Economy

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Professor Sergei Guriev is dean of London Business School. He served as provost at Sciences Po, in Paris, and was chief economist at the European Bank for Reconstruction and DevelopmentIt is hard to be optimistic about the world these days. There are bloody wars in Ukraine and the Middle East without a clear end in sight. The planet is getting hotter every month, and our capacity to address the environmental crisis is in doubt. There are growing divisions between China and the west ­— and, within western societies, social media provide a platform for spreading disinformation and promoting polarisation. Populist politicians blame “corrupt elites” for their inability to manage cross-border migration, for higher prices, and for lower living standards, but do not offer credible solutions.All these problems are real, and daunting for those now beginning business and leadership careers. Global warming is likely to create hundreds of millions of climate refugees. Wars cost lives and destroy cities; they also affect the global economy. Russia’s invasion of Ukraine alone is likely to have shaved $1tn off global GDP (compare the IMF’s economic forecasts in January and April 2022). When populists come to power, a country’s economy slows and its democratic institutions deteriorate. Finally, inequality and polarisation undermine our ability to address these problems.Yet we should not forget that humankind has been through worse — and survived. As they say in financial markets, past performance is not a guarantee of future results. But research in the social sciences suggests reasons for optimism.First, we should not forget that we may suffer from negativity bias in reporting the news. The arrival of social media has probably aggravated this. The platforms’ business model is based on keeping users’ attention. This is easier with reports of disasters than news of incremental progress in fighting global poverty. Social media make the world more transparent. This helps to expose corruption, but also highlights every mistake of incumbent elites and reduces confidence in government and political institutions.There are many problems today, but we should be aware that our perceptions are worse than the reality. Despite multiple crises, the world has never been as prosperous, educated and progressive. Fifty years ago, more than 40 per cent of humankind lived in extreme poverty. Today, this share is 10 per cent — still too high but much improved. The climate crisis is real but the ingenuity of innovators and entrepreneurs has already lowered clean energy generation costs to the level where about 96 per cent of newly installed, utility-scale solar and onshore wind power plants have lower generation costs than new coal and natural gas plants. According to the International Energy Agency, renewables represent 33 per cent of the global power mix — up from 22 per cent 10 years ago. Next year, renewables will overtake coal as the largest source of electric power generation in the world.Masters in Management Ranking 2024Read the ranking and report.Second, while populist politicians correctly point out that globalisation, automation and the global financial crisis left behind many lower-middle-class voters in developed countries, economic problems have economic solutions. Post-crisis austerity policies aggravated the economic situation of the most vulnerable parts of society. Among other things, there is evidence suggesting that austerity policies contributed to Brexit. But this lesson has been learnt and, during Covid, most governments around the world were more generous, thus avoiding fanning the flames of populism.The other important way to bridge intra-societal divisions is deliberative democracy. Recently, democratic countries including Ireland, Canada, the UK and France have used various forms of citizens’ assemblies to address difficult and potentially polarising issues — from environmental transition to pension reforms to abortions and gay marriage.Deliberative democracy randomly picks one or several hundred ordinary citizens and asks them to reflect on a given issue. These “mini-publics” talk to experts and politicians and propose solutions. These policies are formulated not by “detached elites” but by “normal people”, thereby giving them immunity to populists’ polarising narratives.Finally, we should recognise that not all democratic electoral systems are born equal. In the recent UK general election, the Labour party won 34 per cent of the vote and got 63 per cent of the seats. In the French parliamentary election, Marine Le Pen’s National Rally came first, with 37 per cent of the vote, but got only 25 per cent of the seats.Two-party systems, like that of the US, may further promote polarisation as it is hard to create a centrist third party. An alternative is ranked-choice voting, by which voters rank candidates. Those who are hated less than others (ie those who are ranked second by the majority rather than first by a minority or last by a majority) win. This voting system is thus more likely to benefit centrist candidates who propose compromise policies. This sounds like a theoretical abstraction (and can be further improved) but has been increasingly used in parts of the US.The world is indeed in trouble, but there is hope. Humankind is still in favour of democracy. In 2024, half of the world’s population went to the polls; most of these elections turned out better for pro-democratic candidates than many feared. And even non-democratic leaders largely choose to pretend to be democrats, which shows they are aware that voters prefer choice and accountability.    More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

Egypt in March signed an $8 billion financial support package with the International Monetary Fund that is helping it to control inflationary monetary policy – but which requires it to increase many domestic prices.The government as a result has raised the price of many subsidised products to battle a budget deficit that hit 505 billion Egyptian pounds ($10.3 billion) in the fiscal year that ended on June 30.According to the forecasts of 19 analysts, annual urban consumer inflation slowed to a median of 25.1% in August from 25.7% in July.”We expect urban inflation to decelerate to 24.9% y-o-y for August on a favourable base effect. However, we anticipate a 1.0% m-o-m increase on the recent energy and transportation cost hikes at the beginning of August,” said Heba Mounir of HC Securities.Naeem Holding, which forecast annual headline inflation of 24.8%, predicted an increase of 1.24% month on month from July. This was due to higher summer produce prices, fuel hikes of 10-15% near the end of July, a 25-33% jump in metro tickets at the beginning of August and a 21-31% increase in electricity tariffs, partly in August. Inflation has fallen gradually from September’s record high of 38.0%, turning Egypt’s benchmark real interest rates positive in July for the first time since January 2022.A median of five of the analysts predicted that core inflation, which strips out volatile items such as fuel and some types of food, would decline to 23.9% from 24.4% in July.The state statistics agency CAPMAS is due to release August inflation data on Tuesday. More

NEW YORK (Reuters) -Uncertainty over the U.S. economy’s health is rippling through markets, adding fuel to an already-volatile period that has investors grappling with a shift in Federal Reserve policy, a tight U.S. election and worries over stretched valuations.U.S. stocks tumbled on Friday after closely watched jobs data showed labor market momentum slowing more than expected, suggesting a narrower path for the U.S. to achieve a soft landing, in which the Fed is able to cool inflation without badly damaging economic growth.The Fed is expected to cut interest rates at its Sept. 17-18 meeting, but the data revived fears that months of elevated borrowing costs have already started to pressure the economy. That is a potentially unwelcome development for investors, after prospects for rate cuts against a background of resilient growth helped drive the S&P 500 to record highs this year.”The data shows that we remain on the soft-landing path, but clearly there’s more downside risks to which the markets are going to be sensitive,” said Angelo Kourkafas, senior investment strategist at Edward Jones. “The expectation for elevated volatility is a realistic one.”Evidence of ebbing risk appetite showed up across markets. The S&P 500 dropped 1.7% on Friday and has lost nearly 4.3% in the past week, its worst weekly decline since March 2023. Nvidia (NASDAQ:NVDA), the poster child of this year’s artificial intelligence excitement, was down over 4% and stood near its lowest level in about a month, falling along with other high-flying technology names. Meanwhile, the Cboe Market Volatility index, also called Wall Street’s “fear gauge,” hit its highest level in nearly a month on Friday.”There’s concern that the Fed is not going to be reacting quick enough or more forcefully enough to help prevent something more sinister,” said Keith Lerner, co-chief investment officer, Truist Advisory Services.Several factors threaten to compound the market’s uncertainty. Futures bets on Friday showed investors pricing in a nearly 70% chance of a 25 basis point reduction by the Fed, and 30% chance of a 50 bp cut. For many, however, the issue remains far from settled.”Markets have had to grapple with – just as the Fed is doing – whether the August payroll data reflects a labor market normalizing towards pre-COVID levels or whether it’s indicative of an economy losing dangerous momentum,” Quincy Krosby, chief global strategist for LPL Financial (NASDAQ:LPLA), said in written commentary. Others took a dimmer view. Citi analysts said the report warranted a 50 basis point cut later this month.”The takeaway from the range of labor market data is clear – the job market is cooling in a classic pattern that precedes recession,” analysts at Citi wrote.Inflation data next week could shed further light on the strength of the economy and help solidify bets on how much the Fed might cut rates.Valuation concerns are also reemerging. The S&P 500, which is up over 13% this year, is trading at a price-to-earnings ratio of nearly 21 times expected forward 12-month earnings estimates as of Thursday, well above its historical average of 15.7, according to LSEG Datastream.Despite a recent swoon, the S&P 500 technology sector – by far the biggest group in the index – is trading at over 28 times expected earnings, compared to its long-term average of 21.2.”We’ve come a long way in a relatively short period of time and I think you’re starting to see some businesses do the math on AI and ask whether it’s really worth the cost, which will weigh on the big tech stocks,” said Mark Travis, a portfolio manager at Intrepid Capital Management.Investors are also closely watching a tight U.S. presidential election which is starting to head into the home stretch. The race between Democrat Kamala Harris and Republican Donald Trump could draw more investor focus on Tuesday, when the two candidates debate for the first time ahead of the Nov. 5 vote.So far, the market gyrations have bolstered September’s reputation as a tough time for investors. The S&P 500 has fallen an average of nearly 0.8% in September since 1945, making it the worst month for stocks, CFRA data showed. The index is already down 4% since the month began.”Investors are saying let’s hope we can have a soft landing,” said Burns McKinney, senior portfolio manager at NFJ Investment Group. “It still feels like it’s fairly likely, but with each weaker jobs number it’s becoming less and less the base case.” More

France could see its budget deficit spiral unexpectedly higher this year and next if extra savings are not found, the finance ministry said in a letter to lawmakers earlier this month, as the euro zone’s second-biggest economy lurches deeper into political crisis.The deteriorating finances have put Paris into EU disciplinary proceedings and left incoming Prime Minister Michel Barnier facing tough questions as he looks to form a new government and prepare a budget by Oct. 1 with the threat of a parliamentary vote of no-confidence hanging over him.”France has asked for such an extension,” the finance ministry was quoted as saying in La Tribune, without specifying how long it had asked for.This was to “ensure the coherence of the plan and the 2025 draft budget,” the ministry said.Neither the ministry not the commission were immediately available for comment.The Sept. 20 deadline is not set in stone and could be extended until as late as Oct. 15 by agreement. The financial shortfall means Barnier’s new government could face tough choices between cutting spending and hiking taxes or losing credibility with France’s EU partners and financial markets.Macron named 73-year-old Barnier, a conservative and the former Brexit negotiator for the European Union, as prime minister on Thursday, capping a two-month search following his decision to call a legislative election that eventually delivered a hung parliament.Barnier said on Saturday that he would not be able to perform miracles and wanted to put order back into France’s finances.He continued consultations on Sunday as he looks to form a government, a tricky job given he faces a potential no-confidence vote. The leftist New Popular Front (NFP) alliance, the largest bloc in parliament, and the far-right National Rally (RN) together have a majority and could oust the prime minister through a no-confidence vote should they decide to collaborate.The RN gave its tacit approval for Barnier, citing a number of conditions for it to not back a no-confidence vote, making it the de facto kingmaker for the new government.Speaking on Sunday, its leader Marine Le Pen said her party wanted to see Barnier implement measures that would respect the 11 million people who had voted for it. “If in the coming weeks the French are forgotten or badly treated we won’t hesitate to vote against the government,” she said at a public meeting in northern France. More

In a document on the official website of China’s commerce ministry, it said the new policy was a pilot project designed to implement a pledge the ruling Communist Party’s Central Committee led by Xi Jinping made at its July plenum meeting held roughly every five years.”In order to…introduce foreign investment to promote the high-quality development of China’s medical-related fields, and better meet the medical and health needs of the people, it is planned to carry out pilot work of expanding opening-up in the medical field,” according to the document.The project will allow the establishment of such hospitals in Beijing, Tianjin, Shanghai, Nanjing, Suzhou, Fuzhou, Guangzhou, Shenzhen and Hainan – all relatively wealthy cities or provinces in eastern or southern China.The new policy excludes hospitals practicing traditional Chinese medicine and “mergers and acquisitions of public hospitals”, the document read, adding that the specific conditions, requirements and procedures for setting up such foreign-owned hospitals would be detailed soon.The policy also allows companies with foreign investors to engage in the development and application of gene and human stem cell technologies for treatment and diagnosis in the pilot free-trade zones of Beijing, Shanghai, Guangdong, and Hainan.This includes registration, marketing and production of products that can be bought nationwide, according to the document.The removal of restrictions on foreign investment in these fields comes as the world’s second largest-economy faces growing headwinds with flagging foreign business sentiment one of the issues threatening growth. More

Saudi Minister of Investment Khalid al-Falih pushed back against skepticism over the country’s economic diversification plan.
Al-Falih said that part of Riyadh’s offering to foreign investors is the Saudi-coined initiative of “green shoring,” which seeks to decarbonize supply chains in areas with renewable energy resources.
“Green shoring is basically saying you need to do more of the high energy processing [and] manufacturing value add in areas where the materials, as well as the energy, are [located],” al-Falih said.

Khalid Al-Falih, Saudi Arabia’s investment minister, during the Bloomberg New Economy Forum in Singapore, on Wednesday, Nov. 8, 2023. 
Bloomberg | Bloomberg | Getty Images

Saudi Minister of Investment Khalid al-Falih pushed back against skepticism over the country’s economic diversification plan, as Riyadh touts “green shoring” investment opportunities to woo foreign financing.
“There was many people who doubted the vision, the ambition, how broad and deep and comprehensive it is, and whether the development of a country like KSA who is so dependent for so many decades on a commodity business like oil would be able to do what we are aspiring to do with Vision 2030,” al-Falih told CNBC’s Steve Sedgwick on Saturday at the Ambrosetti Forum in Cernobbio, Italy.

One of the largest economies in the Middle East and a key U.S. ally in the region, Saudi Arabia has been shoring up investments in a bid to materialize Crown Prince Mohammed bin Salman’s Vision 2030 economic diversification program, which spans 14 giga-projects, including the Neom industrial complex.
Under this initiative, Riyadh seeks to pivot away from its historical dependence on oil revenues — which the International Monetary Fund now sees rising until 2026, before starting to descend — and hopes to draw financial flows in the domestic economy exceeding $3 trillion, as well as push foreign domestic investment to $100 billion a year by 2030.
The Saudi minister on Saturday said that, eight years into manifesting Vision 2030, the kingdom is now “more committed, more determined” to the program and has already implemented or is about to complete 87% of its targets. Critics of the plan have previously questioned whether Riyadh will successfully deliver on its goals by its stated deadline.
In recent years, the kingdom has been attempting to liberalize its market and improve its business environment with reforms to its investment and labor laws — but has also formulated less popular requirements for companies to set up their regional headquarters in Saudi Arabia to access government contracts.
The number of foreign investment licenses issued in Saudi Arabia nearly doubled in 2023, the IMF noted, with government data pointing to a 5.6% annual increase in net flows of foreign direct investment in the first quarter.

Concerns have nevertheless lingered over the potential uncertainty and unpredictability of the kingdom’s legal framework and its dispute resolution system for foreign investment. Al-Falih insisted that Saudi Arabia boasts predictability, as well as domestic political and economic stability.

‘Green shoring’

The Saudi investment minister said that part of Riyadh’s offering to foreign investors is the Saudi-coined initiative of “green shoring,” which seeks to decarbonize supply chains in areas with renewable energy resources.
“Green shoring is basically saying you need to do more of the high energy processing [and] manufacturing value add in areas where the materials, as well as the energy, are [located],” al-Falih said, adding that Saudi Arabia has the logistics, capital and infrastructure to achieve this.
Under Vision 2030, the world’s largest oil exporter aims to achieve net-zero emissions by 2060. Along with its neighbor, the United Arab Emirates — which hosted the 2023 gathering of the annual U.N. Conference of the Parties — Riyadh has been a high-profile presence at climate summits, but has still drawn questions over its commitment to decarbonization.
Riyadh — along with other members of the Organization of the Petroleum Exporting Countries oil alliance — has repeatedly called for the simultaneous use of hydrocarbons and green resources in order to avoid energy shortages throughout the global transition to net-zero emissions.
Some climate activists have also criticized Saudi Arabia’s promotion of solutions like carbon capture and storage (CCS) technologies as a smokescreen to push ahead with its lucrative oil business.
As part of “green shoring,” Saudi Arabia sets out to “address global supply chain resilience issues” and “build a new global economy that is certainly moving more electric, as we bring the copper, as we bring the lithium, the cobalt, the other critical materials, rare earth metals, as we address semiconductor shortages, green fertilizers, green chemicals,” al-Falih stressed. More