Economy

(Reuters) -The executive board of the International Monetary Fund on Friday completed the first review of its $44 billion Extended Fund Facility for Argentina, its managing director said.The approval allows for the disbursement of about $4 billion.Kristalina Georgieva said on Twitter (NYSE:TWTR) the approval marked the conclusion of an initial step under the program to support the country’s “ongoing economic recovery and strengthen stability.”A source familiar with the matter had previously confirmed the information to Reuters.In a statement, the IMF said that notwithstanding shocks such as inflation pressures and challenging fiscal and reserve accumulation goals, Argentine authorities have met “all end-March 2022 quantitative targets and have made progress toward implementing the structural commitments under the program.” It added that it maintained the end-year program objectives with some flexibility in the quarterly paths to accommodate those shocks.Also on Twitter, Argentine Economy Minister Martin Guzman said the country will continue to implement macroeconomic policies in order to strengthen growth with “job creation and stability.”The IMF announced on June 8 that it had reached a staff-level agreement on an updated macroeconomic framework with authorities in Argentina – the fund’s biggest debtor. It said at the time that “all quantitative program targets” for the first quarter of the year had been met.Argentine authorities did not immediately respond to requests for comment.On Tuesday, Argentina’s government approved two payments to the IMF for some $2.75 billion. More

LONDON (Reuters) -U.S. crypto firm Harmony said on Friday that thieves stole around $100 million worth of digital coins from one of its key products, the latest in a string of cyber heists on a sector long targeted by hackers. Harmony develops blockchains for so-called decentralised finance – peer-to-peer sites that offer loans and other services without the traditional gatekeepers such as banks – and non-fungible tokens.The California-based company said the heist hit its Horizon “bridge”, a tool for transferring crypto between different blockchains – the underlying software used by digital tokens such as bitcoin and ether.Thefts have long plagued companies in the crypto sector, with blockchain bridges increasingly targeted. Over $1 billion has been stolen from bridges so far in 2022, according to London-based blockchain analytics firm Elliptic.Harmony tweeted that it was “working with national authorities and forensic specialists to identify the culprit and retrieve the stolen funds”, without giving further details. In a statement, Harmony added that it had a global team “working around the clock to address the issue”.”We are currently narrowing down the potential attack vectors while working to identify the culprit,” a spokesperson said, adding that Harmony had already tried to contact the hacker via a transaction to their crypto wallet address. Elliptic, which tracks publicly visible blockchain data, said the hackers stole a number of different cryptocurrencies from Harmony, including ether, Tether, and USD Coin, which they later swapped for ether using so-called decentralised exchanges. In March, hackers stole around $615 million worth of cryptocurrency from Ronin Bridge, used to transfer crypto in and out of the game Axie Infinity. The United States linked North Korean hackers to the theft. More

Brenda McKinley has been selling homes in Ontario for more than two decades and even for a veteran, the past couple of years have been shocking.Prices in her patch south of Toronto rose as much as 50 per cent during the pandemic. “Houses were selling almost before we could get the sign on the lawn,” she said. “It was not unusual to have 15 to 30 offers . . . there was a feeding frenzy.”But in the past six weeks the market has flipped. McKinley estimates homes have shed 10 per cent of their value in the time it might take some buyers to complete their purchase.The phenomenon is not unique to Ontario nor the residential market. As central banks jack up interest rates to rein in runaway inflation, property investors, homeowners and commercial landlords around the world are all asking the same question: could a crash be coming?“There is a marked slowdown everywhere,” said Chris Brett, head of capital markets for Europe, the Middle East and Africa at property agency CBRE. “The change in cost of debt is having a big impact on all markets, across everything. I don’t think anything is immune . . . the speed has taken us all by surprise.”

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Listed property stocks, closely monitored by investors looking for clues about what might eventually happen to less liquid real assets, have tanked this year. The Dow Jones US Real Estate Index is down almost 25 per cent in the year to date. UK property stocks are down about 20 per cent over the same period, falling further and faster than their benchmark index.The number of commercial buyers actively hunting for assets across the US, Asia and Europe has fallen sharply from a pandemic peak of 3,395 in the fourth quarter of last year to just 1,602 in the second quarter of 2022, according to MSCI data. Pending deals in Europe have also dwindled, with €12bn in contract at the end of March against €17bn a year earlier, according to MSCI.Deals already in train are being renegotiated. “Everyone selling everything is being [price] chipped by prospective buyers, or else [buyers] are walking away,” said Ronald Dickerman, president of Madison International Realty, a private equity firm investing in property. “Anyone underwriting [a building] is having to reappraise . . . I cannot over-emphasise the amount of repricing going on in real estate at the moment.” The reason is simple. An investor willing to pay $100mn for a block of apartments two or three months ago could have taken a $60mn mortgage with borrowing costs of about 3 per cent. Today they might have to pay more than 5 per cent, wiping out any upside.The move up in rates means investors must either accept lower overall returns or push the seller to lower the price. “It’s not yet coming through in the agent data but there is a correction coming through, anecdotally,” said Justin Curlow, global head of research and strategy at Axa IM, one of the world’s largest asset managers.

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The question for property investors and owners is how widespread and deep any correction might be.During the pandemic, institutional investors played defence, betting on sectors supported by stable, long-term demand. The price of warehouses, blocks of rental apartments and offices equipped for life sciences businesses duly soared amid fierce competition. “All the big investors are singing from the same hymn sheet: they all want residential, urban logistics and high-quality offices; defensive assets,” said Tom Leahy, MSCI’s head of real assets research in Europe, the Middle East and Asia. “That’s the problem with real estate, you get a herd mentality.”With cash sloshing into tight corners of the property market, there is a danger that assets were mispriced, leaving little margin to erode as rates rise.For owners of “defensive” properties bought at the top of the market who now need to refinance, rate rises create the prospect of owners “paying more on the loan than they expect to earn on the property”, said Lea Overby, head of commercial mortgage-backed securities research at Barclays. Before the Federal Reserve started raising rates this year, Overby estimated, “Zero per cent of the market” was affected by so-called negative leverage. “We don’t know how much it is now, but anecdotally its fairly widespread.”Manus Clancy, a senior managing director at New York-based CMBS data provider Trepp, said that while values were unlikely to crater in the more defensive sectors, “there will be plenty of guys who say ‘wow we overpaid for this’.”“They thought they could increase rents 10 per cent a year for 10 years and expenses would be flat but the consumer is being whacked with inflation and they can’t pass on costs,” he added.If investments regarded as sure-fire just a few months ago look precarious; riskier bets now look toxic. A rise in ecommerce and the shift to hybrid work during the pandemic left owners of offices and shops exposed. Rising rates now threaten to topple them.A paper published this month, “Work from home and the office real estate apocalypse”, argued that the total value of New York’s offices would ultimately fall by almost a third — a cataclysm for owners including pension funds and the government bodies reliant on their tax revenues. “Our view is that the entire office stock is worth 30 per cent less than it was in 2019. That’s a $500bn hit,” said Stijn Van Nieuwerburgh, a professor or real estate and finance at Columbia University and one of the report’s authors.The decline has not yet registered “because there’s a very large segment of the office market — 80-85 per cent — which is not publicly listed, is very untransparent and where there’s been very little trade”, he added.But when older offices change hands, as funds come to the end of their lives or owners struggle to refinance, he expects the discounts to be severe. If values drop far enough, he foresees enough mortgage defaults to pose a systemic risk.

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“If your loan to value ratio is above 70 per cent and your value falls 30 per cent, your mortgage is underwater,” he said. “A lot of offices have more than 30 per cent mortgages.”According to Curlow, as much as 15 per cent is already being knocked off the value of US offices in final bids. “In the US office market you have a higher level of vacancy,” he said, adding that America “is ground zero for rates — it all started with the Fed”.UK office owners are also having to navigate changing working patterns and rising rates. Landlords with modern, energy-efficient blocks have so far fared relatively well. But rents on older buildings have been hit. Property consultancy Lambert Smith Hampton suggested this week that more than 25mn sq ft of UK office space could be surplus to requirements after a survey found 72 per cent of respondents were looking to cut back on office space at the earliest opportunity.Hopes have also been dashed that retail, the sector most out of favour with investors coming into the pandemic, might enjoy a recovery. Big UK investors including Landsec have bet on shopping centres in the past six months, hoping to catch rebounding trade as people return to physical stores. But inflation has knocked the recovery off course. “There was this hope that a lot of shopping centre owners had that there was a level in rents,” said Mike Prew, analyst at Jefferies. “But the rug has been pulled out from under them by the cost of living crisis.”

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As rates rise from ultra-low levels, so does the risk of a reversal in residential markets where they have been rising, from Canada and the US to Germany and New Zealand. Oxford Economics now expects prices to fall next year in those markets where they rose quickest in 2021.Numerous investors, analysts, agents and property owners told the Financial Times the risk of a downturn in property valuations had sharply increased in recent weeks.But few expect a crash as severe as that of 2008, in part because lending practices and risk appetite have moderated since then. “In general it feels like commercial real estate is set for a downturn. But we had some strong growth in Covid so there is some room for it to go sideways before impacting anything [in the wider economy],” said Overby. “Pre-2008, leverage was at 80 per cent and a lot of appraisals were fake. We are not there by a long shot.”According to the head of one big real estate fund, “there’s definitely stress in smaller pockets of the market but that’s not systemic. I don’t see a lot of people saying . . . ‘I’ve committed to a €2bn-€3bn acquisition using a bridge format’, as there were in 2007.”He added that while more than 20 companies looked precarious in the run-up to the financial crisis, this time there were perhaps now five. Dickerman, the private equity investor, believes the economy is poised for a long period of pain reminiscent of the 1970s that will tip real estate into a secular decline. But there will still be winning and losing bets because “there has never been a time investing in real estate when asset classes are so differentiated”. More

WASHINGTON (Reuters) -The International Monetary Fund on Friday slashed its U.S. economic growth forecast as aggressive Federal Reserve interest rate hikes cool demand but predicted that the United States would “narrowly” avoid a recession.In an annual assessment of U.S. economic policies, the IMF said it now expects U.S. Gross Domestic Product to grow 2.9% in 2022, less than its most recent forecast of 3.7% in April.For 2023, the IMF cut its U.S. growth forecast to 1.7% from 2.3% and it now expects growth to trough at 0.8% in 2024. Last October, the IMF predicted 5.2% U.S. growth this year, but since then, new COVID-19 variants and stubborn supply chain disruptions have slowed recovery, while a sharp spike in fuel and food prices prompted by Russia’s war in Ukraine further stoked inflation to 40-year highs.”We are conscious that there is a narrowing path to avoiding a recession in the U.S.,” IMF Managing Director Kristalina Georgieva told a news conference, noting that the outlook had a high degree of uncertainty.”The economy continues to recover from the pandemic and important shocks are buffeting the economy from the Russian invasion of Ukraine and from lockdowns in China,” she said. “Further negative shocks would inevitably make the situation more difficult.”If large enough, a shock could push the United States into a recession, but it would likely be short and shallow with a modest rise in unemployment, akin to the U.S. recession in 2001, said IMF Deputy Western Hemisphere Director Nigel Chalk. Strong U.S. savings would help support demand, he added.INFLATION CUTTING “PAIN”Georgieva said price stability was important to protect U.S. incomes and sustain growth, but there may be “some pain” for consumers in achieving it.She said her discussions with U.S. Treasury Secretary Janet Yellen and Fed Chair Jerome Powell “left no doubt as to their commitment to bring inflation back down.”U.S. inflation by the Fed’s preferred measure is running at more than three times the U.S. central bank’s 2% target.Georgieva said the responsibility to restore low and stable inflation rests with the Fed, and that the fund views the U.S. central bank’s desire to quickly bring its benchmark overnight interest rate up to the 3.5%-4% level as “the correct policy to bring down inflation.” The Fed’s current policy rate ranges from 1.50% to 1.75%.”We believe this policy path should create an upfront tightening of financial conditions which will quickly bring inflation back to target. We also support the Fed’s decision to reduce its balance sheet,” she said.While Congress’ failure to pass Biden’s climate and spending proposals was a “missed opportunity,” Georgieva signaled that the IMF would support a scaled down version.”We think the administration should continue making the case for changes to tax, spending, and immigration policy that would help create jobs, increase supply and support the poor,” she said.Georgieva also said the IMF sees clear benefits to rolling back the U.S. import tariffs imposed over the last five years, which include punitive duties on Chinese imports and global tariffs on steel, aluminum, washing machines and solar panels.U.S. Treasury spokesperson Michael Kikukawa said the IMF statement shows the U.S. economy was confronting global challenges “from a position of strength” due to the Biden administration’s economic policies.The Treasury also said Yellen, in her meeting with Georgieva, reiterated the importance of the IMF conducting “frank and thorough assessments” of IMF member economies. More

Inflation in the 12 months through May reached 9.09% and accumulated inflation for the first five months of the year hit 5.18%, central bank data showed, driven primarily by surging fuel prices following Russia’s invasion of Ukraine.The Honduran central bank has a 4.0% inflation target, plus or minus one percentage point.”The government is going to freeze the prices of regular gasoline and diesel for four weeks starting on Monday to alleviate the impact of international fuel prices on the national economy,” Energy Minister Erick Tejada said at a press conference.Latin America’s leaders have pulled no punches in the battle against inflation. The region has some of the highest interest rates in the world, with Mexico’s central bank making a record rate hike this week. But so far they are losing that fight.Fuel prices have skyrocketed in Honduras, which is expected to see inflation above double digits this year for the first time since 2000, according to central bank estimates.Diesel in Honduras, the second-poorest country in Latin America, is used mainly in industry, transportation and electricity generation, while regular gasoline is used by lower-middle class consumers. More

Nigel Chalk, deputy director of the IMF’s Western Hemisphere Department, said the depth of any recession would depend on the size of the shock that would push the U.S. economy off its IMF-predicted path of narrowly avoiding recession, and strong household balance sheets would provide a cushion.”There’s a lot of savings sitting in the system that would help support demand, and the labor market is historically tight,” Chalk said at a news conference on the IMF’s review of U.S. economic policies. “And since all of those things would help support the economy, so if it was hit by negative shock, it should pass relatively quickly and have a relatively quick recovery afterwards.” More

A consortium of Chinese state banks has lent $2.3bn to Pakistan to help the country stave off a foreign payments crisis, finance minister Miftah Ismail said on Friday. Confirmation of the support from China, a close economic and military ally of Pakistan, came on the same day Islamabad announced a one-off 10 per cent ‘super tax’ on important industries that is intended to lead to a stalled $6bn IMF loan package being resumed.“I am pleased to announce that Chinese consortium loan of Rmb15bn ($2.3bn) has been credited in to SBP [State Bank of Pakistan, Pakistan’s central bank] account today, increasing our foreign exchange reserves,” Ismail said in a tweet on Friday evening.A senior government official said the arrival of the loan was “one of the signals that we’re about to return to the IMF programme”. China had quietly urged Islamabad to repair ties with the IMF “as an essential step to improve Pakistan’s economic health and avoid a default”, the official said. The Chinese loan will raise Pakistan’s liquid foreign reserves of $8.2bn to $10.5bn and could help shore up the rupee, which has slumped against western currencies. Pakistan began to receive IMF payments in 2019 under a 39-month loan programme, but the fund has so far given only about half of the $6bn agreed.In recent months, sliding confidence in Pakistan’s economy has prompted concerns it could follow Sri Lanka in defaulting on international debt. Prime minister Shehbaz Sharif, who was elected by parliament in April following the ousting of rival Imran Khan, unveiled on Friday the new super tax to be levied on manufacturers of cement, beverages, steel, tobacco and chemicals.“The government has decided to impose a 10 per cent ‘poverty alleviation tax’ on large-scale industries of the country,” Sharif tweeted. Business leaders widely criticised the move and share prices on the Karachi Stock Exchange fell nearly 5 per cent after news of the tax emerged. Analysts said the decision would further fuel inflation, a central concern for households across Pakistan.Zaffar Moti, a former KSE director, said: “This is a major setback for the economy. The government has decided to further tax those who are already paying their taxes.” More

“Success over time (in lowering prices) will be beneficial for global growth, but some pain to get to that success can be a necessary price to pay,” Kristalina Georgieva said, as the IMF cut its U.S. growth forecast for 2022 by 0.8 percentage point to 2.9%.Georgieva said the IMF believed the United States could escape a recession, but warned that the outlook had “significant” downside risks. More