Economy

BERLIN (Reuters) – Chancellor Olaf Scholz asked Germany’s parliament on Monday to declare it has no confidence in him, taking the first formal step towards securing an early national election following his government’s collapse.The neoliberal Free Democrats’ departure from Scholz’s three-way coalition over their refusal to take on more debt has left Scholz’s Social Democrats and the Greens governing without a parliamentary majority just when Germany faces its deepest economic crisis in a generation.Addressing parliament, Scholz framed the snap election as an opportunity for voters to set a new course for Germany, casting it as a choice between a future of higher investment and one of cuts that he said the conservatives were promising.Scholz, who served as finance minister for four years in a previous coalition with the conservatives before becoming head of a new government in 2021, accused other parties of wanting to block the investments Germany needed.”Shortsightedness might save money in the short term, but the mortage on our future is unaffordable,” he told lawmakers.Scholz remains as caretaker leader until a new government can be formed after the planned Feb. 23 election, and already the campaign is turning to arguments over which urgent measures he should pass with opposition backing before then.Rules drawn up to prevent the series of short-lived and unstable governments that played an important role in helping the Nazis rise to power in the 1930s means that the path to new elections is long and largely controlled by the chancellor.After Scholz loses the vote, he can request a dissolution of parliament from President Frank-Walter Steinmeier, who has already endorsed his timetable.Scholz has outlined a list of urgent measures that could pass with opposition support before the election, including 11 billion euros ($11.55 billion) of tax cuts and an increase in child benefits already agreed on by former coalition partners.Measures to tackle fiscal drag – the tendency of inflation to shift taxpayers into higher tax brackets – and high energy prices look less certain.ARGUMENTS”We’re only going to discuss proposals that must urgently be dealt with,” said senior conservative legislator Thorsten Frei. The conservatives, far ahead in the polls under their leader Friedrich Merz, have hinted they could back measures to better protect the Constitutional Court from the machinations of a future populist or anti-democratic government and to extend a popular subsidised transport ticket.”Important decisions need to be made that are being blocked by the opposition,” SPD co-chair Saskia Esken told the Augsburger Allgemeine newspaper. “We’re still waiting on energy price cuts. Friedrich Merz should move on this.” The outcome of Monday’s vote is not entirely certain. Scholz’s SPD is likely to signal it still has confidence in the chancellor, while opposition conservatives and the Free Democrats are expected not to.The far-right Alternative for Germany, with whom all other parties refuse to work, could surprise legislators by voting that they do have confidence in Scholz.If both the SPD and the Greens also back Scholz, that would leave him in the awkward position of remaining in office with the support of a party that he rejects as anti-democratic. In that case, most observers expect he would resign, which itself would trigger an election.To prevent that scenario, many legislators expect the Greens to abstain.($1 = 0.9522 euros) More

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KARACHI (Reuters) – Pakistan’s central bank cut its key policy rate by 200 basis points to 13% on Monday, it said in a statement, its fifth straight reduction since June as the country keeps up efforts to revive a sluggish economy with inflation easing.Pakistan’s latest move makes this year’s cuts the most aggressive among emerging market central banks in the current easing cycle, barring outliers such as Argentina.”Overall, the Committee assessed that its approach of measured policy rate cuts is keeping inflationary and external account pressures in check, while supporting economic growth on a sustainable basis,” the bank’s monetary policy committee said in a statement announcing its decision.The bank noted that it expected inflation to average “substantially below” its earlier forecast range of 11.5% to 13.5% in 2025. It added that the inflation outlook was susceptible to risks, including measures to meet government revenue shortfalls as well as food inflation and increased global commodity prices. “Inflation may remain volatile in the near term before stabilizing in the target range,” the bank said. The South Asian country is navigating a challenging economic recovery path and has been buttressed by a $7 billion facility from the International Monetary Fund (IMF) in September.The bank noted that “considerable efforts and additional measures” would be required for Pakistan to meet its annual revenue target, a key focus of the IMF agreement.All 12 analysts surveyed by Reuters had expected a 200 bps cut, after inflation fell sharply, slowing to 4.9% in November, largely due to a high base a year earlier, coming in below the government’s forecast and significantly lower than a multi-decade high of around 40% in May last year.Monday’s move follows cuts of 150 bps in June, 100 in July, 200 in September, and a record cut of 250 bps in November, that have taken the rate down from an all-time high of 22%, set in June 2023 and left unchanged for a year. It takes the total cuts to 900 bps since June. More

Over the weekend, Iran’s currency, the rial, hit a record low of 756,000 to the dollar.
Since September, the embattled currency has suffered the ripple effects of devastating hits to Iran’s proxies.
With the fall of Syrian President Bashar al-Assad amid a shock offensive by rebel groups, Tehran lost its most important ally in the Middle East.

A briefcase filled with Iranian rial banknotes sits on display at a currency exchange market on Ferdowsi street in Tehran, Iran, on Saturday, Jan. 6, 2018.
Ali Mohammadi | Bloomberg | Getty Images

Iran is confronting its worst set of crises in years, facing a spiraling economy along with a series of unprecedented geopolitical and military blows to its power in the Middle East.
Over the weekend, Iran’s currency, the rial, hit a record low of 756,000 to the dollar, according to Reuters. Since September, the embattled currency has suffered the ripple effects of devastating hits to Iran’s proxies, including Lebanon’s Hezbollah and Palestinian militant group Hamas, as well as the November election of Donald Trump to the U.S. presidency.

With the fall of Syrian President Bashar al-Assad amid a shock offensive by rebel groups, Tehran lost its most important ally in the Middle East. Assad, who is accused of war crimes against his own people, fled to Russia and left a highly fractured country behind him.
“The fall of Assad has existential implications for the Islamic Republic,” Behnam ben Taleblu, a senior fellow at the Foundation for Defense of Democracies in Washington, told CNBC. “Lest we forget, the regime ahs spent well over a decade in treasure, blood, and reputation to save a regime which ultimately folded in less than two weeks.”
The currency’s fall exposes the extent of the hardship faced by ordinary Iranians, who struggle to afford everyday goods and suffer high inflation and unemployment after years of heavy Western sanctions compounded by domestic corruption and economic mismanagement.
Trump has pledged to take a hard line on Iran and will be re-entering the White House roughly six years after unilaterally pulling the U.S. out of the Iranian nuclear deal and re-imposing sweeping sanctions on the country.
Iranian President Masoud Pezeshkian has expressed his government’s willingness to negotiate and revive the deal, officially known as the Joint Comprehensive Plan of Action, which lifted some sanctions on Iran in exchange for curbs to its nuclear program. But the attempted outreach comes at a time when the International Atomic Energy Agency says Tehran is enriching uranium at record levels, reaching 60% purity — a short technical step from the weapons-grade purity level of 90%. More

This unexpected downgrade follows the credit rating agency’s decision to change France’s outlook to negative during the last official review on October 25.The revision is not anticipated to significantly affect the markets. In fact, it might have a modestly positive impact on France’s shorter and medium-term bonds. The stable outlook attached to the new Aa3 rating suggests that Moody’s does not foresee a further downgrade in the upcoming 12 months, which could reassure investors who have been concerned about France’s creditworthiness.Despite this downgrade, French government bond risk premiums have stayed high in recent weeks, contrasting with the tightening premiums of most other Eurozone countries. Yield comparisons indicate that French short-term bond yields are roughly equivalent to those of Spain, which holds a Baa1/A rating. For bonds with maturities between 5 to 10 years, French yields are comparable to those of Greek bonds, rated at Ba1/BBB-.The outlook for France as an issuer remains deteriorating, with expectations set for further downgrades. It is projected that either Standard & Poor’s, currently rating France at AA- with a stable outlook, or Fitch, rating it at AA- with a negative outlook, will be the first to lower France’s rating to A+ within the next year. Bond valuations appear to reflect this anticipated trajectory, with 1 to 4-year French bonds offering value when compared to peers with similar ratings. However, long-dated French bonds are advised against, as they are expected to be more affected by negative political and economic developments.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Lula’s remarks came after the central bank voted unanimously earlier this month to accelerate its monetary tightening pace with a 100-basis-point hike, bringing interest rates to 12.25%, and signaled matching moves for the next two meetings.”The only thing wrong in this country is the interest rate being above 12%. There is no explanation,” Lula told TV Globo late on Sunday after being discharged from hospital following emergency surgeries to treat and prevent bleeding in his head.”Inflation is around 4%, fully controlled,” the leftist leader added. “The irresponsible ones are those who are hiking interest rates, not the federal government. But we will take care of that.”Brazil’s currency has recently hit record lows, driven by market concerns over its fiscal outlook after the Lula administration unveiled a spending control package that fell short of expectations to address rising public debt.Lula defended the measures, which are now awaiting Congress approval.”We did what was possible and sent it to Congress,” he said. “There is no one as fiscally responsible as me in this country. If I do not control spending, if I spend more than what I have, the poorest will pay for it.”The central bank’s hawkish move this month cited the market’s negative reception of the fiscal package as a factor worsening inflation dynamics, as inflation expectations drift away from the regulator’s 3% target.Brazil’s 12-month inflation ended November at 4.87%, above the upper end of the bank’s 1.5% to 4.5% target range, while policymakers have vowed to bring inflation back to 3%.Lula has been a vocal critic of high interest rates and slammed central bank governor Roberto Campos Neto, an appointee of former right-wing President Jair Bolsonaro, multiple times since taking office for a third non-consecutive term in 2023.Campos Neto’s term ends this month and he will be replaced by Lula-nominated Gabriel Galipolo. Next (LON:NXT) year Lula appointees will hold a 7-2 majority on the bank’s nine-member rate-setting committee, up from the current 4-5 minority. More

WASHINGTON (Reuters) – Dreanda Cordero reentered the job market this year after a five-year break to raise three children, landing a data entry position she was not thrilled about that required on-site work she had trouble juggling and coincided with health troubles of her own and one of her kids.She quit after two months. But her next step demonstrated why some Federal Reserve officials see the U.S. job market as not only healthy but perhaps contributing to rising productivity they are coming to believe may persist: Within a week the 33-year-old human resources professional accepted a job as a recruiter with a pool equipment operator that allowed her to work from home in Pennsylvania in her area of expertise – a sweet spot, she feels, for high performance.”This job allows me a little more flexibility to take care of myself and my kids,” she said. “I have the ability to learn, and I have that challenge – that’s why it’s a better fit. They push you, and there is more potential for growth.”When Fed policymakers gather this week for their last meeting of the year, the focus will be on an expected quarter-percentage-point interest rate cut and policymakers’ updated outlooks for the economy and rate cuts.But influencing those discussions and the longer-term arc of monetary policy is an emerging debate about productivity and how fast output can grow without stretching the economy’s capacity and generating inflation above the Fed’s 2% target.Notoriously volatile in the short-term yet anchored to seemingly stable long-term trends, the annual growth rate in U.S. worker output per hour since 2019 has climbed to an average of about 1.8% from roughly 1.5% in the prior decade – and recently has run even higher.Even such small improvements become significant if compounded over time, and the boost has occurred early in the spread of artificial intelligence tools that could be poised to add to it.The implications could be profound, influencing everything from the trajectory of federal debt to the impact of coming Trump administration policies. Labor shortages that follow an immigration crackdown, for example, could be more easily absorbed in an environment of rising productivity, something Vice President-elect JD Vance seemed to envision in a New York Times (NYSE:NYT) interview last summer when he spoke of McDonald’s (NYSE:MCD) workers being displaced by kiosks and moving on to better-paying jobs.’SOMETHING IS HAPPENING’The improvement has shown enough persistence that one U.S. productivity model recently began to flip from a near 100% certainty the U.S. was locked in a “low-growth” regime to a likelihood of less than 60%.”It’s still to early to say whether there’s a genuine shift, but it definitely looks more possible,” said James Kahn, an economics professor at Yeshiva University in New York and a former New York Fed vice president for research.”There are some reasons for cautious optimism,” John Fernald, an economics professor at INSEAD in France, wrote in a recent note published by the San Francisco Fed, where he once worked as an economist. It was a limited but important acknowledgement from one of the Fed’s more influential voices on productivity and a skeptic that the numbers would move beyond the long-run trend.That possibility, however, is being taken more seriously among Fed officials, and could influence policymakers’ thinking about the economy’s potential. Fed estimates of the sustainable long-term rate of growth for the U.S. had been steadily downgraded in the years before the COVID-19 pandemic, in part because of lagging productivity.But economic growth has regularly exceeded the Fed’s own estimates of potential, and over the past two years that has continued even as inflation has eased. Productivity has played a role, and if recent trends continue it may require a rethink about the economy’s direction and the underlying inflation associated with any pace of growth. It could also lead to higher estimates of the long-run “neutral” interest rate that U.S. markets can sustain.According to the minutes of the Fed’s Nov. 6-7 meeting, that reevaluation is underway, with staff upgrading internal estimates of the economy’s potential, and policymakers debating whether the recent trends will stick.”I can’t tell you how difficult it is to move productivity over its long-term trend,” Fed Governor Lisa Cook said last month.Cook, whose economic research has focused on innovation, said the shift higher in recent years is both statistically and economically significant.”Something is happening,” she said.’HUGELY IMPORTANT’Like other Fed officials, Cook cited several possible causes: The more efficient job matching that allowed Cordero to find a better use of her skills; sustained high levels of business formation that took off during the pandemic; and AI investments that may be poised to keep the trend going.”We have to start taking seriously the idea that this thing is continuing,” and sort out the policy implications, Chicago Fed President Austan Goolsbee said earlier this month.”There are business people who say … it’s been so hard for them to hire. They’ve put in machines. They’ve done labor-saving technologies precisely because they couldn’t find people,” Goolsbee said. “I do think on the ground, there’s some evidence.”Productivity is a magic bullet of sorts in economics, not quite a free lunch given the investment and innovation needed to increase, but something that lets workers produce more with less time or fewer resources, and as a result allows wages and profits to rise without stoking inflation. Improved productivity has been one of the things keeping unit labor costs under control and in line with the Fed’s inflation target even as wage growth has stayed above what policymakers see as non-inflationary.It is one reason the Fed has felt comfortable continuing to reduce rates even as economic growth has remained above trend and the unemployment rate reasonably low.The question now is whether and how long it can continue.Earlier this month Fed Governor Adriana Kugler said recent strong productivity had been “hugely important” for the economy and the central bank, but cautioned that coming changes to global tariff and trade policies could put that at risk.”The incoming administration and Congress have not enacted any policies yet, so it is too early to make judgments,” Kugler said. But “studying the specifics, when they come out, will be important, as trade policy may affect productivity and prices.” More

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