Economy

With long queues at petrol pumps, teachers blocking Budapest streets in a strike over pay and small-business owners demonstrating against tax rises, Hungary’s economic woes and the resulting public anger have wrongfooted rightwing prime minister Viktor Orbán and threaten to escalate his dispute with Brussels over frozen funding.“I take second jobs and give private classes,” said Budapest teacher Bence Tóth, who joined his profession’s year-long rolling strikes after struggling amid soaring inflation. “I work or commute or sleep. It’s unsustainable.”Despite measures such as retail price caps introduced even before the war in Ukraine sparked an energy crisis, food and power prices in Hungary rose about 50 per cent in December compared with the previous year, according to government data. Overall inflation rose 24.5 per cent year on year on December, the highest in the EU. The bloc’s average is 10.4 per cent.Economists pin the blame partly on a weak forint, the phaseout of price caps and a retail tax. The price caps themselves had a distorting effect, they say, causing shortages of fuel and staples such as sugar as importers and retailers declined to sell below cost, as well as leading to price rises for non-capped products as they sought to compensate for the cap on other goods. The government was last month forced to remove the fuel cap after supplies collapsed, sparking panic buying.Lajos Török, chief analyst at Budapest brokerage Equilor, warned the picture would worsen. “Household expenses rise so domestic consumption will fall, higher financing costs will delay corporate investments, state investments will be cut back” all but erasing growth, he said.The economic troubles will limit Orbán’s scope to pacify the public with costly populist measures, a tool he has deployed in the past, just as his Fidesz party prepares for municipal and European elections in 2024.“Hungary’s inflation is bad news all around,” said Dániel Hegedűs of the German Marshall Fund, a US-based think-tank. The prime minister would be forced to abolish the price caps, he said, which would itself add to cost pressures for his electoral base. “This will massively impact a much wider and lower social class, which can hurt Orbán,” he added.Public discontent is mounting. Teachers, who are seeking a wage rise of around 45 per cent and are also protesting over high workloads and central control of the education system, began another week-long strike on Monday. Wider demonstrations erupted last year over a sudden rise in small-business taxes and reduction in energy subsidies.Although recent polls suggest Orbán, who won a fourth consecutive term last year, and Fidesz have no strong political challengers, local elections in central Hungary earlier this month hinted at potential trouble for the government.In the town of Jászberény, opposition candidates for mayor and the city council swept the board with large majorities, beating their Fidesz rivals less than a year after the ruling party won the district easily in parliamentary elections.Analysts said Orbán was likely to try to deflect blame for the economic squeeze, hardening his political stance ahead of next year’s elections and making him an even more difficult partner in the EU than previously. Hungary’s prime minister Viktor Orbán blames his country’s high inflation on the EU’s sanctions against Russia © Attila Kisbenedek/AFP/Getty ImagesIn recent months, the Hungarian prime minister has delayed EU sanctions against Russia imposed over the war in Ukraine and held up the bloc’s financial aid for Kyiv as he sought to unlock about €30bn in EU pandemic recovery and structural funds.Brussels has blocked the money on the grounds of a perceived risk of fraud and democratic backsliding by Budapest as Orbán extends the government’s control over the judiciary, media, arts and education.The government this month launched an advertising campaign claiming a majority of Hungarians opposed the EU’s Russia sanctions, which Orbán has blamed for the country’s economic ills.“This bloody sanctions regime drives inflation skyward,” Orbán told state broadcaster MR1 earlier this month. “If sanctions were to end, energy prices would drop immediately, along with general prices, meaning inflation would halve.”He has also linked the teachers’ plight with EU intransigence, saying the government would offer a 10 per cent pay rise but could lift this to 20.8 per cent if Brussels released the Covid funds.Orbán’s lack of economic tools “leaves him with dangerous choices”, said Hegedűs. “Cheating or repression [at next year’s elections] to retain unquestioned authority; a return to a world with a genuine opposition; or protests [that weaken the government significantly].”Since taking power in 2010, Orbán has weathered several crises. His handling of some, such as his hardline approach during the 2015 refugee emergency, even boosted his popularity. But critics say he may have misjudged his strategy this time.“The government has not found the keys,” Hungary’s central bank governor György Matolcsy told a parliamentary committee in December. “We cannot overcome this energy price explosion and inflation crisis in old ways.”“Communism already showed price caps don’t work,” said Matolcsy, who Orbán once described as his “right hand” on economic planning. “That system collapsed. Let’s not return to [it] with such techniques.”Orbán remains defiant, telling MR1 earlier this month that Hungary’s foreign exchange reserves were near a high after recent borrowing, meaning the country was solvent. Hungary’s debt fell from 78.6 per cent of gross domestic product at the end of 2021 to 75.3 per cent at the close of last year, below the EU average of 85.1 per cent, according to EU data. In 2022, its budget deficit reached 5.3 per cent of GDP, roughly double the EU’s 2.7 per cent average.

“Hungary can get by without [the EU],” said Orbán. “Of course we do better with them . . . but to think in Brussels that the sun won’t rise without them . . . that’s completely misguided.”Meanwhile, the Hungarian government has responded to the teachers’ protests with a crackdown, tightening strike rules, firing some for “civil disobedience” and bringing education under the control of the interior ministry.Budapest maths teacher Tamás Palya was fired in September. He has since found work at a private school but said teachers in the state system were repressed and intimidated.“They are under constant surveillance — what they post on social media, what they like, whether they wear chequered shirts [the uniform of the protesters],” he said. “It’s absurd. But that’s the reality.” More

BUENOS AIRES (Reuters) -German Chancellor Olaf Scholz on Saturday urged a swift conclusion to talks on a free trade deal between the European Union and the Mercosur South American trade bloc, on the first stop in Buenos Aires of his inaugural tour of the region.Seeking to reduce Germany’s economic reliance on China, diversify its trade and strengthen relations with democracies worldwide, Scholz is visiting Argentina, Chile and Brazil, all led by fellow leftists who came to power in the region’s new “pink tide.”Berlin wants to lower its dependence on China for minerals key to the energy transition, making resource-rich Latin America an important partner. The region’s potential for renewable energy output is another attraction.”There is great potential to further deepen our trade relations, and the possibilities that could come from the EU-Mercosur deal are obviously particularly significant,” Scholz told a news conference alongside Argentine President Alberto Fernandez.Fernandez has blamed European protectionism for holding up the deal, agreed to in principle in 2019 but not ratified by national parliaments. EU ambassadors have said Brazil must take concrete steps to stop soaring destruction of the Amazon (NASDAQ:AMZN) rainforest.Berlin hopes that concern can be put aside with the election in Brazilian President Luiz Inacio Lula da Silva, who has promised to overhaul the country’s climate policy. Scholz is to meet him on Monday at the end of his three-day tour.Russia’s invasion of Ukraine, which sparked an energy crisis in Germany due to its heavy reliance on Russian gas, increased awareness of the need to reduce economic reliance on authoritarian states.For Germany to reduce its reliance on China for minerals it will need to embrace sectors it has shied away from, a German government official said on Friday.”For example lithium mining – that’s a challenging task, especially regarding the environment and social standards,” the official, traveling with Scholz, told reporters.Argentina and Chile sit atop South America’s “lithium triangle” which holds the world’s largest trove of the ultra-light battery metal.About a dozen business executives – including the heads of Aurubis AG (NAFG.DE), Europe’s largest copper producer, and energy company Wintershall Dea AG Dea – are accompanying the chancellor.Fernandez said he and Scholz discussed the possibility of attracting German investment to the country’s vast shale gas reserve, lithium deposits and green hydrogen production. Wintershall Dea, for example, is part of a consortium that in September announced it was investing around $700 million to develop a gas project off the coast of Argentina’s southernmost tip, Tierra del Fuego.”Argentina has the potential to supply Europe with energy in the long term,” chief executive Mario Mehren said in a statement. More

A new agreement is expected to expand the reach of U.S. technology restrictions on China issued last year.WASHINGTON — The Netherlands and Japan, both makers of some of the world’s most advanced equipment for manufacturing semiconductors, agreed on Friday to join with the United States in barring some shipments of their most high-tech machinery to China, people familiar with the agreement said.The agreement, which followed high-level meetings with U.S. national security officials in Washington, will help expand the reach of sweeping restrictions issued unilaterally by the Biden administration in October on the kinds of semiconductor technology that can be shared with China.The countries did not publicly announce the agreement, because of its sensitivity, and details remain unclear. But the deal seems likely to put technology industries in the countries on a more even footing, preventing companies in Japan and the Netherlands from rushing in to claim market share in China that has been abandoned by U.S. firms. American companies have said that possibility would put them at a disadvantage.More on JapanMissing a Successor: An owner’s struggle to find someone to take over his thriving business illuminates the potentially devastating economic effects of an aging society.Tech Workers: Japanese companies are trying to lure highly educated Indians to fill a shortage of IT engineers. Can they make their country appealing to them?Hiroyuki Nishimura: This celebrity entrepreneur and author has become a voice for disenchanted young Japanese. What he talks about much less is his ownership of 4chan.A Policy Change: Japan’s central bank unexpectedly announced in December that it was adjusting its stance on bond purchases. This is why that matters.The White House and the Dutch government declined to comment. The Japanese government did not immediately respond to a request for comment.The United States imposed strict controls in October on the sale to China of both semiconductors and the machines used to make them, arguing that Beijing could use the technology for military purposes, like breaking American codes or guiding hypersonic missiles. But well before those restrictions were issued, the United States had been pressing the Netherlands and Japan to further limit the advanced technology they export to China.The October rules also clamped down on certain shipments to China from countries outside the United States. Using a novel regulation called the foreign direct product rule, the Biden administration barred companies that use American technology, software or inputs from selling certain advanced semiconductors to China. But these measures applied only to chips, not the machinery used to make them.Instead, the White House continued to press allies to pass restrictions limiting the sales of semiconductor manufacturing equipment by firms like the Dutch company ASML or Tokyo Electron in Japan. The White House argued that the sale of this advanced machinery to China created the danger that Beijing could one day make its own versions of the advanced products it could no longer buy from the United States.The negotiations, which are likely to continue, have had to overcome both commercial and logistical concerns. Like the Americans, the Dutch and Japanese were concerned that if they pulled out of the Chinese market, foreign competitors would take their place, said Emily Benson, a senior fellow at the Center for Strategic and International Relations, a Washington think tank. Over time, that “could impact their ability to maintain a technological edge over competitors,” she said.The Dutch government has already forbidden sales of its most advanced semiconductor machinery, called extreme ultraviolet lithography systems, to China. But the United States has encouraged the Dutch to also limit a slightly less advanced system, called deep ultraviolet lithography. The deal reached Friday includes at least some restrictions on that equipment, according to one person familiar with its terms.Governments have also faced questions about whether they possess the legal authority to issue restrictions like the United States, as well as extensive technical discussions about which technologies to restrict. Japan and the Netherlands will still likely require some time to make changes to their laws and regulations to put new restrictions in place, Ms. Benson added, and it could take months or years for restrictions in the three countries to mirror one another. More

Annual Irish inflation slowed to 8.2% in December after hitting a 38-year high of 9.2% two months earlier. The finance department said on Saturday that the easing in wholesale prices supported the idea that inflation had peaked and was on a downward trajectory.The updated analysis was contained in an assessment of the government’s Temporary Business Energy Support Scheme (TBESS), introduced late last year to provide firms with up to 40% of the increase in energy bills up to 10,000 euros per month.To date just 15,000 businesses have registered for the scheme, which the finance department said was a relatively lower level of uptake than initially expected and budgeted for.The government has so far approved claims worth 17.5 million euros, having set aside 1.25 billion euros to cover the six-month scheme. More

At a meeting chaired by Premier Li Keqiang, China’s state council – which functions as the cabinet – also vowed to speed up the rollout of foreign investment projects, maintain a stable yuan, ease cross-border travel and help companies to participate in domestic and overseas trade shows.The cabinet also reaffirmed its support for the private sector and digital platform economy, which have taken a knock from a series of regulatory crackdowns in recent years.It also discussed measures to support farmers to start spring planting, including subsidies for soybean sowing, CCTV reported.During the week-long Lunar New Year holiday that ended on Friday, consumption increased 12.2% from the same period last year, the tax authority said on Saturday, reflecting a rebound after the relaxing of some of the world’s tightest COVID-19 curbs.Analysts at Japanese brokerage Nomura said in a research note on Saturday that consumption of in-person services had recovered notably, as seen in the rebound of trips made and tourism earnings.But they said households were likely to be moderate in releasing pent-up demand.Chinese exports shrank sharply in December as global demand cooled, but a more modest decline in imports led economic analysts to forecast a slow recovery in domestic demand in the coming months.China’s economy grew by 3.0% in 2022, when stringent COVID measures were still in place, well below the official target for “around” 5.5%, official data showed earlier this month.Growth is expected to rebound to 4.9% in 2023, before steadying in 2024, according to a Reuters poll of economists.(This story has been corrected to make clear in the ninth paragraph that official 2022 GDP data was released) More

Banks and asset managers will face scrutiny from Congress on their “ESG agenda”, according to a senior Republican lawmaker, pointing to tensions ahead between the new House majority and America’s financial sector.The comments by Andy Barr, the chair of the House financial services subcommittee responsible for financial institutions and monetary policy, fire a new salvo at Wall Street banks and asset managers for their social and climate goals.“We think that banks should be non-political. Banks should not be a political party,” the Kentucky lawmaker said in an interview at his office on Capitol Hill. “Banks should serve creditworthy borrowers and focus on earnings and profitability for their shareholders.”Republicans from potential presidential candidates such as Florida governor Ron DeSantis to state officials have in recent months stepped up attacks on Wall Street and corporate America for allegedly being too “woke”.After gaining control of the House, congressional Republicans will now have the power to open a new front in that push by holding public hearings and demanding more information from financial institutions about their employment and lending practices.“We want to promote the depoliticisation of our capital markets. In order for our country to be economically competitive we need our financial system to provide equal access to capital to all kinds of businesses,” Barr said. He added that his concern was that America’s financial system had been “co-opted by the intolerant left that is intolerant of diversity”.As well as having jurisdiction over banks, Barr also has primary responsibility for overseeing the Federal Reserve. He said the US central bank should also expect more scrutiny from Capitol Hill if it sets its own climate-related goals for financial institutions, including in its stress tests.“We want the Fed to stick to their dual mandate of price stability and full employment. To the extent they get into this game of capital allocation and climate finance and this network for the greening of the financial system, that’s when our reform agenda would kick into high gear,” he said.Jay Powell, the Fed chair, is expected to steer the central bank towards a slower pace of monetary tightening at next week’s Federal Open Market Committee meeting, with a 25 basis point interest rate increase compared to the 50bp rise in December. Barr warned the Fed not to let up prematurely.“The Fed needs to have some fortitude. We don’t want a return to the 1970s where there was a failure to get inflation under control and then having the inflation problem persist,” Barr said. He also said the Fed should not raise its inflation target, which is currently 2 per cent on average. “They need to stick with their 2 per cent and they need to get there.”On the regulatory front, Michael Barr, the Fed’s vice-chair for supervision and a former Treasury official in the Barack Obama administration, has been conducting a “holistic” review of the capital rules for US financial institutions — possibly heralding a change in the central bank’s stance.The Kentucky lawmaker said he worried that “additional strenuous capital requirements” could be introduced, even though Powell has said the existing ones are appropriate.“Sidelining capital, preventing the banking system from deploying capital in the real economy. That’s not going to help fix supply chains. That’s not going to help business investment, capex. We need capex to fix the supply side, to fix inflation,” Andy Barr said. He also said that in the implementation of Basel III capital rules for global banking standards, the US should not “move faster than Europe”, or “we’re going to put our institutions at a competitive disadvantage”.

Arguably the biggest risk to the US and global financial system this year would be a failure to raise the country’s $31.4tn borrowing limit that could trigger a debt default.House Republicans are demanding spending cuts and reforms in exchange for increasing the US debt ceiling. Democrats and the White House have said the measure should be passed without strings attached because it pays for debt racked up by both parties over time. They say Republicans only revert to fiscal conservatism and attach conditions to debt ceiling increases under Democratic presidents.Barr offered few signs that the stand-off will be resolved soon. He blasted Democrats for being “cynical and hypocritical” in failing to have raised the debt limit over the past two years when they controlled both chambers of Congress, and called for talks.“Avoiding default is obviously critically important and we’re not going to default. The full faith and credit of the United States is very important, but if we don’t demand reforms in exchange for raising the debt limit, what is the purpose of the debt limit law to begin with?” he asked.“Brinkmanship is not good for the economy, not good for the financial system. But I think what’s reckless and irresponsible is the White House saying they won’t negotiate.” More

“From 2024, we will take this economy to positive growth. We are creating a strong country that does not bow down to anyone and is debt-free,” he said.Speaking at a religious event, he said: “The growth rate of the economy in 2022 was -11%  and could be -3.5 or -4.0% this year.”If economic programs which includes difficult changes in policy such as higher taxes, cuts in public expenditure and debt restructuring were not implemented then Sri Lanka could witness further political unrest, he said.”No one can prevent the country from falling into crisis again similar to May and June last year,” Wickremesinghe said.The island nation of 22 million people has struggled with challenges during the past year ranging from a shortage of foreign currency to runaway inflation and a steep recession – the worst such crisis since independence from Britain in 1948.The government signed a preliminary agreement with the International Monetary Fund (IMF) in September for a $2.9 billion program but has to put its debt on a sustainable path before disbursements can begin. More

Industrial metals have ripped higher since November on bets that China’s reopening will boost demand for raw materials.A group of “base metals” led by tin, zinc and copper have surged more than 20 per cent in three months, further supported by the US Federal Reserve signalling a slowdown in the pace of interest rate rises and a softening in the US dollar, which importers use to buy commodities.Star performer tin has rocketed almost 80 per cent to $32,262 per tonne, the highest level since June, while copper prices have rallied by a tenth this month to $9,329 per tonne on brighter prospects for China’s economy following the easing of its zero-Covid policies.Investors have largely shrugged off concerns about slowing manufacturing activity in the face of unprecedented coronavirus outbreaks in Asia’s largest economy. “At the beginning of the year everyone came in very nuanced, saying we were going to have a [global] recession, that copper would dip in the first quarter and then go higher, but we’ve done exactly the opposite,” said Al Munro, a broker at Marex. “Money flow is what has driven metals in 2023 thus far, and that’s about a China reopening story.”Mining industry executives say the current situation marks a stark reversal from only a few months earlier when sentiment was weak but physical buying from Chinese customers remained strong. “It has shifted between where we were that perceptions were bad and on-the-ground was good, to now perceptions are better but on-the-ground is uncertain,” said Richard Adkerson, chief executive of Freeport-McMoRan, one of the world’s largest copper producers.Jeremy Pearce, who leads market intelligence at the International Tin Association, said that much the same could be said of the metal used primarily to solder electronics.“The issue is all demand indicators are very negative as global manufacturing purchasing managers’ indices have been nosediving,” he said. “The demand picture is the opposite and disconnected from the price.”Further fuelling the rally for some base metals has been a spate of supply disruptions from protests roiling copper and tin producers in Peru and production snags in Chile, to Indonesia stalling export license renewals for tin smelters ahead of a mooted tin ingot export ban.The price of tin, which is becoming increasingly strategic because of its use in solar panels and microchips, has also been pushed higher by speculative buying by China, leading to a build in inventories.Despite weak demand, last year China swung from net exports of 9,000 tonnes in 2021 to net imports of 20,000 tonnes, according to Amalgamated Metal Trading, a metals brokerage.“To what extent is it traders or governments building the inventories up?” asks Daniel Smith, head of research at AMT. “If it’s the government then they may sit on it longer”, which would keep prices higher longer term. More