Economy

The IMF has warned governments against relying on short-term improvements to their public finances stemming from higher inflation, saying these rarely provide lasting relief from fiscal pressures. The fund’s Fiscal Monitor, published on Wednesday, showed the surge in inflation over the past year had lowered both borrowing and debt burdens in advanced and emerging economies. But this benefit was not sustainable, especially with higher food and energy prices adding to pressures on government budgets caused by Russia’s invasion of Ukraine, it said. Vitor Gaspar, the IMF’s head of fiscal policy, said “many countries are facing narrowing fiscal space”, with public budgets likely to come under more pressure as interest rates rise across the world. The fund now expects global prices to rise by 7.4 per cent this year — much higher than the 3.2 per cent it forecast for 2022 in late 2020. The IMF’s report showed this unexpected resurgence in inflation had lowered both public debt and borrowing levels as a share of GDP, compared with expectations made in October 2020 when the fund expected no rise in global prices compared with normal trends. Higher than expected inflation had already reduced the US debt-to-GDP ratio by 2 percentage points and 4.1 percentage points in emerging economies.

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

These drops in debt burdens occur because the amount of money owed remained constant while higher price levels pushed up measured GDP. Government borrowing was also lower than expected because inflation buoyed tax revenues more than it immediately increased public spending. While the IMF predicts fiscal balances may benefit from higher inflation this year too, the surge in prices would soon lead to higher interest rates — and a greater burden of servicing government debt. “If you had a situation where high and volatile inflation were a permanent characteristic of the economy, the attraction of nominal bonds as an asset would be reduced and the financing conditions of treasuries would significantly deteriorate,” Gaspar said.The type of inflation seen globally, he added, would put great pressure on government budgets because higher food and energy prices undermined living standards of poorer households, which spend a much larger proportion of their incomes on necessities. “The government has a special role to play when things go wrong,” Gaspar said. “It is very important that everybody has access to decent nutrition and that hunger is avoided everywhere.”

He urged countries able to finance support to offer poorer households cash payments rather than subsidise prices, so that consumers still faced an incentive to cut back on goods that had become much more expensive. He understood that there was also a role for smoothing some price changes when they were extremely volatile. Countries that had little space to borrow or reprioritise spending “were facing a very difficult situation”, Gaspar said. He added that the international community’s efforts to relieve debts and allocate new resources to poorer countries was “making progress”, but accepted that was not enough for many. More

UMDLOTI, South Africa (Reuters) – After two years of the COVID-19 pandemic keeping tourists away, South African resorts along the popular eastern Indian Ocean coastline were hoping for a bumper Easter weekend.But torrential rain last week triggered floods and mudslides, killing more than 440 people, knocking out power and water supplies and covering the beaches in and around the main port city of Durban, KwaZulu-Natal province, with debris. Some hotels had a third of bookings cancelled and others were forced to close during what is normally the second-busiest time of the year. Provincial authorities say they were expecting around 360,000 arrivals, but got less than half of that.Tourism remains a big employer in a country with over 30% unemployment.”Coming out of COVID … we needed the tourists back, we were getting there, but these rains caused havoc,” financial planner Eugene Naidu told Reuters in his wrecked holiday home in the town of Umdloti, near Durban, where the walls were smeared with waist-high mud.Africa’s southeastern coast is on the front line of seaborne storm systems that are being worsened by global warming, as it pushes up temperatures in the Indian Ocean, and scientists predict storms will get much worse in coming decades.Naidu used to rent out his apartment on Airbnb and Booking (NASDAQ:BKNG).com and was fully booked in December and January. He said people like him could stand to lose a monthly income of 20,000 rand ($1,340) from holiday rentals.Everyone in his building left on the day the mudslide started, apart from one elderly resident who had to be saved by a sea rescue team, he said.A construction vehicle was still shifting piles of mud on the Umdloti beachfront on Tuesday, and Durban’s deserted North Beach was littered with rubbish and mangled branches.Anthony Leeming, chief executive of hotel and resort chain Sun International, which owns a lodge and casino in KwaZulu-Natal, told Reuters business was a lot quieter than usual.”We had hoped for a lot better Easter. It was unfortunate,” he said. “We’re certainly hoping this will not have a long-term impact.”($1 = 14.8962 rand) More

BRUSSELS (Reuters) -The European Commission is assessing whether the European Union could achieve a higher target of a 45% share of renewable energy by 2030, instead of its proposed 40%, to accelerate its shift from Russian fossil fuels following the invasion of Ukraine.”We are working on it full speed to take account, first of all the proposal of going from 40% to 45%, but also in the context of higher energy prices,” Mechthild Woersdoerfer, deputy director-general of the Commission’s energy department, told a meeting of EU lawmakers on Wednesday.Russia is the EU’s top gas supplier, and the 40% renewable energy goal for 2030 was proposed by the Commission last year. The EU got 22% of its gross final energy consumption from renewables like wind, solar and biomass in 2020. The share varies widely between EU countries, ranging from more than 50% in Sweden to below 10% in Luxembourg.The new target will depend on EU countries and the European Parliament, which are negotiating it as part of a major package of climate change laws to cut EU emissions faster.A 45% renewable goal already has support from the EU assembly’s lead negotiator and renewable industry groups such as SolarPower Europe – although industry has urged Brussels to do more to unblock years-long permitting delays.Markus Pieper, Parliament’s lead lawmaker, said the new analysis was needed urgently so it could inform the ongoing negotiations, and urged the Commission not to wait until after the summer.”Otherwise we’ll be starting again from the beginning,” he said.Brussels estimates tripling the EU wind and solar capacity by 2030, adding 480GW of wind and 420GW of solar energy, could save 170 bcm of gas demand a year.The Commission will publish a plan in May to quit Russian fossil fuels by 2027. Woersdoerfer said this would include a legal proposal to make it easier for renewable energy projects to get permits. More

Cookies on FT Sites

We use
cookies
for a number of reasons, such as keeping FT Sites reliable and secure,
personalising content and ads, providing social media features and to
analyse how our Sites are used. More

Investing.com — Netflix (NASDAQ:NFLX) stock lost a quarter of its value after the company announced a shock drop in subscribers in the first quarter and warned that the current quarter will be much worse. The news makes an ‘interesting’ backdrop for Tesla (NASDAQ:TSLA) earnings after the bell. Private equity companies have reportedly cooled on the idea of supporting Elon Musk’s bid for Twitter (NYSE:TWTR). Inflation stops the Chinese central bank from cutting its key rate, while German producer prices rose at an eye-watering pace in March, putting a July rate hike by the ECB back on the table. Oil prices are higher after a surprisingly large draw on U.S. inventories. Here’s what you need to know in financial markets on Wednesday, 20th April.1. Netflix earnings shock, Series 2Netflix stock is set to crater again when it opens later, after the streaming giant said it expects to lose 2 million net subscribers in the current quarter, after reporting a shock 200,000 drop in the last three months.It’s the second quarter in a row that the former market darling has caused a 20%+ drop in its share price with its quarterly results and reflects increasing saturation and competition in the global streaming market, as well as increased pressure on household budgets due to inflation. Netflix stock was down 26% in premarket trading at what would be its lowest level since September 2019.CEO Reed Hastings said he’s looking at launching a version of the service at least partially supported by advertising, a major break with the company’s business model so far.2 Tesla expected to report quarterly drop in earnings, revenue; PE cools on Musk’s Twitter bidThe collapse in Netflix raises the stakes for tonight’s big earnings update from Tesla which, like its streaming peer, has for most of its existence enjoyed a sky-high valuation underpinned by forecasts of limitless growth and ultra-cheap capital.Analysts expect Tesla’s earnings to have fallen to $2.36 a share from $2.54 in the previous quarter, albeit that would still be more than double the 93c posted a year ago. Revenue is expected to have edged down on the quarter to $17.63 billion.Arguably more important will be what CEO Elon Musk has to say about the impact of Covid-19 lockdowns in Shanghai, which kept its plant there shut for three weeks. The factory reopened on Tuesday.In parallel developments, various news reports suggested that private equity giants including Blackstone (NYSE:BX) had rejected the idea of co-financing Musk’s bid for Twitter, as Musk hinted at a new tender offer for the company.3. Stocks set to open mixed ahead of more earnings; mortgage data, home sales eyedU.S. stock markets are set to open mixed later, with the Netflix results having once again shaken confidence in the growth narrative that underpins most of the technology sector. That shock was only partly mitigated by surprisingly strong revenue growth at IBM (NYSE:IBM), a report that was lost in the Netflix noise late on Tuesday.By 6:15 AM ET (1015 GMT), Dow Jones futures were up 64 points, or 0.2%, while S&P 500 futures were up less than 0.1% and Nasdaq 100 futures were down by less than 0.1%. All three cash indices had made solid gains on Tuesday, especially the tech-heavy Nasdaq, which rose 2.2%.Early earnings reports include consumer giant Procter & Gamble (NYSE:PG), Abbott Labs (NYSE:ABT) and Anthem (NYSE:ANTM), while CSX (NASDAQ:CSX), Equifax (NYSE:EFX) and Kinder Morgan (NYSE:KMI) report after the bell.Elsewhere, weekly data for mortgage applications and rates will be of interest at 7 AM ET, while existing home sales for March are due at 10 AM ET. Chicago Federal Reserve President Charles Evans will speak at the same time, while San Francisco’s Mary Daly speaks at 10:30 AM ET.4. China refuses to cut; ECB rate hawks squawk as inflation ragesThe Chinese central bank disappointed local financial markets, leaving its prime loan rate unchanged at its regular policy meeting instead of cutting it as many had expected.There had already been signs that the degree of actual policy support from the PBoC might not live up to the barrage of rhetoric from the authorities over the last two weeks. The PBoC had on Friday only cut its reserve ratio requirement, a key quantitative tool for steering the money supply, by 25 basis points instead of the 50 expected. On the brighter side, the end of Shanghai’s lockdown moved into sight as more districts were reported free of new cases.In Europe meanwhile, the (not very influential) Latvian National Bank Governor Martins Kazaks put the possibility of a July rate hike from the ECB back on the table, only days after President Christine Lagarde had played down the likelihood, citing the risks to the economy from the war in Ukraine. German producer prices continued to rage higher, gaining 4.9% in March alone to be up 30.9% on the year.5. Oil rises on API inventory drop; EIA numbers dueCrude oil prices pushed further above $100 a barrel after the American Petroleum Institute’s weekly inventories report showed U.S. crude stockpiles fell by nearly 4.5 million barrels last week, reversing most of the previous week’s rise.The U.S. government’s data are due at 10:30 AM ET, as usual.By 6:30 AM ET, U.S. crude futures were up 0.9% at $102.96 a barrel, while Brent futures were up 0.8% at $108.11 a barrel.Elsewhere in commodities, there were fresh reminders of the potential for local cost-of-living crises to disrupt global supplies, as some 20% of Peru’s copper output was taken offline by protesting miners. More

ISLAMABAD (Reuters) -Pakistan will need to cut expenditures and development funds to try and revive an International Monetary Fund (IMF) programme, Finance Minister Miftah Ismail said on Wednesday. “We will seek revival of the IMF programme, and we will, God willing, do belt tightening, and cut PSDP (Public Sector Development Funds),” Ismail told a news conference in Islamabad.Ismail said he would be travelling to Washington later in the day to attend an IMF meeting, that will also be attended by Pakistan’s central bank governor Raza Baqir, who is already there. Pakistan is waiting for the IMF to resume talks on its seventh review of the $6 billion rescue package agreed in July 2019. If the review is approved, the IMF will release over $900 million and unlock other external funding.With a yawning current account deficit and foreign reserves falling to as low as $10.8 billion, the South Asian nation is in dire need of external finances. A new Pakistani government that took over this month from ousted Prime Minister Imran Khan said it was facing enormous economic challenges, with the fiscal deficit likely to exceed 10% of gross domestic product (GDP) at the end of the current financial year in June ahead of presenting the annual budget.Hammad Azhar, the energy minister in the Khan government and now his party’s focal person on economy, termed Miftah’s numbers “complete hogwash.” The new government of Prime Minister Shehbaz Sharif also needs to deal with double-digit inflation, and slow growth of the economy, which the IMF said in its latest report was likely to stay at 4% against Pakistan’s earlier projection of 4.8%. The toughest call is to reverse subsidies in oil and power, and defending a blanket tax amnesty Khan gave in the run up to his fall, which Ismail termed was like “planting mines” for the new government.Sharif’s government has for now decided not to roll back an estimated 373 billion Pakistani rupees ($2.1 billion) in subsidies despite the strain on public funds, citing the possible backlash if it were to raise fuel prices just days after taking power. More

BEIJING (Reuters) – China’s finance ministry and tax regulator on Wednesday said they will accelerate Value Added Tax (VAT) credit rebates for small firms. Medium-sized manufacturing firms are allowed to claim VAT credit rebates starting from May, earlier than the previously announced starting time of July, the Ministry of Finance and the State Taxation Administration said in a statement. More

TORONTO (Reuters) – As the Bank of Canada opens the door to hiking interest rates above a neutral setting for the first time in 14 years, the goal of taming inflation without triggering a recession is challenged by the multiple drivers of price pressures and record-high household debt.To tackle a three-decade high for Canadian inflation, the central bank says it will hike its benchmark interest rate toward the neutral rate, which it estimates to be between 2% and 3%, adding that it may need to lift rates above that range.At neutral, interest rates are neither stimulating nor restraining economic activity, so a move above neutral could increase the risk of a hard landing, or sharp downturn for the economy – an outcome that central banks hope to avoid.The BoC has not hiked above neutral since 2008 or earlier. It has published an update of its estimate for neutral every year since 2017, raising it last Wednesday by quarter of a percentage point.”It may be a little bit harder to dock the boat, so to speak, than it has been over the last ten years,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.”There are a lot of forces out there that are contributing to inflation and some of them may not be that temporary.”An aging workforce, the transition to a greener economy and moves to reduce economic interdependence between countries are among the long-term drivers of inflation, while temporary pressures include supply shocks related to the COVID-19 pandemic and the war in Ukraine. Canada’s inflation rate was 5.7% in February.The U.S. Federal Reserve has also signaled it could lift interest rates above neutral in the current tightening cycle. But Canada’s economy is likely to be particularly sensitive to higher rates after Canadians ramped up borrowing during the pandemic to participate in a red-hot housing market.Household debt is 186% of disposable income, a level that is the highest by far among G7 countries, data from the Organisation for Economic Co-operation and Development shows. There’s a big risk that asset markets such as the housing sector “end up collapsing as rates rise,” said David Rosenberg, chief economist & strategist, at Rosenberg Research.Last week, the BoC raised its benchmark rate by half of a percentage point to 1%, its biggest single hike in more than two decades, and said the economy is strong enough to handle further tightening. Money markets are betting that the policy rate will climb to 3% next year, which would be the highest since 2008 and well above the 1.75% peak of the previous rate hike cycle in 2017 to 2018.Still, the small gap between Canadian 2- and 10-year yields, at 35 basis points, is an indication that investors expect economic growth to slow. The flat yield curve comes as monetary policymakers globally turn more hawkish after potentially waiting too long to reduce pandemic-era support.”The bottom line is (that) central banks … overestimated the amount of stimulus that was required last year,” said Darcy Briggs, a portfolio manager at Franklin Templeton Canada. “They overstayed their welcome.” More