Economy

LIMA (Reuters) – Since 2011, Peruvians have lived under seven presidents and seen four ex-leaders detained or wanted on corruption allegations. Yet, in the same period Peru has held onto the unlikely title of the fastest growing major economy in Latin America. That period of standout growth is set to end this year, an analysis of World Bank data and International Monetary Fund forecasts shows, with Colombia overtaking Peru.Slowing growth at the world’s No. 2 copper producer underscores a painful truth: Peru’s economy is finally beginning to crack after years of increasingly disruptive political crises that have peaked under President Pedro Castillo and a combative Congress, hurting both private and public investment. Global economic pressures like inflation prompted by the pandemic have hit Latin America hard, but the mood has turned particularly sour in Peru. Investor confidence is lower than during the Great Recession and nearing the pandemic’s record low, even though business performance continues to improve, monthly polls from Peru’s central bank analyzed by Reuters show.”I think that there is no other option but that the government is affecting (economic) expectations because companies are doing fine,” said Pedro Francke, Castillo’s inaugural finance minister who resigned earlier this year. Castillo took office last July, spooking investors on the campaign trail with a plan to radically redistribute wealth and redraft the constitution. But he ultimately handed the economy to moderate finance czars and has passed no meaningful economic reforms. Graphic: Peru has led GDP growth in Latam. That is set to end https://graphics.reuters.com/PERU-ECONOMY/zdvxozjympx/chart.png His administration and close associates are now besieged by scandals. Castillo himself is facing six criminal investigations, one of them for alleged obstruction of justice in the firing of a minister. Congress has twice impeached him but failed to oust him.While Peru is used to turmoil and in 2020 cycled through three presidents in nine days, market analysts say its economy is finally facing what may prove an insurmountable test. “Politics and the economy can no longer be treated separately in Peru,” Fitch said in a report this week.Peru’s finance ministry declined to comment. To be sure, Peru is expected to remain among Latin America’s top performing economies, according to the International Monetary Fund. Meanwhile, Moody’s (NYSE:MCO), Fitch and S&P all told Reuters they do not see imminent risks of a downgrade to Peru’s investment-grade rating. Peru’s largest corporations, including lender Credicorp (NYSE:BAP) and miner Sociedad Minera Cerro Verde, have presented solid earnings so far this year. Still, Peru’s finance ministry is set to lower its growth expectations for 2022 later this month from 3.6%, according to newly appointed Finance Minister Kurt Burneo who first suggested it could be as low as 2.2% but has since said it might be a bit higher. “Today Peru is facing one more stress test…but what we won’t be able to save is economic growth,” said David Tuesta, the President of the Private Competitiveness Council, a think tank funded by business interests. Graphic: Peruvian business confidence is nearing a record low https://graphics.reuters.com/PERU-ECONOMY/dwpkrwqgqvm/chart.png A POPULIST WHO CAN’T SPENDCastillo came to power promising to hike spending, fund new social programs and raise taxes on the mining industry. But his administration has actually overseen slower public spending despite record tax revenues, while Congress shelved the mining tax reform. Peru’s fiscal deficit now sits at a very conservative 1% of GDP, a dramatic reduction from 8.9% just two years ago, all accomplished without an austerity policy in place. “The bad news is that the deficit reduction is…because of the inability of this government to spend even on things that it wants to spend on,” said Jaime Reusche, a vice president at Moody’s. Peru’s central government spending has contracted 5% so far this year compared to last year, when Castillo was not yet in power, amid record turnover in senior government roles. Graphic: Peruvian families are notably pessimistic about the economy https://graphics.reuters.com/PERU-ECONOMY/mopangbzova/chart.png Less than two weeks into the job, Finance Minister Burneo said in an op-ed that Peru is risking a recession if it does not increase spending and criticized the central bank for hiking rates to combat inflation. While many analysts have predicted that Castillo may not finish his term in 2026, opposition lawmakers have said that they lack the votes to oust him. But even if they did, Castillo’s removal may not shake up the economy, or change its trajectory toward slower growth.”It shouldn’t have a major impact on economic activity and on real growth,” Reusche said. More

A.J. Frank watched the Phoenix real estate market and its entire economy implode as he was graduating from high school in 2009, a scarring experience that has made him a cautious saver. He is again living through a major economic upheaval as the cost of living climbs sharply.Phoenix — among the hardest-hit cities during the housing crisis — is now on the leading edge of another painful economic trend as the United States faces the most rapid inflation in 40 years. The city is experiencing some of the fastest price increases in the nation, something Mr. Frank has felt firsthand.His landlord tried to raise his rent nearly 30 percent this year, prompting him to move. Mr. Frank, a 31-year-old engineer, is still paying $250 a month more than he was previously, and rising grocery and gas bills have reduced his disposable income.“It’s always traditionally been a pretty affordable city to live in, but it’s getting more expensive,” Mr. Frank said of Phoenix.While inflation has been rising quickly across the country, it is especially intense in Sun Belt cities like Phoenix, Atlanta, Miami and Tampa, which have experienced price increases well above 10 percent this year, much higher than the national rate of 8.5 percent in July. Prices in the Southern United States have risen 9.4 percent over the past year, the fastest pace of any large region in the nation and more rapid than in the Northeast, where prices are up 7.3 percent.Inflation Is Fastest in the SouthPrices have been increasing rapidly in cities including Atlanta, Tampa and Miami, even as Northeastern inflation has been more moderate.

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Price Increase from Year Earlier
Source: Bureau of Labor StatisticsBy The New York TimesPart of the divide can be traced to fuel and electricity costs, which surged earlier this year. Because many Sun Belt cities depend on cars and air-conditioning, those purchases make up a larger percentage of consumer budgets in the region. And, just as it did in 2008, housing is playing a crucial role — this time, through the rental market, which is a major contributor to overall inflation. In Phoenix, rents are up 21 percent from a year ago, and in Miami, they are up about 14 percent. For urban dwellers nationally, rent is up only about half as much, 6.3 percent.The Sun Belt’s intense bout of inflation matters for several reasons. While inflation is painful everywhere, it is having a disproportionate impact on families in cities like Tampa Bay, where prices have shot up faster than in areas like New York City. Demand at food banks and for eviction counselors has jumped across the region, providers said, as signs of that distress manifest.And as in 2008, the Sun Belt could serve as a sort of bellwether. Inflation is showing early signs of moderating nationwide, with price increases slowing to 8.5 percent in the year through July, from 9.1 percent the previous month. Still, the same forces that are now causing prices to surge across the South could keep inflation elevated for a longer period.That’s because a less-intense version of the rent surge that is pushing inflation higher across cities in the American south is beginning to play out in bigger cities in the Northeast and on the West Coast. Real-time market rent trackers that reported prices shooting up in Sun Belt cities last year are now showing bigger increases in places like New York, San Jose and Seattle.Inflation F.A.Q.Card 1 of 5Inflation F.A.Q.What is inflation? More

Even as inflation rose to nearly 80% in July, the bank slashed its key rate to 13% from 14%. “It is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment in a period of increasing uncertainties regarding global growth as well as escalating geopolitical risk,” the bank’s monetary policy committee said.”Accordingly, the Committee has decided to reduce the policy rate by 100 basis points, and has assessed that the updated level of policy rate is adequate under the current outlook.”It added that “the recent increase in spread between policy rate and the loan interest rate is considered to reduce the effectiveness of monetary transmission”. More

Pakistan banned the import of all non-essential luxury goods in May to avert a balance of payments crisis and stabilise the economy.”We’re lifting curbs on all imports,” Ismail told a news conference in Islamabad, saying the policies his government introduced to stabilise the economy had worked well. He said Pakistan’s foreign reserves will rise with funding expected from the International Monetary Fund (IMF). He said the IMF board will meet on Aug. 29 to decide whether to approve the seventh and eighth reviews, which would allow the disbursement of more than $1.1 billion to Pakistan.The IMF also announced on Wednesday that the board will meet later this month.Pakistan’s central bank reserves have fallen as low as $7.8 billion, which would cover little more than a month of imports. More

SHANGHAI/BEIJING (Reuters) -China’s banking regulator is scrutinising property loan portfolios of some local and foreign lenders to assess systemic risks, sources with knowledge of the matter said, as a crisis in the real estate sector worsens and weighs heavily on the economy.As part of their assessment, the China Banking and Insurance Regulatory Commission (CBIRC) is looking at banks’ loan book exposure to developers to find out if those credit decisions were made according to the rules, one of the sources said.The aim is to measure risks to the financial system from the ongoing property sector turmoil in the world’s second-largest economy, two of the sources said. It was not immediately clear what action the regulator might take after the investigation.The probe is different to the routine self-reporting the regulator requires from banks, the sources said.China’s economy narrowly avoided contracting in the second quarter as widespread COVID-19 lockdowns and the slumping property sector badly damaged consumer and business confidence. July data was much weaker than expected, with further signs of deterioration in the housing and construction markets.The CBIRC did not respond to Reuters requests for comment. All the sources declined to be identified due to the sensitivity of the matter. The latest probe comes as policymakers have been trying to stabilise the property sector, which accounts for a quarter of the economy, after a string of defaults among developers on their bond repayments and a slump in home sales.The investigation underscores the challenges for Beijing in its efforts to encourage banks to extend fresh loans to embattled developers, while managing lending risks.Property loans accounted for 25.7% of total banking sector credit in China as of end-June, central bank data showed. The banking sector’s total outstanding loans was 206 trillion yuan ($30.3 trillion) at the end of the first half.While Chinese banks have the biggest exposure to local developers and homebuyers, foreign lenders including HSBC Holdings (NYSE:HSBC) and Standard Chartered (OTC:SCBFF) lend to property firms.Reuters could not determine whether HSBC and StanChart, two of the biggest foreign banks in China, are part of the latest investigation. HSBC and StanChart declined to comment.The debt crisis in China’s property sector has worsened in recent weeks after a growing number of homebuyers threatened to stop making mortgage payments on stalled property projects, aggravating a crisis that could lead to social instability. The CBIRC is also asking some developers for details of their cash positions and the source of money for debt repayments, a third banking source said.Beijing’s launch of tough leverage rules for developers in recent years has led to cashflow issues for many, leaving some scrambling from one month to the next to pay upcoming debt and sometimes failing.”The regulator wants to know how to tailor policy and assess risk,” said one banker at a foreign lender, who has been asked for property sector-related lending documents over the last couple of weeks.The investigation is very detailed and loan officers are being approached multiple times, sometimes over many weeks for additional documents on lending to specific developers, two of the sources said.A potential rise in mortgage defaults raises risks for banks and developers. “The risk of new NPLs (non-performing loans) will remain a threat to banks’ asset quality,” said rating agency Moody’s (NYSE:MCO) in a June note.Commercial banks’ non-performing loan ratio stood at 1.67% at the end of June, down from 1.73% at the beginning of this year, according to CBIRC data, though many analysts believe the real number is much higher.New bank lending in China tumbled more than expected in July while broad credit growth slowed, as fresh COVID-19 flare-ups, worries about jobs and the property crisis made companies and consumers wary of taking on more debt.The property sector’s credit troubles risk seeping into secondary industries such as asset management companies, privately-owned construction firms and small steelmakers, said Fitch Ratings in an August note. ($1 = 6.7890 Chinese yuan) More

The reduced tax rate will apply as long as the levy is charged, meaning through March 2024, added Scholz.Germany had been in talks with the European Commission this week to find another way to reduce the cost burden on consumers after the commission had said Germany’s bid for an exemption on value-added tax was not possible.The measure comes after levies were announced this week that will tack on hundreds of euros to an average family’s energy bill.The levies will be imposed from Oct. 1 in a bid to help Uniper – the country’s largest importer of Russian gas – and other importers cope with soaring prices. More

European shares and US stock futures were muted on Thursday after minutes from the latest Federal Reserve meeting indicated the central bank would prioritise fighting inflation for an extended period.In Asia, Hong Kong’s Hang Seng index and Japan’s Topix both fell 0.8 per cent, following European and US share moves in the previous session. Europe’s Stoxx 600 index traded up 0.1 per cent, while the FTSE lost 0.1 per cent.Fed officials signalled that restrictive rates would be in place “for some time” in minutes from its July meeting released on Wednesday, delivering a blow to more optimistic investors that it would quickly begin to unwind elevated interest rates as soon as there were signs that raging inflation was easing.The minutes showed that officials supported raising interest rates to the point where they acted as a drag on economic growth. In a further sign that central bankers are determined to stamp out inflation, Norway’s central bank increased interest rates by 0.5 percentage points for a consecutive meeting, raising borrowing rates to 1.75 per cent. The Norges Bank also signalled it would raise rates further in September.Despite some investors talking about “peak inflation” after the US consumer price index steadied in June, “the reality is things are often more complicated,” said Kasper Elmgreen, head of equities at Amundi. “We get very mixed data points but the reality is inflation continues to be way above levels that central banks are comfortable with.” Disappointing results for US retail bellwether Target and declines for other consumer sectors pulled the blue-chip S&P 500 down 0.7 per cent on Wednesday, while the Nasdaq Composite dropped 1.3 per cent on the back of the Fed minutes and a poor day for tech stocks. Futures contracts tracking the S&P and Nasdaq 100 were flat on Thursday morning.The Fed minutes and the darkening outlook on inflation in the UK brought an end to a strong few weeks for equity markets.Short-dated sovereign debt, which is sensitive to interest rate expectations, also continued to sell off in the wake of higher than expected UK consumer price inflation. Two-year gilt yields gained as much as 0.3 percentage points on Thursday, trading at their highest level since the 2008 financial crash. The large moves ricocheted across other bond markets, with German, Italian and American two-year bonds, which are sensitive to interest rate expectations, all selling off. In a sign of continued concerns about interest rate rises, yields continued to rise on Thursday. The two-year gilt yield gained 0.03 percentage points to 2.39 per cent. Two-year Bund yields rose by 0.04 percentage points to 0.76, while Italy’s two-year bonds added 0.07 percentage points to trade at 1.67 per cent. Bond yields rise as their prices fall.Further data, in the form of US weekly jobless claims and home sales data, will provide more information on the state of the world’s largest economy later on Thursday.The dollar, a haven asset for investors, made small gains against a basket of six other currencies, rising 0.3 per cent. More

Good morning. The US and Taiwan agreed yesterday to begin formal trade and investment talks amid flaring tensions between Washington and Beijing over the self-governing island that China claims as its own. The discussions stem from a joint initiative announced in June and are expected to begin in the early autumn. They are aimed at deepening economic engagement in areas including agriculture, digital trade and climate. The Biden administration said late on Wednesday that the sides had reached “consensus on the negotiating mandate”.The announcement came after weeks of acrimony between the US and China following a trip to Taiwan earlier this month by Nancy Pelosi, the speaker of America’s House of Representatives. The visit infuriated Beijing. After Pelosi left, China fired missiles over Taipei, scrambling fighter jets and simulating an assault on the island. China’s ambassador to the US accused Washington of escalating the current crisis over Taiwan. “Some Americans do not recognise and correct their mistakes,” said Qin Gang in a press briefing on Tuesday. “The basic fact is the US took the first step to provoke China on the Taiwan question. This has openly infringed on China’s sovereignty and territorial integrity.” Fresh efforts by China to further isolate the island nation were triggered this week by the visit of a second delegation of US lawmakers to Taiwan. The fallout has forced multinational firms to draw up contingency plans in the event of a US-China military conflict. Go deeper with today’s Rachman Review podcast: Would China go to war over Taiwan? In case you missed it, FT reporters are gathering thoughts on US student loan debt and its impact on Americans via a short survey. Take a look if you have a spare moment, and your experience may be featured in an upcoming story. Thank you and have a great day — GeorginaFive more stories in the news1. Liz Cheney’s fight against Trump continues Cheney is planning to launch a political movement — which will probably be called “The Great Task” — whose primary purpose will be to prevent Trump from being re-elected, as he remains the Republican party’s frontrunner to become president.2. Fed minutes signal restrictive rates to stay Federal Reserve officials discussed the need to keep interest rates at levels that restrict the US economy “for some time” to contain the highest inflation in about 40 years, according to minutes of their July meeting, when US central bankers implemented a second consecutive 0.75 percentage point rate rise.3. Quant funds ramp up bets on US stocks Quant funds, which attempt to ride the momentum of market trends, are increasing bets on US shares, fuelling a rally that has added $7tn in value since June even as data points to a slowdown in the world’s largest economy. 4. China’s largest property group warns of profit dive Earnings at Chinese property developer Country Garden fell as much as 70 per cent in the first half of the year, as the country’s largest real estate group by sales was drawn into a crisis that has raged through the heavily indebted sector.5. Japan’s alcohol advice: please drink more The unorthodox government-backed “Sake Viva!” contest calls on people aged 20 to 39 to help revitalise an industry hit by demographic changes, the pandemic and long-term diminishing consumption that has cut into tax revenue.The day aheadRocket arrives at launch pad Nasa’s Space Launch System arrives at Launch Pad 39B at the Kennedy Space Center ahead of the Artemis 1 moon mission. The 98-metre tall rocket is scheduled to embark on its first mission to space on August 29.Serbia and Kosovo meet Serbia’s president Aleksandar Vučić and Albin Kurti, Kosovo’s prime minister, will hold joint discussions in Brussels with Josep Borrell, the EU’s foreign policy chief, over a road map to resolve tensions under the threat of conflict. Opinion: The EU and Nato have crucial roles to play in stopping Russia from exploiting regional rivalries, writes Misha Glenny, rector of the Institute for Human Sciences in Vienna.Economic data The EU and Canada publish July inflation figures, while US initial jobless claims are forecast to have risen slightly last week. (FT, WSJ)US existing home sales are expected to fall for the sixth consecutive month to 4.89mn in July from 5.12mn the previous month, against the backdrop of high mortgage rates and record prices causing buyer demand to cool.Esther George, president of the Kansas City branch of the Federal Reserve, is expected to make comments about the economic outlook today. Neel Kashkari, president of the Minneapolis Fed, is set to take part in a Q&A session at a Young Presidents’ Organization Gold Twin Cities Chapter luncheon.Corporate earnings Investors will be watching for signs on the state of consumer spending when several retailers report earnings this morning. Among them are Estée Lauder and Tapestry, the luxury fashion company known for brands including Coach, Kate Spade New York and Stuart Weitzman. BJ’s Wholesale Club and Kohl’s also report before the bell.What else we’re readingBrazil’s other deforestation: has the savannah farming boom gone too far? Deep within the country’s interior, the conversion of huge swaths of a region known as the Cerrado into pasture and arable land over the past few decades has helped transform Brazil into an agrarian powerhouse. But intensive farming in the region threatens its wildlife and vital role as a carbon dioxide “sink”.The village wedding caught in the Taliban’s battle for Kabul In August 2021, people in Dost Kol — a hamlet in the hills an hour west of Kabul — prepared to celebrate the wedding of Mohammad Ullah to a bride from a neighbouring village. But the next 24 hours brought tragedy.Central bank independence is on the decline In the US, UK and Turkey, politics are gaining sway over central banks, writes economics editor Chris Giles. France’s magnificent rusting giant The coat of paint that the Eiffel Tower will receive for the 2024 Olympic Games can hardly hide that it is rusting. Paris bureau chief Victor Mallet assesses the wear and tear on the pre-eminent symbol of France — and explains why Parisians could be waiting a decade for proper repairs.Beware patronising the marginalised How would you feel if you were told, by someone who knew very little about you, that because of your immutable physical characteristics you must have been the victim of oppression? Treating people as victims deprives them of agency, writes Jemima Kelly.Food & drinkRavinder Bhogal presents a menu that is a taste of Sicily, from caponata to pasta with sardines and apricot ricotta cake, all borrowed from a christening she gatecrashed this summer.

Gastronomically speaking, Sicily is the meeting place of at least two major traditions, the Arab and the southern Italian © Aaron Graubar More