Economy

COLOMBO (Reuters) – Sri Lankan President Ranil Wickremesinghe will on Tuesday slash defence and other expenditures in a bid to win International Monetary Fund (IMF) support as he presents his first budget since taking over as leader of his crisis-hit country.Officials hope the interim budget for the rest of the year will be followed by a staff-level agreement on extending much-needed IMF help for Sri Lanka to tackle its worst economic turmoil since independence from Britain in 1948.COVID-19 battered the island’s tourism-reliant economy and slashed remittances from workers overseas. The damage was compounded by rising oil prices, populist tax cuts and a seven-month ban on the import of chemical fertilisers last year that devastated agriculture.The result has been chronic shortages of basic goods, sky-high prices and mass protests that forced President Gotabaya Rajapaksa to flee the country, leaving his successor, Wickremesinghe, to handle restructuring billions of dollars in debt to China and other countries while seeking a bailout from the IMF.Six-time prime minister Wickremesinghe, who holds the finance portfolio, told Reuters this month that expenditure would be slashed by a “few hundred billion” rupees, including on defence, in the budget he will present to parliament.Sri Lanka aimed for 3.9 trillion rupees ($11 billion) in expenditure in its last budget, presented in November.Wickremesinghe is also expected to outline measures to support low-income communities worst hit by the crisis and announce new taxes to shrink its fiscal deficit.The deficit target is likely to be reduced from about 12% of gross domestic product to 9.9% in the interim budget but analysts warn this is an ambitious goal since the economy is projected to contract by an estimated 8% this year.”A long-standing problem is budgets don’t meet revenue and deficit targets so this budget will have to really focus on proper revenue-based fiscal consolidation,” said Shehan Cooray, head of research at Acuity Stockbrokers.”The key things will be the budget deficit and primary deficit targets, which will be in line with an IMF plan.”The nation of 22 million missed interest payments due on June 3, June 28, and July 18, and a principal payment due on July 25, according to rating agency S&P Global (NYSE:SPGI).An IMF team that arrived last week concludes its visit on Wednesday, and Sri Lankan officials hope to have a staff-level agreement in place to advance talks for an emergency loan of about $3 billion.($1 = 355.0000 Sri Lankan rupees) More

If signed by Gov. Gavin Newsom, the measure would create a state council to establish minimum pay and safety conditions on an industrywide basis.The California State Senate passed a bill on Monday that could transform the way the service sector is regulated by creating a council to set wages and improve working conditions for fast-food workers.The measure, known as A.B. 257, passed by a vote of 21 to 12. The State Assembly had already approved a version of the measure, and it now requires the approval of Gov. Gavin Newsom, who has not indicated whether he will sign it. The bill was vehemently opposed by the fast-food industry.The bill could herald an important step toward sectoral bargaining, in which workers and employers negotiate compensation and working conditions on an industrywide basis, as opposed to enterprise bargaining, in which workers negotiate with individual companies at individual locations.“In my view, it’s one of the most significant pieces of state employment legislation that’s passed in a long time,” said Kate Andrias, a labor law expert at Columbia University. “It gives workers a formal seat at the table with employers to set standards across the industry that’s not limited to setting minimum wages.”While sectoral bargaining is common in Europe, it is rare in the United States, though certain industries, like auto manufacturing, have arrangements that approximate it. The California bill wouldn’t bring true sectoral bargaining — which involves workers negotiating directly with employers, instead of a government entity setting broad standards — but incorporates crucial elements of the model.The bill would set up a 10-member council that would include worker and employer representatives and two state officials, and that would review pay and safety standards across the restaurant industry.The council could issue health, safety and anti-discrimination regulations and set an industrywide minimum wage. The legislation caps the figure at $22 an hour next year, when the statewide minimum wage will be $15.50. The bill also requires annual cost-of-living adjustments for any new wage floor beginning in 2024.Restaurant chains with at least 100 locations nationwide would come under the council’s jurisdiction — including companies like Starbucks that own and operate their stores as well as franchisees of large companies like McDonald’s. Hundreds of thousands of workers in the state would be affected.The council would shut down after six years but could be reconvened by the Legislature.Mary Kay Henry, the president of the nearly two-million-member Service Employees International Union, which pushed for the legislation, said it was critical because of the challenges that workers have faced when trying to change policies by unionizing store by store.“The stores get closed or the franchise owner sells or the multinational pulls the lease for the real estate,” Ms. Henry said. Franchise industry officials say it is extremely rare to close a store in response to a union campaign. Starbucks recently closed several corporate-owned stores across the country where workers had unionized or were trying to unionize, citing safety concerns like crime, though the company also closed a number of nonunion stores for the same stated reasons. Industry officials argue that the bill will raise labor costs, and therefore menu prices, when inflation is already a widespread concern. A recent report by the Center for Economic Forecasting and Development at the University of California, Riverside, estimated that employers would pass along about one-third of any increase in labor compensation to consumers.“We are pulling the fire alarm in all states to wake our members up about what’s going on in California,” said Matthew Haller, the president of the International Franchise Association, an industry group that opposes the bill. “We are concerned about other states — the multiplier effect of something like this.”Ingrid Vilorio, who works at a Jack in the Box franchise near Oakland, Calif., and who pressed legislators to back the bill during several trips to Sacramento, the state capital, said she believed the measure would lead to improvements in safety — for example, through rules that require employers to quickly repair or replace broken equipment like grills and fryers, which can cause burns.Ms. Vilorio said she also hoped the council would crack down on problems like sexual harassment, wage theft and denial of paid sick leave. She said she and her co-workers went on strike last year to demand masks, hand sanitizer and the Covid-19 sick pay they were entitled to receive. Jack in the Box did not respond to a request for comment.Mr. Haller said state agencies were already authorized to crack down on employers who violate laws governing the payment of wages, safety, discrimination and harassment.“The state has the existing tools at its disposal,” Mr. Haller said. “They should be more fully funded rather than put a punitive target on a subsection of a sector.”Mr. Haller and other opponents have cited a critique by the state’s Department of Finance arguing that the bill “could lead to a fragmented regulatory and legal environment for employers” and “exacerbate existing delays” in enforcement by increasing the burden on agencies that oversee existing rules. The bill does not provide additional funding for enforcement agencies.David Weil, who under President Barack Obama oversaw the agency that enforces the federal minimum wage, said that, while funding is critical for labor regulators, the new council could benefit a broad swath of workers even without additional funding. For example, he said, raising the minimum wage for fast-food workers could increase wages for workers in other sectors, like retail, that compete with fast-food restaurants for labor.But Dr. Weil agreed that creating new standards in the fast-food industry could end up drawing resources away from the enforcement of labor and employment laws in other industries where workers may be equally vulnerable.Opponents managed to secure a number of concessions in the State Senate, such as preventing the council from creating sick-leave or paid-time-off benefits, or rules that restrict scheduling.The Senate also eliminated a so-called joint liability provision, which would have allowed regulators to hold parent companies like McDonald’s liable for violations by franchise owners. More

WASHINGTON (Reuters) -Starting next week, Americans will no longer be able to order free at-home COVID-19 tests from a website set up by the U.S. government due to limited supply arising from a lack of congressional funding.The COVIDTests.gov website, set up during the Omicron variant record surge in cases, helped U.S. households secure COVID-19 tests at no cost.President Joe Biden in January pledged to procure 1 billion free tests for Americans, including 500 million available through the website. However, ordering through the program will be suspended on Sept. 2.The administration will suspend taking orders for free at-home tests through COVIDTests.gov as of Friday, Sept. 2, “because Congress has not provided the COVID-19 funding we need to replenish the nation’s stockpile of tests,” said a senior administration official.The government will no longer take orders through this program to ensure some tests are still available in the fall in case there is a rise in infections, the official said. “We have already distributed over 600 million tests through this program, and every household has had the opportunity to place three orders for a total of 16 tests,” White House Press Secretary Karine Jean-Pierre said at a briefing.Alternative ways of getting at-home tests will remain, the official said, including getting them reimbursed by private health insurance, Medicare, or Medicaid, which collectively cover over 92% of Americans.The government will continue to distribute free tests directly to long-term care facilities, schools, child care and early learning centers, community health centers, and food banks. The government will also keep supporting around 15,000 free testing sites in pharmacies and libraries.”If Congress provides funding, we will expeditiously resume distribution of free tests through COVIDTests.gov,” the official said.(Reporting Ahmed Aboulenein in Washington and Mrinalika Roy in Bengaluru; Additional reporting by Trevor Hunnicutt in Washington; Editing by Shinjini Ganguli, Bill Berkrot and David Gregorio) More

“I was actually happy to see how Chair Powell’s Jackson Hole speech was received,” Kashkari told Bloomberg’s Odd Lots podcast. “People now understand the seriousness of our commitment to getting inflation back down to 2%.”All three U.S stock benchmarks lost more than 3% on Friday after Powell told the annual central bankers conference in Jackson Hole, Wyoming, that the Fed would raise interest rates as high as needed to slow growth and soften the labor market. He also said the Fed would keep policy restrictive “for some time” to bring down inflation which is running at more than three times the Fed’s 2% goal.“I certainly was not excited to see the stock market rallying after our last Federal Open Market Committee meeting,” he added, referring to the Fed’s policy-setting panel, which last met July 26-27 and delivered a second straight 75-basis-point rate hike. Powell at the time said the Fed would at some point begin to slow the pace of interest-rate hikes, a point he also made on Friday, even as he emphasized that the Fed’s rate hikes would mean “some pain” for households and businesses. More

BRUSSELS (Reuters) – The European Commission said on Monday it fully stood by its proposal to approve Poland’s recovery plan after four associations of European judges asked the EU court to annul it, because the plan disregarded earlier EU court judgements.On the basis of the Commission’s contested recommendation, EU finance ministers approved Poland’s recovery plan in June, paving the way for the disbursement of some 35 billion euros ($34.99 billion) in grants and loans to Warsaw, once it fulfils some conditions.But four associations of European judges – the Association of European Administrative Judges, the European Association of Judges, Rechters voor Rechters and Magistrats Européens pour la Démocratie et les Libertés – asked the EU General Court on Sunday to annul the ministers’ and the Commission’s decisions.The associations say the Commission’s recommendation and the ministers’ subsequent approval should be scrapped because EU’s top court ruled in July 2021 that Polish judges, suspended as a result of unlawful changes made to the judiciary by Poland’s nationalist government, should be reinstated immediately.The Commission, however, had accepted in talks with Warsaw that the suspended judges be subject to a review procedure of more than a year with an uncertain outcome – expressly disregarding the EU courts’ ruling.”We take note of this legal action against the decision of the Council to approve the Polish recovery and resilience plan,” a Commission spokeswoman said.”The Commission stands fully behind its proposal to the Council to approve the plan, which aims to raise the standards on important aspects of judicial protection, thereby contributing to improving the investment climate,” she said.European Parliament member from the liberal Renew group Sophie in ‘t Veld said in a statement she would lobby in the coming weeks for the European Parliament to join the case in support of the judges associations.Poland has not yet fulfilled any of the conditions set in the EU’s approval for its plan, so any disbursements are unlikely anytime soon.But a potential annulment of the plan’s approval by the EU court would close the disbursement option altogether, unless Poland agreed to change its recovery plan to fully implement the earlier EU court ruling.($1 = 1.0003 euros) More

Europe’s fears of gas shortages heading into winter may have been circumvented, thanks to an unexpected white knight: China.The world’s largest buyer of liquefied natural gas is reselling some of its surplus LNG cargoes due to weak energy demand at home. This has provided the spot market with an ample supply that Europe has tapped, despite the higher prices.As a result, Europe’s imports of LNG grew 60 per cent year on year in the first six months of 2022, according to research firm Kpler. The 53mn tonnes that the bloc purchased surpasses imports by China and Japan and has brought Europe’s gas-storage occupancy rate up to 77 per cent.If this continues, Europe is likely to reach its stated goal of filling 80 per cent of its gas storage facilities by November.But while China’s economic slump has brought much-needed relief to Europe, it comes with a major footnote. As soon as economic activity bounces back in the communist nation, the situation will quickly reverse. It also makes Europe dependent on Beijing for its energy, which bucks the geopolitical trend whereby the US and its allies are seeking to defend a liberal international order.

An LNG ship docked at a port in Chiba, Japan. China’s resales of LNG have added supply to the spot market © Shinya Sawai

For now, however, Europe has been able to avoid an energy crisis.China’s JOVO Group, a big LNG trader, recently disclosed that it had resold an LNG cargo to a European buyer.A futures trader in Shanghai told Nikkei that the profit made from such a transaction could be in the tens of millions of dollars or even reach $100mn.China’s biggest oil refiner Sinopec Group also acknowledged on an earnings call in April that it has been channelling excess LNG into the international market.Local media have said that Sinopec alone has sold 45 cargoes of LNG, or about 3.15mn tonnes. The total amount of Chinese LNG that has been resold is probably more than 4mn tonnes, equivalent to 7 per cent of Europe’s gas imports in the half year to the end of June.So what has led energy-hungry China to change course and become a seller?First, its sluggish economy. Real gross domestic product growth for the first half was a mere 2.5 per cent. “Urban lockdowns led to a decline in demand for industrial fuel and chemicals, which in turn resulted in lower gas demand in the first half,” said Xuelian Li, a senior analyst at the Marubeni Research Institute. “It doesn’t look like it will increase much more in the second half,” she said.Second is a directive from the central government to bolster energy production, including coal. “The emphasis is now on energy security, more than reducing the environmental footprint,” said Mika Takehara, a senior researcher at the Japan Oil, Gas and Metals National Corporation.Shanxi province, for instance, has increased coal production by 100mn tonnes to 1.3bn tonnes this year, and will add a further 50mn tonnes in 2023, according to local media.China’s own gas production is also expanding. Domestic production of gas is expected to grow 7 per cent year on year in 2022, according to gas consulting firm Sia Energy.China’s LNG imports, on the other hand, will probably decline 20 per cent for the year.China’s decreased imports have affected international prices. LNG prices in Asia are currently about $45 a million British thermal units — more than $10 cheaper than European natural gas, which goes for more than $60 a million BTU.The difference in prices reflects the gap in demand. Last year, when China bought aggressively from the spot market, Asian prices were higher than in Europe.

A valve is checked at the Atamanskaya compressor station, part of Gazprom’s Power Of Siberia natural gas pipeline than runs between Russia and China © Maxim Shemetov/Reuters

Today, the demand is in Europe. Russian gas supply to Europe is at a 40-year low, according to the US Energy Information Administration. Gas running through pipelines is just 20 per cent of what it was a year ago.Europe has responded by buying LNG on the spot market — regardless of the higher prices — and has agreed to reduce natural gas consumption by 15 per cent by March next year.Through these emergency measures, Europe looks to weather the coming winter, even if pipeline flows are 80 per cent lower than at normal times.But there is always the possibility that gas imports from Russia could ultimately fall to zero, said Toshiyuki Makabe, an analyst at Goldman Sachs.In that scenario Europe would have to purchase almost everything left on the spot market — an unrealistic task.The hidden outcome of these developments is that China is increasing its clout in the energy market.If Russia ends up exporting more gas to China as a means to punish Europe, China will have more capacity to resell its surplus gas to the spot market — indirectly helping Europe.The Power of Siberia natural gas pipeline that runs between Russia and China has capacity to carry more gas.The amount of gas that China itself produces will also affect Europe’s energy procurement plans.The more desperate Europe becomes about its energy supplies, the more China’s policy decisions will have the power to affect the bloc. As Europe attempts to wrestle out of its dependence on Russia for energy, the irony is that it is becoming more dependent on China.A version of this article was first published by Nikkei Asia on August 24. ©2022 Nikkei Inc. All rights reserved.Related storiesRussian sanctions threaten to make coal dirtier, more costlyMyanmar to import Russian oil from September, military saysAzerbaijan eager to supply more gas to Europe in Russia’s steadRussia’s nuclear fuel dominance impedes Western energy independence More

Good morning. Ukraine said it had launched a counter-offensive against Russian forces near the city of Kherson, in a shift that has forced the Russian military to move resources to the southern part of the country, according to a top White House official. A senior Ukrainian government adviser confirmed Kyiv had begun a major operation aimed at retaking the strategically important southern city that was captured by Russian forces early in the war.“The next phase of the counteroffensive is beginning,” the adviser said. “It started with massive attacks on Russian military infrastructure and logistics.” The long-anticipated assault on Russia’s forces is aimed at recapturing territory Moscow seized in the early weeks of president Vladimir Putin’s invasion, when troops swarmed in from the Crimean peninsula to the south. Keep up with the latest on the counter-offensive with our live blog. In the wake of the Russian invasion of Ukraine, Europe’s benchmark electricity price has risen to 10 times its decade-long average, in line with a 14-fold increase in the cost of gas, with fears growing of shortages this winter. In response, the EU is preparing emergency measures to curb the price of electricity by separating it from the soaring cost of gas.More news from Ukraine: A team from the UN’s nuclear watchdog is heading to Ukraine to inspect the Zaporizhzhia nuclear power plant, which has come under repeated fire, raising fears of a catastrophic accident.Thanks for reading FirstFT Asia. — EmilyFive more stories in the news1. Honda and LG to build $4.4bn US battery plant The Japanese carmaker and South Korean battery maker are teaming up to invest $4.4bn for a new battery plant in the US, amid increasing pressure from Washington to cut China out of supply chains for electric vehicles. It will be Honda’s first manufacturing facility for EV batteries in the US.2. Ambani says India can rival China in green tech Billionaire Mukesh Ambani said India can become a “credible alternative” to China for green energy production, as he outlined the details of Reliance Industries’ $10bn investment in renewables at the company’s annual general meeting.3. Singapore to tighten retail access to cryptocurrencies Singapore’s financial regulator has announced it will further restrict retail investor access to digital currencies after a series of scandals in the city state. Ravi Menon, managing director of Singapore’s monetary authority, said that cryptocurrencies are not a “viable form of money or investment asset” owing to their extreme price volatility.4. US officials finish initial review of Trump’s Mar-a-Lago documents In a court filing on Monday, prosecutors disclosed that the US justice department has completed a review of the documents seized from Donald Trump’s Florida estate earlier this month. 5. Global equities drop as Powell’s comments drag markets lower Global stocks weakened and Treasury yields climbed after central bankers warned investors to prepare for a sustained period of higher interest rates. US Federal Reserve and European Central Bank policymakers used speeches at last week’s annual meeting to reiterate their commitment to fighting inflation, despite the risk of recession.The day aheadVostok military exercises Russia and China will embark on a series of military exercises this week, a sign of Moscow’s deepening ties with Beijing and of the Kremlin’s desire to project a “business as usual” image despite the mounting costs of its war in Ukraine. The Vostok war games are held every four years in Russia’s far east.Results Today is a bumper day for corporate earnings in China. Those reporting results include Air China, Baidu, Bank of China, China Eastern Airlines and China Southern Airlines.What else we’re reading Inside Missfresh’s hunt for investor cash ahead of collapse Court filings, investor presentations and interviews with several people involved reveal the dangers of investors too readily believing the hype of a company supposedly at the vanguard of the Chinese tech start-up scene in the hopes of making quick returns.Kishida turns Japan’s energy problems into nuclear opportunity In a 27-page document that accompanied last week’s announcement of Japan’s biggest U-turn in nuclear policy in 11 years, the word “crisis” was used seven times. The single word encapsulates why Prime Minister Fumio Kishida has risked political capital to end a paralysis that has hung over the country’s energy sector since the Fukushima Daiichi nuclear disaster.Liz Truss’s not-so-special relationship Britain’s foreign secretary, on the cusp of becoming prime minister, has at times irked US officials with a not-so-diplomatic style that has been described as blunt, binary and assertive. Some say Truss is quick to take maximalist positions without thinking of the consequences.Can web3 help get us to net zero? A mass of tech ventures are exploring how to fuse concerns about global warming with the public’s interest in web3 technology. From the mundane to the outlandish and wacky, these projects are promising variously to “green” bitcoin, make NFTs sustainable and solve niggling problems in carbon markets once and for all. Can they work?Boom chief fights supersonic travel headwinds The makers of Overture have claimed they can cut flight times from New York to London from 6.5 hours to 3.5 hours, while Tokyo to Seattle would drop to 4.5 hours from 8.5 hours. But the absence of an engine-maker for the supersonic jet is one of several factors fuelling aviation industry doubts about the claims.GardensAdrian Fisher wants you to get lost. So much so, he’s made a career out of it. For the past 43 years, he’s been designing mazes and labyrinths in the quiet village of Durweston near Salisbury. Click here to explore Fisher’s maze.

The centre of the Marlborough Maze spells the word Blenheim in yew trees © Blenheim Palace More

The European Central Bank’s chief economist has said it should increase borrowing costs at a “steady pace”, casting doubt over whether he will support calls to raise interest rates by a record 0.75 percentage points next week.Philip Lane told an event in Barcelona it would be better to “chop up” the expected path of rate rises over the coming months into “smaller increments” as this would give it time to “learn more” about how the economy is progressing.His comments on Monday represent a mild pushback against more hawkish comments by other members of the ECB governing council, some of whom have anonymously called for it to consider a three-quarter percentage point rate rise for the first time in its history at next week’s meeting.However, economists noted that Lane left the door open to a more aggressive rate rise, while investors continued to price in a strong probability of the ECB increasing its deposit rate by a record 75 basis points next week. Eurozone government bonds sold off earlier in the day — pushing 10-year yields on German and Italian bonds to two-month highs — and did not recover after Lane spoke. The euro rebounded slightly above the value of the US dollar, indicating investors expect a bigger rate rise.The ECB raised rates for the first time since 2011 in July, lifting its deposit rate out of negative territory to zero in a bigger move than it had signalled as it sought to bring inflation back towards its 2 per cent target. But inflation growth has consistently outstripped its forecasts and on Wednesday consumer prices are expected to set another new eurozone record, rising to 9 per cent when the latest inflation data are published by Eurostat, driven higher by record gas prices. Lane said inflation was “extremely high” and “many people’s pay levels may not be aligned with costs to put it mildly”, which meant “there is still some adjustment on costs to come and that is going to keep inflation high for some time”.

The ECB chief economist, one of the more dovish members of the rate-setting council, said the central bank had entered “an important new phase” after exiting negative rates in which it identifies how high it thinks rates need to go to bring inflation back to its target — the so-called terminal rate.“A steady pace (that is neither too slow nor too fast) in closing the gap to the terminal rate is important for several reasons,” said Lane. Such a “calibrated” approach to rate rises would allow markets to absorb higher borrowing costs and leave it room to target a lower terminal rate if the inflation outlook changed.However, he did not express firm opposition to the idea of a bigger rate rise next week, saying: “The appropriate size of the individual increments will be larger the wider the gap to the terminal rate and the more skewed the risks to the inflation target.”Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said: “Inflation is likely to deteriorate, not improve, in the next couple of months. This should keep the 75 basis point option live [for the ECB].”“At the start of Lane’s ‘new phase’, the gap between policy rates and the neutral rate is larger by definition,” added Ducrozet. “Hence I suspect he may not oppose a 75 basis point move in September.” More