Economy

If you’re wistful for the glory days of the Airbus-Boeing bust-up — with the transatlantic aircraft subsidies tussle suspended after 17 years of World Trade Organization litigation — then a dispute over green tech has ambitions to fill the gap.Joe Biden’s Inflation Reduction Act (IRA), which emerged out of the congressional mire to become law in August, has worried the EU. It contains blatantly discriminatory measures, offering US consumers tax credits to buy electric vehicles only if they’re assembled in North America. It also requires critical minerals and batteries increasingly to be bought from North America or a country with which the US has a preferential trade agreement, and deters sourcing from high-risk countries such as China.As subsidy races go, this could be politically nastier than Airbus-Boeing, which was essentially about competition between aircraft produced in their companies’ home countries in a mature industry. The electric vehicle credits might directly shift jobs by encouraging European and Asian car companies to set up in the US in a fast-developing sector with early mover advantage. That would come at a very bad time for Europe, already threatened with rapid deindustrialisation by its particularly severe version of the Ukraine energy price shock. Nor is it a one-off: EU officials note there are other programmes of concern in the IRA, such as government support for green hydrogen, not to mention the potential transatlantic subsidy race in semiconductor production.Brussels has been complaining about the credits since an earlier iteration was discussed last year, with South Korea also voluble. But Margrethe Vestager, the EU’s competition enforcer, told the Financial Times in an interview last week that Brussels doesn’t immediately contemplate bringing a WTO case.Although it’s possibly unwise for Vestager to diminish the value of a bargaining chip so explicitly, it does seem sensible to leave the slow and clumsy tool of WTO dispute settlement on the shelf for now. The EU strategy for the moment is to try to influence the drafting of regulations that will implement the IRA. The exact details of qualifications, waivers and so on sometimes soften the protectionist bite of US trade legislation considerably relative to its rhetorical bark. Valdis Dombrovskis, the EU’s trade commissioner and a details man if ever there was one, is in Washington this week making his views known.Yet, even if it’s weakened in practice, the underlying direction of US industrial policy remains concerning. EU officials are pleased Washington is taking climate change seriously, but they don’t see much sign of the Biden administration’s stated desire to work with allies to build green and resilient supply networks.Unlike aircraft subsidies, the context for the US’s electric vehicles tax credit is reducing dependence on China. Given Beijing’s predilection for manipulating the supply of raw materials where it dominates global production, such as rare earth minerals, it’s a perfectly reasonable goal. But Washington’s discriminatory methods suggest that domestic lobbying is playing an outsize role.Moving production by Korean and European carmakers to the US isn’t about “ally-shoring”, which aligns supply networks with strategic allegiances: it’s simple protectionism. Some nifty lobbying by Canada meant Canadian and Mexican-built cars also became eligible for preferential tax treatment, but that makes it a regional agreement, not a strategic one.Even without a formal transatlantic trade agreement in place there are mechanisms supposed to deal with irritants such as these. The Trade and Technology Council, a co-operation forum Brussels and Washington set up last year, isn’t technically supposed to deal with the electric vehicle tax issue but it will no doubt be discussed there. There ought to be some potential for a bargain over climate and industrial policy, including the EU and US looking a little more kindly at each other’s potentially trade-distorting interventions. The EU has its own ambitions in industrial policy: the Battery Alliance, a public-private partnership created by the European Commission in 2017, is one of the more successful attempts at encouraging a new-generation sector in Europe.Brussels would also like the US to accept its attempt to equalise the cost of carbon emissions between domestically produced goods and imports with its carbon border adjustment mechanism. For its part the US, which is imposing a broad new set of export controls on chip technology to China, would like European governments to treat Beijing, in the EU’s own formulation, more as a rival and competitor than as a partner.Any transatlantic bargain is going to require a more constructive attitude, particularly from the US. With regard to trade and building a resilient supply ecosystem, the Biden administration has talked strategic co-operation but frequently acted unilaterally. The last thing a transatlantic partnership needs while struggling to create binding co-operation is another protracted subsidy dispute to distract and divide [email protected] More

When Sarah, a 29-year-old North American, quit her job in the film industry and came to study law in London, she hoped to put her life on a firmer financial footing. Two years on, that goal seems further away than ever. Interest payments on a bank loan have gone up; she has lost weight having cut back on groceries; and feels isolated because going out costs too much. A soaring energy bill has forced her to move out of her previous flat-share. And with earnings as a research assistant working out at £6.65 an hour, Sarah says it is “impossible to imagine” planning for the future.“I’m fixing the problem directly in front of me, not building a long-term game plan,” she says. “Every relationship and facet of my life has been impacted . . . It’s as if you’re climbing a staircase and you don’t know if the next step is going to be there [or] if you’re going to fall through.”Sarah is one of countless casualties of a global cost of living crisis that is forcing people around the world to put their lives on hold — forgoing social lives, scrapping house moves and weddings, hesitating to start a family or delaying retirement because of the financial pressures caused by high inflation.From South Africa to Singapore, Kenya to New Zealand, and across Europe, the US and UK, a global Financial Times’ survey that ran for a week in July drew hundreds of responses from readers of all ages grappling with similar problems: surging food and fuel prices, big swings in exchange rates, rising borrowing costs, and falls in asset prices eroding the value of savings. And while the economic hardship is painfully acute for people on lower wages, even those who consider themselves financially comfortable are finding carefully laid plans are being upended. With inflation at its highest for decades in many countries, central banks around the world are responding by raising interest rates at speed. For millions of people, this means bigger mortgage payments or higher rents as landlords pass on their own increased costs. Meanwhile, average wages are falling in real terms in most countries, prompting households to run down savings or cut their spending.A pause on luxuryMany respondents said thrift was now dictating their day-to-day habits: eating less meat; passing on small luxuries in favour of supermarket own-brand products; giving up takeaway coffees and cut flowers; minimising laundry, batch-cooking and taking the bus to avoid filling fuel tanks too often. “We now barely use the car. Our last trip was to Aldi, which speaks volumes about our lifestyle changes,” says Rosanna, a London-based civil servant now planning to job-hunt in the private sector, as the costs of a home renovation project spiral.But even more striking than these material changes is the extent to which the crisis is isolating people from friends and family — just as the easing of the pandemic had made socialising possible again — as spending on leisure becomes harder to justify. About eight in 10 of the nearly 500 respondents say they would spend less in restaurants and pubs as a result of the cost of living crisis, while two-thirds were considering scaling back on holidays and entertainment.“I’ve cut down on going out and have not seen friends in months. It feels like a self-inflicted lockdown again,” says Karl, a former bank employee in Rotherham, a town in northern England, now working in an Amazon warehouse on a third of his former salary. Karl, who was made redundant near the start of the pandemic, wants to return to financial services, but recently turned down a good opportunity because it would have cost too much to commute by car. “It’s a job I would like to do, but I can’t really afford it,” he says.

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Linda, a public sector worker in Leicester in the UK, has turned off her heating and restricted showers and laundry. “I don’t go out in my car unless absolutely necessary, which is a blow as I live alone,” she says. She has also put off retirement despite reaching the state pension age.“We are in our late 30s, want kids and are very frustrated,” says Jessica, a nanny in Holyoke, Massachusetts, who had been house hunting since mid-2020 with her husband. As he was a freelancer, they were struggling to secure a loan. Just when he found a better-paid job, working remotely, interest rates went up and the market turned. Now, they feel stuck in an apartment with lead and asbestos. “We are nervous to drop a 20 per cent down payment right now, when prices and the economy are so wonky, but we are at an age where putting life on hold is devastating,” Jessica adds.A crisis of two halvesThe impact of the crisis is highly unequal. Some people who answered the FT survey were already making desperate choices — cutting meals, skimping on showers and using a torch to avoid turning the lights on.Gurpreet, in west London, says she had received threats from bailiffs and was looking for a second job at weekends as “one job is not enough” to survive. Drake Rose, a man in his 20s in San Diego, says he had stopped buying medicine until he could pay off debt that had built up while he was between jobs last year, while a man in his 70s in Brazil is limiting his diet to rice and beans.At the other end of the scale were people feeling little pressure, either because their incomes were high enough to absorb the shock, or because they had received big pay rises that matched inflation.“My employer has increased my salary materially, as they saw me as a flight risk,” says Chris, a man in his 50s who had just bought a new electric vehicle and family house in Devon, in the south of England, whose pay is bolstered by non-executive roles. Another man whose salary had kept pace with inflation — a thirtysomething living in Mumbai — says he had even made savings, buying a car at a discount while demand was low, and reducing his wedding budget when the pandemic was still limiting the size of gatherings.

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Others with a comfortable financial cushion were becoming more cost-conscious; forgoing luxuries, rather than essentials — scrapping skiing holidays and season tickets, or the purchase of a second home. David, a New Zealander in his 70s, is selling some surplus land and using his boat less, while a respondent in Singapore had switched his holiday plans from the Maldives to Vietnam.About two in 10 respondents to the FT survey say they were still likely to increase spending on home improvements, while 40 per cent say they would reduce it.Higher earners were also able to invest in energy-saving equipment that would pay off over time. Nick, a Londoner on a six-figure salary, says he had “reset various settings in our high-tech home”, while Mark, a man in his 50s in the Netherlands, had installed solar panels, window blinds, low-carbon heaters — while also taking his foot off the accelerator when he drove, to save fuel. Kipruto Chirchir, in Kenya, says his family is planning to replace a gas-guzzling SUV with two saloons.In between these extremes, many people on salaries they would usually consider comfortable were also facing difficult choices. “I earn £70,000 thanks to RMT [the transport workers’ union], but I am still having to tighten the purse strings,” says Kim, a Londoner in her 20s, who has stopped drinking alcohol and is car-sharing with her partner, despite it being “a logistical nightmare for two shift workers”.Kate, a woman based in London, says: “We are not living on the breadline . . . I understand that we’re very privileged.” Nonetheless, she and her partner have delayed plans to move out of a one-bedroom flat shared with their 3-year-old and have reduced their mortgage payments to cover other bills. They’re also selling on eBay for “a bit of extra money we can use to do nice things”.Energy consumer inflation is rising at an annual rate of 52 per cent in the UK and 41 per cent in the eurozone, leaving considerable less money available for other goods and services, particularly entertainment. Even in the US, where the energy crisis is less pronounced, the cost of energy for consumers rose 24 per cent in August. “I think we class ourselves as pretty firmly middle class and didn’t think we would be worrying about money as much as we are,” says Chris Cathcart, who lives in Hampshire in the UK. Having already delayed his wedding once, because of Covid, he has now had to defer it again.He and his girlfriend — who are in their forties, with two children — had found a venue only slightly beyond their budget, but an overnight rise in their monthly energy bill from £90 to £270 made them put both wedding and holiday plans on hold.

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“We really want to get married but we see it as a luxury rather than a necessity,” Chris says. “If you’d asked me two years ago if we’d be having conversations about how to make ends meet at the end of the month then I wouldn’t have believed you but it’s what we’re doing and what lots of our friends are talking about.”‘Retirement is delayed’Big swings in exchange rates have made some people’s finances even more of a lottery. “We earn in Polish zloty, but pay our mortgage in euros, so we need to pay more now,” says Ewa, in Poland, who was cutting back on “daily small pleasures” and had put on hold her plans to buy a bigger house and car.The dollar index, which tracks the US currency against six others, is up by a double-digit rate since the start of the year, adding pressures on many other currencies both in advanced and developing economies.For others — especially those relying on pension savings — falls in asset prices are the biggest issue, causing them to delay retirement or even rejoin the workforce.“At age 75, I have returned to full-time employment,” says Peter, a federal employee in Vienna, Virginia. Steve, in Wellington, New Zealand, had planned to retire this month, but now felt “like I would be locking in the losses”.“I really don’t want to be the old fool pretending to be capable of things I am no longer capable of, but perhaps I may need to,” says Patricia, a 69-year-old American considering a return to part-time work. Others in a similar situation were taking on consulting work, teaching English, or — in the case of one man in his 50s in the UK — switching from freelancing to full-time employment in order to have a steady income.

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“Retirement is delayed. I’m driving a vehicle with 255,000 miles on it that I’ve owned for 11 years,” says Michele, an American in her 60s who has cut spending on flights, holidays and organic food. “We have modest means. We did not expect this kind of inflation,” adds her husband Joseph, who fears they could not afford both to retire.Meanwhile, younger people are in despair of establishing themselves, with several saying they would now wait to buy a property — and delay having children as a result.“I have moved back in with my parents because I can’t afford to start my finance career in London . . . I don’t think I will ever be able to afford to have children or own my own home in the UK,” says one student, who hopes to save enough to rent in the capital after graduating — but plans to seek work abroad if not.Just about managingOne positive legacy of the pandemic — a greater acceptance of remote working — has given some people flexibility that allows them to keep costs down, whether by cutting out commuting, or by going to the office more often in order to save on their heating bill.“Working from home saved the day on commuting costs for me and my family — we now spend less on gasoline per month than in 2018,” says a man in Boulder, Colorado. In contrast, one man in his 20s, in Germany, was contemplating not only using the office to enjoy its warmth, but also to shower. Most people say their debts were manageable, for now — although this survey was conducted in July before the latest turbulence in UK markets drove up mortgage rates.However, many were worried about rising borrowing costs. In the US, the average 30-year mortgage rate is not far short of 7 per cent, more than double the rate last year and the highest since the 2008 crisis. Rates are the highest since 2016 in the eurozone and lenders are offering mortgage rates of about 6 per cent in the UK, up from an average rate of 2.55 per cent in August. A minority of respondents say they plan to fill the holes in their budget by working more — whether by lengthening their hours, taking a second job or finding a side hustle. Gemma, an NHS worker in her 40s with a 70-mile daily car commute, says she was “putting pressure on my teens to get jobs” so they could cover some of their own costs.But the more common response was that people were resigned to using their savings or spending less — including on essentials.“I am too tired to work extra . . . I am just cutting out, no holidays, not going out,” says Anita Henderson, another NHS worker, who now expects to retire at 65, five years later than planned, because she could no longer pay off her mortgage as fast.“I have no savings,” says one woman in her 60s working on the UK minimum wage, who has turned off her boiler and is eating one meal a day. “When my money runs out, I just go without.” More

India’s industrial output fell 0.8% from August 2021, compared with Reuters poll of a rise of 1.7% and rise of 2.4% in July.”In an unpleasant surprise, the IIP (industrial output) contracted in August 2022, with heavy rains dampening construction activity and electricity demand,” Aditi Nayar, economist at ICRA said.Mining output fell 3.9%, while manufacturing activity fell 0.7%.India’s central bank, which has been tightening its policy aggressively to tame inflation that hit a five-month high in September, may have to walk a tight rope if activity does not improve in the coming months.”The lower than expected IIP growth corroborates the narrative of a volume based slowdown, indicating stress in lower income households,” said Saugata Bhattacharya, economist at Axis Bank.Bhattacharya added the India’s economy may slow more than currently expected given a drop in exports. Exports fell more than 3% in September according to a government data released earlier this month.Many economists have trimmed their Indian growth forecasts for the current fiscal year in the past weeks. More

The firm will invest 150 million euros ($145.7 million) in France to support the establishment of its market operations, it said in a statement, adding it will hire local talent in the fields of compliance, business development and product.The cryptocurrency exchange platform, which has more than 50 million users worldwide, received regulatory approval by the French market authority last month, allowing it to offer products and services to customers in France. Crypto.com also got regulatory approval in the United Kingdom and Italy earlier this year.In May, cryptocurrency exchange Binance said it had registered with France’s market regulator, with Binance France’s general manager David Prinçay adding it was now seeking a formal licence to open a regional headquarters in France.($1 = 1.0299 euros) More

The comments came after the International Monetary Fund cut its global growth forecast for 2023 amid colliding pressures from the war in Ukraine, high energy and food prices, inflation and sharply higher interest rates, warning that conditions could worsen significantly next year.The president made the remarks at the opening of a cabinet meeting held earlier this week, according to a video uploaded to his official YouTube account on Wednesday.”The global economic situation, geopolitics have been very troubling,” Jokowi, as the president is popularly known, said, emphasising that there was a high degree of uncertainty and market volatility.”I will ask to speak to several ministers regarding a stress test to see how far our strength lasts when the storm comes, regarding our currency, inflation, growth, and matters related to food and energy,” he said, adding that he requested that impacts on poverty also be examined.Jokowi ordered his cabinet to devise plans for different scenarios to anticipate a worsening global economic outlook.Indonesia’s financial markets have been under pressure in recent weeks amid fears of a global recession, with the rupiah hitting a fresh low since April, 2020 during intra-day trading on Wednesday.However, the currency as well as the domestic stock market have been performing better than their Asian peers so far this year, which analysts said was due to Indonesia’s strong commodity exports.Indonesia’s economic growth picked up to 5.44% in the second quarter due to the export boom and the easing of COVID-19 restrictions. Officials have said they expect growth to accelerate further in the third quarter. More

LONDON (Reuters) -Britain’s financial regulators will work together to tighten rules for pension funds which use derivatives to insure themselves against big moves in bond markets, drawing on lessons from past crises, the Bank of England said on Wednesday.The BoE said it would work with the Financial Conduct Authority and The Pensions Regulator to “ensure strengthened standards are put in place” on the use of liability-driven investment (LDI) strategies.The FCA regulates asset managers who sell and run LDI strategies, while TPR regulates pension funds. The BoE oversees banks, some of which are part of the LDI chain.LDI funds have come under severe stress since prices of British government bonds tumbled from the end of September following news of the government’s 45 billion pound ($49.7 billion) package of unfunded tax cuts.LDI is a popular product sold by asset managers to pension funds, using derivatives to help them match assets with liabilities so there is no risk of a shortfall in money to pay pensioners.Pension funds struggled to come up with higher collateral calls to back the derivatives used in the strategy, forcing the BoE to intervene in the gilts market.The BoE has given the pensions sector until Friday to come up with billions of pounds in liquidity to meet any future big increases in gilt yields after central bank support ends on that day.FCA CEO Nikhil Rathi said lessons would be learned.”What’s really important right now is that everybody involved in this situation, the pension funds, the managers, the bank counterparties, really focus on the work they need to do in coming days to ensure there is resilience in the system,” Rathi told reporters.The BoE’s Financial Policy Committee said on Wednesday in its quarterly update that vulnerabilities exposed by the “gilt market dysfunction” shared characteristics with other parts of the non-bank financial system already identified during the global financial crisis over a decade ago, and more recently.In a ‘dash for cash’ in March 2020, when economies went into lockdowns to fight COVID-19, money market funds (MMF) struggled to meet redemption calls from investors.The FPC signalled that policies already being drawn up and introduced for MMFs and other parts of the non-bank sector such as real estate funds could be applied to LDI strategies, including higher liquidity buffers.Given many LDI funds are listed in Dublin or Luxembourg, the European Union would also need to make reforms to implement such requirements.The BoE said it welcomed moves at a global level by the G20’s Financial Stability Board, which is due to report on fresh regulation for non-banks later this year.($1 = 0.9047 pounds) More

The producer price index increased 0.4% for September, compared with the Dow Jones estimate for a 0.2% gain.
Excluding food, energy and trade services, the index increased 0.4% for the month and 5.6% from a year ago.

Wholesale prices rose more than expected in September despite Federal Reserve efforts to control inflation, according to a report Wednesday from the Bureau of Labor Statistics.
The producer price index, a measure of prices that U.S. businesses get for the goods and services they produce, increased 0.4% for the month, compared with the Dow Jones estimate for a 0.2% gain. On a 12-month basis, PPI rose 8.5%, which was a slight deceleration from the 8.7% in August.

Excluding food, energy and trade services, the index increased 0.4% for the month and 5.6% from a year ago, the latter matching the August increase.
Inflation has been the economy’s biggest issue over the past year as the cost of living is running near its highest level in more than 40 years.
The Fed has responded by raising rates five times this year for a total of 3 percentage points and is widely expected to implement a fourth consecutive 0.75 percentage point increase when it meets again in three weeks.

A worker installs the instrument cluster for the Ford Motor Co. battery powered F-150 Lightning trucks under production at their Rouge Electric Vehicle Center in Dearborn, Michigan on September 20, 2022.
Jeff Kowalsky | AFP | Getty Images

However, Wednesday’s data shows the Fed still has work to do. Indeed, Cleveland Fed President Loretta Mester on Tuesday said “there has been no progress on inflation.” Following the PPI release, traders priced in an 81.3% chance of a three-quarter point hike, the same as a day ago.
Stock market futures trimmed gains following the news, while Treasury yields were little changed on the session.

The PPI release comes a day ahead of the more closely watched consumer price index. The two measures differ in that PPI measures the prices received at the wholesale level while CPI gauges the prices that consumers pay.
Some two-thirds of the increase in PPI was attributed to a 0.4% gain in services, the BLS said. A big contributor to that increase was a 6.4% jump in prices received for traveler accommodation services.
Final demand goods prices also rose 0.4% on the month, pushed by a 15.7% advance in the index for fresh and dry vegetables.

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Business travel is one of the more enduring casualties of the Covid-19 pandemic. Just as health concerns ease and business class seats refill, recession concerns are encouraging companies to rein in expenses. Yet TripActions, a software company that sells tools to help businesses book and track corporate travel, has raised $300mn at a $9.2bn valuation — up from $7.25bn last year. This at a time when start-up fundraising is in the doldrums. TripActions’ gross bookings in the three months to July were five times higher than the previous year. But overall corporate travel has yet to return to pre-pandemic levels, according to Deloitte. Half of travel managers it surveyed last year expected business travel to return to normal in 2022. As of April, that tally had fallen to less than a fifth.Restrictions come not only from concerns about health risks and the increase in remote work but cost. Labour shortages across the travel sector mean prices will continue to rise, according to the Global Business Travel Association. The cost-per-attendee for meetings this year is expected to be a quarter higher than 2019. It is expected to rise another 7 per cent next year. If TripActions can convince companies that it is able to save them money, such change may be in its favour. But a widespread downturn in travel will hurt. Founded in 2015 and based in Palo Alto, it has already experienced the repercussions of global events beyond its control. In early 2020 it laid off close to 300 employees as business travel was grounded. Since then TripActions has developed its offer of expense management software, competing against companies such as Brex with its Liquid product, which covers short-term costs for companies that do not give employees corporate credit cards. It has expanded market share via acquisitions. In the past two years it has purchased Reed & Mackay in the UK, Comtravo in Germany and Resia in Sweden. The company claims the travel and expense sector is worth $14tn. Its ability to raise funds at a higher valuation while start-up funding is otherwise in stasis puts it in a good position to scoop up struggling rivals. Still, cautious chief financial officers could yet spoil those plans. More