Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is the author of ‘Growth: A Reckoning’ and an economist at Oxford university and King’s College LondonIn normal times, forecasts on the UK public finances from the Office for Budget Responsibility, expected this month alongside the chancellor’s Spring Statement, would be a significant moment. This time, it is a seismic one. An institution that was established to reduce bias in public finance forecasting now finds itself with a far grander role: the ultimate arbiter of whether the government’s plan to achieve its central mission — more economic growth — is the right one. This was never meant to be the OBR’s purpose. Set up in 2010 by George Osborne, then chancellor, it was designed to solve a different problem: that the official UK public finance forecasts were not credible. The Treasury had a strong incentive to massage these numbers into better shape, whatever the political make-up of the government. And the belief was that an independent statistical authority would be free of that temptation. To that extent, the OBR is a success story: its forecasts do appear to be less biased.However, forecasts about the UK public finances also require forecasts about the UK economy — among them, what is expected to happen to growth. If the economy were happily trundling along, these numbers would be playing only a supporting role. But this economy is stagnant, the government has made changing that its main priority and His Majesty’s Treasury no longer produces its own official growth forecasts. So the OBR’s numbers have been thrust into the spotlight.Here, though, is the complication: the OBR does not actually know what causes growth. In fact, no one does. The true causes of growth are one of the great mysteries of economic thought. Hundreds of possible causes have been identified: everything from tax cuts to infrastructure spending, the number of frost days to the level of newspaper readership. And today they remain hotly contested among various schools of thought, divided along deeply political lines and duelling with one another. With that in mind, the idea that the OBR somehow knows enough to take each UK government policy and state its impact on growth to a single decimal point is fanciful. Yet that is what it will attempt to do at the end of the month, with immense practical consequence. A reduction of 0.1 percentage point in the OBR’s potential productivity growth forecast, for instance, is estimated to create a hole of £7bn-£8bn in the public finances — that is the equivalent of the entire budget of Defra.But do other countries not also have independent “fiscal watchdogs”, like the OBR? Yes, many do but their role tends to be different. Most simply assess the official government forecast or provide an alternative to sit alongside it. The OBR actually produces it. And chancellor Rachel Reeves has gone further, explicitly baking the OBR numbers into her new fiscal rules, making their forecasts definitive. So we find ourselves in a strange world, where Reeves is best advised not to do what she believes will drive growth, but to look instead at what the OBR assumes drives growth. Then she must simply do as much of that as she can, given her fiscal constraints, so the forecasts are better. In the old world, HMT was incentivised to fiddle the numbers; in the new one, HMT is incentivised to fiddle the policy. What’s more, if Reeves decided to challenge the OBR forecasts in public when they are published — perhaps saying she felt their internal model did not properly capture the promise of her growth strategy — that would not look like a legitimate intellectual disagreement about the true causes of growth. It would risk being seen as a shameful attempt to dodge the very rules she set up to bring an end to fiscal profligacy. The OBR was established with good intentions. But it has been a victim of its own success. A difficult political judgment about one of the most contested economic questions — what actually causes growth — has been reduced to a technocratic calculation performed largely out of sight of the public. What should we do? To begin with, the uncertainty in the OBR’s growth forecasts must be more explicitly recognised: independence might reduce their bias, but it does not make them correct. Politicians must be bold enough to say it; the OBR must be modest enough to agree.In turn, the Treasury must consider reintroducing its own growth forecasts. This is not because they are likely to be more accurate than the OBR’s, but because we need more public debate and disagreement in policymaking, not less of it, if we are to find creative ways out of our current economic malaise. Finally, Reeves ought to revisit her fiscal rules, maintaining their original spirit — current budget in balance, debt falling as a share of the economy — while tweaking the substance so they are not so tightly tethered to a set of calculations that, like all forecasts, will probably turn out to be wrong. More

“I am very concerned about the European economy,” European Central Bank policymaker Mário Centeno told CNBC’s “Squawk Box Europe” on Friday.
The ECB on Thursday took down its gross domestic product expectations for the euro area.
Potential tariffs from the U.S. could weigh on Europe’s economy, while increased defense spending in the region could have a positive impact.

Europe’s struggling economy has economists worried — and senior European Central Bank policymaker Mário Centeno, echoes that view.
“I am very concerned about the European economy,” Centeno, who is also governor of the Bank of Portugal, told CNBC’s “Squawk Box Europe” on Friday.

On Thursday, the ECB revised its gross domestic product expectations for the euro area to 0.9% growth in 2025, down from a previously projected 1.1% expansion. The euro area’s seasonally adjusted GDP most recently eked out a 0.1% increase in the fourth quarter.
Centeno linked the downward growth outlook revision to reduced exports and investments, echoing the ECB statement.
“Special investment is, I think, quite subdued in Europe. It will take four years for us to go back to the 2023 level of investment in the private sector, six years in terms of housing investment [and we will be] going back to 2022 levels only in 2028,” he explained.
“These are numbers that raise some questions about the recovery in Europe,” Centeno added.
Concerns about Europe’s sluggish economy have accelerated in recent months, following repeated threats of tariffs from the U.S. administration. U.S. President Donald Trump has already introduced duties on imports from several key U.S. trading partners and has indicated that Europe could be the next target.

But there is frequent policy movement in the U.S.’ position, with pauses, delays and exemptions aplenty as negotiations and pledges of reciprocal measures from the targeted countries continue.
“Tariffs are a tax. They are a tax on both consumption and production, and we do know that taxes have a very clear impact on the economy,” Centeno said Friday, warning that ultimately no one would gain from a tariff war.
One bright spot ahead for Europe could be a potential defense spending push from the European Union, which was introduced earlier this week off the back of souring relations between the U.S. and Ukraine.
If such packages are “well designed,” they could have a positive impact on Europe’s economy, Centeno said.
Germany also this week announced plans to boost infrastructure and defense spending, although the proposal must first pass some hurdles before it can be implemented.

Further rate cuts ahead?

Centeno also addressed the outlook for ECB interest rates, signaling further trims were expected ahead.
“We do think that the journey is very clear, although these rate cuts [were] implemented because the European economy is stagnated, we do have in our baseline a projection of inflation going to 2% in the medium term, but that that includes further adjustment in the rates,” he said.
However, the central bank needed to remain “open” and follow a data dependent, meeting-by-meeting approach, especially due to the current uncertainty regarding economic policies, Centeno said.
The ECB on Thursday announced its sixth interest rate cut since June last year, taking its key rate, the deposit facility rate, another quarter point lower to 2.5%. The move had been widely expected by markets.
In a statement announcing the decision, the ECB also tweaked the language it used to characterize monetary policy to say it was now “meaningfully less restrictive,” a change from the previous description of “restrictive.”
Interpretations of what this could imply for the rate path ahead diverged, with some analysts and economists saying it suggested that policymakers were becoming more cautious about cutting rates. Others said the central bank’s statement indicated more cuts ahead, but that a pause in the cutting cycle could now be on the horizon.
Markets were last pricing in an around 57% chance of the ECB holding rates steady during its April monetary policy meeting and a 43% probability of a further quarter-point reduction.
Beyond the ECB’s statement, markets are likely to also be taking into account developments around tariffs and European defense spending in their assessment of what could come next from the ECB.
“The decision in April will take on board all the information we will get until then,” the central bank’s Centeno commented. More

This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning. As executives prepare to gather at the White House today for a cryptocurrency summit, we look at Donald Trump’s controversial memecoin scheme. We’re also covering: A fresh push for peace in UkraineThe hidden dangers of family offices And Tim Harford pays tribute to economist Donald ‘Shoup Dogg’ Donald Trump’s crypto project made at least $350mn, according to Financial Times calculations, a windfall that is likely to fuel concerns over conflicts of interest arising from the launch of the $TRUMP token.In addition to the $350mn earned through selling the token directly on the Solana blockchain — the digital ledger that underpins most memecoins — more money is likely to have been made from a smaller number of tokens that were distributed for sale on cryptocurrency exchanges such as Binance, experts say. Trump has faced a fierce backlash since he and his wife Melania launched memecoins, tokens with no practical use whose value is entirely based on speculation, just days before his return to the White House.The value of $TRUMP soared to $75 shortly after its launch before plunging to its current value of a little over $13 a coin. However, the FT analysis shows the first 100mn tokens were sold before the price reached $1.05. The stock of 831mn $TRUMP coins held by Trump-linked accounts has a current notional value of $10.8bn.Trump, who has positioned himself as a pro-crypto president, will host many of the industry’s leading executives and investors at the White House later today. The meeting marks a dramatic change of fortunes for the industry which, under the Biden administration, had seen some of its leading protagonists jailed or fined.On the eve of today’s meeting, Trump signed a long-awaited executive order creating a strategic Bitcoin reserve and an additional stockpile of other digital assets. But the government indicated it would not use taxpayer money to fund the reserve, prompting falls for Bitcoin and other digital currencies. Read more on how the FT calculated the earnings of Trump’s memecoin project.Here’s what else we’re keeping tabs on today and over the weekend:Markets: The S&P 500 is on course for its worst week since September after falling another 1.8 per cent yesterday. The tech-heavy Nasdaq Composite fell 2.6 per cent. Central banks: Federal Reserve chair Jay Powell speaks at a monetary policy conference in New York. European Central Bank president Christine Lagarde gives the keynote speech at the ECB’s International Women’s Day conference in Frankfurt. Economic data: The US government publishes monthly employment data for February. Brazil and the EU issue fourth-quarter GDP estimates. Canada: On Sunday, the Liberal party chooses its successor to Justin Trudeau who will also become the country’s next prime minister.How well did you keep up with the news this week? Take our quiz.Five more top stories1. Donald Trump’s administration has backtracked further from its threat to impose sweeping 25 per cent tariffs on Mexico and Canada, in a major climbdown from its aggressive trade agenda, capping a tumultuous week that has roiled markets and frayed diplomatic relations between Washington and its largest trading partners. More on the US president’s executive order.‘It’s like a whipsaw’: Dizzying policy changes have sparked an equity market sell-off, concern from businesses and panic in foreign capitals.2. Ukraine is to begin negotiations with the US next week in Saudi Arabia over ending the war set off by Russia’s 2022 invasion, after days of tension between Kyiv and Washington. Donald Trump’s special envoy, Steve Witkoff, said the meeting with Ukraine would seek to agree a framework for “a peace agreement and an initial ceasefire”. 3. SpaceX’s massive Starship rocket exploded eight minutes after launch in another setback for Elon Musk’s company as it seeks to build a vessel capable of reaching Mars. SpaceX said the vehicle experienced a “rapid unscheduled disassembly”. Stephen Morris and Rafe Uddin have more. 4. Walgreens Boots Alliance has struck a deal worth up to $23.7bn with private equity group Sycamore Partners that will bring the struggling pharmacy chain’s 97-year run as a public company to an end. Walgreens’ market value peaked at more than $100bn soon after the 2014 merger closed, but has since dwindled. Read more on what Sycamore plans to do with the business.5. Parents having fewer children are buying more expensive baby food, according to the head of Nestlé’s nutrition business, as the world’s largest food company shifts its strategy to offset the impact of falling birth rates. The Swiss group said that smaller families had driven “premiumisation”.Today’s big read© FT montage/DreamstimePrivate wealth management companies for the super-rich now manage trillions of dollars globally and are one of the fastest growing areas of finance. They are also one of the least under­stood — or reg­u­lated. Read more on the hidden dangers of family offices.We’re also reading . . . Mar-a-Lago accord: The idea of a new Plaza Accord to weaken the dollar is sparking endless gossip among financiers, writes Gillian Tett.Venezuela: Opposition leader María Corina Machado welcomed the Trump administration’s abrupt decision to stop Chevron drilling in her country.Syria’s new leader: Is Ahmed al-Sharaa a conquering hero with intentions of moderating or a brutal strongman with a flair for PR? Chart of the daySoaring property values in Dubai are underpinned by a robust economy which benefited from the city’s decision to open up to visitors during the pandemic while other hubs still restricted travel. The UAE also liberalised its visa system in 2022. But some question how long the meteoric price rises can continue.Take a break from the news . . . Donald Shoup revolutionised the way urban planners thought about parking. How he did it should be an example to economists everywhere, writes Tim Harford. His genius was to take a problem that seemed boring and trivial and show that it was neither.© Guillem CasasúsThank you for reading and remember you can add FirstFT to myFT. You can also elect to receive a FirstFT push notification every morning on the app. Send your recommendations and feedback to firstft@ft.comRecommended newsletters for youOne Must-Read — Remarkable journalism you won’t want to miss. Sign up hereNewswrap — Our business and economics round-up. Sign up here More