as lasers that burn holes into circuit boards, gauges and power supply parts.The semiconductor supply chain, which in many places relies on components made by only one provider, has faced repeated shortages over the past two to three years due to production and logistics delays. However, demand for smartphones and other consumer electronics has waned in recent months as coronavirus lockdowns eased and consumer spending has been squeezed by inflation. That has caused shortages of some components to swing suddenly to a glut, in what has always been a highly cyclical industry. MKS customers were hoping that the delays were a short-term “air pocket” from which it would recover soon, said Quatrochi.

But since it falls within the broad definition of critical national infrastructure, it is unclear if MKS will be encouraged by US law enforcement to resolve the issue by paying a ransom. There are few technical solutions to ransomware, and a company that does not pay the ransom can spend months rebuilding its systems. MKS said it was working to assess “the effectiveness of internal control over financial reporting, in particular with respect to the ransomware event”, which had left it unable to access its business planning systems. Shares in MKS fell by about 15 per cent between February 3, the last day of Nasdaq trading before the company first disclosed the attack, and Monday night’s results release. The stock was about 5 per cent higher in early trading on Tuesday morning following Lee’s comments to analysts. More

UK grocery prices rose at their fastest pace in 15 years, according the most recent data from a closely watched survey, in contrast to latest official figures that suggested food inflation was slowing down.Annual food prices rose 17.1 per cent in the four weeks to February 19, research firm Kantar said on Tuesday, the highest figure on record since the monthly survey began in 2008.“Grocery price inflation is the second most important financial issue for the public behind energy costs, with two-thirds of people concerned by food and drink prices,” said Fraser McKevitt, head of retail and consumer insight at Kantar. Food inflation a year earlier was running at 4.3 per cent, according to Kantar. It said the latest jump in prices would add £811 to the average British household’s yearly shopping bill. “This is having a big impact on people’s lives,” McKevitt added.The latest Kantar data contrasts with official figures that showed a slight fall in food and non-alcoholic drink inflation in January, down 0.1 points to 16.7 per cent compared with a month earlier but still close to the highest level since Office for National Statistics records began in 1988. Headline inflation slowed to a five-month low of 10.1 per cent in January, retreating further away from its 41-year peak in October, according to the ONS. Official inflation data for February will be released on March 22.Kantar research showed that shoppers have been shunning branded products in an effort to save, with sales of supermarkets’ own labels increasing 13.2 per cent this month, in “a trend that shows little sign of stopping”, said McKevitt.

The discount supermarkets continued to benefit as shoppers become more price sensitive, with Aldi and Lidl both boosting their sales more than 20 per cent year on year. The two chains market share rose to 16.5 per cent, up from 14.1 per cent a year earlier, according to Kantar.Less affluent households will be hit hardest by steep price rises at supermarkets with the poorest 10 per cent spending nearly a fifth of their weekly income on food, according to the ONS.McKevitt said he expected the recent rationing of salad vegetables by five out of the six biggest supermarkets was “unlikely to drastically affect consumers” as they tend to buy fruit and veg in smaller quantities than the upper limit set by retailers. More

Inflation will remain high because of strong wage growth in much more volatile markets, the head of one of the world’s biggest hedge funds predicted on Tuesday.Man Group chief executive Luke Ellis told the Financial Times investors needed to get used to volatility with significant moves up and down.“It will take a lot of years before inflation is put to bed again. We’re in a different paradigm,” said Ellis.“The base effects are running out and we still have very significant wage inflation. It’s not squeezing services [sector] wage inflation, and services is such a big part of the economy. You can’t get consistently to [a] 2 per cent [inflation target] when you have 6 to 7 per cent wage inflation,” he added.Ellis said he did not believe stocks, which hit a two-year low in October, had yet bottomed out. He drew a parallel with periods in the 1970s when the real return from equities after inflation was about zero.“You’re going to get big moves in different directions,” he said. “The overall exact number [the performance of markets] I’m not sure. I don’t think we’ve seen the highs for the year, but the lows are a long way down,” he said.His comments come as both France and Spain reported a rise in inflation, beating forecasts. In the US, stocks have fallen this month as investors have grown concerned that the strength of the economy might require higher interest rates, with the Federal Reserve’s preferred measure of inflation rising more than expected in January.Ellis made the comment as shares in the group surged on better than expected full-year results. Man, which manages $143.3bn in assets, reported an 18 per cent rise in pre-tax profit to $779mn for last year, above analysts’ forecasts. That was driven by a 37 per cent jump in performance fees, much of which came from the group’s computer-driven macro funds. Client inflows for the year were $3.1bn.Man’s shares rose 8 per cent to 264.9p.The results follow a very mixed year for the $3.8tn hedge fund industry. While macro managers and quant funds following market trends made big gains in 2022, many equity traders were hard hit by a sharp sell-off in highly valued technology stocks. Ellis said Man was hit by $3bn of outflows from UK defined benefit pension plans in the fourth quarter of last year, about half the total assets that the group runs for such clients, although it reported $400mn of net inflows overall for the quarter.Such pension funds were racing to sell liquid assets and raise cash in order to meet margin calls on derivatives in their liability-driven investment strategies during the UK’s gilt market crisis. Ellis said “a bunch” of that money had since come back into Man’s products. More

Turkey’s economy grew rapidly in 2022 thanks to buoyant consumer spending, according to data that underscores how President Recep Tayyip Erdoğan is prioritising growth over fighting high inflation. Gross domestic product increased 5.6 per cent on an inflation-adjusted basis, Turkey’s official statistics office reported on Tuesday. The rate was higher than the 2.3 per cent recorded by the G7 group of advanced economies and the IMF’s forecast of 3.9 per cent for emerging markets. The report, which covered the period before this month’s devastating earthquake, highlighted Erdoğan’s focus on pumping up economic output rather than following the path of most other countries, which have sacrificed growth in an effort to tame inflation through higher borrowing costs.Consumer price growth in Turkey exceeded 85 per cent in October and remained at almost 60 per cent last month. Consumer spending, which makes up almost 60 per cent of Turkey’s economic output, rose 19.7 per cent in 2022. Consumers will during periods of high inflation often prefer to buy goods rather than wait for them to become more expensive. Erdoğan faces the toughest election campaign of his two decades in power when Turks go the polls for a vote set for May 14, although some analysts expect the date to be put back because of the quake.His government had boosted the minimum wage, public sector salaries and pushed up pensions in an effort to secure votes. “The way Turkey has adapted to its high-inflation environment has been through government support,” said Liam Peach, economist at Capital Economics in London.Peach said the fast pace of consumer spending was a sign that Turkey’s economy was “overheating” as a result of fiscal support measures from the government and a series of sharp interest rate cuts last year. Erdoğan’s insistence on slashing rates despite the high price growth and his government’s other unorthodox economic policy approaches inflamed the inflation problem, according to economists. The central bank cut interest rates again this month as it sought to shore up the economy against the effects of the devastating February 6 quake, which caused $34bn in physical damage, equivalent to about 3.8 per cent of Turkey’s 2022 GDP, the World Bank estimated.Analysts are still assessing the full impact of the disaster on Turkey’s economy, but many expect a short-term hit to growth followed by a fresh surge in government spending to fund the huge recovery effort. Turkey’s economic growth rate is forecast to ease to 2.7 per cent this year, according to economist estimates collated by FactSet, many of which were produced prior to the quake. Trade was strong in 2022, with exports rising 9.1 per cent and imports increasing 7.9 per cent. However, trade turned into a drag at the end of last year, with exports falling on a quarter-on-quarter basis both in the final three months of 2022 and the previous three-month period. Peach and many other economists say the lira, which has been propped up by central bank interventions and a series of government programmes to discourage holdings of foreign currency, remains too strong — hurting the competitiveness of Turkish exports. More