Economy

(Reuters) – British finance minister Rachel Reeves will hand the UK government’s armed forces a funding boost of almost 3 billion pounds ($3.90 billion) in the Oct. 30 budget, the Telegraph reported on Tuesday.($1 = 0.7686 pounds) More

BRUSSELS (Reuters) -French jet engine maker Safran (EPA:SAF) set out plans on Tuesday to invest more than 1 billion euros ($1.1 billion) and hire 4,000 people worldwide to “radically scale up” its maintenance network as the aviation industry tackles congested repair shops.The plan follows strong demand for LEAP jet engines that Safran co-produces for Airbus and Boeing (NYSE:BA) with GE Aerospace and is expected to boost Safran’s share of the aftermarket, where engine makers make much of their income.Safran and GE Aerospace produce the engines through co-owned venture CFM International, the world’s largest engine maker by number of units sold, which is celebrating its 50th anniversary.Engine maintenance has become a major industry headache as efforts to boost fuel efficiency increased the wear and tear on engines in certain climates and engine makers struggled to bring on new capacity fast enough to keep pace with a boom in demand.Analysts say that has meant longer waiting times at repair shops, exacerbating aircraft shortages and putting pressure on engine makers to accelerate their capacity expansion plans.Jean-Paul Alary, president of Safran Aircraft Engines, said Safran aimed to quadruple its in-house capacity to 1,200 shop visits per year by 2028. “It’s a sprint,” he told reporters.Safran unveiled its strategy at a recently inaugurated engine service centre outside Brussels, the first of six new or expanded sites due to add capacity by 2026.As part of the expansion, French President Emmanuel Macron signed an agreement expanding Safran’s presence in Casablanca during a visit to Morocco late on Monday, one of a number of business deals boosting ties following diplomatic tensions.CFM’s LEAP engines exclusively power the Boeing 737 series and are available as a choice on the Airbus A320neo in competition with Pratt & Whitney’s Geared Turbofan.’QUICK TURN’ Jet engines are typically sold for little or no profit at the outset, or even at a loss, with manufacturers making most of their profit in services spread over the life of the engine. The LEAP engine, introduced in 2016, has only just started to generate major overhauls that take place every 6-8 years. But Safran’s Brussels plant is busy handling “quick turn” visits to address the harsh climate issues, ahead of the upgrade of a key engine component designed to improve durability.CFM competes for maintenance contracts with airlines and a network of 14 independent repair shops including five key players.It aims over time to supply about half the market for LEAP repair services, expected to reach a total of 5,000 engine visits a year by 2040, Safran said. Services made up 65% of Safran’s core propulsion revenues in the third quarter.The latest maintenance expansion in repair shops comes as CFM and other engine makers are struggling to keep up with demand for new engines amid kinks in the global supply chain.Airbus earlier this month singled out CFM as a “bottleneck” delaying jet deliveries, but Safran insists its services growth will not distract attention from ramp-up plans for new engines.”There is no (services) investment that would jump ahead of the investments we make for new engine production,” Alary said, adding Safran would continue to invest heavily in its factories.While Airbus is clamouring for engines, Boeing is having to balance its intake with the crippling effects of a strike.Alary said Boeing continued to take LEAP engines for its 737 assembly line to help keep a cornerstone of its supply chain in fit condition, but was doing so at a “relatively reduced rate”.($1 = 0.9242 euros) More

The Conference Board’s consumer confidence index for October rose more than 11% to a reading of 138, its biggest single-month acceleration since March 2021.
Job openings slid to 7.44 million in September, down more than 400,000 from the previous month’s downwardly revised level and the lowest since January 2021.

Consumers grew more optimistic about the U.S. economy heading into the contentious presidential election even as job openings hit multi-year lows, according to separate reports released Tuesday.
The Conference Board’s consumer confidence index for October rose more than 11% to a reading of 138, its biggest one-month acceleration since March 2021. Along with that, the board’s expectations index of future conditions jumped nearly 8%, to a reading of 89.1 that is well clear of the sub-80 level that indicates a recession.

Economists surveyed by Dow Jones had been looking for a headline number of 99.5.
“Consumers’ assessments of current business conditions turned positive,” said Dana Peterson, the board’s chief economist. “Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data.”
That sentiment was seemingly at odds with a Bureau of Labor Statistics report showing that job openings slid to 7.44 million in September, off more than 400,000 from the previous month’s downwardly revised level and the lowest since January 2021. That number was also below a Wall Street forecast of 8.0 million.
The drop in openings took the ratio of job vacancies to available workers below 1.1 to 1. In mid-2022, the number was greater than 2 to 1.
Though the openings level moved lower, hires rose 123,000 on the month. Separations were little changed, while quits fell by 107,000.

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BERLIN (Reuters) -Thousands of German workers launched nationwide strikes to press for higher wages on Tuesday, compounding woes of companies worried about staying globally competitive as high costs, weak exports and foreign rivals chip away at their strengths.The strikes by unionised workers in the nearly 4-million strong electrical engineering and metal industries hit companies such as Porsche AG, BMW (ETR:BMWG) and Mercedes.Also this week, car giant Volkswagen (ETR:VOWG_p) could announce shutting three plants on home soil for the first time in its 87-year history, as well as mass layoffs and 10% wage cuts for workers who keep their jobs.A worsening business outlook in Europe’s largest economy has piled pressure on Chancellor Olaf Scholz’s rickety coalition government, which could be on the verge of collapse ahead of federal elections next year as policy cracks widen.Scholz is hosting a meeting with business leaders on Tuesday, including Volkswagen boss Oliver Blume, but his team has already played down expectations of quick results. In a sign of government dysfunction, his finance minister has also announced a separate summit on the same day.Germany has a long history of so-called “warning strikes” during wage negotiations, but they come at a time of employers’ deepening concerns about the future. A leading business group said a survey of companies pointed to Germany experiencing another year of economic contraction in 2024 and no prospect of growth next year.”We are not just dealing with a cyclical, but a stubborn structural crisis in Germany,” said Martin Wansleben, managing director of the German Chamber of Commerce and Industry (DIHK)that conducted the survey.”We are greatly concerned about how much Germany is becoming an economic burden for Europe and can no longer fulfil its role as an economic workhorse,” he said, calling for “profound reforms”.”A separate survey by the VDA auto industry association suggested the transformation of the German car industry could lead to 186,000 job losses by 2035, of which roughly a quarter have already occurred.”It is becoming increasingly clear that there is no room for interpretation: Europe – especially Germany – is losing more and more international competitiveness,” the VDA report said.”The price of electricity for German companies is up to three times higher than for international competitors, e.g. from the USA or China. Germany is a country with the highest taxes and the bureaucratic burdens are constantly increasing.”WORKERS WANT THEIR SHARE The International Monetary Fund, too, joined those calling for reforms in Germany, suggesting the government ditch a constitutionally enshrined borrowing cap known as the debt brake so it can boost investment. The debt brake is supported by Finance Minister Christian Lindner, whose is at odds with Economy Minister Robert Habeck, who has called for a multi-billion euro fund to stimulate growth.Offering some respite for the government, a separate survey by the Ifo institute last week showed business morale had improved more than expected in October. Tuesday’s strikes were orchestrated by the powerful IG Metall union, which also staged a walkout during the night shift at Volkswagen’s plant in the city of Osnabrueck, where workers worry the site may be shutting down.IG Metall is demanding 7% pay rises compared to the 3.6% raise over a period of 27 months offered by employers’ associations. Companies say the demands are unrealistic.”Wage restraint does not create jobs. Our difficult situation has completely different causes than high wages,” said Harald Buck, works council chairman of Porsche AG at the Zuffenhausen plant in Stuttgart. Some 500 employees walked out during the night shift and then around 4,000 employees went on strike during the early shift to join a demonstration, according to a statement. “We are not the cause. We have earned our share and are fighting for 7%.” Separately, the next round of talks between Volkswagen and labour representatives is due on Wednesday, though the company’s works council chief has threatened to break off the talks. More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Premium subscribers can sign up here to get the newsletter delivered every Tuesday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersThe annual meetings of the IMF are always a good time to take stock of the global economy and the policy positions of leading countries. Last week’s jamboree in Washington was no exception. What struck me most was not the general angst about a Trump victory — that was inevitable. It was the otherworldliness of the IMF’s main economic policy advice. There is no doubt what this advice was. The World Economic Outlook (WEO) report was titled “Policy pivot, rising threats”, and the three pivots it called for were as follows. First, an easing of monetary policy, which the IMF recognised was already under way. Second, a sustained and credible multi‑year fiscal adjustment to address the “urgent” need to stabilise government debt dynamics and rebuild fiscal buffers. Third, it called for growth-enhancing structural reforms. Since the IMF always, rightly, calls for growth-enhancing structural reforms, I will focus on its recommendation of monetary loosening alongside fiscal tightening. This is new. The table below shows the development of monetary and fiscal policy advice in successive autumn and spring IMF meetings. No need for ChatGPT here. It is surprisingly easy to summarise its advice in a maximum of two words. The IMF’s monetary advice has tended to mimic the policies of central banks and might even be a description of what is happening rather than advice. Fiscal policy advice from the IMF has moved in a linear fashion from a recommendation of stimulus during the coronavirus pandemic towards ever louder calls for policy tightening.The IMF is not asking countries to go crazy with tax increases or public spending cuts. Pierre-Olivier Gourinchas, the fund’s chief economist, said a balance had to be struck between short-term demand destruction if countries slammed on the fiscal brakes and the risk of disorderly adjustments if they did too little and countries lost access to bond markets. “Success requires implementing, where necessary, and without delay, a sustained and credible multi‑year fiscal adjustment,” he said. According to the IMF, the benefits of this pivot from monetary to fiscal tightening is a “favourable feedback loop” in which inflation remains under control as interest rates come down, easier monetary policy supports demand growth and eases the costs of government borrowing, this facilitates fiscal consolidation and then further monetary easing. In combination, the IMF concludes, “tighter fiscal policy paves the way for looser monetary policy”. There is little doubt that interest costs have been rising as a share of government revenues and this is increasingly a problem for finance ministries around the world, so the IMF has touched on an important problem.Some content could not load. Check your internet connection or browser settings.Let us see if this pivot is happening in the real world. On the monetary side, there are clear signs that progress with disinflation has allowed central banks to ease nominal interest rates. Whether you like the concept of short-term real interest rates or not, these have continued to rise in 2024 when rates had previously been stable because they came with falling year-ahead inflation expectations. The IMF explains that real rates are expected to come down alongside nominal rates as inflation expectations stabilise. The chart below shows the discretionary and non-discretionary monetary tightening phases along with market forecasts for the US and Eurozone. The monetary policy pivot is happening. Some content could not load. Check your internet connection or browser settings.What about fiscal policy?It is right for the IMF to give recommendations, but I am afraid to say there is next to zero sign that the finance ministries of the world were listening last week. There is not much sign that the IMF really believes it either. Almost every G7 country has a higher projected structural budget deficit in 2029 than in 2019 before the pandemic, with huge loosening in France and Italy. The US structural deficit is marginally lower in 2029 than in 2019, but huge in both years. The forecast for 2029 is also based on the IMF’s forecast policy assumption that countries do follow the fund’s advice to some extent. There is not much fiscal tightening baked into the 2024 to 2029 forecasts either. Some content could not load. Check your internet connection or browser settings.More telling is that the fiscal outlook of structural deficits is worse in this October’s edition of the WEO compared with earlier editions. The chart below compares the most recent forecast with those made in the April 2022 WEO. That fiscal pivot is simply not happening. Some content could not load. Check your internet connection or browser settings.To the extent that the fiscal pivot does not happen as the IMF hopes, it suggests that government borrowing costs are likely to remain higher and that monetary policy probably cannot and should not loosen as much as financial markets expect. That is, unless, a lot more stimulus is generally needed than the IMF thinks.Whatever happens, the IMF is likely to become ever more shrill with its fiscal policy message in future as countries merrily ignore it. The UK isn’t pivotingThe first country to ignore the IMF’s advice will be the UK on Wednesday when the newish Labour government delivers its first Budget. Since ministers do not want a big surprise on the day, we know it will increase taxes, public spending and government borrowing. Below are my predictions for the new government borrowing forecasts along with those from the previous March Budget. These are falsifiable and I promise to come back next week with a mea culpa if they are horribly wrong. I expect the new binding fiscal rule will be balancing the current budget (excluding net investment), which will be projected by the end of the decade. So, there is a budgetary consolidation planned. But there is also a significant fiscal loosening, with overall public sector net borrowing (PSNB) likely to be about 1 per cent of GDP higher as the UK government plans to increase day-to-day public spending growth and public investment. Tax rises will also be large — about 1.5 per cent of GDP annually — by the end of the decade.Some content could not load. Check your internet connection or browser settings.What should the Bank of England make of this? The Budget will increase actual and projected borrowing, this will stimulate demand, higher investment will improve supply, tax rises will detract from supply and there will be an ongoing fiscal consolidation. Another falsifiable prediction of mine is that the BoE is likely to say these changes will make little difference to projected monetary policy. This is what happened in MPC meetings after other recent Budgets that loosened the fiscal stance. I am thinking of the May 2023 MPC meeting, the December 2023 meeting and the March 2024 meeting. That said, I once suggested privately to one MPC member that the committee likes to find reasons why fiscal policy does not matter. I came away with a flea in my ear, having been roundly told off. What I’ve been reading and watchingThe Bank of Canada goes large with a half-point cut in ratesThe Chinese economy shows ever more signs of strain — this time with falling industrial profitsEurope is preparing for a Trump victory with plans for tariff retaliation. Not wise, says Alan Beattie, because it is better to do a deal with the former president, even if you have no means of undertaking the commitments you have made to buy US stuff Central bankers in advanced economies should spare a thought for their counterpart in Bangladesh. Governor Ahsan Mansur, who got the job after the regime of Sheikh Hasina was toppled in August, has accused tycoons of “robbing banks” of $17bn in the countryA chart that mattersEver wondered how good financial markets are at predicting US interest rates? This year, they have been all over the place, starting the year predicting six quarter-point cuts, reducing that to one-and-a-half by April and going back to six in September. Now it is four. Let me know if you think this is an efficient market, carefully processing the available information? I’m at chris.giles@ft.com Some content could not load. Check your internet connection or browser settings.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More