Economy

Here are five charts sensitive to that agenda that the incoming cabinet official may want to keep on his radar:BALLOONING US DEBTThe U.S. is already more than $35 trillion in debt, with roughly $28 trillion of that floated in the global bond market in the form of U.S. Treasury securities.  Total (EPA:TTEF) debt grew by more than $7.8 trillion in Trump’s first term, with Treasury debt rising by $7.2 trillion. Under President Joe Biden, total debt is up by a further $8.2 trillion, including nearly $7 trillion of new Treasury market debt.Those totals, according to the latest baseline forecast from the Congressional Budget Office – which does not take into account Trump’s ambitions for additional tax cuts and tariffs – are expected to rise to about $42 trillion and $35 trillion, respectively, by the end of 2028 just before the Republican president-elect’s second term in the White House expires.Often touted as the safest asset pool on Earth, the Treasury market nonetheless has grown increasingly sensitive to the rapid growth of the federal debt, with concerns over just how much longer global investors will be willing to fund the country’s liabilities at advantageous interest rates. DEFICIT OUTPACING GROWTH In light of Trump’s desire to lower taxes, which is likely to reduce tax revenues, Bessent will have to hope the cuts stimulate economic growth that outpaces growth in the federal budget deficit.Bessent has said he would like to reduce the deficit as a share of gross domestic product to 3%. For fiscal 2024, which ended on Sept. 30, it was 7.8% of real – or inflation-adjusted – GDP. It has not been 3% or below since 2015 during the Obama administration.In Trump’s first term, it ranged from 3.4% in fiscal 2017 to 15.2% in fiscal 2020, a year when COVID-19 pandemic relief spending blew out the deficit.The CBO’s projection underestimated the actual deficit-to-GDP ratio in 2024, but its baseline forecast estimates it at 6.1% next year and 5.6% just before Trump leaves office. It then starts to expand again beginning in 2030.  INTEREST ON THE DEBTFederal debt service costs topped $1 trillion in fiscal 2024 for the first time on a combination of more debt and higher interest rates resulting from two years of Federal Reserve rate increases to rein in inflation. Interest on the debt in the last fiscal year was exceeded only by the Social Security retirement program as a spending line item.And, even as the Fed has started cutting interest rates, Treasury yields have risen notably in the last two months in anticipation of much of Trump’s agenda taking effect – and the country’s borrowing costs have continued rising with them. So far, recent auctions of new U.S. bonds have been well bid, but that is not guaranteed should the market size continue its rapid growth.RED-HOT GREENBACKThe U.S. dollar has been on a tear, climbing more than 7% since late September against a basket of major trading partners’ currencies, and is at its strongest level in about two years.A strong dollar will help mute some of the inflationary impetus of the Trump economic agenda, with currency effects making imported goods cheaper. But it will make U.S. exports less attractive, complicating any effort to put a dent in the trade deficit even with the expanded slate of tariffs Trump has in mind to slow the flow of imports.THAT PESKY FEDBessent will be the chief liaison between the Fed and the administration. Fed Chair Jerome Powell meets most weeks with the Treasury secretary – now Janet Yellen and Steven Mnuchin before her – giving the new secretary ample opportunity to offer views on what is going on with Fed policy, particularly interest rates.Trump famously soured on Powell soon after elevating him from Fed governor to the U.S. central bank’s chief because Powell continued with a rate-increasing regime begun by his predecessor, who happened to be Yellen.As Trump takes office this time, the Fed is in the process of lowering rates – but perhaps not as much as central bank officials themselves had anticipated just two months ago and perhaps also not as much as Trump would like to see.That’s because inflation is again proving to be a bit slower in returning to the Fed’s 2% target, and the job market – the other focus of the dual mandate assigned it by Congress – remains pretty healthy.Powell’s term as chair expires in May 2026, and if history is a guide, Bessent could be an influential voice advising Trump on who next to pick to lead the central bank. Earlier this year Bessent floated the idea of nominating Powell’s successor as early as possible to undercut Powell’s authority – a so-called “shadow chair” appointment – but he has since backed away from the idea. More

COLOMBO (Reuters) – Sri Lanka’s central bank is expected to renew easing of interest rates on Wednesday, with a reduction of a quarter percentage point, as it looks to boost economic growth during the island nation’s recovery from a lingering financial crisis.The median estimate in a Reuters poll of 13 analysts and economists predicts the central bank will reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 25 basis points each to 8% and 9%, respectively. “This is the perfect time to do monetary easing,” said Dimantha Mathew, head of research at First Capital.”There is economic recovery but trickledown to middle and lower levels has been pretty slow. So we need some amount of stimulation.”A severe shortfall of dollars spun Sri Lanka’s economy into a deep financial crisis two years ago, contracting growth by 7.3% in 2022 and forcing a default on foreign debt. In recent months, however, a bailout package from the International Monetary Fund, coupled with domestic measures and reforms, helped push up the rupee currency 11.3%, while inflation has disappeared, with prices falling 0.8% last month.The economy is expected to grow 4.4% this year, for its first increase in three years, the World Bank has estimated.The Central Bank of Sri Lanka is considering moving towards a single policy rate mechanism to ensure better signalling of its policy stance, Governor P. Nandalal Weerasinghe said in early 2024, but there has been no formal announcement yet.Six of the 13 respondents said they expect CBSL to start announcing a single policy rate, likely to be set at 8.25%. CBSL last cut rates in July but the current easing cycle that started in June 2023 has seen rates cut by a total of 7.25 percentage points, partially reversing the increases of 10.50 percentage points following the financial crisis.Hoping to cement a stronger economic recovery, millions of Sri Lankans voted to give new President Anura Kumara Dissanayake’s coalition a landslide victory in a general election this month.That sets the stage for the International Monetary Fund (IMF) to greenlight the fourth tranche of the $2.9-billion bailout. An interim budget is expected to be presented in parliament and Dissanayake hopes to complete the debt restructuring by the end of December.For individual responses, please see below table: Organisation SDFR (%) SLFR (%) Acuity 8 9 Softlogic 8 9 Advocata Institute 8.25 9.25 Citigroup (NYSE:C) 9 First Capital 7.75 8.75 Asha Securities 7.75 8.75 HSBC 8.25 9.25 University of 8 9 Colombo Asia Securities 7.75 8.75 CAL Group 8 9 NDB Securities 7.75 8.75 Capital Economics 8 Standard Chartered (OTC:SCBFF) 9 Median 8 9 More

LONDON (Reuters) -Bank of England Deputy Governor Clare Lombardelli said on Monday she was more worried about the risk that inflation comes in higher – not lower – than the central bank has forecast as she made the case for only gradual reductions in interest rates.Lombardelli, making her first speech since joining the BoE in July, said recent downbeat business surveys suggested that inflation could cool while strong wage growth posed a threat in the opposite direction.She said she thought those risks were balanced.”But at this point I am more worried about the possible consequences if the upside materialised, as this could require a more costly monetary policy response,” Lombardelli told a conference organised by King’s Business School.Sterling rose by around a tenth of a cent as Lombardelli spoke.The BoE has lowered rates twice since August, taking it to 4.75% from a 16-year high of 5.25%, less than cuts by the European Central Bank and the U.S. Federal Reserve due mostly to concerns about inflation pressure in the UK jobs market. Most of the Monetary Policy Committee’s members also support gradual cuts to interest rates and Lombardelli’s concerns about the risk of higher-than-expected inflation suggest she might be close in her views to BoE Chief Economist Huw Pill who this month warned that pay growth remained stuck at a high level. By contrast, another deputy governor, Dave Ramsden, said last week that inflation could undershoot the BoE’s latest forecasts, potentially requiring faster cuts. Financial markets expect around three BoE interest rate reductions between now and the end of next year, compared with around six for the ECB and four for the Fed.Lombardelli said a scenario where wage growth eases to around 3.5%-4% and inflation stabilises at around 3% rather than the BoE’s 2% target would be more costly to address, if that became the “new normal” expectation for firms and consumers.Some economists think Britain’s inflation rate could rise to 3% in early 2025 after coming in stronger than expected in October. Preliminary purchasing manager index reports published last week suggested a slowing of Britain’s economy but Lombardelli said she did not take a strong signal from a single release of data.The BoE would have to watch for the risk of a further deterioration, she said, adding later that weakness in the euro zone was likely to affect Britain’s economy. “Given the lags in policy it would be important not to act late if the economy moved in this direction,” she said.Swati Dhingra, who has stressed the downside risks to Britain’s economy more than any other MPC member, was due to speak at around 1030 GMT.Lombardelli, who is in charge of reforming the BoE’s forecasting and analysis processes after a report from former Fed chair Ben Bernanke, said an overhaul was needed and there would be “nose to tail” changes.The BoE was already making progress in modernising its technology and data processing, and had introduced scenarios into its forecasting. But she acknowledged that there was a long way to go, she said.”This programme is going to take time to work through – years not months,” Lombardelli said. More

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“A bumper kharif (summer crop) harvest is expected to lower food inflation in the coming months,” the report said. India’s retail inflation surged to a 14-month high in October, driven by high vegetable prices.A favorable monsoon, adequate reservoir levels and higher minimum support prices are likely to boost winter crop sowing and production, it said.”Early November trends signaled moderation in key food prices, though geopolitical factors may continue to impact domestic inflation and supply chains,” it said.The report said many high-frequency indicators of economic activity in India have shown a rebound in October after a brief period of softening momentum.Persistently high inflation has squeezed India’s middle class budgets, slowing urban consumption in the last few months and threatening brisk economic growth. India expects the economy to grow at 6.5%-7% in the financial year that ends in March.India’s export recovery may encounter challenges due to softening demand in developed markets, the report said, with trade in services sustaining momentum.”Geopolitical developments and policy decisions of the next administration in the United States will determine the course of trade and capital flows,” it said. More

President-elect Donald Trump nominated fund manager Scott Bessent to be his incoming US Treasury Secretary on Friday, and the decision has been generally received favorably given he’s seen as a mainstream candidate rather than an unknown.Bessent has spent his career in finance, working for macro investment billionaire George Soros and noted short seller Jim Chanos as well as founding Key Square Group, a global macro investment firm. He was an economic advisor for Trump’s 2024 presidential campaign. In an interview with the Wall Street Journal, published on Sunday, Bessent indicated he will prioritize delivering on election tax cut pledges, including making Trump’s first term tax cuts permanent, as well as eliminating taxes on tips, social-security benefits and overtime pay.Bessent said, in the interview, that he would also focus on enacting tariffs, although has also said they should be objectives “layered in gradually”, while the levels of tariffs being mentioned, such as 60% on Chinese goods, were “maximalist” positions that might be watered down.In various media appearances he has talked of cutting the budget deficit to 3% of GDP and dealing with the mountain of U.S. debt, largely by slashing spending.That said, the amount of discretionary spending there is to cut is trivial compared with the essential stuff such as Medicare and defence.US bond yields fell after his appointment, dragging the dollar lower, while stock index futures climbed on Wall Street.US stock futures rose Monday, continuing the previous week’s positive tone ahead of Thursday’s Thanksgiving holiday. By 03:45 ET (08:45 GMT), the Dow futures contract was up 260 points, or 0.6%, S&P 500 futures climbed 25 points, or 0.4%, and Nasdaq 100 futures rose by 90 points, or 0.4%.The main benchmarks posted positive weeks last week, with the Dow Jones Industrial Average advancing around 2% to finish at a record close. The broad-based S&P 500 and the tech-heavy Nasdaq Composite each rose about 1.7%.The main economic focus this week will be Wednesday’s Personal Consumption Expenditures Price index, the Federal Reserve’s preferred gauge of underlying inflation.Recent stubborn inflation data has seen the Fed take a cautious stance towards further interest rate cuts.While the US is due to release November data on both consumer and producer prices before the Fed’s next meeting on Dec. 17-18 this will be the final PCE report before then.The retail sector will be in the spotlight this holiday-shortened week, with the US Thanksgiving holiday on Thursday and the following Black Friday marking the start of the holiday shopping season.A fresh batch of retail earnings are also due in the coming days, starting later Monday with Bath & Body Works (NYSE:BBWI), while Best Buy (NYSE:BBY), Macy’s (NYSE:M), Nordstrom (NYSE:JWN) and Urban Outfitters (NASDAQ:URBN) all due to report this week.Earnings results from two major retailers last week gave two very different perspectives. On Tuesday, Walmart (NYSE:WMT) raised its annual sales and profit forecast for the third consecutive time, while Target (NYSE:TGT) shares dropped sharply on Wednesday after it forecast holiday-quarter comparable sales and profit below estimates.Investors are watching the extent to which inflation will weigh on buying habits, with consumer spending accounting for more than two-thirds of US economic activity. The European banking sector received more merger and acquisition news Monday, after Italy’s UniCredit (BIT:CRDI) launched a surprise all-share offer worth €10 billion ($11 billion) for smaller domestic rival Banco BPM (BIT:BAMI).The deal would, if completed, merge two of Italy’s largest lenders, with UniCredit stating that the purchase would allow the bank to “further strengthen its role as a leading pan-European banking group.”UniCredit is also pursuing a potential deal with Germany’s Commerzbank (ETR:CBKG), although the German government has yet to bless the potential union.UniCredit said on Monday the buyout offer for Banco BPM was independent of its proposed investment in Commerzbank.Banco BPM bought 5% in bailed-out mid-sized rival Monte dei Paschi (MPS) earlier this month, a move seen as potentially paving the way for an eventual combination as the state pulls out of MPS entirely.The European banking sector has been considered ripe for consolidation for years, with cash-rich UniCredit often cited as a possible acquirer.Crude prices retreated Monday, handing back some of last week’s hefty gains, on increasing hopes for a ceasefire in the troubled MIddle East, an oil-rich region.By 03:45 ET, the US crude futures (WTI) dropped 0.7% to $70.73 a barrel, while the Brent contract fell 0.7% to $74.14 a barrel.Israel and Hezbollah were close to signing a ceasefire agreement to end hostilities in Lebanon, Axios reported on Sunday, citing Israeli and US officials. Israel daily The Times of Israel also reported that Prime Minister Benjamin Netanyahu was holding high-level talks over the deal, which was brokered by US officials. The prospect of an Israel-Hezbollah ceasefire points to lessening tensions in the Middle East, presenting a lower risk premium for oil. Both contracts gained around 6% last week, notching their biggest weekly gains since late September to reach their highest settlement levels since Nov. 7. More

The cost of Neom has been estimated to be as high as $1.5 trillion.
This year, however, has seen a sharp change in direction in terms of spending for the kingdom.
“Saudi Arabia has poured tens of billions into projects that have yet to hint of any financial returns,” one financier told CNBC.

Digital render of NEOM’s The Line project in Saudi Arabia
The Line, NEOM

In Saudi Arabia’s northwestern desert, a sprawling construction site replete with cranes and pile drivers sits encircled by a recently-built road. A pair of tracks cuts through the site like deep gashes through the sand, comprising the spine of what planners say will be a high-speed rail system.
The skeletal infrastructure forms the foundations of The Line, a multi-billion dollar high-tech city that its architects say will eventually house 9 million people between two 106-mile long glass skyscrapers more than 1,600 feet high.

The project, whose estimated cost is in the hundreds of billions, is just one of the hyper-futuristic venues planned in Neom, the brainchild of Saudi Crown Prince Mohammed bin Salman and a region that the kingdom hopes will bring millions of new residents to Saudi Arabia and revolutionize living and technology in the country. It’s a core pillar of Vision 2030, which aims to diversify the Saudi economy away from oil revenues and create new jobs and industries for its burgeoning young population.
The cost of Neom has been estimated to be as high as $1.5 trillion. In the years since it was announced, Saudi Arabia’s Public Investment Fund, the mammoth sovereign wealth fund now overseeing $925 billion in assets, has poured billions into overseas investments, with ever-increasing waves of foreign investors flying to the kingdom to raise cash.
This year, however, has seen a sharp change in direction in terms of spending, with a stated emphasis on keeping investments at home along with reports of cutting costs on megaprojects like those in Neom. The changes come as the Saudi deficit grows and the outlook for oil demand, along with global oil prices, sees sustained lows.

Construction for The Line project in Saudi Arabia’s NEOM, October 2024
Giles Pendleton, The Line at NEOM

That begs the question: does Saudi Arabia have enough money to meet its lofty goals? Or will it have to be more flexible to make its spending trajectory sustainable?
One Gulf-based financier with years of experience in the kingdom told CNBC: “The PIF’s pivot towards domestic investments, widely acknowledged but now officially admitted, suggests that there is still a lot of spending needed. Saudi Arabia has poured tens of billions into projects that have yet to hint of any financial returns.”

The financier spoke anonymously as they were not authorized to speak to the press.
Andrew Leber, a researcher at Tulane University who focuses on the political economy of the Middle East, believes that the current pace of spending won’t last.
“The number of ‘we pay up front and hope for economic returns later’ giga projects that are currently underway is not sustainable,” Leber said.
“With that being said,” he added, “the Saudi monarchy has shown itself to be somewhat flexible whenever economic realities assert themselves. I do think that eventually, a number of projects will be quietly shelved in order to bring its fiscal outlays back into greater sustainability.”

Digital render of NEOM’s The Line project in Saudi Arabia
The Line, NEOM

Saudi Arabia in October cut its growth forecasts and raised its budget deficit estimates for the fiscal years 2024 to 2026 as it expects a period of higher spending and lower projected oil revenues. Real gross domestic product is now expected to grow 0.8% this year, a dramatic drop from a previous estimate of 4.4%, according to the ministry of finance.  
The kingdom’s economy also swung dramatically from a budget surplus of $27.68 billion in 2022 to a deficit of $21.6 billion in 2023 as it ramped up public spending and decreased oil production due to its OPEC+ supply cut agreement. Its government forecasts a deficit of $21.1 billion for 2024, projecting revenue at $312.5 billion and expenditures at $333.5 billion.
Saudi authorities expect that the budget will remain in deficit for the next several years as it pursues its Vision 2030 plans, but they add that they are fully prepared for this.

“Our non-oil revenues have grown significantly, now it covers about 37% of expenditure. That’s a significant diversification, and that gives you a lot of comfort that you can maneuver and be stable despite the fluctuation in oil price,” Saudi Finance Minister Mohammed Al-Jadaan told CNBC in October. “Our aim is to make sure that our plans are stable and predictable.”
“We are not going to blink, we have significant fiscal resource under our disposal, and we are very disciplined in our fiscal position,” the minister said.
Saudi Arabia has an A/A-1 credit rating with a positive outlook from S&P Global Ratings and an A+ rating with a stable outlook from Fitch. That combined with high foreign currency reserves — $456.97 billion as of September, a 4% percent increase year-on-year, according to the country’s central bank — puts the kingdom in a comfortable place to manage a deficit, economists told CNBC.

Riyadh is successfully issuing bonds, tapping debt markets for more than $35 billion so far this year. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams, which S&P Global said in September “will continue to improve Saudi Arabia’s economic resilience and wealth.”
When asked if the kingdom’s spending trajectory is sustainable, Al-Jadaan replied: “Absolutely, yes,” adding that the government recently published its numbers for the next three years and that “we think it is very sustainable.”
Still, many analysts outside the kingdom, as well as individuals working within the kingdom and on NEOM projects, are skeptical of the megaprojects’ feasibility. Reports that some projects have been dramatically cut down — in the case of the Line, its size target slashed from 106 miles to 1.5 miles and population target down from 1.5 million by 2030 to less than 300,000 — attest to that concern on a higher level.

Neom executives acknowledge that the current phase of work on The Line is for a building length of 1.5 miles — which would still make it the longest building in the world. However, the eventual goal of 106 miles has not changed, they say, stressing that cities are not built overnight and that construction is continuing apace.
For Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, “it’s promising to see transparency and some project cutbacks.”
“The Kingdom’s rising external borrowing reflects challenges with Vision 2030 feasibility,” he told CNBC.
“Though debt remains manageable at 26.5% of GDP, continued small pressures add up, underscoring the need for fiscal discipline and achievable goals.”
Solomon pointed to the desire of many Saudi residents for improvements to the infrastructure they use in their daily lives — like Riyadh’s public transport, network connectivity, schools, and health care.
“The road to resilience for Saudi Arabia isn’t in figuring out ski slopes in the desert but in building with innovation, complexity, and the courage to pursue what’s truly impactful,” he said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Heathrow’s incoming largest shareholder has thrown its weight behind expanding the UK’s largest airport, and said it would back management if it tried to build a third runway.French private equity group Ardian agreed to buy a 23 per cent stake in Heathrow in June, part of a £3.3bn shake-up in ownership at the airport which also saw Saudi Arabia’s sovereign wealth fund buy a stake.With the deal expected to complete before the end of next month, Ardian’s head of infrastructure Mathias Burghardt told the Financial Times that Heathrow needed to expand in the coming years.“Growth is in our DNA. We don’t invest in companies, or in infrastructure if they don’t have a growth plan,” he said. Heathrow’s chief executive Thomas Woldbye is within months expected to announce the airport’s first expansion plan since the pandemic, which will prioritise small-scale improvements to increase passenger numbers. He told an industry conference on Monday that Heathrow hoped to make a final decision on whether to press ahead with the planning process for a third runway by the end of 2025. But the only way to significantly increase capacity would be to build a new runway, a politically contentious topic that has remained unresolved for decades. Prime Minister Sir Keir Starmer’s cabinet is split over whether to back a third runway, the FT reported this month. Burghardt backed Woldbye’s plan, and said he would then support a third runway if there was “consensus” behind it.“The first thing is to grow the airport within the existing footprint, and then . . . how can we ensure growth beyond the existing footprint?”“If management designs growth, which could be a third runway . . . and if there is consensus, first with the government, but beyond that, other stakeholders, we certainly will support it for sure,” he said. But amid rising concerns about the difficulty of decarbonising aviation, Burghardt said any plans would be contingent on a credible plan to lower emissions. “Companies which are not prepared for that will really have problems in the future, and that will limit their growth,” he said. Asked whether Ardian would be willing to part-fund any big expansion — Heathrow’s third runway project was costed at about £14bn in 2019 — he replied: “Without being specific to Heathrow, our job is always to put [in] more money . . . the more capex, the more growth.”Ardian’s deal for a stake in Heathrow was followed this month by the Canadian pension investor PSP’s acquisition of the operator of Aberdeen, Glasgow and Southampton airports for £1.5bn, marking the latest investment in the British travel sector following the pandemic.Burghardt said that while travel had rebounded since the pandemic, it remained “difficult to say what is normal” as the mix of passengers had shifted since video meetings had replaced some business trips.He also said the UK remained an attractive market for investment, even amid fears that struggles at Britain’s largest water utility Thames Water would deter private funds from backing other UK infrastructure.“We’ve been investing in the UK for a period of years,” he said. “I really believe the UK has demonstrated the strength of its institutions.”However, he said that when Ardian sold its stake in the UK’s Anglian Water in 2014 the firm was “not convinced regulatory dynamics would evolve positively” in that sector, but that when it came to Heathrow and the airport sector “we believed that the existing regulation is a good regulation overall”. More