Economy

Anxiety over the economy could prove costly to President Biden and his fellow Democrats.
A separate University of Michigan survey found consumers worried about inflation and indicating they thought Republicans were the better choice to fix the economy.

US President Joe Biden speaks during a DNC rally in Miami Gardens, Florida, US, on Tuesday, Nov. 1, 2022.
Eva Marie Uzcategui | Bloomberg | Getty Images

Anxiety over the cost of living and the direction of the economy could prove costly to President Joe Biden and his fellow Democrats in Tuesday’s election.
Recent surveys show consumer sentiment has risen only modestly and remains well below where it was a year ago, when inflation worries first began to grip policymakers, shoppers and business executives.

A report released Friday outlined the problem for Washington’s current ruling party. The University of Michigan, which releases a closely watched sentiment survey each month, asked respondents who they trusted more when it came to the economy and which would better for personal finances.
The result: overwhelmingly Republican.
The survey of 1,201 respondents saw Republicans with a 37%-21% edge on the question of which party is better for the economy. While that left a wide swath — 37% — of consumers who don’t think it makes a difference, the disparity of those with a preference is huge. (The survey did not distinguish whether respondents were likely voters.)

In fact, among all demographics, the only one in the Democrats’ favor was the sole party group. Whether it was age, household income or education, all other groups favored the GOP.
On overall sentiment, the Michigan survey saw a reading of 59.9 for October, 2.2% better than September but 16.5% below the same period a year ago. The reading is just off its all-time low in June 2022 and is running close to its lowest level in more than 11 years, according to data that goes back to 1978.

“It’s a huge problem” for Democrats, said Greg Valliere, chief U.S. policy strategist at AGF Investments, who specializes on the impact of politics on the financial markets. “They’ve seen enough evidence since Labor Day showing how the economy dwarfs every other issue, but they didn’t do anything about it. They didn’t say the right thing, they didn’t show enough empathy. To me, this was a really sorry performance.”
Valliere thinks the issue could get so large that Biden may have to announce soon that he will not seek a second term in 2024.
“I think the Democrats have a lot of problems right now,” he added.

Consumer confidence also hit an all-time low on housing, with just 16% of respondents saying they think now is a good time to buy, according to a Fannie Mae survey that goes back to 2011.
Those types of readings have not boded well for the party in power.
Former President Donald Trump lost his bid for reelection in 2020 when the Michigan poll was just above its early Coronavirus pandemic low. Conversely, Barack Obama won reelection in 2012 when the survey was riding a five-year high. George W. Bush captured his bid for a second term in 2004 when sentiment was middling, but Bill Clinton triumphed in 1996 when the Michigan gauge was at a 10-year high.
As for congressional control, in the 2010 midterm election, when the Obama-Biden administration lost a stunning 63 House seats, the biggest rout since 1948, the reading was at 71.6. That was only narrowly better than the year before when the economy was still climbing out of the financial crisis.
Today, the public is particularly anxious about inflation.

After declining for two months in a row, October’s one-year inflation outlook stood at 5%, up 0.3 percentage point from September and the highest reading since July. The five-year outlook also rose, up to 2.9%, and tied for the highest level since June.
The University of Michigan survey also found respondents had more trust in Republicans when it came to the fate of their personal finances.
The GOP held a 15-point lead against Democrats in that category, including a 19-point edge among independents.
The survey showed expectations running high that Republicans will prevail in Tuesday’s election and wrest control of Congress back from Democrats.

On both the general economy and personal finance questions, Republicans did far better among those holding a high school diploma or less, with a 25-point edge in both questions. Those holding a college degree gave the GOP an 8-point edge on the economy and a 10-point advantage on personal finances.

WATCH LIVEWATCH IN THE APP More

Americans are extremely attuned to the cost of living, and as midterm election voters head to the polls, they are divided over whom to blame.Inflation has roared back onto the scene as a key issue ahead of the 2022 midterm elections, after five decades during which slow and steady price increases were a political nonissue.It was once a potent driver of politics in America, one that panicked former President Richard M. Nixon and his administration, and later helped to make Jimmy Carter a one-term president. As prices surge, inflation is again taking center stage, and could help decide who controls Congress.Household confidence has plummeted as inflation has climbed, and economic issues have shot to the top of what voters are worried about. A full 49 percent of voters overall said that the economy is an extremely important issue to them in an October Gallup survey, notably outranking abortion, crime and relations with Russia. That’s the highest level of economic concern headed into a midterm election since 2010, when the economy was coming out of the worst downturn since the Great Depression.Inflation is almost certainly the issue pushing the economy to its current prominence. Consumer prices picked up by 8.2 percent in the year through September, far faster than the roughly 2 percent annual gains that were normal in the years leading up to the pandemic. That has left many families feeling like they are falling behind, even as unemployment lingers near a 50-year low, employers hire at a solid clip and job openings abound.The disconnect between the strength of the economy and the way that voters feel about it illustrates why Democrats are barreling into the midterms on the defensive. Elected politicians have a limited role to play in fighting inflation, a job that falls mostly to the Federal Reserve. That has made talking about price increases all the more challenging.Survey data suggest that while voters disagree over whom to blame for today’s rapid price increases, a larger share of independent voters believe that Republicans would be better for the economy and their finances. And irritation over the state of the economy could be enough to prompt some people to vote for change even if the other party doesn’t offer clearly better solutions, according to political scientists. The question is less whether inflation will be a factor driving votes — and more whether it will be a decisive one.“It matters enormously to the election this week,” said Elaine Kamarck, a senior fellow in the Governance Studies program at the Brookings Institution, noting that gas and grocery prices are omnipresent realities for most families. “It is obvious what is happening in inflation every single day: Voters don’t get to forget it.”Across the political spectrum, many Americans are feeling less positive about their personal finances: An AP-NORC Center for Public Affairs Research poll from October found that 36 percent of Democrats now say their finances are in bad shape, up from 28 percent in March. Among Republicans, that number was 53 percent, up from 41 percent. Independents were fairly unchanged, with 53 percent feeling negative.That could be particularly bad for Democrats, because they are often seen as less strong on the economy.Which Party Is Better for the National Economy?Independents and Republicans both tend to rank Republicans ahead of Democrats economically, based on University of Michigan data.

Note: Survey from September and October 2022.Source: University of MichiganBy The New York TimesNew survey data from the University of Michigan showed that 41 percent of voters felt neither party had an advantage when it came to helping their personal finances. But of those who did think there was a difference, 35 percent thought Republicans would be better — versus 20 percent for Democrats. Consumers also expected Republicans to win in national races.“By and large, respondents expect Republicans to gain control of both the House and the Senate,” Joanne Hsu, director of the University of Michigan’s consumer surveys, wrote in the Nov. 4 release.Which Party Is Better for Your Personal Finances? Republicans and Independents tend to rank Republicans higher on issues of personal finance, though many see no difference.

Note: Survey from September and October 2022.Source: University of MichiganBy The New York TimesWhether they are right could hinge on whether inflation proves as salient for actual votes as it is in sentiment surveys.Prices may be rising quickly — annoying consumers and occupying their attention — but unemployment is very low, which Ms. Kamarck said might alleviate the angst. Plus, she said, critical groups of voters — most notably women — may focus on other issues including a Supreme Court ruling from earlier this year that overturned Roe v. Wade and ended the constitutional right to abortion.Hally Simpson Wilk, 36, from Broadview Heights, Ohio, is feeling inflation at the grocery store, but she does not think that Republicans would necessarily be better at solving the problem than Democrats. Plus, she said, the abortion ruling had “lit a fire under” her. She expects to vote Democrat.It is hard to guess whether unhappiness over rising prices will drive actual votes in part because there isn’t much recent precedent. While inflation has a history of driving politics in America, it hasn’t been a major issue in 50 years.Back in the 1970s and 1980s, inflation was even faster, touching peaks as high as 12 and 14 percent. Those price increases, and the nation’s response to them, played a big role in driving the national conversation and deciding elections during that era. Mr. Nixon in 1971 instituted wage and price caps to try to temporarily keep prices under control ahead of the 1972 election, for instance.“Inflation robs every American, every one of you,” Mr. Nixon said during his surprise announcement, which included other major economic policy changes. “Homemakers find it harder than ever to balance the family budget. And 80 million American wage earners have been on a treadmill.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}Our needle is back. The needle is an innovative forecasting tool that was created by The Times and debuted in 2016. It is intended to help you understand what the votes tallied so far suggest about possible winners in key contests, before the election is called. Look for one needle on which party will control the House and one on which party will control the Senate.Here’s a deeper dive into how it works.Those wage and price caps may have been politically astute, but research since has showed they just delayed price jumps — they didn’t stop them. When Mr. Carter became president in 1977, inflation was still raging. The Fed wrestled it under control with super-high interest rates that sent unemployment soaring, a campaign that is widely credited with helping to cost Mr. Carter a second term.America’s experience during the 1970s also illustrates a harsh reality: Even if inflation drives the nation’s politics, there is relatively little politicians can do to address it, aside from trying to avoid making the problem worse by stimulating the economy. Taxing and spending policies to offset price increases mostly have comparatively small effects.The country’s main tool for fighting rapid price increases is Fed policy — and that is a painful solution. When the central bank lifts interest rates, it slows economic demand, cools hiring, moderates wage growth and eventually drags prices lower as shoppers pull back and companies find that they can no longer charge more.“There is not an easy fix for inflation — the fix is a recession,” Ms. Kamarck said. For Democrats, “it is very hard to have an economic message.”Economists typically attribute today’s rapid price increases partially to government spending, including a package that Democrats passed in 2021 that helped to fuel consumer demand. But they are also global in nature, tied partly to lingering supply issues amid the pandemic, and food and fuel market disruptions caused by Russia’s invasion of Ukraine.Many voters believe that today’s price increases are not wholly — even principally — the Democratic administration’s fault. But that assessment divides along party lines.About 87 percent of Democrats attribute inflation to factors outside of President Biden’s control, versus 48 percent of independents and 21 percent of Republicans, based on AP-NORC polling data from last month.What Is to Blame for Rapid Inflation?A poll asked voters what was to blame for higher-than usual prices: President Biden’s policies, or factors outside of his control.

Note: Survey from October 6-10, 2022Source: AP-NORCBy The New York Times People who were already on the fence could have their minds swayed by inflation — especially in places where it is particularly painful. Price increases are reported at a metro level, and some cities in key battleground states are facing particularly rapid price increases: Inflation was at 11.7 percent in Atlanta; 13 percent in Phoenix; and 9 percent in the Seattle metro area as of the latest available data.And even if inflation is hovering near the national average in some places, it is still the fastest pace in decades.Pennsylvania’s Senate race is closely contested, and Christopher Borick, director of the Muhlenberg College Institute of Public Opinion in Allentown, Pa., thinks that rapid price increases could be one factor that is helping the Republican candidate Mehmet Oz run a competitive race despite very low favorability ratings.“We often see in midterm races that if people aren’t happy, a price is paid by the incumbent party,” Mr. Borick said. Inflation “places people in a mood that really does open up the door to alternatives that might not otherwise be acceptable.” More

UK grocery prices rose at their fastest pace in 14 years in October, pointing to a further increase in the overall inflation rate this month when fresh data are released, according to a survey.Annual food prices rose 14.7 per cent last month, their highest growth since records began in 2008. The increase could add £682 to the average British household’s yearly shopping bill, said research company Kantar on Tuesday. Poorer households will be hit hardest by steep rises in the cost of food and other supermarket goods. Economists said that it was too early to call a “price ceiling”, the maximum level food prices will reach before they start to fall again. Walid Koudmani, chief market analyst at online investment platform XTB online trading, said: “[Food price inflation] when compounded with the massive energy spending increases has been seen by many as a significant risk to the economic stability of the UK.”“It is likely that food inflation will continue to increase as macroeconomic indicators have shown little sign of a slowing down in price growth while consumers continue to struggle with the ongoing cost of living crisis,” added Koudmani.UK energy prices have soared in recent months partly because of huge cuts in gas imports from Russia, pushing up energy bills for households and businesses. UK inflation hit a 40-year high of 10.1 per cent in September with economists expecting the figure to rise further before the end of the year. The Office for National Statistics will release its October inflation data on Wednesday next week.A surge in the cost of groceries will affect less well-off families hardest, with the poorest 10 per cent of households spending nearly a fifth of their weekly income on food, a larger proportion than those with greater means, according to separate data by the ONS. “The rocketing price of food is a real concern with millions of people skipping meals or struggling to put healthy meals on the table,” said Sue Davies, head of food policy at Which? consumer group. Shoppers have been shunning branded products in an effort to save, with sales of supermarkets’ own labels increasing 10.3 per cent in the past four weeks, while purchases of cheaper ranges jumped 42 per cent, Kantar said. More than a quarter of households reported they were struggling financially, according to Fraser McKevitt, head of retail and consumer insight at Kantar. “Food and drink spending is generally non-discretionary,” he explained, so “many are looking to reduce costs in other ways”.

Demand for cheaper retailers grew, with Aldi and Lidl each boosting their sales more than 20 per cent year on year. Together the two discount supermarkets now make up 16.4 per cent of the UK grocery market, compared with the 4.4 per cent share they held during the 2008 financial crisis.Kantar’s report suggested that inflation would continue to rise in the months to come, driven by increases in the cost of food, which makes up 10.5 per cent of the overall measure of consumer price growth. More

The priority of COP27 in Sharm el-Sheikh is to ensure a continuation of life on this planet as we know it. Yet some argue that the goal of limiting the increase in temperatures above pre-industrial levels to the recommended 1.5C should be declared dead: it is no longer realistic.Adapting our goals to our failures is a defeat. If we fail to reduce emissions faster, we will end up having to spend far more on adaptation. We will also have to discover ways of removing vast quantities of carbon from the atmosphere. We may even have to adopt the fraught option of geoengineering. True, some, perhaps even much, of this might become inescapable in the end. Indeed, adaptation already is, as Pakistan’s flood disaster shows. Yet we must stop pouring greenhouse gases into the atmosphere. This remains a priority.Again, some argue that those who have made free use of the global carbon sink for up to two centuries owe reparations to those who have not. The disparity in cumulative emissions per head is stark indeed. Yet once again, diverting attention from the priorities of today to compensation for injustices in the past will lead not to action but to endless and unproductive disputes. (See charts.)So, what needs to happen if we are to hope even to stay close to the agreed temperature ceiling? The Energy Transitions Commission presents a sobering picture: by 2030, annual CO₂ emissions need to be 22 gigatonnes lower than under “business as usual”; only some 40 per cent of this shortfall is covered by (doubtful) commitments; progress towards making new net zero commitments and putting them in law has slowed; and the likely cumulative emissions of China, India and the high-income countries over the next half century will more than exhaust the residual global carbon budget, rendering large-scale carbon removal inescapable.We are in sum all too likely to fail. The biggest difficulty of all lies in emerging and developing countries. How is the development their populations need to be combined with containing and ultimately eliminating emissions of greenhouse gases? Solving that challenge is not a sufficient condition for global success, but it is certainly a necessary one.In the high-income countries and China, the challenge, albeit huge, is one of politics and policy. In developing countries it is also one of access to technology and finance. This is discussed in the report of the Energy Transitions Commission. It is also laid out in detail in Finance for Climate Action, which comes from a high-level expert group.The problem is soberingly clear. We have a global challenge that can only be solved with huge investments, notably in new energy systems. But our capital markets are fragmented by country risk. The only solution is for rich countries to underwrite a substantial part of that risk by providing concessional finance, both bilaterally and multilaterally, thereby promoting the desperately needed flows of private capital.In brief, to achieve the necessary transformation in emerging and developing countries, there must be a huge acceleration in investment, a parallel surge in external private finance, a revamped and greatly enhanced role for multilateral development banks, a doubling of concessional finance from high-income countries by 2025 over 2019 levels, and imaginative ways of managing the debt problems of developing countries. In round numbers, the world will need to mobilise $1tn a year in external finance for emerging and developing countries, other than China. This is not about the $100bn a year that the high-income countries promised and have so far failed to deliver. This is about something far bigger than that.Without all this, the targets laid out in the Paris agreement and Glasgow pact will not be achieved: they will be unaffordable. Some in the high-income group, frightened by these sums, may hope that these countries will spend less and grow less. But, quite apart from being unconscionable, this would mean continuing growth along today’s destructive path of high emissions and large-scale deforestation. The more transformative and more generous path is that of rational self-interest.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

The needs are indeed huge. Emerging and developing countries, other than China, will need to spend some 4.1 per cent of GDP on a “big-push” investment strategy in sustainable infrastructure by 2025 and then 6.5 per cent of GDP in 2030, up from 2.2 per cent in 2019. This will demand radical policy reforms, notably elimination of distorting subsidies to fossil fuels and carbon pricing. One way to achieve the latter might be to maintain domestic prices of fossil fuels at today’s high level as and when world prices fall. A substantial part of the needed additional financing, perhaps as much as half, would, it is hoped, come from domestic resources. But a big part must come from external sources, via public and private partnerships that make the needed flows available.Yet, as soon as all this is spelt out, people are likely to conclude that it is unrealistic. It is not. The bulk of the additional external finance will come from the private sector and more imaginative use of the balance sheets of MDBs. The high-level group does recommend that annual bilateral concessional finance for climate should rise by $30bn by 2025. But this would be a mere 0.05 per cent of the GDP of all rich countries.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Nobody can reasonably argue this would be unaffordable. Rather, it is not doing so that would be unaffordable. We are required to fight a war we just have to win. We cannot afford, practically or morally, to leave a world with an irreversibly destabilised climate to the future, possibly even the near future. We should not give up without trying. At COP27, we must do so, in [email protected] Martin Wolf with myFT and on Twitter More

TBILISI (Reuters) – As war chokes Europe, a small nation wedged beneath Russia is enjoying an unexpected economic boom.Georgia is on course to become one of the world’s fastest-growing economies this year following a dramatic influx of more than 100,000 Russians since Moscow’s invasion of Ukraine and Vladimir Putin’s mobilisation drive to drum up war recruits.As much of the globe teeters towards recession, this country of 3.7 million people bordering the Black Sea is expected to record a vigorous 10% growth in economic output for 2022 amid a consumption-led boom, according to international institutions. That would see the modest $19 billion economy, well known in the region for its mountains, forests and wine valleys, outpace supercharged emerging markets such as Vietnam and oil exporters such as Kuwait buoyed by high crude prices.”On the economic side, Georgia is doing very well,” Vakhtang Butskhrikidze, CEO of the country’s largest bank TBC, told Reuters in an interview at its Tbilisi headquarters.”There’s some kind of boom,” he added. “All industries are doing very well from micros up to corporates. I can’t think of any industry which this year has problems.”At least 112,000 Russians have emigrated to Georgia this year, border-crossing statistics show. A first large wave of 43,000 arrived after Russia invaded Ukraine on Feb. 24 and Putin moved to quash opposition to the war at home, according to the Georgia government, with a second wave coming after Putin announced the nationwide mobilisation drive in late September. Georgia’s economic boom – whether short-lived or not – has confounded many experts who saw dire consequences from the war for the ex-Soviet republic, whose economic fortunes are closely tied to its larger neighbour through exports and tourists. The European Bank for Reconstruction and Development (EBRD), for example, predicted in March the Ukraine conflict would deal a major blow to the Georgian economy. Likewise the World Bank forecast in April that the country’s growth for 2022 would drop to 2.5% from an initial 5.5%. “Despite all expectations that we had … that this war on Ukraine will have significant negative implications on the Georgian economy, so far we don’t see materialization of these risks,” said Dimitar Bogov, the EBRD’s lead economist for Eastern Europe and the Caucasus.”On the contrary, we see the Georgian economy growing quite well this year, double digits.” Yet the stellar growth is not benefiting everyone, with the arrival of tens of thousands of Russians, many tech professionals with plenty of cash, driving up prices and squeezing some Georgians out of parts of the economy such as the housing rental market and education. Business leaders also worry that the country could face a hard landing should the war end and Russians return home.TO GEORGIA WITH $1 BILLIONGeorgia itself fought a short war with Russia in 2008 over South Ossetia and Abkhazia, territories controlled by Russian-backed separatists.Now, though, Georgia’s economy is reaping the benefits of its proximity to the superpower – the two share a land border crossing – and a liberal immigration policy which lets Russians and people from many other countries live, work and set up businesses in the country without needing a visa. Furthermore, those fleeing Russia’s war are accompanied by a wave of money.Between April and September, Russians transferred more than $1 billion to Georgia via banks or money-transfer services, five times higher than during the same months of 2021, according to the Georgian central bank.That inflow has helped push the Georgian Lari to its strongest level in three years.Roughly half of the Russian arrivals are from the tech sector, according to TBC’s CEO Butskhrikidze and local media outlets, chiming with surveys and estimates from industry figures in Russia that pointed to an exodus of tens of thousands of highly-mobile IT workers after the invasion of Ukraine.”These are high-end people, rich people … coming to Georgia with some business ideas and increasing consumption drastically,” said Davit Keshelava, senior researcher at the International School of Economics at Tbilisi State University (ISET).”We expected the war to have a lot of negative impacts,” he added. “But it turned out quite different. It turned out to be positive.”NO ROOMS IN TBILISINowhere is the impact of the new arrivals more evident than in the capital’s housing rental market, where increased demand is aggravating tensions.Rent in Tbilisi is up 75% this year, according to an analysis by TBC bank, and some low-earners and students are finding themselves at the centre of what activists say is a growing housing crisis.Georgian Nana Shonia, 19, agreed a two-year deal for a city centre apartment at $150 a month, just weeks before Russia invaded. In July, her landlord kicked her out, forcing her to move to a rough neighbourhood on the edge of the city.”It used to take me 10 minutes to get to work. Now it’s a minimum of 40, I have to take a bus and the metro and often get stuck in traffic jams,” she said, attributing the change in market dynamics to the surge of newcomers. Helen Jose, a 21-year-old medical student from India, has been crashing at her friend’s for a month after her rent doubled over the summer break.”Before it was very easy to find an apartment. But so many of my friends have been told to leave, because there are Russians willing to pay more than us,” she said.University figures have also reported significant numbers of students delaying their studies in Tbilisi because they can’t afford accommodation in the city, Keshelava at ISET said.’THE CRISIS COULD HIT’Russians made up about 75% of the overall migrants to Georgia from Russia, Ukraine and Belarus this year through to the end of September, according to the Georgian government, with 26,000 Ukrainians and 13,000 Belarusians also arriving. TBC’s Butskhrikidze said he saw potential in some arrivals filling skills gaps in the economy.”They are very young, technology-educated and have knowledge – for us and for other Georgian companies this is quite a useful opportunity,” he said. “A key challenge for us is technology. And unfortunately on that side we are competing with high-tech companies in the United States and Europe.”Nonetheless, economists and businesses remain concerned about longer-term negative effects from the war, and what might happen should the Russians return home.”We don’t build our future plans on the newcomers,” said Shio Khetsuriani, the CEO of Archi, one of Georgia’s largest real-estate development companies. Even with rental prices surging, Khetsuriani says development companies are not keen to over-invest in the housing market, especially with prices for materials and equipment increasing. While landlords may be cashing in on surging rents, profit margins for apartment sales have barely shifted, he said.Economists also caution the boom may not last, and are encouraging the Georgian government to use healthy tax revenues to pay down debt and build up foreign currency reserves while they can.”We have to be aware that all these factors that are driving growth this year are temporary, and it does not guarantee sustainable growth in the following years, so therefore caution is needed,” said Bogov at the EBRD.”Uncertainty is still there and the crisis could hit Georgia with some delay.” More

LONDON (Reuters) -Euro zone government bond yields rose on Tuesday as investor focus was squarely pinned on central banks’ fight against inflation, ahead of U.S. consumer price data that could cement expectations for the outlook for Federal Reserve policy. European Central Bank policymaker Joachim Nagel on Tuesday told a German banking conference the central bank could not let up its fight against high inflation in the euro zone and that large rate hikes were necessary.”I will…do my utmost to ensure that we, the Governing Council of the ECB, do not let up too early and that we continue to push ahead with monetary policy normalization – even if our measures dampen economic development,” Nagel said.Yields on the German 10-year Bund, which serves as a benchmark for the wider region, were up 3 basis points on the day at 2.35%, while those on the interest-rate sensitive two-year Schatz were up 2 bps at 2.22%. The ECB at its last meeting raised interest rates by three-quarters of a percentage point to 1.5% and since then, a number of top officials, including President Christine Lagarde, have reiterated the central bank’s commitment to tackling red-hot consumer price pressures. In the euro zone as a whole, consumer inflation is running at a record-breaking 10%, but it is even more severe in some individual countries. Data on Tuesday showed consumer prices rose at a rate of 14.3% in the Netherlands in October, a touch lower than September’s 14.5%.”The market I think is coming to understand that as much as you may have seen the peak in U.S. inflation and close to peak in European inflation, it’s very difficult to determine what the trajectory will be thereafter,” Standard Chartered (OTC:SCBFF) G10 rates strategist John Davies said.Money markets show investors currently expect ECB rates to peak around 3% in late 2023, compared with 1.5% right now. This has moved up from closer to 2.8% just a week ago.“We are close to the highs for ECB pricing that we saw at times in late September and into October, but haven’t burst to new highs. We’ve been up around this 3% mark before. Ultimately, we think that is going to prove too high – we don’t expect the ECB to follow though to that degree,” Davies said. Meanwhile, a market-based gauge of medium-term inflation expectations for the euro zone rose to a six-month high. The five-year five-year breakeven forward, which essentially reflects investors’ inflation expectations over a 10-year horizon, rose to 2.4%, its highest since May, up from 2.1% at the start of November. Thursday’s U.S. data is expected to show the year-on-year rise in the consumer price index moderated to 8% in October, from September’s 8.2% rate, while the core rate, which excludes food and energy prices, is forecast to have risen to 6.5%, from 6.3% the previous month. The Fed last week raised U.S. interest rates, which investors expect to stay higher for longer, especially as the labour market is still tight. This would mean more room for wages to increase as employers struggle to hire, which in turn can make inflation more persistent.On the supply side, Germany, Belgium and Spain were due to auction short-term paper, with a mixture of bills and two-year notes, which could add some upward pressure on yields, analysts said. [D/DIARY]”We think the combination of greater supply and still cautious investors means issuance will result in higher yields still. Ultimately, bond direction very much depends on whether data allows for the much hoped-for turn in central banks tightening intention, but we think risks are skewed upwards for yields this week,” ING strategists said in a note.Following the inflation reading, Dutch 10-year rates rose 4 bps to 2.64%, while Italian 10-year bonds saw yields steady around 4.5%. More

Germany’s economy minister said on Tuesday he was looking at ways to tighten restrictions on non-European investment in the country’s critical infrastructure as Berlin moved to block the sale of a chip factory to a Chinese-owned company.The German government is expected to formally bar the sale of Dortmund-based Elmos’s semiconductor plant to China-owned Silex Microsystems following a cabinet meeting on Wednesday. The blocking of the sale comes just days after Olaf Scholz made his first visit as chancellor to Beijing and highlights increasing concerns over the security of western semiconductor technology and supply chains.Robert Habeck, the economy minister, said Germany should nurture and develop relations with China, but needed to view investments in “critical sectors” such as semiconductors “with particular sensitivity”.“That means that we should assume that Chinese investments (in such sectors) have higher hurdles to clear, and that goes for Elmos,” Habeck told reporters in the southern city of Stuttgart.He said the state should have an interest in ensuring companies involved in Germany’s critical infrastructure — including ports, telecoms, energy and the health sector — “remained as far as possible in European hands”.Habeck, a senior figure in the German Green party, said his ministry was “some way off” from drafting laws that would further tighten rules covering Chinese investment.The economy ministry must already approve all acquisitions of stakes larger than 10 per cent by non-EU entities in companies involved in the defence sector or critical infrastructure such as IT security components. Elmos said on Tuesday morning that the ministry had “today informed the parties involved that . . . the sale of Elmos wafer production to Silex Microsystems is expected to be banned”. Silex — a Swedish subsidiary of China’s Sai Microelectronics — did not respond to a request for comment. Management at both companies were caught off-guard by the decision. Elmos said the economy ministry had until Tuesday told it the transaction “was likely to be approved”.Scholz has just returned from what was the first visit to Beijing by a European leader since the start of the coronavirus pandemic. Sensitivities over Germany’s trade-driven approach to foreign policy — often pursued at the expense of national security concerns — are running high in Berlin in the wake of Russia’s invasion of Ukraine. Scholz said ahead of his trip there was a need to reduce “risky” and “one-sided” dependencies on China by diversifying supply chains. But he has been reluctant to compromise on economic priorities. Last month, the chancellor courted controversy by over-ruling the advice of six ministries and his intelligence agencies to push through the sale of a stake in a container terminal in the port of Hamburg to Chinese shipping company Cosco. The decision drew widespread domestic criticism — including from his coalition partners, Germany’s liberal and Green parties — and was condemned by allies.“We have engaged [with Berlin] on shared concerns about some of the things that China does, including its coercive economic practices and the risk of creating new and deepening economic dependencies in critical areas,” said US secretary of state Antony Blinken last week at a meeting of G7 foreign ministers hosted by Germany.

The US in October introduced expansive chip export controls in an effort to make it harder for China to manufacture advanced semiconductors.Pressure had been mounting on the German government to draw a line at the takeover of the Elmos factory. The government had already been advised to block the deal by Germany’s domestic security agency, the BfV. Elmos manufactures chips for use in vehicles. Under the deal with Silex — which was commercially agreed last year — the company proposed to sell its production capability for €85mn. Sai Microelectronics, formerly known as Navtech, acquired Silex in 2015 and announced a plan to build a $300mn chip factory in Beijing “based on Silex technology”.Proponents of the sale of Elmos note its relatively small scale and say the technologies it uses in Dortmund are not sophisticated enough to pose any security risk. More

NEW YORK (Reuters) – The U.S. Federal Reserve’s ongoing balance sheet drawdown has exacerbated low liquidity and high volatility in the $20-trillion U.S. Treasury debt market, raising questions on whether the Fed needs to re-think this strategy.Intended to drain stimulus pumped into the economy during the COVID-19 pandemic, the Fed’s quantitative tightening (QT), as it is commonly referred to, has been running for the last five months. The Fed’s balance sheet though remains at a lofty $8.7 trillion, down modestly from a peak of nearly $9 trillion. Since September, the Fed has planned to allow $95 billion in balance sheet runoff, meaning it would no longer reinvest the principal and interest payments received from maturing U.S. Treasuries and mortgage-backed securities.However, there are underlying liquidity and volatility problems in U.S. Treasuries amid the Fed’s aggressive rate hike cycle. The problems can also be traced to long-running structural issues arising from U.S. banking regulations created in the aftermath of the 2008 global financial crisis.While the Fed is determined to reduce its balance sheet, if the problems facing investors get out of control, some analysts said the Fed may just halt or suspend it. “It is certainly conceivable that, if bond volatility continues to rise, we could see a repeat of March 2020. The Fed will be forced to end its QT and buy a large amount of Treasury securities,” wrote Ryan Swift, BCA Research U.S. bond strategist in a research note.UBS economists said last month the Fed’s balance sheet runoff will face several complications through 2023, prompting the Fed to sharply slow or fully stop balance sheet reduction sometime around June 2023.A key indicator that investors track is the liquidity premium of on-the-run Treasuries, or new issues, compared with off-the-runs, which are older Treasuries representing the majority of total outstanding debt, but make up only about 25% of daily trading volume. On-the-run Treasuries typically command a premium over off-the-runs in times of market stress. BCA Research data showed that 10-year on-the-run premiums over their off-the-run counterpart are at their widest since at least 2015. Morgan Stanley (NYSE:MS) in a research note said that off-the-run liquidity is most impaired in U.S. 10-year notes, followed by 20-year and 30-year bonds, as well as five-year notes. “There is some sort of indirect function that QT is exacerbating that lack of liquidity,” said Adam Abbas, portfolio manager and co-head of fixed income at asset manager Harris Associates, which oversees $86 billion in assets. “There’s a derivative effect when you have such a large buyer – we’re talking about 40% of the marketplace – not only step out but become a net seller.”WIDER BID-ASK SPREADSThe low liquidity has heightened volatility in the Treasury market and widened bid-ask spreads, market participants said, meaning participants pay marginally more to buy and get less to sell a security than they used toThe ICE (NYSE:ICE) BofA MOVE Index (MOVE), a gauge of expected volatility in U.S. Treasuries, was at 128.44 last Friday. That level indicates that the bond market expects Treasuries to move by an average of eight basis points over the next month, analysts said. Over the last decade, the average move in Treasuries was about two to three basis points.To be sure, the Treasury market’s liquidity issues have been bubbling under the surface for years, tied to financial sector regulations created following the global financial crisis.BCA’s Swift said while the Treasury market has grown dramatically since 2008, dealer intermediation, has remained low, noting that regulations made it less appealing for dealers to undertake such activity in the Treasury market.Dealers typically support market liquidity by intermediating customer trades – for example, by taking customer sell orders into inventory when buyers are absent. The Fed, however, cannot do anything to resolve the intermediation issue. It can only step in the market and purchase bonds when the market becomes untethered from fundamentals like what happened during the pandemic, analysts said, which could mean halting QE.For now, very few market participants envision the Fed ending or pausing QT, as a significant component of inflation could be attributed to liquidity that came from quantitative easing (QE) during the pandemic era.”If you accept that some of that $5 trillion (QE) is driving some of the current inflation, then the solution to the inflation problem must include shrinking the balance sheet,” said Scott Skyrm, executive vice president at Curvature Securities.”Therein lies the dilemma. If the Fed runs down the SOMA (system open market account) portfolio too much, they will break something in the market. If they don’t, we are stuck with inflation.” More