Economy

Germany is working on a new China strategy that takes a more sober view of relations and aims to reduce dependence on Asia’s economic superpower, which has been the country’s top trading partner since 2016.”Decoupling our economy from the Chinese market would not be in the interest of jobs in Germany,” Lindner was quoted as saying by the Welt am Sonntag newspaper.He said that gradually other world regions and markets would have to become more important for German business over the coming years and decades, Welt reported.”The political conditions must be improved for this,” Lindner said. More

GOREE ISLAND, Senegal (Reuters) -U.S. Treasury Secretary Janet Yellen on Saturday spoke of the “unspeakable cruelty” and enduring consequences of the trans-Atlantic slave trade, but said she was heartened by signs of progress and renewal in both the United States and Africa.Yellen visited the House of Slaves, a fort built in the late 18th century on Goree Island off the coast of Senegal as a transit point for human beings before they were forcibly transported across the Atlantic, as she continued a three-country visit to Africa.”I take from this place the importance of redoubling our commitment to fight for our shared principles and the values of freedom and human rights where ever they are threatened – in Africa, in the United States and around the world,” she wrote in the visitor’s log. The site, now a museum and UNESCO World Heritage site, often draws high-level American visitors, including former President Barack Obama, the first U.S. president of African ancestry, who visited with his family in 2013.South African President Cyril Ramaphosa called the island “a place of reconciliation and hope” when he visited in December 2021, noting in the log that it was the place where the talks to end apartheid in his own country began.Yellen, at times visibly moved, underscored the enduring ties that bind Africa and the United States.”Ultimately, Gorée Island reminds us that the histories of Africa and America are intimately connected. We know that the tragedy did not stop with the generation of humans taken from here,” she said after touring the museum with its curator Eloi Coly.Goree’s mayor Augustin Senghor presented Yellen with a certificate appointing her as a lifetime ambassador of the island’s history.Goree Island was a symbol of great importance to Americans of African descent, drawing thousands of visitors every year, said Joyce Hope Scott, a professor of African American Studies at Boston University.”Secretary Yellen and others have made a wise choice in visiting this important site and should embrace the truthful representation of Goree Island and what it stands for in the historical experience of Africans on the continent and in the diaspora,” she told Reuters.Yellen, the former chair of the Federal Reserve, has focused her work in economics on ending historic disparities that continued to plague Black Americans long after slavery was abolished in 1865. On Saturday, she said both Africa and the United States had made tremendous strides, but more work was needed to counter the brutal consequences of the slave trade.At Treasury, Yellen has now set up a racial equity task force that has drawn the ire of Republicans, and she and her deputy, Nigerian-born Wally Adeyemo have worked hard to boost the economic conditions of communities of color.It was critical to tell the story of enslaved people, which “while full of suffering, is also full of perseverance and hope,” Yellen said, citing the important contributions of African Americans to the U.S. economy and democracy.”With remembrance, I believe, can come progress and renewal,” she said, highlighting what she called “signs of vibrant life around Gorée — a prominent art scene, a place of education, and thousands who call this place home.” More

Yellen told reporters traveling with her in Africa that she and other U.S. officials had gone through “many details of this debt overhang situation” during her meeting with Chinese Vice Premier Liu He in Zurich on Tuesday.She said she believed Chinese officials understood the imperative to reduce the debts of some of these countries, but declined to forecast what China would ultimately do, and when.Yellen, long critical of the pace of China’s efforts on debt treatments for Zambia and other countries, on Friday called again for China and other countries to provide “timely,” “comprehensive” and “meaningful debt relief to help countries regain their footing.”Yellen said U.S. officials expressed specific concern about Zambia, whose debt restructuring effort under the Group of 20 Common Framework has taken much longer to resolve than expected. Yellen will visit Zambia next week. “It’s important for the entire world that we not allow low-income countries to slide into economic disorder,” Yellen said, noting that the goal of raising living standards in Africa enjoyed bipartisan support in the United States.Failure to act would result in negative spillovers, including conflict, fragility, war, terrorism and migration, she said, sucking up resources that would hamper a country’s ability to grow and move forward, Yellen said.”Unless it can get that burden at least partially off its back … it’s just hampered indefinitely in terms of what it’s able to do and achieve for its citizens,” she said. Partial debt reductions would allow a country to invest and grow and pay back some of the reduced debt, she said.Lenders would get less if a country “falls into economic chaos” than if it can invest and grow, she said.”I definitely think they get what the problem is, and that there needs to be a solution,” she said of her discussions with officials from China, which is now the world’s largest bilateral creditor. “Our counterparts are sophisticated economics officials who can listen to a reasoned argument and understand.”U.S. officials also discussed with their Chinese counterparts Washington does not agree that multilateral development banks should not have to take a haircut along with sovereign lenders – an argument Beijing often raises.”That needs to be worked through, but we have counterparts who we are able to talk to in a reasonable way and work through our differences. And I hope that out of that process that some progress will come, But I do I don’t have a forecast for you.” More

Investors and Federal Reserve officials are at odds over the path of US interest rates this year, widening a gap between the forecasts of policymakers and market expectations. Markets suggest the central bank will back off and reverse its months-long campaign to raise interest rates, the most aggressive since the 1980s. Senior Fed officials insist it will hold firm. The divergence reflects beliefs about future inflation, which has cooled in recent months but remains high by historical standards. “There is a very clear disconnect and it is a disconnect about inflation,” said Priya Misra, head of rates strategy at TD Securities. Most Fed officials have endorsed raising the benchmark federal funds rate above 5 per cent and maintaining that level until at least the end of the year in order to cool the economy enough to get inflation under control.Futures markets indicate the Fed will stop short, capping its policy rate between 4.75 per cent and 5 per cent, before implementing half of a percentage point’s worth of interest rate cuts from peak levels by December. By the end of 2024 the fed funds rate will fall as low as 2.8 per cent, according to market prices, roughly a full percentage point below what Fed officials projected in December. Bets on lower rates have proliferated as investors have lowered their inflation expectations. On Friday the one-year US inflation swap, a derivatives contract that reflects inflation expectations for a year from now, was 1.77 per cent, its lowest level in more than two years, according to Refinitiv. Another market measure, the so-called one-year break-even inflation rate, currently stands at 2 per cent. Ajay Rajadhyaksha, global chair of research at Barclays, said: “The market does genuinely believe that inflation will come down more quickly than the Fed expects it to. The Fed believes that it is very difficult for inflation to come down without the labour market softening, but the market isn’t convinced.”Fed officials have sought to curb speculation that they will soon change course even though some favour slowing the rate of increase to a quarter of a percentage point at their next meeting, which ends on February 1. In the past week senior policymakers — including Lael Brainard, the Fed vice-chair and John Williams of the New York Fed — repeated that the central bank will “stay the course” on further rate increases.The Fed’s preferred measure of inflation — the core personal consumption expenditures price index — stands at 4.5 per cent, down from its peak of 5.4 per cent last year but more than double the central bank’s 2 per cent target.Central bankers are chiefly concerned about inflation in the services sector, which they worry will take longer to wring out than price pressures tied to the commodities shock triggered by the war in Ukraine and supply chain blockages linked to the Covid-19 pandemic. “We do not want to be head-faked,” Christopher Waller, a Fed governor, said on Friday. He later said: “Inflation is not going to just miraculously melt away. It’s going to be a slower, harder slog to get inflation down, and therefore we have to keep rates higher for longer and not start cutting rates by the end of the year.”Market expectations do not imply consensus on Wall Street. “I do not believe that there will be a rate cut in 2023,” said Ron O’Hanley, chief executive of State Street, the US custody bank. “There will be a moderating pace of rate increases.”However, many investors have taken heed of recent data which show economic activity slowing and other signs that US consumer spending is starting to take a hit. “The market is pricing cuts as there is high conviction the data will turn weak,” said Kavi Gupta, co-head of rates trading at Bank of America.The most recent US employment data, which showed a slowdown in wage growth, has also added to the market’s conviction that inflation will drop significantly. The jobs and wages data are “the last piece you needed to see to be convinced that the decline in inflation is sustainable”, said Eric Winograd, an economist at AllianceBernstein. Still, Winograd said, “there is a lot of hope embedded in market expectations of a rapid decline in inflation”.Additional reporting by Brooke Masters in New York More

The euro has bounced back since falling below parity with the US dollar last September, aided by cooling energy prices, receding fears of a deep recession later this year and an increasingly hawkish European Central Bank. Up about 13 per cent over the past three and a half months, the euro’s rise to its current level close to $1.08 has been aided by a broader retreat for the dollar, which is down roughly a tenth against a basket of six peers since touching a 20-year high in September. The US Federal Reserve last year lifted its main policy rate by 4.25 percentage points, the largest one-year increase in four decades. The growing interest-rate gap with other economies lured investors to the US, boosting the dollar, just as soaring energy prices exacerbated by the war in Ukraine threatened economic turmoil in Europe, denting the euro’s allure.Both trends have reversed somewhat since then, however. “For several years, there was almost no alternative to the dollar,” said Andreas Koenig, head of global FX at Amundi.“ Now, capital is flowing back home again” to economies outside the US as other attractive options emerge, he added. Foreign money has poured into China since it reversed strict zero-Covid policies late last year, for example, in a move that has also encouraged leading economists to upgrade their global growth forecasts. The dollar tends to strengthen in times of macroeconomic stress.Europe’s prospects have improved, too. Helped by warmer weather, European natural gas prices have tumbled since late August to levels last recorded before Russia’s invasion of Ukraine, easing fears of a deep, continent-wide recession in 2023. At the same time, cooling headline inflation across the Atlantic meant the Fed was able to slow the pace at which it raised rates, with December’s 0.5 percentage-point increase breaking a run of four consecutive 0.75 percentage-point moves. Despite caution expressed by numerous central bank officials, markets expect the Fed to begin cutting rates in the second half of the year. Lower rates would “remove a big advantage for the dollar”, said MUFG currency analyst Lee Hardman, who expects the ECB to raise rates to 3.25 per cent from 2 per cent by the middle of the year. “The Fed last year was leading the way with larger hikes relative to other central banks, but now, for the first time, the European Central Bank is ‘out-hawking’ the Fed.” A widening divergence between Fed and ECB policy could help the euro rise to $1.12 by the start of 2024, he added. Even so, the lingering threat of higher energy prices, which would hurt Europe’s terms of trade, means Hardman remains “cautious about going too gung-ho pricing much more upside for the euro relative to the dollar just yet”. More

Having a strong education and vocational training system is important to Germany’s economy, Europe’s largest, which relies on skilled labour to support its high-end products and services.”Germany has been left behind to a certain extent in the strong expansion of education that has taken place throughout the European Union in recent years,” according to the study of the IW, to which Reuters had access on Saturday. In the European Union, the proportion of workers between the ages of 25 and 64 without a vocational qualification or higher education fell to 20.7% in 2021 from 27% in 2011, thanks to a dynamic expansion of education in southern Europe. However, in Germany, this share of the population rose slightly to 15.2% in 2021 from 13.4% 10 years before, the study showed.Among young professionals, those aged 25 to 34 years old, the proportion of highly qualified people with tertiary education was significantly lower in Germany at 35.7%, compared to 41.2% on average in the European Union.”This should be seen against the background of the very special position of vocational education and training in Germany,” the IW said. If one looks at the segment of young professionals with tertiary and secondary vocational training together, Germany has a significantly higher share of 77.0% of educated professionals than the 73.4% for the European Union. “With the changing demands on employees in the context of digitalisation, decarbonisation and de-globalisation, it is becoming increasingly important for Germany and Europe that the working population achieves the highest possible level of qualification,” the IW said.The IW, a private research institute advocating for German employers, said the government should ensure through early and intensive support that all children in the country are able to acquire a vocational qualification. More

WASHINGTON (Reuters) -President Joe Biden on Friday pledged to “have a discussion” with House of Representatives Speaker Kevin McCarthy on U.S. debt amid a looming debate about raising the debt ceiling.At an event with city mayors, Biden said a U.S. debt default would be a calamity unlike anything ever seen in the United States financially. “The debt we’re paying on, and we’re gonna have a little discussion about that with the new majority leader of the House, has accumulated over 200 years,” Biden said, not citing McCarthy by name.He did not provide details on when he might talk to McCarthy, the newly named Republican Speaker who wants to link a vote to raise the debt ceiling to government spending cuts.McCarthy said in a tweet addressed to Biden that he “accepted your invitation to sit down and discuss a responsible debt ceiling increase to address irresponsible government spending.”White House spokeperson Karine Jean-Pierre said in a statement that Biden looked forward to meeting with McCarthy to “discuss a range of issues” as part of a number of meetings he is holding with new congressional leaders.”Like the President has said many times, raising the debt ceiling is not a negotiation; it is an obligation of this country and its leaders to avoid economic chaos,” she said.Biden is hosting Democratic congressional leaders at the White House on Tuesday. A White House official said no date had been set for a McCarthy visit.The White House has said repeatedly it will not negotiate over raising the debt ceiling and has used some Republican proposals for spending cuts to draw a contrast with Democratic priorities.”As for the broad economic debate in our country, the Speaker and his allies have said that they have a fiscal plan to cut Social Security, cut Medicare, cut other vital programs, and impose a 30 percent national sales tax,” Jean-Pierre said, referring to U.S. social safety net programs. “We are going to have a clear debate on two different visions for the country – one that cuts Social Security, and one that protects it – and the President is happy to discuss that with the Speaker.” More