Economy

NEW YORK (Reuters) – South America is not likely to have a common currency bloc to rival the euro any time soon, analysts said on Monday, despite excited chatter sparked by officials in Brazil and Argentina raising the prospect of a shared tender.On Monday Brazil’s President Luiz Inacio Lula da Silva and Argentine President Alberto Fernandez said they were in early talks to establish a shared unit of value for bilateral trade, though this would not replace the real or peso currencies.That came after the leaders had touted a “common South American currency” on Sunday and officials told the Financial Times the tender could even be called the “sur” and eventually look to bring in other countries around South America.Analysts were quick to knock that down, following decades of similar talk with little to show for it, including shelved plans for a so-called “gaucho” for Argentina-Brazil trade in 1987 and former Brazil President Jair Bolsonaro touting a currency union in 2019.”I’m very skeptical this initiative will see the light of day,” said Alejo Czerwonko, Chief Investment Officer Emerging Markets Americas at UBS Global Wealth Management, citing the region’s poor track record in economic integration.”It has failed to achieve simpler integration goals than that of a common currency.”A common tender, like the euro, would need shared political frameworks and institutions that analysts said would take decades to establish. South America’s countries have vastly different economic situations – Argentina, for instance, has struggled with inflation for a long time, and it is currently at an eye-watering annual rate of 95%.Venezuela – whose president Nicolas Maduro said on Monday that his country was prepared to support an initiative such as a common currency – has suffered with even higher hyperinflation as well as economic collapse. Other South American economies, including Uruguay and Chile, have long been more stable.”It’s been a conversation for many years. I see the benefit for Argentina but what’s in it for Brazil? Much less Uruguay and Paraguay,” said Eric Farnsworth, a vice president at the Council of the Americas and Americas Society.He called the idea of a currency union a “fantasy.”Kimberley Sperrfechter, emerging markets economist at Capital Economics, said that Lula, inaugurated this month, had other things to focus on, including his economic and fiscal plans. Currency union talk was just a distraction, she said.”Markets are likely to be unimpressed by the news of a combined currency, not least because it will take years to implement, if it’s implemented at all,” she said.In Argentina, meanwhile, general elections in October could see center-left Fernandez toppled by a resurgent conservative opposition, likely scuppering any longer-term currency plans between the two leftist allies.Todd Martinez, a director at Fitch Ratings’ sovereigns group focused on Latin America, said the two countries appeared to be unlikely partners to form a successful currency union, given their diverging economies.Hasnain Malik, head of equity research at Tellimer, agreed, emphasizing that it made even less sense for Brazil – the region’s biggest economy, with a currency that outperformed the dollar last year. Argentina’s peso, on the other hand, has slumped despite strict currency controls.”For Brazil in particular, despite its own policy credibility challenges, why it would wish to tie itself to a smaller neighbor with such a checkered track record on policy credibility is anyone’s guess,” he said in a note.But some were more optimistic about the long-term potential.”The process of LatAm integration needs a North Star — and this is the best possible one. Because it would create a larger single market and better negotiating conditions with other large blocs,” Pierpaolo Barbieri, head of Argentine digital payments firm Uala, wrote on Twitter.”Of course a monetary union between Brazil and Argentina is unrealistic today.” More

The island nation of 22 million people has grappled 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.Reuters reported last week that India had told the IMF it strongly supports Sri Lanka’s debt restructuring plan as the island seeks a $2.9 billion loan from the global lender, according to a letter.”Sri Lanka is engaged with other official bilateral creditors to obtain similar assurances,” an IMF spokesperson said in a statement on Monday. “As soon as adequate assurances are obtained and remaining requirements are met, including by the Sri Lankan authorities, a Fund-supported program for Sri Lanka can be presented to the IMF’s Executive Board for approval that would unlock much needed financing.”Sri Lanka requires the backing of China and India – its biggest bilateral lenders – to reach a final agreement with the IMF that is essential to help the country emerge from its worst financial crisis in seven decades. More

LAGOS (Reuters) – Nigeria opened a billion-dollar Chinese-built deep seaport in Lagos on Monday, which is expected to ease congestion at the country’s ports and help it become an African hub for transshipment, handling cargoes in transit for other destinations.President Muhammadu Buhari has made building infrastructure a key pillar of his government’s economic policy, and hopes that this will help his ruling party win votes during next month’s presidential election.The new Lekki Deep Sea Port is 75% owned by the China Harbour Engineering Company and Tolaram group, with the balance shared between the Lagos state government and the Nigerian Ports Authority.”This is a transformative project, game changer project. This project could create at least 200,000 jobs,” Chinese Ambassador to Nigeria Cui Jianchun told Reuters after the port was commissioned by Buhari.China is among the largest bilateral lenders to Nigeria and has funded rail, roads and power stations. More

LONDON (Reuters) – Cuba began a high-stakes legal battle in London’s High Court on Monday over unpaid Fidel Castro-era government debt now held by one of the communist-run country’s creditors.    The 8-day case will be closely watched by other creditors who between them have struggled to recoup an estimated $7 billion of defaulted loan from Havana.    CRF I Ltd, the investment firm that brought Monday’s case, says it is owed 72 million euros ($78.18 million) on two loans that were originally granted to Cuba by European banks in the 1980s and denominated in German Deutschmarks.     Cuba’s authorities have labelled CRF a “vulture fund” and said in their legal argument ahead of the case that the English Court had “no jurisdication” to try CRF’s claims.     CRF originally launched the claim almost three years ago after Havana refused a debt relief offer made by CRF and some other bond holders back in 2018.        “We are still ready to talk to the other side – even at this late stage,” CRF Chairman, David Charters, told Reuters.    The communist-run island has seen its finances deteriorate badly recent years, made worse by the coronavirus pandemic and restrictions put in place by former U.S. President Donald Trump.    In 2015, Havana reached a deal with members of the Paris Club of creditor nations that saw roughly three-quarters of that debt written off. But having not dealt with its commercial creditors in the so-called London Club the country remains shut out of international capital markets.    “The BNC and Cuba have never ignored their debts and have always maintained their interest in negotiating with their legitimate creditors,” the Cuban central bank said in statement ahead of the case earlier this month.    Other Latin American nations, most notably Argentina, have also fought prolonged court and political battles for years to settle with international funds that bought up defaulted-debt cheaply and then pursued legal claims.($1 = 0.9210 euros) More

“The greatest impact of the protests is being generated in the issue of prices,” Minister of Economy Alex Contreras told reporters while leaving the government palace in Lima. “It is a temporary increase. We estimate that (annual) inflation could close in January between 8.8% and 8.9% depending on how communications are restored.”Contreras said he expects the impact to be temporary due to economic stimulus measures the government is proposing for regions roiled by protests.Peru, the world’s no. 2 copper producer, has been embroiled in political turmoil since December, with anti-government protests blocking roads and clashes with security forces leading to the death dozens of people. In December, Peru registered monthly inflation at 0.79%, ending the year at 8.46%, the highest annual measurement in the last 26 years.Despite the high rate seen this month, the country’s central bank expects a decreasing trend in year-on-year inflation in March, and a return to inflation target range of between 1% and 3% by the end of 2023. More

Rodriguez provided the inflation rate during a meeting with Turkish and Venezuelan business leaders. Venezuela’s central bank infrequently publishes economic data, and has not given inflation data since October.For months, socialist President Nicolas Maduro and his government was able to keep a lid on consumer price inflation with rigid economic policies, including anchoring the exchange rate, limiting public spending and increasing taxes.But the strategy has shown cracks since November, sources have told Reuters, with prices rising quickly as the country’s bolivar currency depreciates against the U.S. dollar.Government spending has also sped up and demand for dollars is outpacing the central bank’s foreign currency reserves.A group of economists said earlier this month that Venezuela was at risk of reentering a period of hyperinflation.Inflation in 2021 was more than 686%, according to the country’s central bank. More

FRANKFURT/PRAGUE (Reuters) -European Central Bank policymakers laid out diverging views on future interest rate hikes on Monday, suggesting that moves beyond next week’s half a percentage point increase remain contentious. The ECB promised in December a steady pace of 50 basis point increases spanning multiple meetings to combat sky high inflation but markets have been doubting its resolve and pricing for March has been oscillating between 25 and 50 basis point increases as policymakers speak. The Dutch and Slovak central bank governors gave explicit support for a bigger move in March while ECB President Christine Lagarde also appeared to back such an increase.But their Italian and Greek colleagues made the case for a more cautious stance in a flurry of comments just days before the bank’s quiet period starts ahead of the Feb. 2 meeting. Lagarde aimed to put to bed this debate last week when she told investors to “revise their positions” as her guidance was unchanged and market pricing moved up, even if some doubts still lingered. Slovak central bank chief Peter Kazimir, an outspoken hawk, said back-to-back 50 basis points moves are still needed and policy tightening could be done by the summer.”An inflation drop in two consecutive months is good news. But it is not a reason to slow the tempo of raising interest rates,” Kazimir said in a statement on Monday. “I am convinced that we need to deliver two more hikes by 50 basis points.”Klaas Knot, his Dutch counterpart, made a similarly explicit statement over the weekend, promising more hikes beyond March.”Expect us to raise rates by 0.5% in February and March and expect us to not be done by then and that more steps will follow in May and June,” Knot said.Speaking again on Monday, Lagarde said rates will have to “rise significantly at a steady pace,” as she said earlier, but made no explicit reference to March, even if her earlier comments suggest back-to-back moves.”We will stay the course to ensure the timely return of inflation to our target.”Inflation, now around 9%, is seen jumping again in January before a gradual drop in the coming years that could still see price growth above the ECB’s target until 2025.Economists polled by Reuters expect the ECB to deliver 50 basis point interest rate rises at each of its next two meetings.But policy doves, largely quiet in recent months as inflation soared to double digits last autumn, also pushed back on Monday.Greek central bank Governor Yannis Stournaras said that uncertainty over the inflation outlook is simply too large given market volatility, the war in Ukraine and a possible recession, so the ECB would benefit from a more cautious approach.”In my opinion, the adjustment of interest rates needs to be more gradual, taking into account the slowdown in growth of the euro area economy,” Stournaras told Greek newspaper Kathimerini.Italy’s Ignazio Visco agreed that more rate hikes are needed but also said it must be done gradually, keeping in mind that longer-term inflation expectations remain anchored near the ECB’s 2% target and there is no sign of a wage-price spiral. “I am not convinced that it is better today to risk tightening too much rather than too little,” Visco said in a speech. More

Today’s top storiesUK prime minister Rishi Sunak ordered his ethics adviser to investigate the tax affairs of Nadhim Zahawi, the Conservative party chair. The government also faces a crisis over allegations BBC chair Richard Sharp helped former PM Boris Johnson secure a private loan. Brazil and Argentina, South America’s two biggest economies, will announce the start of work on a common currency this week and invite other Latin American nations to join. The “sur” (south) as Brazil would like it to be known, could boost regional trade and reduce reliance on the US dollar, and would initially run in parallel with the Brazilian real and Argentine peso. Music streamer Spotify became the latest tech company to announce job cuts (as well as a management shake-up) to reverse its pandemic-era hiring spree.For up-to-the-minute news updates, visit our live blogGood evening.After a week of positive noises from Davos about global recovery, a closely watched survey of economists has suggested the eurozone will avoid recession this year, adding to signs in financial markets that Europe is bouncing back.The Consensus Economics report says the bloc will grow 0.1 per cent in 2023, thanks to falling energy prices, government support and the boost to the global economy from the earlier than anticipated reopening of China. The easing of supply chain disruptions and a strong labour market have also helped, while fears of gas rationing have been greatly reduced. JPMorgan has gone even further, raising its 2023 eurozone GDP forecast to 0.5 per cent.Optimism is also slowly spreading among consumers. New EU confidence data today showed sentiment in January up by 1.1 percentage points in the euro area and 1.4 points in the wider EU, hitting the highest level in nearly a year, although well below long-term averages.The euro has been gaining ground against the dollar as the outlook improves, rising about 13 per cent over the past three and a half months, aided by the greenback’s retreat.Fund managers are starting to turn from China to Europe in their hunt for growth. “Europe remains an attractive market . . . it is the largest institutional and wholesale market outside of the US. It also has a strong responsible investment focus, supported by the regulatory regime,” said one fund chief.Investors are also looking forward to the EU’s plans for “unprecedented” investments in clean energy technologies as Brussels tries to assuage fears that Joe Biden’s huge green subsidies might tempt European businesses across the Atlantic.At the same time, policymakers — as expressed in the FT by the Bundesbank’s Sabine Mauderer — are confident that the eurozone can beat inflation while keeping markets stable.Some economists in the Consensus survey still expect a recession, albeit not as deep as previously thought, while new data today showed the cost of supporting consumers and businesses on energy bills was a sharp widening in the eurozone budget deficit. Need to know: UK and Europe economyThe UK needs a new green strategy to prevent investment haemorrhaging to the US as a result of president Joe Biden’s package of subsidies, according to the head of the CBI employers’ group. CBI chief Tony Danker also hit out at government’s plans to cull EU laws, which he said would create “huge uncertainty for UK firms”. The parlous state of local government finances in England is laid bare in our new Big Read: the budget cuts that are threatening ‘levelling up’. In better UK economic news, a Deloitte survey showed UK consumer confidence edging up for the first time in 15 months.The National Grid will start paying UK households and businesses to use less power during the peak hour for demand between 5pm to 6pm this evening to reduce the strain on the grid. Regulator Ofgem is to investigate suppliers which forcibly switch vulnerable customers to prepayment meters.On February 5 the EU will be cut off from its main provider of diesel when new sanctions on Russian energy take effect, sparking more turmoil in global oil markets. Brussels is looking at using confiscated Russian assets for Ukraine’s reconstruction.Need to know: Global economyCovid cases in China are surging as the country celebrates the lunar new year, while drug shortfalls that hit Beijing and Shanghai last month are now affecting rural areas. The €1.38tn luxury goods market is in rude health as the ultra-rich keep on spending, according to a new report from Bain & Company. The data also highlight that it is the US, rather than China, that is fuelling the boom, and that key drivers are Gen Z and Gen Y, rather than older consumers.Climate and sustainability issues crept into a surprising number of debates at the World Economic Forum in Davos. Our Moral Money newsletter (for premium subscribers) looks back at an eventful week.Can you predict the year ahead better than superforecasters? Try our interactive quiz. Need to know: businessBanks are gearing up for the biggest round of job cuts since the global financial crisis, following a collapse in investment banking revenues. “The job cuts that are coming are going to be super brutal,” said one headhunter. “It’s a reset because they over-hired over the past two to three years.”Microsoft confirmed a multibillion-dollar investment in OpenAI, one of the world’s leading artificial intelligence start-ups and developer behind chatbot ChatGPT and image generator DALL-E.Ken Griffin’s Citadel made $16bn profit for investors last year — the biggest dollar gain by a hedge fund in history — fuelled by the sell-off in government bonds.Shares in Italy’s Juventus plunged after football authorities docked 15 points from the club following alleged false accounting practices. The deduction makes it unlikely the team will qualify to take part in lucrative European competitions such as the Champions League.Join LaLiga President Javier Tebas, AC Milan owner Gerry Cardinale, super agent Rafaela Pimenta and more at the Business of Football Summit in London on March 1-2 to discuss the new wave of investment flowing into the game. Scoreboard newsletter subscribers can register here for their complimentary digital pass or discounted in-person ticket. Premium subscribers can sign up to receive our weekly newsletter on the business of sport here.The World of WorkHating your job for a long period can only harm your mental and physical health. Here’s some guidance on what to do should you find yourself stuck.Burnout might be one reason. Here’s how artificial intelligence is being deployed in new tools for employee wellbeing.Work and Careers editor Isabel Berwick shares four great podcasts about women and the world of work.Pandemics and other disasters such as the Great Fire of London have long fuelled urban change. As cities struggle to revive, some argue it’s time to recast central business districts as central social districts, writes columnist Pilita Clark.Some good newsTo anyone who has lived in New York, the thought of dolphins returning to the Bronx river may seem a little far-fetched. Think again!It’s true—dolphins were spotted in the Bronx River this week! This is great news—it shows that the decades-long effort to restore the river as a healthy habitat is working. We believe these dolphins naturally found their way to the river in search of fish.(Video: Nick Banco) pic.twitter.com/40ZNgBjJZs— NYC Parks (@NYCParks) January 19, 2023 More