Economy

MAN, the German truckmaker, has been forced to furlough about 11,000 employees after the war in Ukraine led to a “massive” shortage of wiring harnesses supplied by factories in the country.The group, which is owned by Volkswagen, disclosed that plants in Munich and Krakow had been shut since March 14, and production had been cut back at three other sites, including its engine factory in Nuremberg.“Suppliers of truck wiring harnesses cannot produce at their Ukrainian sites or can only produce to a very limited extent,” MAN said on Wednesday. “This threatens a loss of truck production for several weeks and a massive reduction in production in the second quarter.”Workers will be put on so-called short-time work schemes, which will see them compensated for 80 per cent of the lost income caused by cancelled shifts through a mix of support from the government and MAN itself.Shutdowns at Ukraine’s harness factories have already forced both VW and BMW to cancel shifts or close plants for brief periods.Harness plants located in the west of the country have mostly reopened. Leoni, which owns two such sites, said last week that both its factories were up and running again.“It is both impressive and moving how our employees are determined not to let the situation get the best of them but stand up for their country and for their way of life,” said Aldo Kamper, chief executive of Leoni.Leoni, which has sites across Europe and north Africa, has also begun duplicating equipment to keep production flowing. Other companies with operations in Ukraine, which include Aptiv and Kromberg & Schubert, have also restarted production, according to people inside the industry. One carmaker that buys parts from Ukraine said that its supplier in the country was manufacturing more parts than before the invasion to compensate for gaps in production.However, some harness plants are located in other parts of Ukraine, and are facing disruption because they are closer to the fighting, according to one person directly familiar with the matter.MAN’s predicament is a contrast with that of its key competitor, Daimler Truck, which said last week that it did not source wiring harnesses from Ukraine. MAN’s owner VW — which has several dozen people working at a football stadium in Wolfsburg as part of a task force dedicated to easing supply problems caused by the war — had also said that constraints on production at its passenger car brands were beginning to ease.But the truckmaker said it had not fared well in trying to secure supply.“Immediately after the outbreak of war, we began, among other things, to duplicate Ukrainian supplier structures for truck wiring harnesses in other countries,” said MAN chief executive Alexander Vlaskamp. “However, this is taking several months.” He added that “as a sign of solidarity with the workforce”, he and his management board would “be forgoing a considerable amount of pay over the next three months”.The pause in production comes just months after MAN, alongside almost all other automakers, was forced to put workers on furlough because of persistent shortages in semiconductors.But while some vehicles can be built without certain chips, and even delivered to customers without full functionality, it is usually impossible to begin constructing a car or truck without wiring harnesses.MAN said it was offering customers the chance to cancel orders. More

BERLIN/FRANKFURT (Reuters) -Germany triggered an emergency plan to manage gas supplies on Wednesday that could see Europe’s largest economy ration power if a standoff over a Russian demand to pay for fuel with roubles disrupts or halts supplies.Moscow’s insistence on rouble payments for Russian gas that has met a third of Europe’s annual energy needs has galvanised other European states: Greece called an emergency meeting of suppliers, the Dutch government said it would urge consumers to use less gas and the French energy regulator told consumers not to panic.The demand for payment in roubles, which has been rejected by G7 nations, is in retaliation for the West imposing crippling sanctions on Russia for its invasion of Ukraine.Moscow, which calls its actions in Ukraine a “special military operation”, says Western measures amount to “economic war”.The Kremlin signalled on Wednesday it could widen the demand for rouble payments to other commodities including oil, grain, fertilisers, coal and metals, raising the threat of recession in the United States and Europe where inflation is already skyrocketing.Berlin’s unprecedented move is the clearest sign yet that the European Union is preparing for Moscow to cut gas supplies to the region unless it gets payment in roubles. Italy and Latvia have already activated warnings.Moscow is expected to unveil its plans for rouble payments on Thursday, although said it would not immediately demand that buyers pay for gas exports in the currency.Germany Economy Minister Robert Habeck activated the “early warning phase” of an existing gas emergency plan meaning that a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.Habeck told a news conference that Germany’s gas supplies were safeguarded for now but he urged consumers and companies to reduce consumption, saying that “every kilowatt hour counts”.”We must increase precautionary measures to be prepared for an escalation on the part of Russia,” said Habeck. If supplies fall short, Germany’s network regulator can ration gas supplies, with industry being first in line for cuts. Preferential treatment would be given to private households, hospitals and other critical institutions.Even without the threat of gas shortages, Germany is at risk of recession as exploding energy costs have hammered industry, forcing some steel producers to curtail production. The government’s council of economic advisers on Wednesday more than halved their growth forecast for this year to 1.8%. {nL2N2VX1PL]Half of Germany’s 41.5 million households heat with natural gas while industry accounted for a third of the 100 billion cubic metres of national demand in 2021.’EVERYTHING WILL BE FINE’Russia is Germany’s top gas supplier, accounting for 40% of imports in the first quarter of 2022. Berlin has pledged to end its energy dependency on Moscow but it will not achieve full independence before mid-2024, according to Habeck.Europe was facing an energy crunch even before Russia invaded Ukraine, with gas storage levels in the EU now at about 26% of total capacity, below normal levels at this time of year.The EU Commission, which said on Wednesday it would work closely with member states to prepare for any gas shortages, has proposed legislation requiring countries to fill levels to at least 80% by November but that would be almost impossible if Russia halts supplies.”It is not possible to build stocks this year and curtail Russian flows,” said Joel Hancock, vice president of commodities research at Natixis.Jean-François Carenco, head of the energy regulator in France, which is far less reliant on Russian gas than Germany, said the country should not encounter any supply issues.”Everything will be fine, the gas storage facilities are well filled, we’ll make it through the winter,” he told BFM TV.Greece was set to hold an emergency meeting of its energy regulator, gas transmission operator and its biggest gas and power suppliers on Wednesday to assess its supply security in case Russia stops supplies.The Dutch government said it would launch a campaign to get consumers to use less gas.Investors are watching with growing concern to see how the dispute over Russia’s insistence on rouble payments play out as consumers in Europe grapple with exploding energy prices that have forced governments to announce fiscal relief measures.”Gas markets are still anxious in expectation of clear rules of roubles payment by Thursday,” said Rystad Energy senior analyst Vinicius Romano. “Both sides remain at odds over the prospect, of changing the currency terms of dollar and euro contracts, waiting for the other side to blink first.”After Germany’s announcement, German year-ahead wholesale electricity set a three-week high of 185 euros per megawatt hour, up 6.3%..Kerstin Andreae, head of the Federal Association of the Energy and Water Industry (BDEW), said Germany should have clear plans in place laying out how the government would deal with a gas delivery stoppage that force rationing measures.”We must now take concrete measures to prepare for the emergency level, because in case of a stoppage things would have to move fast,” Andreae said. 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Leveraged transactions (LT) have grown to a 500 billion-euro-pile on the books of the euro zone’s 28 largest lenders from 300 billion euros in 2018 as record-low interest rates made banks seek returns in riskier parts of the market. In a letter to the chief executive offiers of the 115 banks on his watch, the ECB chief supervisor Andrea Enria said lenders should tighten their controls on this type of business and ease up on the riskiest deals, known as ‘highly leveraged transactions’ (HLT).He also criticised banks’ cavalier attitudes towards these loans, saying many had not even set a cap on HLTs, or if they did, it was too permissive.This posed a risk to the sector at a time when the economy was slowing due to the war in Ukraine and interest rates were expected to rise to fight surprisingly high inflation. “High levels of LT exposure on banks’ balance sheets leave them vulnerable to renewed shocks, which could arise from unexpected and sharp economic slowdowns or higher than expected interest payments,” Enria said in the letter https://www.bankingsupervision.europa.eu/press/letterstobanks/shared/pdf/2022/ssm.2022_letter_on_leveraged_transactions.en.pdf?1dd5c0299bf7b93080e4b383bccb023c. More

FRANKFURT (Reuters) -Europe’s economy is increasingly strained by Russia’s war in Ukraine as growth stalls, confidence plummets and inflation soars, data and warnings from policymakers made clear on Wednesday.Sanctions on Russia following its invasion last month have pushed energy prices to record highs across the continent, sapping confidence and raising the risk of another recession, even before some states have recovered from a COVID-fuelled downturn.Germany, the bloc’s biggest economy and one of the most reliant on Russian energy, will be among the hardest hit and the government’s council of economic advisers on Wednesday more than halved their growth forecast for this year, to 1.8%.”The risk of a recession is substantial,” Volker Wieland, one of the panel’s members said, adding the economy would now take until the third quarter to return to its pre-pandemic size. The advisers, whose forecasts guide the government in setting fiscal policy, also predicted that German inflation would double to over 6%.As the government triggered an emergency plan for possible gas rationing should supplies from Russia be disrupted or stopped, Wieland said Germany should work to end its dependence on Russian energy, possibly through a longer-than-anticipated nuclear energy programme.This would push up inflation for now but improve the long-term security of the country and the economy’s stability, he said.European Central Bank President Christine Lagarde also warned that, as the conflict drags on, Europe’s economy could suffer more than feared just a few weeks ago.”The longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios,” she said in a speech. In Vienna, Austria’s central bank cut its growth forecast and sharply raised its inflation outlook for this year, saying its new predictions would worsen further if the war dragged on.STAGFLATION DILEMMALagarde said households were already becoming more pessimistic and businesses could soon be postponing investment. Her warning was underlined by a sentiment indicator that showed the war had sent consumer confidence in the euro zone plummeting and inflation expectations to record highs.The European Commission’s economic sentiment index dropped to 108.5 in March from a downwardly revised 113.9 in February, while consumer confidence plunged to -18.7 from -8.8. The biggest hit to confidence came from inflation, which is sapping consumer spending power, even as governments quickly roll out subsidies to ease some of the pain. In Spain, one of the bloc’s biggest economies, inflation accelerated to 9.8% in March, the fastest pace since May 1985, from 7.6% in February.German price growth meanwhile soared past expectations to hit 7.6%, a level not seen since the early 1980s, suggesting that the euro zone reading on Friday is almost certain to exceed economists’ 6.6% forecast. “Those inflation numbers were absolute whoppers, big big upside surprise to the numbers,” Chris Scicluna, head of research at Daiwa Capital Markets, said. Stagnating growth coupled with high inflation – stagflation in economic jargon – leaves Lagarde’s ECB in a dilemma.While the central bank would normally tighten policy to fight inflation, such a move could exacerbate a recession, hurting consumers even more.To mitigate the risk, Lagarde promised to move only by small increments, without making longer-term commitments. “Gradualism means that we will move carefully and adjust our policy as we receive feedback on our actions,” she said.This policy dilemma could in turn divide the ECB’s rate setting Governing Council even more, as conservatives are already calling for a hike to combat high inflation. “Unless … the war …becomes a global conflict, then I think that the first rise (of rates) could come towards the end of this year,” ECB policymaker Peter Kazimir said. More

The advisers, whose forecasts guide the German government in setting fiscal policy, cut their 2022 economic growth forecast to 1.8% from 4.6%, adding output would not reach its pre-pandemic level before the third quarter of the year.In 2023, Germany’s gross domestic product should grow by 3.6%, the four advisers said.”We haven’t tried to calculate the exact probability of a recession,” council member Volker Wieland told a news conference.”For example, we don’t know if there will be a supply freeze or whether the West can no longer avoid imposing an energy embargo. But these are possibilities. So, the risk is substantial,” Wieland said.He added that unlike the U.S. economy, Germany still had not fully recovered from the coronavirus pandemic.The advisers said Germany was on track for further economic recovery before Russia invaded its neighbour on Feb. 24.”The Russian war of aggression against Ukraine has now drastically worsened economic conditions,” they said in a statement.The war further frayed supply chains that had already been strained due to the COVID-19 pandemic, and a surge in natural gas and crude oil prices hurt companies and private consumption, they said.The council forecast inflation to reach 6.1% in 2022 before easing to 3.4% next year.A potential escalation of the conflict and additional sanctions could have a significantly greater impact on the German and European economies, the experts warned.”We have to change course and use all levers to become less dependent on Russian raw material supplies,” Wieland told Reuters, adding he favoured extending the life of German nuclear power plants.The country’s three remaining nuclear power plants are scheduled to be shut down by the end of the year, and the government has so far vehemently opposed extending their life-span as a way of reducing its reliance on Russian gas. More

PALMERDALE, Ala. (Reuters) – North of Birmingham, a gravel road bed slices through a series of steep ridges, part of a stalled effort to carve a 52-mile freeway around the rural fringes of Alabama’s largest city.Construction stopped five years ago on the road, dubbed the Birmingham Northern Beltline, after federal funding ran out. Critics have labeled the project a “dinosaur,” a “zombie” and a “black hole”. Barely a mile of it has been started, and Alabama officials haven’t provided the billions it would take to finish it.But the bulldozers could soon be moving again, thanks to U.S. taxpayers. At least $369 million in federal funding for the Beltline is headed Alabama’s way from a massive infrastructure package approved by Congress in November. That $1 trillion deal – the Infrastructure Investment and Jobs Act – allowed Democratic President Joe Biden to fulfill a campaign promise to fix the nation’s crumbling bridges, roads and airports.It’s also a big win for Alabama’s senior U.S. senator, Richard Shelby, a Republican who has worked for decades to carve out Washington dollars for the Beltline. Shelby voted “no” on Biden’s infrastructure package, arguing that it should have included military projects. The Beltline will get its funding all the same.Shelby declined to comment for this story.Other Beltline supporters portray the federal support as money still owed to Alabama from Democratic President Lyndon Johnson’s 1960s War on Poverty, which promised to help impoverished residents of the Appalachian mountains. At the southern end of that range lie the blue-collar exurbs and rural hamlets north of Birmingham.”This is the continuation of a promise made,” said Ron Kitchens, chief executive officer of the Birmingham Business Alliance, an economic development group.Opponents of the Beltline, meanwhile, are incensed that a gusher of cash is set to revive a dormant project that even local planning officials once ranked as a middling priority. Environmentalists say the Beltline would encourage sprawl and threaten wild areas – the antithesis of Biden’s green agenda.”It’s a true dinosaur of a pork barrel project,” said Nelson Brooke of Black Warrior Riverkeeper, a local environmental group. “It’s a perfect example of what shouldn’t be happening with this new money.”Biden’s administration is writing the check, but it has little control over Alabama’s project. “It is up to state departments of transportation to make decisions to move projects forward,” said Nancy Singer, a spokesperson for the Federal Highway Administration.PHANTOM FREEWAYThe Beltline isn’t the only controversial aspect of Biden’s infrastructure deal. Many Democrats groused that it favors freeways over transit, while some Republicans derided it as a wasteful grab bag of Democratic priorities.Alabama’s phantom freeway might never have made it past the blueprint stage if not for Shelby, a Birmingham native who has served in Congress since 1979. His name adorns government facilities across Alabama, a testament to his skill at steering federal dollars to a state where household income ranks 46th of the 50 U.S. states.Starting around the turn of the century, Shelby and other members of Alabama’s congressional delegation secured money for the Beltline through “earmarking,” a budget process that ensured the highway got dedicated funding without having to compete with other projects.But the real breakthrough came in 2003, when Shelby got the Beltline added to the Appalachian Development Highway System, a road network aimed at reducing isolation in the mountainous region stretching from northern Alabama to western New York. The system was largely complete at that point, so Shelby’s move ensured Alabama would get a larger share of the dollars going to that network.Then came a series of corruption scandals that spurred federal lawmakers to crack down on what many saw as wasteful spending nationwide. Congress banned earmarks in 2010. Two years later, it eliminated funding for the Appalachian highway system amid criticism by legislators such as Representative Jared Polis, a Democrat who now serves as governor of Colorado, who called the Beltline a “zombie highway” and the “Alabama Porkway.”With those two funding streams cut, the Beltline had to compete for money on its own merits. But the highway was not deemed particularly urgent by the Regional Planning Commission of Greater Birmingham. In a 2006 report, it ranked the Beltline 36th out of 54 transportation proposals, concluding it would do little to ease traffic congestion.Beltline proponents say the road could help the thinly populated northern exurbs draw the sorts of shopping malls and housing developments that have proliferated to the south of the city since the 1970s. But the Alabama Department of Transportation in 2012 estimated that, once completed, the Beltline would boost the population in nearby towns by just 1.5%.Environmental groups in 2011 sued unsuccessfully to stop the project, saying the Beltline would harm wildlife like the vermilion darter fish, which is found nowhere else in the world. The highway would cross 125 streams and require construction teams to level more than 4,000 acres (1,619 hectares) of forest.But business groups and dozens of local politicians continued to advocate for the road. By the time it broke ground in 2014, Federal Highway Administration figures indicated that, at a cost of $5.4 billion, it would be the priciest highway project in the country on a per-mile basis, though subsequent estimates have been lower. State officials estimated at the time it would take 40 years to complete.Two years later, construction ground to a halt when federal money ran out. At that point, $162 million had been spent to produce a partially built, 1.3-mile (2 km) stretch of roadway.Most U.S. highways are built with a mix of federal and state money. But Alabama chose not to tap state accounts for the Beltline, instead focusing on maintaining existing roads and expanding capacity elsewhere. No work has been done since.”People are tired of dribbling money into a black hole,” said Sarah Stokes, a lawyer with the Southern Environmental Law Center, which opposes the project.On a recent weekday afternoon, signs of decay were evident at the construction site near Palmerdale, a hamlet of 5,400 residents 17 miles (27 kilometers) northeast of Birmingham. Rainstorms had etched gullies into the gravel roadbed, and a 20-foot-tall (6 meters) chinaberry tree sprouted from a concrete retaining wall at the top of a ridge. Tire tracks, trash and a bullet-riddled tin can littered the site.BACK ON TRACKBut patience – and seniority – pay off in Washington. Shelby got funding renewed for the Appalachian highway network in 2019, when he headed the powerful Senate committee that handles spending.Then came the bipartisan infrastructure package. Lawmakers from Appalachian states, led by Democratic Senator Joe Manchin of West Virginia, inserted $1.25 billion for the highway network into the deal. Alabama is due to get $369 million, the largest share.Much more will be needed. The Appalachian Regional Commission, a government body, estimated last year that it would cost $3.1 billion to finish the Beltline, and the state said in 2019 that it would take until 2045 to complete just one-third of the road. Experts say such estimates can fluctuate widely due to changing labor costs, interest rates and other factors.As before, Alabama does not plan to put its own money into the project. Budget experts say that is telling.”It’s not that critical of a project,” said Steve Ellis, president of Taxpayers for Common Sense, a Washington watchdog group. “Otherwise the state and local interests would have found a way to fund this.”Birmingham-area officials say they are negotiating for the state and local governments to chip in. Stan Hogeland, mayor of Gardendale, a city of 16,000 residents along the Beltline’s path, believes the road could speed commute times and attract manufacturers serving the state’s auto industry.”I hope it hurries up and gets through,” Hogeland said.Others see it as yet another highway designed to steer investment away from Black-majority cities such as Birmingham.Anna Brown, an activist who sits on an advisory board for the planning commission, said it would be better to send the money back to Washington.”Everything free ain’t always good for you,” Brown said of the federal funds. “Just because it’s free doesn’t mean it’s going to be beneficial.” More

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.80% from 4.50%.
Refinance applications fell 15% for the week and were down 60% from a year ago.
Homebuyer mortgage demand rose 1% for the week but was down 10% from a year ago.

Mortgage rates took another jump higher last week, taking their toll on current borrowers who might have wanted to refinance. Demand from homebuyers, however, appears to be hanging in for now.
Total mortgage application volume decreased 6.8% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. This, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.80% from 4.50%, with points decreasing to 0.56 from 0.59 (including the origination fee) for loans with a 20% down payment.

“Mortgage rates jumped to their highest level in more than three years last week, as investors continue to price in the impact of a more restrictive monetary policy from the Federal Reserve,” said Michael Fratantoni, MBA’s chief economist.
Driving the downturn in overall mortgage demand was a 15% weekly drop in refinance applications. They are now down a whopping 60% from a year ago. The refinance share of mortgage activity decreased to 40.6% of total applications from 44.8% the previous week.
Mortgage applications to purchase a home increased 1% for the week but were 10% lower than the same week one year ago. Homebuyers today continue to face sky-high prices and record low supply, in addition to rising mortgage rates. Affordability is weakening dramatically, but some real estate agents say the competition is not letting up.
“I will say I have had more cash buyers this this year than I’ve ever had, and they’re borrowing from parents. They’re just finding that cash because they know that it’s more competitive with cash offers,” said Kelly Theriot McMahon, a real estate agent with Compass in Dallas.
At an open house held last Sunday, she said buyers were steeling themselves for a bidding war.
“You have to look at it knowing you’re probably going to have to offer like $40,000 over asking price,” said Lauren Poey, a potential buyer touring the home.

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Russia’s war in Ukraine is delivering a “supply shock” to the eurozone economy that will push up prices, slash growth and drain consumer and business confidence, says Christine Lagarde, president of the European Central Bank.Presenting her gloomiest assessment yet of how the invasion will hit the bloc’s economy, Lagarde said Europe was “entering a difficult phase” as she outlined how the soaring price of energy, food and manufactured goods would squeeze consumers’ purchasing power. The conflict was “starting to drain confidence”, she added.“Clearly, the longer the war lasts, the higher the economic costs will be and the greater the likelihood we end up in more adverse scenarios,” she said, specifying that higher energy prices had already cut eurozone income by 1.2 per cent in the fourth quarter of 2021. “That figure would imply a loss of about €150bn in one year,” she added during a speech in Cyprus.Her comments came as the German government on Wednesday took the first formal step towards gas rationing as it prepared for a potential halt in deliveries from Russia due to a dispute over payments, which could plunge the industrial heartland of Europe into crisis.The group of economists that advises Germany’s government warned of a “substantial” risk of recession if Russian energy imports were cut off, which could drive inflation in Europe’s largest economy as high as 9 per cent. The council of economic advisers also slashed its 2022 growth forecast for Germany from 4.6 per cent to 1.8 per cent and raised its inflation prediction from 2.6 per cent to 6.1 per cent. An EU survey published on Wednesday showed European consumers and businesses have turned much more pessimistic since the Russian invasion last month, fearing it would reduce spending, increase unemployment and raise prices faster.Meanwhile, Spanish inflation soared to 9.8 per cent in March, its highest level since 1985, rising from 7.6 per cent last month and well above expectations, the country’s statistics office said on Wednesday. Early regional figures indicated German inflation was set to rise above 7 per cent in March, which would be the highest level since the early 1980s. Economists also expect eurozone price growth to set a new record of 6.6 per cent in March, when those figures are published on Friday.Investors are betting the ECB will raise rates several times and lift them back up to zero by the end of the year. They increased those bets on Wednesday, sending the German 10-year bond yield up to 0.68 per cent.The ECB this month responded to soaring inflation by outlining plans to stop net bond purchases by September, setting the stage for it to raise rates this year if inflation stays high. Lagarde said on Wednesday: “The best way that monetary policy can navigate this uncertainty is to emphasise the principles of optionality, gradualism and flexibility.” But the ECB president also signalled EU governments could do more to support the economy, saying: “Europe needs a plan to ensure that the necessary investment comes online as quickly and smoothly as possible, with public and private finance reinforcing each other.”The European Commission said its economic sentiment indicator fell 5.4 points to minus 108.5 this month, its lowest level for 12 months, “mainly due to plummeting consumer confidence”. Confidence fell among companies in industry and retail trade but was steady in services, the commission said. Inflationary pressures intensified as companies’ selling price expectations rose to a record high.The outlook for the labour market also worsened as consumer unemployment expectations rose sharply and employment expectations dipped in most sectors except for services. More