Economy

In the 1970s, the UK was known as the “sick man of Europe”. Today it seems to be the sick man of the developed world. The IMF forecast this week that Britain would be the only leading economy to shrink this year. Its gloomy outlook was published, by coincidence, on the third anniversary of the UK’s exit from the EU. The Brexit deal is by no means the only reason for Britain’s underperformance, but it is a factor. Finding ways to soften its impact needs to be part of a broader strategy to rekindle growth.The IMF may be overly pessimistic. But the UK is undoubtedly lagging behind its peers as it suffers the worst of two economic worlds. As in the US, its shrunken post-pandemic workforce has left it with a labour market squeeze. And, like the rest of Europe, Britain is exposed to sky-high energy prices. The disastrous “mini” Budget of Liz Truss’s short premiership led to a rise in borrowing costs which has eased but is still affecting families and businesses.A 2023 recession will compound years of underperformance: the UK is the only major economy that has not regained its pre-Covid size. Productivity growth and business investment were anaemic pre-2016, but few economists dispute that Brexit has exacerbated the UK’s weakness since the referendum.Business investment has stagnated, depressed by political and economic uncertainties and the erection of barriers with Britain’s biggest trade partner. The UK’s post-pandemic recovery in trade has trailed that of other big economies. Newfound regulatory freedoms, and new trade deals with the likes of Australia, cannot offset the damage.The EU exit has also eroded the quality of governance. Successive Conservative governments have wrestled with the contradiction between Brexit purists’ belief that it would free Britain to create a low-tax, small-state economy, and many Leave voters’ for greater government intervention.Boris Johnson, dumping an industrial strategy from his predecessor Theresa May, tried to square the circle by promising to “get Brexit done” while embracing big-state government — till Covid-19 wrecked the public finances. Truss’s bungled lunge for growth through massive unfunded tax cuts in turn repudiated Johnsonism. Rishi Sunak has changed course again. The reversals have led to incoherence in economic policy and exacerbated business reluctance to invest.As polling suggests voters are doing, politicians of all stripes need to acknowledge Brexit’s impact and the urgency of trying to improve on Britain’s bare-bones trade deal with the EU. Resolving the dispute over trading rules with Northern Ireland would be a welcome step. But the UK also needs to address structural factors holding back its growth potential.As a start, the government should replace or extend its super-deduction on capital spending, which expires in April, to boost business investment. The planning system needs transforming, to clear the path for building more on undeveloped land. As well as getting more people back into jobs, including through better childcare support, Britain needs to develop a more agile training and education system. Harnessing the UK’s success at producing start-ups means channelling more investment into innovative firms; a forthcoming cut to R&D tax credits is a step backwards. Driving growth in second-tier cities, partly through decentralisation, will be key to reviving the levelling-up agenda.Business groups labelled Jeremy Hunt’s economic plan outlined last week as “empty”. The chancellor has a further chance to spell out a more ambitious agenda in the March Budget. If he cannot go beyond mere buzzwords, the latest bout of “British disease” will become ever more chronic. More

The Labor Department found a rise in the number of posted jobs per worker in December, despite the Fed’s efforts to cool the labor market.The nation’s demand for labor only got stronger in December, the Labor Department reported on Wednesday, as job openings rose to 11 million.That brings the number of posted jobs per available unemployed worker, which had been easing in recent months, back up to 1.9 — not what the Federal Reserve has been hoping for as it seeks to quell inflation.“It does make you question whether we continue to see that slowing in net job creation,” said Kathy Bostjancic, chief economist at the financial services company Nationwide. “There’s still a strong demand for workers, and that suggests that the labor market is still running very tight, and too hot.”The 5.5 percent increase in job openings was largely driven by hotels and restaurants, which have been steadily recovering from the pandemic, and jumped sharply to 1.74 million positions posted. Jerome H. Powell, the Fed chair, has been particularly focused on wage inflation in the services sector, but like wages more broadly, increases in hourly earnings in private services have been decelerating.In another sign of confidence among workers, people voluntarily left their jobs at about the same rate as they did in November. Quits as a share of the overall employment base have fallen slightly from 3 percent at the end of 2021, but plateaued over the past few months. Overall, in 2022, about 50 million Americans quit their jobs.Layoffs were also steady in December, staying at the unusually low level that has prevailed since a spike during the pandemic. While pink slips in the tech industry have mounted swiftly — most recently with 22,000 between Microsoft and Google — the bulk of the separations may have occurred after the labor turnover survey ended.Other indicators that employers are shedding workers, such as initial claims for unemployment insurance, have also remained very low by historical standards. Those leaving tech jobs, especially with software development and engineering skills, may have found new opportunities so quickly that they didn’t file for unemployment benefits. More

Lebanon has devalued its currency by 90 per cent as it seeks to address a deep economic crisis, in a move that still leaves the pound far above its parallel black market rate.The Banque du Liban said on Wednesday that it was setting the Lebanese pound, pegged at a fixed rate of L£1,507 to the dollar since 1997, at a new rate of L£15,000. This is still well below the L£60,000 to the dollar where the parallel currency was trading at the time of the central bank announcement. The devaluation could stoke fears of further price rises in a country where the annual inflation rate for 2022 topped 170 per cent, according to official figures. Analysts said it was a costly stop-gap in the absence of wider structural reforms to Lebanon’s troubled economy.“Fundamentally these measures don’t meaningfully address the causes of the crisis, which are the large financial sector losses,” said Mike Azar, a Lebanese economist. “What’s been needed for the past three years is a broader economic recovery plan with a restructuring of the financial system, not another piecemeal measure.”The BdL said the change was a step towards unifying Lebanon’s various exchange rates in an effort to meet the demands set out in a draft deal reached with the IMF last year. But experts cautioned it was unclear how that would be the case: Lebanon has multiple exchange rates that govern depositors’ withdrawals from frozen bank accounts, customs duties, public sector salaries, fuel prices and telecommunications, among others. Nasser Saidi, a former economy minister and ex-deputy central bank governor, called it a continuation of the “failed exchange rate pegging/fixing policy that has generated the biggest financial crisis in history”.The Lebanese pound has slumped since the country went into financial meltdown in 2019, losing more than 97 per cent of its value against the dollar on the parallel market.The finance ministry last September announced it would devalue the pound, but walked back the decision amid criticism that it did not have the necessary authority. Instead the ministry applied new rates to areas within its purview, including customs and tax collection rates.Saidi said that the new L£15,000 rate was “75 per cent below the effective market rate of L£60,000 as well as below the so-called Sayrafa rate of L£38,000”, the latter referring to the central bank’s exchange platform. “This just adds to the multiple exchange rates that lead to severe market distortions.”Although the government reached a draft IMF agreement in April, the deal was contingent upon implementing divisive economic and political reforms, which have yet to be agreed. This has fuelled speculation in Lebanon that the deal might not ever be finalised. Unifying the exchange rates is one of the IMF’s prerequisites to unlock a $3bn loan facility, widely seen as the only way for the country to begin recovering from the crisis and restore confidence in its financial system.“But the measure doesn’t actually unify the exchange rate,” Azar said. “It just created another one and created uncertainty over when and how the banks will be able to cover their foreign currency losses, both contrary to the deal negotiated with the IMF.”

Lebanon’s problems, which the World Bank has called one of the world’s worst economic crises of the past 150 years, have left the majority of people locked out of their deposits and more than three-quarters of the population in poverty. The collapse in the currency has meant most people have been unable to access their dollar savings or have been forced to make withdrawals in pounds at punishingly low rates, in the absence of formal capital control laws to stem financial losses that the government and World Bank put at more than $70bn.Most transactions in Lebanon — from supermarket shopping to phone bills — are now done almost exclusively in cash at the fluctuating parallel market rate. Lebanese use mobile apps to track the fluctuations before making transactions in prices that can change hourly. The desperation has even pushed a handful of people to hold up banks at gunpoint in order to access their own funds. More

PARIS (Reuters) – French railway worker Franck Viger-Brunet says he and his comrades have to count carefully the costs of going on strike to force President Emmanuel Macron to back down on plans to hike the retirement age by two years to 64.”We pay for the days we strike. I have budgeted for the last month to be able to strike for a month (against this reform)… We’ve got to keep going,” the 58-year-old CGT union member said at a march in Paris on Tuesday during a second nationwide strike against the reform.In what could prove a prolonged standoff, unions and their members are seeking to minimise the impact on personal finances already strained by the worst cost of living crisis in decades.For 55-year-old nursery worker Said Bellahecene that meant working on Tuesday morning in order to be able to go on strike in the afternoon to avoid losing a full day of wages.”I’ve got two kids and rent to pay, but I’m ready to lose a few weeks (of pay) and bring the country to a halt rather than lose two years later (under the reform),” he said at the demo.More than 1.2 million people took part in Tuesday’s action, slightly more than in a first show of force on Jan. 19, though firms including state rail operator SNCF and state-controlled electricity group EDF (EPA:EDF) reported fewer workers going on strike.That means keeping up the pressure will be a challenge as the reform rumbles through parliament over the next two months.STRIKE FUNDSWhile unions have so far displayed rare unity, hardline CGT leader Philippe Martinez raised the spectre of rolling strikes despite the financial sacrifice that means for many workers.”The government wants to downplay the outrage, we’ve got to shift up a gear,” Martinez said on France Inter radio on Wednesday.So far unions have tried to space strikes out to minimise wage losses. The next strike is due only on Feb. 7 and unions have also called for nationwide demos on Saturday Feb. 11, which would allow more workers to protest without having pay docked.French unions generally do not have permanent strike funds to help members cope, though some will set up occasional kitties financed by donations for a specific cause.One notable exception is the CFDT, France’s biggest union, whose members’ dues help maintain a “union action” fund that BFM TV reported recently had swollen over the decades to 140 million euros ($152 million).While it is generally used to cover legal fees and compensate workers in local strikes, members are now clamouring for it to help cover lost pay during the pension strikes.”We’re getting a tonne of questions about whether there will be some help,” CFDT head for the public service Mylene Jacquot told Reuters.BROAD OPPOSITIONThe government says the pension overhaul, which includes plans to increase how long workers must pay into the system, is needed to keep it out of the red in the coming years.But unions say the plans represent a brutal rolling back of cherished social rights and their opposition is widely supported by the broader public, opinion polls show.However, even before the cost of living crisis, French unions have struggled to resist government reform plans in the decades since massive strikes in 1995 successfully forced a conservative government to drop a pension overhaul.Nonetheless, strikes can still yield results as the energy sector saw at the end of last year when unions won wage increases with a series of work stoppages.That sector is now leading calls for more strikes with the head of the CGT’s energy branch, Fabrice Coudour, saying a new round was set for Feb. 6 to 8.”We’re motivated to go all the way until (the reform) is dropped,” Coudour said.($1 = 0.9182 euros) More

NEW DELHI (Reuters) – India announced on Wednesday one of its biggest ever increases in capital spending for the next fiscal year to create jobs but targeted a narrower fiscal deficit in its last full budget ahead of a parliamentary election due in 2024.Prime Minister Narendra Modi’s party has been under pressure to create jobs in the populous country where many have struggled to find employment, although the economy is now one of the world’s fastest-growing.”After a subdued period of the pandemic, private investments are growing again,” Finance Minister Nirmala Sitharaman said as she presented the 2023/24 budget in parliament.”The budget makes the need once again to ramp up the virtuous cycle of investment and job creation. Capital investment is being increased steeply for the third year in a row by 33% to 10 trillion rupees.” GRAPHIC: Where the money will go?- https://www.reuters.com/graphics/INDIA-BUDGET/mopaklkedpa/chart_eikon.jpgThe capital spending increase to about $122.3 billion, which would amount to 3.3% of gross domestic product (GDP), will be the biggest such jump after an increase of more than 37% between 2020/21 and 2021/22. GRAPHIC: India’s capital expenditure to increase by 33%- https://www.reuters.com/graphics/INDIA-BUDGET/akveqmqydvr/chart.png Total spending will rise 7.5% to 45.03 trillion rupees ($549.51 billion) in the next fiscal year starting on April 1.Sitharaman said the government would target a fiscal deficit of 5.9% of GDP for 2023/24 compared with 6.4% for the current fiscal year and slightly lower than a Reuters poll of 6%. The aim is to lower the deficit to 4.5% by 2025/26.GRAPHIC: India’s fiscal deficit-https://www.reuters.com/graphics/INDIA-ECONOMY/FISCALDEFICIT/znvnbzzzkvl/chart_eikon.jpgSTEADY ‘MACRO BOAT’Brokerage Nomura said the budget “prudently pushes for growth, without rocking the macro boat”.”In the event, the government has presented a good budget. It has pushed for growth via public capex and continued on the path towards fiscal consolidation, without offering much in terms of outright populism.”Capital Economics said the “absence of a fiscal blowout”, a recent drop in inflation and signs of moderating growth could convince India’s central bank to slow the pace of rate hikes next week.It said there was still a chance of fiscal slippage as campaigning kicks off for the election, in which Modi is widely projected to win a third straight term.The finance ministry’s annual Economic Survey, released on Tuesday, forecast the economy could grow 6% to 6.8% next fiscal year, down from 7% projected for the current year, while warning about the impact of cooling global demand on exports.Sitharaman said India’s economy was “on the right track, and despite a time of challenges, heading towards a bright future”. GRAPHIC: India real GDP growth forecast- https://www.reuters.com/graphics/INDIA-ECONOMY/GDP/akpeqmzznpr/india-real-gdp-growth.jpg Her deficit plan will be aided by a 28% cut in subsidies on food, fertiliser and petroleum for the next fiscal year at 3.75 trillion rupees. The government cut spending on a key rural jobs guarantee programme to 600 billion rupees – the smallest in more than five years – from 894 billion rupees for this fiscal year.GRAPHIC: India’s gross market borrowings- https://www.reuters.com/graphics/INDIA-BUDGET/zjpqjwjgnvx/chart.pngGRAPHIC: India budget cuts expenditure on major subsidies- https://www.reuters.com/graphics/INDIA-BUDGET/klvygdgxgvg/chart.pngThe government’s gross market borrowing is estimated to rise about 9% to 15.43 trillion rupees next fiscal year. CONSTRAINTSMoody’s (NYSE:MCO) Investors Service said the narrower fiscal deficit projection pointed to the government’s commitment to longer-term fiscal sustainability, but that a “high debt burden and weak debt affordability remain key constraints that offset India’s fundamental strengths”.Among other moves to stimulate consumption, the surcharge on annual income above 50 million rupees was cut to 25% from 37%.Indian shares reversed earlier gains to close lower on Wednesday, led by a fall in insurance companies after the budget proposed to limit tax exemptions for insurance proceeds, while Adani Group shares tumbled again as it struggles to repel concerns raised by a U.S. short seller.Since taking office in 2014, Modi has ramped up capital spending including on roads and energy, while wooing investors through lower tax rates and labour reforms, and offering subsidies to poor households to clinch their political support.A lack of jobs for young people, and meagre wages for those who do find work, has been one of the main criticisms of Modi.Sitharaman also said the government was allocating 350 billion rupees for energy transition, as Modi focuses on green hydrogen and other cleaner fuels to meet India’s climate goals. ($1 = 81.7725 Indian rupees) More

Private companies added just 106,000 new workers for January, down from an upwardly revised 253,000 the month before and well below the 109,000 Dow Jones estimate.
Most of the growth came in the hospitality industry, as bars, restaurants, hotels and the like added 95,000 positions.
ADP chief economist Nela Richardson said weather factors were at play and hiring was strong outside of the reference week the firm uses to compile the report.

Heavy rainfall hit New Jersey’s Edgewater and caused flooding on Monday, in New Jersey, United States on January 23, 2023.
Fatih Aktas | Anadolu Agency | Getty Images

Job creation in the private sector plunged in January as weather-related issues sent workers to the sidelines, payroll processing firm ADP reported Wednesday.
Companies added just 106,000 new workers for the month, down from an upwardly revised 253,000 the month before. Economists surveyed by Dow Jones had been looking for a gain of 190,000.

Most of the growth came in the hospitality industry, as bars, restaurants, hotels and the like added 95,000 positions. Other growth industries included financial activities (30,000), manufacturing (23,000) and education and health services (12,000).
However, the trade, transportation and utilities sector lost 41,000, construction was off 24,000, and natural resources and mining declined by 3,000.
In all, goods-producing industries saw a net loss of 3,000 jobs, while service providers added 119,000.
Pay growth was little changed for the month, but up 7.3% from a year ago.
Despite the low headline number, ADP chief economist Nela Richardson said weather factors were at play and job growth may not have been as weak as the number indicates.

“In January, we saw the impact of weather-related disruptions on employment during our reference week,” Richardson said. “Hiring was stronger during other weeks of the month, in line with the strength we saw late last year.”
Like the Bureau of Labor Statistics, ADP uses the week of the 12th for its payroll sampling. The firm noted that extreme weather events, including snowstorms in the Midwest and floods in California, impacted the jobs picture.
The Midwest region saw a decline of 40,000 jobs, while the Pacific rim lost 4,000, according to ADP.
Companies with fewer than 50 employees struggled the most during the period, down 75,000 workers. Big firms employing 500 or more workers added 128,000.
The numbers come with the Federal Reserve trying to slow the economy through a series of interest rate hikes specifically aimed at bringing down inflation.
The report also comes two days before the more closely watched BLS count of nonfarm payroll growth for the month. Economists surveyed by Dow Jones expect to see growth of 187,000 in that report.

WATCH LIVEWATCH IN THE APP More

BRUSSELS (Reuters) – The European Commission proposed a plan on Wednesday to try to ensure Europe can compete with the United States as a manufacturing hub for electric vehicles and other green products and reduce its dependence on China.Commission President Ursula von der Leyen announced a loosening of EU state aid rules, a repurposing of existing EU funds, faster approval of green projects and drives to boost skills and to seal trade agreements to secure supplies of critical raw materials.The plan is partly a response to multi-billion-dollar support programmes of China and the United States, including the latter’s Inflation Reduction Act.”Major economies are rightly stepping up investment in net zero industries,” von der Leyen told a news conference. “What we are looking at is that we have a global playing field.”Many EU leaders are concerned that the local content requirements of the $369 billion of green subsidies in the U.S. legislation will encourage companies to relocate, making the United States a leader in green tech at Europe’s expense. The International Energy Agency estimates the global market for mass-produced clean energy will triple to around $650 billion a year by 2030, with related manufacturing jobs more than doubling. The European Union wants a part of the action.The Commission proposed loosening state aid rules for investments in renewable energy or decarbonising industry, on a temporary basis, until end 2025, while recognising that not all EU countries will be able to offer subsidies to the same extent as France or Germany.In the short term, von der Leyen said EU members could, for example, draw on about 250 billion euros ($272.3 billion), much of it remaining from the EU’s post-pandemic recovery fund.”We know that in the next years, the shape of the economy, the net-zero economy, and where it is located will be decided. And we want to be an important part of this net-zero industry that we need globally,” von der Leyen said. RESISTANCEThe European Commission is hoping member states will back its plan at a Feb.9-10 summit but it faces a hot debate.Some EU members have already expressed opposition to parts of the plan, notably the loosening of state aid rules and the prospect that bigger countries such as France and Germany would be able to outspend others.There is also clear resistance from certain EU members to previous suggestions that the plan could entail further joint borrowing. Longer term, the Commission will propose creating a European Sovereignty Fund to invest in emerging technologies.In the coming months, the Commission will propose a Net-Zero Industry Act that could streamline permitting processes and harmonise standards and a Critical Raw Materials Act to promote local extracting, processing and recycling. The bloc is heavily reliant on China for rare earths and lithium, which are vital materials for the green transition.The EU executive also wants to seal more free trade agreements and partnerships to make supply chains more resilient and to open markets for green goods.Meanwhile, German chip supplier ZF Friedrichshafen and U.S. chipmaker Wolfspeed will announce plans on Wednesday to build an electric vehicle chip plant in the Saarland region, according to three sources close to the matter.”Amid the concerns that the U.S. wants to divert investments from Europe with its Inflation Reduction Act, we’re showing that a U.S. firm wants to invest in Germany,” a German government source said.($1 = 0.9180 euros) More

WASHINGTON (Reuters) – The Federal Reserve is expected to raise its target interest rate by a quarter of a percentage point on Wednesday, setting aside the rapid hikes used last year to curb a surge in inflation in favor of a more stepwise hunt for a stopping point.The expected increase would set the U.S. central bank’s benchmark overnight interest rate in the 4.50%-4.75% range, the highest since November 2007, when the economy was on the eve of what would prove to be a long and deep recession.Policymakers hope to avoid that sort of outcome this time, and economic data since their last policy meeting in December generally has moved in the right direction: Inflation is slowing under the impact of higher interest rates and tighter financial conditions, while the economy continues to grow and create jobs.The rate-setting Federal Open Market Committee is due to release its policy statement at 2 p.m. EST (1900 GMT). Fed Chair Jerome Powell is scheduled to hold a news conference half an hour later to elaborate on the decision.”Recent events suggest that the coming year may be a notch less challenging than previously thought,” Nathan Sheets, chief global economist at Citi, wrote this week, noting that recession risks were easing on a global basis while U.S. data “pointed to continued growth, moderating inflation, and a slower pace of Fed rate hikes.”Ahead of the Fed’s two-day meeting this week, the International Monetary Fund increased its outlook for a global economy that its officials said had proved “surprisingly resilient” in the face of monetary policy tightening and the ongoing war between Russia and Ukraine.Caught flat-footed last year as inflation accelerated and threatened to prove far more persistent than anticipated, the Fed approved the fastest interest rate hikes since the 1980s. Starting with a quarter-percentage-point increase in March, the central bank by the summer was raising rates in increments of three quarters of a percentage point, and all told moved the target policy rate up by 4.25 percentage points in just 10 months. It delivered a half-percentage-point hike at its Dec. 13-14 policy meeting.The impact of the policy moves seems to be gaining steam. New data last week showed a key inflation measure slowed faster than expected in December, continuing a six-month downward trend. Growth in employment costs, closely watched as a possible indicator of future price increases, also slowed in the fourth quarter.But the Fed’s preferred measure of inflation, the personal consumption expenditures price index, still rose at a 5% annual rate in December, down from a June high of nearly 7% but still more than double the central bank’s 2% inflation target. Policymakers are adamant they will not make what they consider to be the crucial error of pausing further rate hikes until they are convinced inflation is on a durable path back to the 2% goal.’HAWKISH RESOLVE’Some analysts do expect the Fed to remove from its policy statement the current, open-ended promise of “ongoing increases” in interest rates, a phrase used since the central bank began its tightening cycle in March. Any new language, however, would still leave the door open for further increases depending on incoming economic data, particularly on inflation and jobs.The expected move to 25-basis-point rate increases will be a “hawkish downshift,” BNP Paribas (OTC:BNPQY) economists wrote ahead of this week’s policy meeting. “While we expect the Fed to downshift the pace of tightening to 25bp increments … we also anticipate a hawkish resolve … Policymakers are encouraged by recent developments, but appear to remain united in the need to ‘keep at it’ with respect to reducing inflation pressures.”The Fed’s meeting this week, its first of 2023, will not include new economic forecasts from policymakers, the most explicit way for them to signal where rates may be headed this year.As of December, policymakers’ median forecast was for the Fed’s target interest rate to peak in a range between 5.00% and 5.25%, an outlook that would imply a pause in the policy tightening after two more quarter-percentage-point increases.Traders of futures that settle to the Fed’s policy rate see the path somewhat differently, with the benchmark rate peaking in the 4.75%-5.00% range, and the central bank cutting that rate to around 4.4% by December. More