Economy

BANGKOK (Reuters) -Thailand’s government has agreed with the central bank to maintain the current 1% to 3% inflation target for 2025, in return for assurances the bank will support its fiscal policy and help jumpstart growth, the finance minister said on Tuesday. The central bank has insisted the present target, in place since 2020, has worked well for the economy, but the government wants higher prices to boost economic activity amid tepid growth that has lagged regional peers. The meeting between Finance Minister Pichai Chunhavajira and Bank of Thailand (BOT) chief Sethaput Suthiwartnarueput, first reported by Reuters, came after months of intense government pressure to cut interest rates and align with fiscal policy aimed at stimulating the economy.Pichai said the BOT should support the government’s efforts on the economy and consider inflation and foreign exchange when conducting monetary policy. “I can accept the inflation target of 1%-3%, but there must be measures to support growth and bring actual inflation up to an appropriate point, close to 2% or at 2%,” he told reporters after the meeting at the finance ministry. The BOT declined to comment on the meeting. Pichai said the real problem was not the inflation target, but debt, low investment and too low inflation, he said, adding the BOT must submit policy guidelines to him again.The government had been pushing all year for a rate cut, blaming rates for suppressing activity and curbing its efforts to boost growth. The BOT had long resisted the pressure, including from several major business groups, but unexpectedly cut its key rate by 25 basis points to 2.25% on Oct. 16, the first reduction since 2020. The next policy review is on Dec. 18.Pichai said the BOT should also ensure that the baht currency supports exports, adding low interest rates would help the economy, investment and debt.PUSH FOR INFLUENCEThe government will in two weeks introduce more measures to address household debt, he said, which was 16.3 trillion baht ($483 billion), or 89.6% of GDP, among the highest in Asia.The government has sought to assert its influence on the BOT by nominating a ruling party loyalist and critic of the BOT governor for the post of board chair.Ahead of Tuesday’s meeting, Pichai had said inflation would miss the target this year, as average annual headline inflation was just 0.20% in the first nine months of 2024.The central bank has long maintained that it is structural issues that are weighing most on growth.BOT Deputy Governor Piti Disyatat told Reuters last week that inflation was low and well anchored, with no risk of deflation, while the economy was converging to trend growth.The current policy stance was well-balanced and the recent rate cut was a “recalibration”, not the start of an easing cycle, he said. The BOT expects headline inflation, at 0.61% in September, to return to target late this year and predicts average inflation at 0.5% this year and 1.2% in 2025.The BOT this month raised its 2024 GDP growth forecast to 2.7 from 2.6% but trimmed its 2025 growth outlook to 2.9% from 3.0%. The economy expanded just 1.9% last year. ($1 = 33.76 baht) More

China’s top legislative body, the Standing Committee of the National People’s Congress (NPC), is looking to approve the fresh fiscal package, including 6 trillion yuan which would partly be raised via special sovereign bonds, on the last day of a meeting to be held from Nov. 4-8, said the sources.The 6-trillion-yuan worth of debt would be raised over three years including 2024, said the sources, adding the proceeds would primarily be used to help local governments address off-the-books debt risks. The planned total amount, to be raised by issuing both special treasury and local government bonds, equates to over 8% of the output of the world’s second-largest economy, which has been hit hard by a protracted property sector crisis and ballooning debt of local governments. Reuters is confirming for the first time that the Chinese authorities are contemplating approving the 10-trillion-yuan stimulus package, an amount that financial analysts have said in recent weeks they expect Beijing to consider. The spending plans suggest that Beijing has switched into a higher stimulus gear to prop up the economy although it’s still not the 2008-like bazooka that some investors have been calling for.The central bank in late September announced the most aggressive monetary support measures since the COVID-19 pandemic. The government followed up weeks later by flagging more fiscal stimulus without specifying financial details of the package, stoking intense speculation in global markets about the size of the new spending.The sources who have knowledge of the matter declined to be named due to confidentiality constraints.The State Council Information Office and the news department of the NPC Standing Committee did not immediately respond to Reuters requests for comment.The sources cautioned that the plans are not finalized yet and remain subject to changes.”The current policy priorities appear to focus first on addressing local government hidden debt, followed by financial system stability, and then on supporting domestic demand,” said Tommy Xie, head of Greater China Research at OCBC Bank.China’s top legislative body generally holds its meeting every two months – in the second half of even-numbered months. As per the parliament’s 2024 work agenda, released in May, a standing committee session was planned for October.The forthcoming meeting was initially planned for late October before being rescheduled to early November, said one of the sources.The meeting’s timing, which coincides with the week of the U.S. presidential vote on Nov. 5, offers Beijing greater flexibility to adjust the fiscal package including the total size, based on the election outcome, said the sources.Beijing may announce a stronger fiscal package if Trump wins a second presidency as his return to the White House is expected intensify the economic headwinds for China, the two sources said.Republican candidate Trump has gained in recent polls to erase much of the early advantage of his Democratic opponent, Vice President Kamala Harris. Trump has vowed to impose 60% duties on imports from China.STIMULUS INITIATIVESAs part of its latest fiscal package, the NPC Standing Committee is also expected to greenlight all or part of up to 4 trillion yuan worth of special-purpose bonds for idle land and property purchases over the next five years, said the sources.Local governments would be allowed to raise that amount on top of their usual annual issuance quota, which mainly funds infrastructure spending. The quota stood at 3.9 trillion yuan this year and 3.8 trillion in 2023.The latest move is aimed at enhancing local governments’ ability to manage land supply, and alleviate liquidity and debt pressures on both local governments and property developers, they added.Special-purpose bonds are a tool for off-budget debt financing used by Chinese local governments, with the proceeds raised typically earmarked for specific policy objectives, such as infrastructure expenditures.Should the NPC Standing Committee approve these issuances in full instead of in stages, it could increase the total stimulus size to over 10 trillion yuan, they added. An average of 2 trillion yuan in new central government debt annually underscores an urgency in Beijing to shore up the economy.Late in 2023, China issued 1 trillion yuan in sovereign bonds to bolster flood-prevention infrastructure and meet its roughly 5% economic growth target. Beijing started this year with plans to issue 1 trillion yuan in special sovereign debt already in place, but that sum is widely expected to be increased as growth has been drifting off target and economists said a longer-term structural slowdown could be in play. All the same, the planned fiscal spending falls short of the firepower deployed in 2008, when Beijing’s 4 trillion yuan in fiscal stimulus in response to the global financial crisis accounted for 13% of GDP at the time. The extra money fuelled a property market frenzy and led to unfettered lending to local government financing vehicles, which municipalities used to get around official borrowing restrictions.As part of the overall fiscal spending, China is also considering approving other stimulus initiatives worth at least one trillion yuan, such as a consumption boost including trade-in and renewal of consumer goods, said the sources. Another trillion yuan could also be raised via special treasury bonds for capital injection into large state banks, said one of the sources and another source with knowledge of the matter.”Significant fiscal stimulus should buoy confidence and support economic growth,” said Louis Kumis, S&P Global’s Chief Asia Economist in Hong Kong. “It seems support for consumption remains modest. That means it remains unlikely that we will see a substantial improvement of the economic growth outlook or that deflation risks have been vanquished.” More

The fiscal package is expected to be further bolstered if Donald Trump wins the Nov. 5 presidential election, the sources said.Here are some comments from analysts on the stimulus plans:TOMMY XIE, HEAD OF GREATER CHINA RESEARCH, OCBC BANK, SINGAPORE”The current policy priorities appear to focus first on addressing local government hidden debt, followed by financial system stability, and then on supporting domestic demand.”My key concern was: how will the debt swap be financed? If local governments primarily finance the swap, converting hidden debt into on-balance-sheet obligations may reduce interest expenses. However, this approach alone may not increase local government expenditure unless there is a debt transfer from the local to central governments.”This exclusive news is important as it may help address one of my key concerns. In my view, the issuance of long-term special bonds is crucial to this strategy.”GARY NG, SENIOR ECONOMIST FOR NATIXIS, HONG KONG”The stimulus size is getting closer to the market expectation, but the package can be a painkiller rather than a booster for the economy.”To gauge the impact on growth, the time horizon of bond issuance and funding usage will be key to watch; 4 trillion yuan can provide meaningful support to purchase idle units and mitigate risks. However, the amount of the new local government bonds used for debt swaps and spending is still uncertain. Therefore, it is positive in repairing confidence, but the economic impact may not be as big as it looks on the surface.”ALVIN TAN, HEAD OF ASIA FX STRATEGY, RBC CAPITAL MARKETS, SINGAPORE”Notwithstanding the large and impressive amount, how that debt will be utilised is key in understanding the fiscal impact on economic demand and growth.”The signs are that the bulk of China’s upcoming fiscal package will be focused on local government debt restructuring and banking sector recapitalisation.”If most of the 10 trillion yuan debt issuance is indeed used for local government debt swaps, i.e. swapping high interest debt with low interest debt, and banking sector recapitalisation, the net fiscal impact will be much smaller than the headline figure would suggest. This is because neither debt restructuring nor banking recapitalisation is a form of direct demand stimulus.”LOUIS KUMIS, CHIEF ASIA ECONOMIST, S&P GLOBAL, HONG KONG”Significant fiscal stimulus should buoy confidence and support economic growth.”Most of the revenues of extra bond issuance seem destined to be used to help local governments address their debt problems. Still, that should allow them to be less frugal in their spending.”Directing funds towards idle land and property should help. Yet, given the weak sentiment and large stock of unsold housing, the property steps are unlikely to stabilise the housing market in the near future.”It seems support for consumption remains modest. That means it remains unlikely that we will see a substantial improvement of the economic growth outlook or that deflation risks have been vanquished.”LYNN SONG, CHIEF GREATER CHINA ECONOMIST, ING, HONG KONG”If we do get a big 10 trillion yuan package as the headline, this will likely be sufficient to satisfy most investors.”The numbers given generally are in line with our earlier expectations for fiscal stimulus of around 2-4 trillion yuan per year.”If the 6 trillion yuan for local government bonds and 4 trillion yuan for property purchases and reclaiming idle land is indeed the ultimate divide, we feel it is quite a notable sum committed to propping up the property market, especially if the deployment is more front-loaded.”Housing inventories have actually already started to decline after peaking in February this year, but accelerating purchases would help bring inventories back toward a healthy level at a faster pace.”The multiplier effect of this round of fiscal stimulus will naturally be lower compared to previous packages more focused on infrastructure investment, but tackle two of the biggest pain points for the Chinese economy, and should be a welcome move for markets if it is approved.”Moving forward, markets will continue to look for future policy measures to support consumption, another policy priority which has been flagged multiple times in recent briefings.”LINDA LAM, HEAD OF EQUITY ADVISORY FOR NORTH ASIA AT UMP IN HONG KONG”If that number is true, it’s more on the high end of the estimates, but within expectations. It’s the market consensus that a fiscal package has to be part of the solution.”The market has been eager to get a concrete number.”Of course implementation is key, depending much on monetary transmission and consumption power.” (This story has been corrected to say Natixis, not Nations, in paragraph 8) More

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen is seeking to reclaim the narrative on the Biden administration’s economic record on Tuesday, arguing that Americans are better off than they were when President Joe Biden took office.In excerpts of remarks to a banking conference released by the Treasury a week before the Nov. 5 presidential election, Yellen lauded robust U.S. economic growth, historically low unemployment, falling inflation and rising wages.Stung by high inflation after the COVID-19 pandemic, many voters in the seven battleground states that will decide the winner of the election have ignored the traditional measures of the economy to focus on the higher prices they now pay for necessities, and are leaning towards Republican Donald Trump. A Reuters/Ipsos poll this month showed that 61% of voters in the battleground states say the economy is on the wrong track with 68% saying the cost of living was on the wrong track.Trump has consistently scored better on the economy in polls than Vice President Kamala Harris, his Democratic opponent, despite a robust U.S. economic performance that is driving global growth and outperforming rivals. A common refrain in Trump’s rallies is that Americans are worse off than they were four years ago.Yellen, who has touted billions of dollars in investments spurred by the Biden administration’s clean energy, infrastructure and semiconductor legislation, sought in her remarks to the American Bankers Association to remind voters how bad things were back in early 2021.”When President Biden and Vice President Harris took office, thousands of Americans were dying each day from COVID-19. The unemployment rate was 50 percent higher than it is now,” Yellen said. “Today, by contrast, the U.S. economy is strong. We’ve seen robust economic growth, bolstered by solid consumer spending and business investment, even while inflation has come down significantly from its peak.”More positive data is expected this week, with third quarter GDP growth expected to top 3% on Wednesday, but payrolls growth is expected to be held back by the Boeing (NYSE:BA) strike involving 33,000 workers.Yellen acknowledged that more work was needed to bring down the cost of living but said that wages have risen faster than prices.”Which means that the typical American can afford more goods and services than before the pandemic. And Americans are starting new businesses at a record rate, reflecting optimism about the economy,” she said. More

BERLIN (Reuters) – Chancellor Olaf Scholz announced this month a summit of industry leaders to discuss how to save Germany’s flailing economy.A week later the economy minister laid out his own proposals. Then the finance minister announced another business summit to take place on Tuesday – the same day as Scholz’s. None of the announcements were coordinated with one another, or met with reciprocal approval, in a cacophony underscoring the growing dysfunction within Germany’s ideologically disparate coalition of centre-left Social Democrats (SPD), free market Free Democrats (FDP) and Greens.The campaign for next year’s federal election appears to have unofficially started already, pitting the three ruling parties against one another, say senior party and government officials. The risk of their coalition falling apart is higher than ever before.Panic within the parties over dismal performances in recent regional elections which saw the FDP and Greens drop out of some state parliaments is causing them to pile pressure on their leaders to compromise less and push their own agendas better.The FDP in particular, which is currently polling nationally under the 5% threshold needed to enter the federal parliament, is a flight risk. The party has for weeks been debating whether it has a better chance of improving its ratings in or outside the government, senior FDP sources told Reuters.FDP leader and Finance Minister Christian Lindner is not keen on blowing up the coalition but faces increasing pressure within his party, said one government official who declined to be named. “Everything hinges on Lindner.”Until recently, the poor ratings of all three coalition parties were seen by analysts as too great a disincentive for them to seek new elections. They would also fear being punished for abdicating responsibility, particularly with wars raging in Europe and in the Middle East.But the FDP could hope to win votes for ending an increasingly unloved, ineffective coalition, said Stefan Marschall, political scientist at the University of Duesseldorf.DECISION TIMELindner has called this the “autumn of decisions”, saying the government must agree important measures to boost the economy and to close the budgetary gap.”Stability for Germany is of paramount importance,” Lindner told the outlet Table Briefings this month. “But at some point, a government itself can be part of the problem.”No longer pulling his punches, Lindner called the policy proposals that Economy Minister Robert Habeck of the Greens announced last week to foster investment through tax relief a “sign of conceptual helplessness”.”Will the stalemate in the coalition now be followed by an open exchange of blows? Should this go on for another year?” asked Friedrich Merz, leader of the main opposition Christian Democrats (CDU), which is calling for snap elections.Scholz has rejected that call, saying: “When someone has a mandate, they must work to fulfil their duties.” The FDP was always the odd one out in Scholz’s unwieldy coalition which nonetheless united in its early years over an external threat: Russia’s invasion of Ukraine and the subsequent energy crisis.Now, though, the focus has shifted to reviving an economy that is set to contract for the second year in a row, bringing the differences between the fiscally hawkish FDP and more spendthrift SPD and Greens to the forefront.Whether or not they can get the 2025 budget passed in parliament will be a litmus test for the coalition’s viability, said one high-ranking FDP source. The budgetary committee meets on Nov. 14.”Before that decisive meeting, the government needs to come up with a common understanding, also in light of the recent tax estimates, on the next steps in economic and financial policy,” the source said. “The next weeks will be decisive.”The projected shortfall in Germany’s draft 2025 budget widened to 13.5 billion euros ($14.58 billion) from 12 billion euros as a result of those estimates, Lindner said last week.’NO TRUST’An FDP government official said a third round of negotiations between Scholz, Habeck and Lindner would likely be needed. “The mood is not good at all, there is no trust anymore,” the official said.The most likely scenario is still that the coalition holds together until the next federal election on Sept. 28 given hope that its policies might start yielding fruit and the German proclivity for stability, analysts and officials say.However, the SPD’s new general secretary, Matthias Miersch, this month raised the possibility of a minority government if the FDP or the Greens were to exit the coalition early.”If the budget has been approved ahead of time that wouldn’t be a problem,” he said.Given the government’s lack of popularity, however, it would likely struggle to resist pressure for new elections. Such a move would require the chancellor to first call a vote of no confidence so the president could then dissolve parliament.One particular external event could yet cause the coalition to rally together, namely the potential re-election on Nov. 5 of former U.S. president Donald Trump, who has threatened to impose high tariffs on imports and condition support for NATO allies.”The world’s third largest economy could not risk being without leadership at such a time,” the first government official said. “Everyone knows that, even Lindner.” More

(Reuters) – This past summer, leads for Brian Brown’s landscaping business near Lake Tahoe were drying up.   “We’d put together bids, call clients, and they were like, ‘well, we’re going to think about it,'” said Brown, whose typical customer owns luxury property in the California resort area. “Most of our clientele are not the kind of people that ‘think about it.'” As the months ticked by, he got increasingly nervous about the spending pullback, which left him with a thin cash cushion going into the winter off-season and a smaller-than-usual book of business for next summer. He is cutting bonuses and considering laying off one of his six full-time staff. Then in September, the Federal Reserve eased policy and signaled borrowing costs were heading lower. “That really allowed me to exhale a little bit,” Brown said. He now expects that cheaper borrowing costs will let him refinance a clutch of loans that currently cost him $20,000 a month, and use the extra cash flow to build out a shop on one of his commercial yards. By springtime, he hopes, lower interest rates and the uncertainty of the U.S. presidential election in the rearview mirror will also mean renewed demand for tree-trimming and other services, allowing him to make his usual 50 or so seasonal hires.Overall, he said, “we’re cautiously optimistic.”As the Fed shifts from the restrictive policy it imposed to quell inflation, Brown’s change in sentiment is echoed by firms across the country. Surveys by Fed banks also show that businesses have become more optimistic after a long decline as the Fed was raising rates. And the Fed’s most recent Beige Book, which summarizes business trends in all 12 districts and found lackluster conditions in most of them, also noted some improvement in the outlook due to the decline in interest rates.LENDER OPTIMISMBanks see it too.”I think we’re setting ourselves up for kind of a rebound in loan demands and getting those animal spirits ready to start making investments again,” said Citizens Financial (NYSE:CFG) Group CEO Bruce Van Saun. “Having rates come down will be helpful.”Banks surveyed by the Dallas Fed immediately after the Fed’s rate cut reported that loans continued to decline, but they also turned sharply more bullish on the outlook.  A larger share of lenders expect business activity and demand for loans to rise over the next six months than at any time since the Fed began its now-concluded rate-hike campaign, back in 2022. And though the survey is confined to Texas banks, the Dallas Fed’s banking conditions survey often presages national trends.Fed policymakers next meet to set rates on Nov. 6-7 – the two days immediately after the election – and again on Dec. 17-18. Their latest projections show they are closely divided on whether they’ll end up cutting the policy rate at both meetings or just one. Landscaper Brown says he will wait until rates drop at least another half of a percentage point before seeking refinancing. Most analysts currently believe the Fed is likely to deliver that by year-end, though an unexpected surge in retail sales and a pickup in payroll growth in September have financial markets betting it could take a little longer.’GLIDE PATH DOWN’MassageLuxe franchisee Tracy Thomas says she’s counting on the Fed’s rate cuts to fast-track her expansion after opening her first spa last December in Fort Mill, South Carolina, with a 10.25% Small Business Administration loan. She now has 400 members paying anywhere from $75 to $149 a month; this month she added two massage therapists to her current roster of nine, and hired a sixth front desk staffer. She plans to acquire a second franchise next year, sooner than she had thought because borrowing will be cheaper. “A lower rate would help us manage our costs … and free up more capital” for further growth, she said. And it’s not just businesses planning to borrow that say the Fed’s pivot to rate cuts makes for a rosier outlook. Sabrina Fuller, who runs a house-painting business in Athens, Georgia, with her daughter Holly, says people may feel better about the economy now that the Fed is comfortable enough on the inflation outlook to ease up on rates. “If it loosens up money in folks’ pocketbooks, fantastic,” she said, though she doesn’t expect to see much of a boost until sometime next year. “When people start feeling good about things, they want to spend money on projects.” Despite uncertainty in the short-term, nearly all Fed policymakers say they support further reductions in short-term borrowing costs to account for cooling inflation and prevent harm to the labor market, and most see the policy rate, now in the 4.75%-5% range, to end next year between 3% and 3.5%. “It is not so much that the rates have come down to a certain threshold level. It’s less about that than it is that we’re now pretty certain to be on a glide path down of interest rates,” Zach Wasserman, CFO of Huntington Bank, said earlier this month. “Now that the market has a much stronger conviction of rates coming down, we’re seeing decisions get across the wire…and deals culminate now in much higher frequencies.” More

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The investment includes $147 million in awards for the Maryland Port Administration, which owns the Port of Baltimore, the White House said in a statement.The funding will be used to create union jobs and upgrade port infrastructure to cleaner equipment, the statement added.The announcement comes after the three day port strike on the U.S. East Coast and Gulf Coast earlier this month, where work stoppage briefly halted the flow of about half the country’s ocean shipping. More