Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK’s largest car insurers have piled hidden costs on top of double-digit interest rates for customers paying in monthly instalments, according to people familiar with the practice.Admiral and Aviva are among the car insurers that have pre-screened customers who opt to pay their premiums monthly rather than annually, one analysis of the practice found, and have raised the prices they charge such clients as a result.So-called double-dipping is expected to be scrutinised as part of a probe by the Financial Conduct Authority into whether insurance customers using “premium finance” — or paying in monthly instalments — are being overcharged, according to a person briefed on the matter.Matthew Brewis, head of insurance at the FCA, has described premium finance as “a tax on the poor” and the regulator is examining whether insurers’ use of the product breaches the consumer duty rules requiring them to give customers a fair deal. Admiral told the FT that it makes its costs ‘clear’ to customers More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the world“Stock vigilantes” is a term that only recently entered the markets vernacular. It is time to retire it again equally swiftly.It refers to the idea that if the going gets tough, and US stock markets tumble in value, Donald Trump will sit up, take notice, and reverse some of his more aggressive policies. Typically, this is a task left to the bond market, but here we have a president who basked in the reflected glory of upbeat stock markets in his first term. Surely this sensitivity cuts both ways? Investors and analysts certainly assumed so. (Full disclosure: so did I.)This notion had its first trial run in Trump 2.0 in February, when Trump declared he was serious about slapping hefty trade tariffs on supposed friends and neighbours in Canada and Mexico. Alas, stock vigilantes were found lacking. Stocks did stumble, but far too mildly to ring any alarms in the Oval Office. That left the president and his administration free to double down, not back down. Stronger vigilance was required, it seemed.One month later, and markets are clearly in a more pronounced tizz, with US stocks briefly entering so-called correction territory — down a tenth from their most recent high. Whether they have further to fall or not is, of course, a matter of opinion. Ask two analysts, get at least three answers.Either way, even at this point, the scale of the rethink on the US among money managers is quite extraordinary. In its latest monthly survey of fund managers around the world, released on Tuesday, Bank of America found the biggest swing out of the US on record. A net quarter of the fund managers surveyed said they were now underweight in US stocks — holding a smaller allocation than global benchmarks would suggest, a shift lower of some 40 percentage points from the previous survey. Nearly 70 per cent of investors say the much-vaunted concept of “American exceptionalism” has now peaked. Investors are in a foul mood. The bank’s survey also found the second-biggest rise in levels of pessimism — those saying they expected the global economy to weaken — since its records began in 1994. For context, the biggest increase was five years ago, in the teeth of the global Covid lockdowns.This is more like it — an unambiguous message from Wall Street to the president that his constant flip-flopping over tariffs and what we might euphemistically call his geopolitical realignment are a black mark against a stock market that has led the world for as long as most fund managers can recall.Again, though, Team Trump claims to be unruffled. In fact, it is turning the whole idea on its head, seeking to convince the world that this is what they wanted all along — an astringent, purifying reset in markets that is a necessary step to Make America Great Again. I missed this from the campaign trail, too.Treasury secretary Scott Bessent, the very same man who declared last year that “Kamala Harris will start with a Kamala crash in the stock market, and then it will be the Kamala crash in the economy”, is now saying he is “not at all” worried about the “healthy” correction that has been running of late. Commerce secretary Howard Lutnick echoed that, noting earlier this month that the performance of the stock market is not the “driving force” behind the president’s tariff policy.As analysts at Barclays diplomatically put it, “Trump and his administration have expressed more tolerance for adverse economic fallout from tariffs than we had expected.” Those waiting for a “put” here — the point in the market at which the president has a change of heart and backtracks — are creeping to the horrible realisation that they got this wrong. “Where has the put gone?” asked the multi-asset team at HSBC.To bring it back in play, they said, one of a few things needs to happen: a lasting seize-up in the flow of fresh public debt or equity into the world; an outbreak of stress in the deepest plumbing of the financial system; or a global and disorderly collapse in risky assets. None of these is happening yet — the drop in US stocks has not fully infected Europe, for example, and the market moves have been orderly, if unpleasant.One related item to add to that list is a bond shock. Right now, Treasuries are broadly calm and in balance — supported by the rising chance of a US economic slowdown but also held down by lingering concerns over fiscal incontinence and nascent worries over the dollar’s reserve-currency status. If something were to break in either direction there, the administration would be more likely to respond. Bond vigilantes — the original and best — still beat their newbie counterparts in stocks any day of the week.katie.martin@ft.com More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Giorgia Meloni has criticised Brussels for responding with retaliatory tariffs to US levies and warned that the tit-for-tat risks fuelling inflation in the EU.  The Italian prime minister, who is meeting fellow EU leaders at a summit in Brussels on Thursday, urged the European Commission to open urgent negotiations with the Trump administration to avert the damaging consequences of a trade war.“It is not wise to fall into the temptation of reprisals that become a vicious circle in which everyone loses,” she told the Italian parliament on Tuesday. “We must continue to work concretely and pragmatically to find possible common ground and avoid a trade war that would benefit neither the US nor Europe.”Her comments come after the commission — which runs trade policy on behalf of the bloc — said it would impose tariffs of up to 50 per cent on US imports, including whiskey, motorcycles and jeans from April 1 in retaliation for Washington’s decision to reintroduce a 25 per cent levy on imports of steel and aluminium. US President Donald Trump has since threatened to impose a 200 per cent tariff on all European alcohol imports, including Italian wine and spirits.Meloni, a rightwing politician and the only European leader to attend Trump’s inauguration, has walked a tightrope between maintaining good relations with Washington while siding with the EU in describing Russia as the aggressor in its war with Ukraine. On Tuesday she expressed support for Trump’s efforts to end the war and for restoring intelligence sharing and military assistance to Ukraine after Kyiv agreed to back his proposed 30-day ceasefire. But she also warned that an escalating trade war with the US would reduce Europeans’ purchasing power and force the European Central Bank to raise interest rates.“The result would be inflation and monetary tightening that dampens economic growth,” she warned. “Italy’s energies must be spent in the search for common sense solutions between the US and Europe.”Meloni also poured cold water on French and German calls for Europe to chart its own path on defence, insisting that without the US there was no viable security for the continent, including for Ukraine.“It is right that Europe equips itself to do its part, but it is at best naive and at worst crazy to think that today I can do it alone without Nato, outside that Euro-Atlantic framework that has guaranteed security for 75 years,” she said. The Italian leader said her coalition was committed to strengthening Italian security but expressed concerns about ReArm Europe, a Brussels plan to raise €150bn in loans for national defence investments and exempt military spending from the bloc’s fiscal rules. She said the name evoked a scramble for lethal weapons — something that is jarring for many in Italy, with its strong, church-influenced pacifist streak.Rome’s capacity to make use of the relaxed fiscal rules and take on more debt for defence remains limited due to its current debt burden of more than 135 per cent of GDP. Meloni said she would move prudently on extra borrowing. She also expressed serious reservations about a Franco-British initiative to send European troops to Ukraine as peacekeepers, describing it as a “very complex, risky and ineffective option”.But she said her coalition agreed with the need to beef up Italy’s ability to fend off cyber and other hybrid attacks, including on undersea cables and energy infrastructure.   “We have always believed in that ambitious — and I think now unpostponable — goal of building that solid European pillar of Nato.”Additional reporting by Giuliana Ricozzi More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Germany’s central bank bosses have often accused their Eurozone counterpart of being too aggressive in cutting interest rates, but now the Bundesbank has backed up some of their old arguments with an in-house artificial intelligence tool.Bundesbank economists used their own AI to screen about 50,000 sentences from European Central Bank monetary policy statements and speeches, tasking Meta’s multilingual large language model to analyse the hawkishness of the bank’s communications since 2011. The research found the ECB’s tone from that time has been “predominantly dovish”, meaning rate-setters were not overly concerned about inflation risks, stressed economic weaknesses and signalled monetary easing. It said the bank’s policies remained dovish even after it hardened its rhetoric when inflation started to rise in 2021.Bundesbank’s AI made a striking observation about the tenure of then-ECB president Mario Draghi, including when he pursued historically loose monetary policy during the past decade in an effort to avoid deflation. During that time, ECB communications on wider economic sentiment was noticeably more upbeat than its dovish narrative on inflation and interest rates, the Bundesbank analysis found. The research can be seen as supportive of arguments made by former Bundesbank bosses such as Axel Weber and Jens Weidmann, who routinely sparred with the ECB. Weidmann publicly said the Eurozone bank had “overshot the mark” with its dramatic monetary easing. Draghi once described the German banker as Mr No, or Nein zu allem.Draghi, who is credited with saving the euro after he indicated the ECB would do “whatever it takes” to stabilise the common currency, was dubbed “Count Draghila” by the German tabloid Bild, which accused him of “sucking dry” the bank accounts of German savers by imposing negative interest rates. According to the Bundesbank AI analysis, the ECB’s dovish stance was mostly in line with weak growth and overall adverse economic sentiment — in particular during the European debt crisis, the Covid-19 pandemic and the early days of Russia’s 2022 invasion of Ukraine. But it spotted a mismatch in the run-up to the 2022 price surge, when inflation shot up to as much as 10.6 per cent: the ECB’s wording on inflation risk became more hawkish from early 2021, but its stance on interest rates remained dovish for almost a full year. The hawkish tone on inflation risks peaked in June 2022 before the ECB started to finally respond with rapid interest rate increases a month later. While the Bundesbank has moderated its tone towards the ECB in recent years, the study’s findings could potentially underpin the widespread view among economists that the Eurozone’s central bank waited too long to respond to inflation risks that had long become visible.“The ECB governing council emphasised the increase in inflation at the time but assessed it was temporary,” the study says. “The inflation narrative remained highly hawkish until the end of 2022,” the Bundesbank finds, adding that the inflation narrative became “gradually less hawkish” over the past two years and “most recently” has been balanced.The ECB declined to comment on the findings. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Beijing is delaying approval for carmaker BYD to build a plant in Mexico amid concerns that the smart car technology developed by China’s biggest electric-vehicle maker could leak across the border to the US.BYD first announced plans for a car plant in Mexico in 2023, along with intentions to make cars in Brazil, Hungary and Indonesia. It said the Mexican plant would create 10,000 jobs and produce 150,000 vehicles a year.But domestic automakers require approval from China’s commerce ministry to manufacture overseas and it has yet to give approval, according to two people familiar with the matter.Authorities fear Mexico would gain unrestricted access to BYD’s advanced technology and knowhow, they said, even possibly allowing US access to it. “The commerce ministry’s biggest concern is Mexico’s proximity to the US,” said one of the people.Beijing is also giving preference to projects in countries that are part of China’s Belt and Road infrastructure development programme, according to the people.Shifting geopolitical dynamics have also contributed to Mexico cooling on the plant. Mexico has sought to maintain relations with Donald Trump, who has put tariffs on cross-border trade, threatening exports and jobs.Trump has also launched a trade war with Beijing, imposing tariffs on imports from China. Beijing retaliated by slapping tariffs on roughly $22bn in US goods, aimed mainly at America’s farming sector.Trump’s team has accused Mexico of being a “backdoor” for Chinese goods to enter the US duty-free through the North American Free Trade Agreement. The Mexican government denies this but has responded to US pressure by placing tariffs on Chinese textiles and launching anti-dumping investigations into steel and aluminium products originating from China.“Mexico’s new government has taken a hostile attitude towards Chinese companies, making the situation even more challenging for BYD,” said the second person.In November, shortly after Trump’s re-election, Mexico’s President Claudia Sheinbaum said there was still no “firm” investment proposal from any Chinese company to set up in Mexico, despite BYD having reaffirmed its intent to invest $1bn earlier that month.“The Mexican government obviously would like to get some of the investments [from China], but [its] trading relationship with the US is a lot more important,” said Gregor Sebastian, a senior analyst at US-based consultancy Rhodium Group. It doesn’t “make business sense” for BYD to hasten the construction of a production facility in Mexico at the moment, Sebastian added, pointing out that the lack of a robust automotive supply chain would force BYD to import numerous components from China, subjecting them to higher tariffs.When asked whether US tariffs and Mexico’s tougher stance on China had stalled the company’s plans, Stella Li, executive vice-president at BYD, said that it had “not decided [on] the Mexico facility yet”.“Every day is different news, so we just have to do our job,” said Li in a recent interview with the FT. “More study has to be done on how we can satisfy and improve to deliver the best result to everybody.”In February last year, Li had said they would select a location for the factory by the end of 2024.BYD reported sales of more than 40,000 vehicles in Mexico last year. It has said it wants to double sales volume and open 30 new dealerships in the country in 2025. Mexico’s economy ministry said it had no further comment beyond Sheinbaum’s previous remarks. BYD and China’s commerce ministry did not respond to a request for comment.BYD sold 4.3mn EVs and hybrids globally in 2024 and unveiled its “God’s Eye” advanced driving system in February, with plans to install it on its entire model line-up.Earlier this month, Tesla’s main rival raised $5.6bn in a Hong Kong share sale, with the proceeds expected to help fuel its overseas expansion. But it has suffered a setback with its $1bn development in Brazil, which was delayed in December when the authorities halted construction over workers being subject to “slavery”-like conditions. BYD subsequently fired a Chinese subcontractor. More

U.S. Vice President JD Vance (C) exits the Oval Office in the opposite direction as U.S. President Donald Trump and Elon Musk (R) walk away before departing the White House on March 14, 2025.
Roberto Schmidt | Afp | Getty Images

The UCLA Anderson Forecast, citing substantial changes to the economy from policies of the Trump administration, issued its first-ever “recession watch” on Tuesday.
UCLA Anderson, which has been issuing forecasts since 1952, said the administration’s tariff and immigration policies and plans to reduce the federal workforce could combine to cause the economy to contract. 

Its analysis was titled, “Trump Policies, If Fully Enacted, Promise a Recession.”
“While there are no signs of a recession happening yet, it is entirely possible that one could form in the near term,” stated a news release from the forecaster. 
U.S. recessions are only officially declared by the Business Cycle Dating Committee of the National Bureau of Economic Research. The committee employs a variety of indicators, including production, employment, income and growth to determine if the economy is contracting. At the moment, none of the specific indicators look to be near levels that would prompt the committee to declare recession. 
The average respondent to the CNBC Fed Survey for March, published Tuesday, forecast a 36% recession probability in the next year, up from 23% in the prior month. But it remains well below the 50% level that prevailed from 2022 and 2023 in the wake of the pandemic and turned out to be wrong. That shows how difficult it is to predict a recession, or even determine if the economy is in one. The Fed Survey also shows that a recession is not the base case for most Wall Street forecasters, only that the concern is somewhat elevated.
Recessions occur when multiple sectors of the economy contract at the same time. The UCLA Anderson Forecast said reductions to the workforce from the administration’s immigration policies could create labor shortages, tariffs will raise prices and could lead to a contraction in the manufacturing sector while changes to federal spending will reduce employment for government workers and private contractors.

“If these and their consequent feedback into the demand for goods and services occur simultaneously, they create a recipe for a recession,” the statement from the forecaster said. 

‘Stagflationary’

Administration officials, from the President to his top economic lieutenants, have not specifically pushed back against the possibility of recession from their policies. President Trump has said there would be a “period of transition,” while the Commerce Secretary had said a recession will be “worth it” for the gains that will eventually come from the policies.
Recessions are often the result of unexpected shocks to the economy. The surge in optimism following the election of President Trump, followed by the recent sharp drop off in some surveys, suggest that both businesses and consumers were unprepared for the extent and even the nature of some of the policies now being pursued. 
On timing, the UCLA Anderson Forecast would only say a recession could develop in the next year or two. Its report said: “Weaknesses are beginning to emerge in households’ spending patterns. And the financial sector, with elevated asset valuations and newly introduced areas of risk, is primed to amplify any downturn. What’s more, the recession could end up being stagflationary.” More