Economy

BAKU (Reuters) – As officials from around the world strive this week to reach a deal on funding for poorer countries to tackle climate change, investment manager Rob Drijkoningen is the sort of person they’re hoping will help get them there.Drijkoningen is head of emerging market debt at U.S. asset manager Neuberger Berman, which holds $27 billion in sovereign and corporate debt from developing countries. He should be a natural partner for multilateral development banks (MDBs) looking to find private sector investors for projects to slow climate change or cope with its effects.Boosting private sector investment is, for rich nations, a crucial part of clinching a deal at the COP29 climate talks in Azerbaijan this week on a global commitment for annual funding to fight climate change – dubbed the New Collective Quantified Goal. Development banks committed to increase their lending to poorer countries to $120 billion a year by 2030. They also pledged to bring in an additional $65 billion annually in private sector cash to those nations. But Drijkoningen, after speaking with the European Investment Bank (EIB) and European Bank for Reconstruction and Development (EBRD) about potential deals this year, decided there were too many hurdles to investment. Development banks, he said, are not willing to open their books and share enough information about investments’ risks. Nor do they allow private investors to pick and choose the projects that interest them. For asset managers already facing limited appetite from clients for long-term infrastructure assets in developing nations, those obstacles make investment unappealing. “We would need to get a true sense of a level playing field: of getting equal access to information so that we can appropriately assess the merits,” Drijkoningen said. “That’s a cultural issue that I doubt we have come close to changing.”Cash-strapped Western governments are pinning their hopes on a massive increase in private sector investment to reach the $2 trillion-plus needed annually to help poorer countries move to greener energy and protect against the impacts of extreme weather. After a resounding win by climate denier Donald Trump in this month’s U.S. presidential election, worries are rising that the financing gap will steadily widen if Washington – and its dollars – pulls out of the global climate fight.An ongoing, two-year reform of multilateral institutions like the World Bank – aimed at overhauling the way they lend to make more use of their money – helped drive a 41% increase in the mobilisation of private sector funds to low income countries in 2022 across 27 development banks, a report this year showed. The head of the EBRD, Odile Renaud-Basso, told Reuters the bank was working hard to provide more information to the private sector, but there were some limits to what could be made public.But a Reuters analysis of lending data and interviews with two dozen development banks, climate negotiators, private sector investors and non-profits showed that change at multilateral lenders needs to accelerate significantly if the private sector is to fulfil its hoped-for role.The analysis of total aggregate lending last year provided by 14 of the world’s top development banks showed that for each dollar invested across all markets just 88 cents of private money was sucked in. And that fell to just 0.44 cents of private money to poorer countries. Here, the banks made climate finance commitments of $75 billion and mobilised $33 billion of private investment. A report by a group of independent experts for the G20 group of industrialised nations last year on how to strengthen multilateral development banks said the target that needed to be hit was $1.5 to $2 for every $1 of lending.  SLOW PROGRESSGovernments – which bankroll development banks – are pushing them to go reform faster. That should result in a more ambitious funding target in Baku – and help countries to skirt a politically contentious discussion on increasing the banks’ capital.The EBRD now delivers $3.58 of private money for every $1 it invests across its portfolio, up from $2 dollars three years ago. IDB Invest – the private sector arm of the Inter-American Development Bank (IDB) – has also embarked on an overhaul of its business, helping to increase IDB Group’s mobilised private capital fivefold from 2019 to 2023 to $4.4 billion. There are various ways for multilateral lenders to pull in private sector cash. The most established one is parceling up parts of their own loans and selling them to private investors, freeing up money to lend again. These so-called B-loans have been around for more than six decades. But Nazmeera Moola, chief sustainability officer at asset management firm Ninety One, said that a raft of issues – including long lead times and returns that were sometimes unattractive – had diminished the appeal of these assets. Meanwhile, many large institutional investors, such as pension funds or insurance companies, think of direct investing through corporate or project finance lending in emerging markets as “scary stuff”, she added. Harmen van Wijnen, chair of the board of Dutch pension fund ABP, which has invested 1 billion euros in B-loan funds managed by development finance specialist ILX, said that taking the leap into unfamiliar risks – like project finance in emerging markets – would need to be mitigated by guarantees from multilateral lenders. Some MDBs are already providing guarantees or structures that help reduce the risks, for example by hedging the risk of a collapse in the local currency. At COP29, some banks have flagged new initiatives including a move by the United States to guarantee $1 billion of existing loans to governments by the Asian Development Bank so it can lend a further $4.5 billion to climate-friendly projects.The EBRD’s Renaud-Basso told Reuters it was also looking to guarantee sovereign lending to free up more money, without providing further details. Guarantees aside, the reluctance of some development banks to play the junior partner in project lending, amid pressure to land big deals and maximise their own returns, was leaving them in competition with private sector investors, according to half a dozen sources in the industry.Gianpiero Nacci, EBRD Director for Sustainable Business and Infrastructure, said that while MDBs were starting to change their culture and structures to make them more focused on attracting private sector investment, it was a “work in progress”.”We’re increasingly incentivising our banking teams to focus on mobilization,” he said, noting the EBRD is introducing internal targets beyond its own direct investment.   Given the scale of the climate challenge, some development experts are choosing to go it alone, among them Hubert Danso, chief executive of Africa Investor, a platform that connects private investors with green infrastructure projects on the continent.”We have an MDB market failure which is incapable of crowding in the private capital required,” he said.CULTURAL HURDLESIn an August document, the Organisation for Economic Cooperation and Development (OECD), which tracks the climate finance efforts of multilateral institutions, found lack of data was a “major obstacle” to raising private investment to the required levels.  The previously unpublished report, reviewed by Reuters, said a shortfall in transparent data was leading to private investors mispricing investment risk. “For efficiency of markets, data is critical,” said Haje Schutte, a deputy director at the OECD. “There is an ethical and fairness dimension to that: these public sector institutions have a role to beyond their institutional self-interests.”    Some development banks are worried about sharing their proprietary information and require the OECD to sign non-disclosure agreements, Schutte said. Alert to the criticism and following an investor consultation, MDBs have increased the credit risk data shared in a database called GEMs, originally designed to be used for information exchange between the banks themselves.Since March, some data on recovery rates for public as well as private lending has been made available and, in October, more historic data was offered. But some investors are demanding more granular risk information. Erich Cripton, a director at Canadian pension fund CDPQ Global, which has over $300 billion in assets under management, said investors have been pushing for MDBS to publish more data in the GEMS database.He said the released data reflected the MDBs preferred creditor status meaning that for a private investor, the risk was higher. For Nadia Nikolova, lead portfolio manager at Allianz (ETR:ALVG) Global Investor, who has raised over $3.5 billion in development finance and impact credit strategies, the lack of information hampers her ability to raise and invest capital in developing economies.  “Institutional investors have a fiduciary duty to invest money responsibly,” she said. “If I don’t have that information, I can’t price the risk.” Abdullahi Khalif, Somalia’s chief climate negotiator, acknowledged on the sidelines of the COP29 talks that investing there was riskier than in industrialized economies, but added those who did so had opportunities for good returns in areas including renewable energy and irrigation.”The only private sector that can come is a private sector that is really looking forward to taking the risk.” More

The PPE business is part of the company’s industrial automation segment and the deal is expected to close in the first half of 2025. The diversified industrial giant is facing a push from activist investor Elliott Investment to split its aerospace and automation businesses. More

Mexico’s economy exhibited growth in the third quarter of 2024, with the Gross Domestic Product (GDP) increasing by 1.1% compared to the previous quarter, according to seasonally adjusted figures. This rise marks a positive shift in the country’s economic activity, providing a comprehensive view of its short-term economic evolution.The expansion in GDP was seen across various sectors with seasonally adjusted figures. Primary activities, which include agriculture, forestry, fishing, and mining, showed the most significant increase with a 4.9% growth rate. Tertiary activities, which encompass the service sector, rose by 1.1%. Meanwhile, secondary activities, which cover manufacturing and industrial work, grew by 0.9%.On an annual basis, the GDP also saw an increase of 1.6% in real terms during the same quarter. The annual growth rates for the different sectors were as follows: primary activities advanced by 3.7%, tertiary activities by 2.1%, and secondary activities saw a modest increase of 0.4%.Furthermore, when considering the cumulative performance for the first nine months of 2024, Mexico’s GDP experienced a 1.5% rise when compared to the same period in the previous year, 2023. This data underscores a sustained trajectory of economic growth for the country within the year.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The growth in Latin America’s second-largest economy was mainly driven by the primary sector, which comprises activities such as farming, fishing and mining and expanded 4.9% in the quarter, according to the statistics agency.Secondary and tertiary activities, respectively covering manufacturing and services, grew 0.9% and 1.1% on a sequential basis.In annual terms, the economy expanded 1.6 percent compared to a year earlier. The reading was slower than the growth of 2.20% posted in the previous quarter, and marginally above the 1.5% projected in the Reuters poll.Mexico’s central bank, known as Banxico, lowered its key rate by 25 basis points to 10.25% last week in a unanimous decision, underscoring progress on bringing down core inflation and signaling future rate cuts were possible. More

TOKYO (Reuters) -The euro fell to a two-year low and sterling also tumbled after data on Friday showed major declines in business activity in both markets, while bitcoin hit a record high just shy of $100,000. The common currency dipped more than 1% at one point to its lowest level since November 2022, and was last down 0.6% on the day at $1.0413 after the data, which showed the bloc’s dominant services industry contracted and manufacturing had sunk deeper into recession. Markets also raised their expectations of European Central Bank rate cuts, and see a more than 50% chance of a larger-than-usual 50 basis points reduction in borrowing costs in December. The ECB’s deposit rate is currently 3.25%. “Today’s numbers were weak enough to shift the risks further to the downside,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.”The monetary policy reaction should be straightforward  – the ECB needs to ease faster to neutral as a first step,” he said. “Then of course, a lot will depend on U.S. policies and tariffs, but under the assumption of a modest additional shock to trade and sentiment, we believe that the ECB will need to cut rates below 2% in 2025.” The euro also fell against the Swiss franc and was last down 0.27% at 0.9264 francs. It weakened against sterling but then pared declines after soft British PMI data hurt the British currency. Versus the dollar, the pound was last down 0.62% at $1.2509 after British retail sales fell by much more than expected in October, and PMI data showed British business output had shrunk for the first time in more than a year. Further signs of slowing economic growth could cause the Bank of England to soften its monetary stance. STRONG DOLLARThe latest domestic data add to problems for European currencies that have been weakening against the dollar since Donald Trump’s victory in the U.S. presidential election on Nov. 5. The index that tracks the dollar against six main peers was up 0.5% at 107.6, its highest since November 2022. The index has appreciated sharply this month on expectations that President-elect Trump’s policies could reignite inflation and limit the Fed’s ability to cut rates, keeping other currencies under pressure.Trump floated the idea of appointing Kevin Warsh as Treasury Secretary on the understanding that he could later be Federal Reserve chairman, the Wall Street Journal reported on Thursday, citing people familiar with the matter.The Japanese yen was at 154.4 per dollar, flat on the day. The yen slid back below 156 per dollar last week for the first time since July, sparking the possibility that Japanese authorities may again take steps to shore it up.The yen received a short-lived boost from BOJ Governor Kazuo Ueda, who said on Thursday that the bank would “seriously” take into account the impact that yen moves could have on the economic and price outlook.Japan’s annual core inflation was 2.3% in October, keeping pressure on the central bank to raise its still-low interest rates.Just over half of economists in a Reuters poll believed the BOJ would hike in December, in part because of concerns about the depreciating yen.Eyes were also on bitcoin, which was at a record high, a whisker off $100,000. More

LONDON (Reuters) – British home price increases will outpace overall inflation and rental costs will rise even faster although affordability for first time homebuyers will improve, according to a Reuters Nov. 11-21 poll of 21 housing market experts.Higher rent adds to the struggle for buyers to save the deposit needed to secure a mortgage to get on the property ladder as it eats into their disposable income.The average value of a British home was expected to rise 3.1% next year and 4.0% in 2026, barely changed from predictions in a September poll. General inflation will average 2.3% and 2.1% in these two years, a separate Reuters survey showed.House prices rose at the fastest pace since February 2023 in the 12 months to September, figures from the Office for National Statistics showed on Wednesday.But urban rental costs were predicted to increase faster than prices, rising 4-5% next year and so squeezing the budgets of prospective purchasers.”The restriction in supply of rental properties is rising quickly and it is outpacing the shortage of supply in the housing market – and thus rents will outpace house prices axiomatically,” said Tony Williams at advisory firm Building Value.”The supply of rental properties, especially in urban areas is dropping sharply as owners fear greater tax on disposals.”In her maiden budget late last month, finance minister Rachel Reeves increased capital gains tax to 18% from 10%.However, British homebuilders, after battling subdued demand for most of 2024, have witnessed signs of an improvement in recent months, spurred by the Bank of England’s interest rate reductions and supportive policy measures introduced by the Labour government.Giving some respite to buyers needing to borrow to fund their purchase, the BoE cut interest rates earlier this month for a second time this year and is expected to reduce them by another 100 basis points or more by end-2025.That prompted 13 of 15 respondents to an additional question to say affordability would improve over the coming year.”More competitive mortgage rates, albeit not quite as low as some hoped, will help with affordability despite the forecast for modest price rises,” said Marcus Dixon at real estate advisers JLL.In London, seen as a good investment opportunity by foreign buyers, the average home price will rise 3.0% next year and 4.0% in 2026, according to the poll.(Other stories from the Q4 global Reuters housing poll) More

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LONDON (Reuters) -The new British government’s plan to increase taxes on businesses contributed to the first contraction in private sector activity in over a year, a survey showed, after signs the economy was losing momentum even before last month’s budget.The preliminary S&P Global Flash Composite Purchasing Managers’ Index, published on Friday, fell to 49.9 in November from 51.8 in October.”The first survey on the health of the economy after the budget makes for gloomy reading,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said.It is the first time the index has been below the 50.0 no-change level in 13 months.Williamson said the survey suggested the economy was contracting at a quarterly 0.1% pace, but the hit to confidence hinted at worse to come, including further job losses. Sterling fell to stand half a cent lower against the U.S. dollar on the day, with investors almost fully pricing in the Bank of England cutting interest rates to 4% by the end of 2025 from 4.75% now.”For policymakers, the key question now will be to assess whether the potential inflationary hit from higher taxes offsets the potential demand hit from weaker private demand,” Sanjay Raja, Deutsche Bank (ETR:DBKGn)’s chief UK economist, said.Some manufacturers worried about renewed trade tensions once Donald Trump becomes the next U.S president. Others hoped clarity after the vote would unblock investment decisions.The PMI also showed employers cut staffing levels for a second month in a row while the measure of overall new business was the weakest in a year.A weaker outlook for the global economy weighed on companies with the automotive sector in a slump. But the first moves of Britain’s Labour government were also a cause for concern.”Companies are giving a clear ‘thumbs down’ to the policies announced in the budget, especially the planned increase in employers’ National Insurance Contributions,” Williamson said.WEAKENING MOMENTUM Finance minister Rachel Reeves increased the annual burden of social security payments for employers by around 25 billion pounds ($31 billion) a year. Many businesses have said her Oct. 30 budget flies in the face of the government’s pledge to turn Britain into the fastest-growing Group of Seven economy.Momentum was already weak with Britain’s gross domestic product edging up by only 0.1% in the three months to the end of September, according to official data last week, and retail sales fell sharply in October as shoppers worried about the budget.Figures on Thursday showed government borrowing shot past private-sector economists’ forecasts last month, underscoring how reliant Reeves is likely to be on stronger economic growth to fund more spending on public services.However, a measure of consumer confidence published on Friday suggested individuals turned a bit more optimistic this month after they avoided the brunt of the tax increases.Friday’s PMI survey found firms were not replacing departing staff as they braced for April’s rise in payroll costs.Selling prices rose at the slowest rate since the coronavirus pandemic but high rates of growth in input prices and costs related to wages were hurting the service sector.That could worry some interest rate-setters at the Bank of England which is watching prices in the service sector closely.($1 = 0.7987 pounds) More