Monday, November 11, 2019

BBC News - Spain votes as economy wobbles

Pedro SanchezImage copyrightEPA
Image captionActing Prime Minister Pedro Sanchez has called Spain's fourth election in four years
Voters are going to the polls in Spain on Sunday, in an election overshadowed by the crisis in Catalonia and the rise of the right-wing Vox party.
But Spain is now also facing an uncertain economic outlook, with slowing growth and unemployment that is the second-highest in the EU, despite having come down from earlier highs.
Although Spain did bounce back quite well from the global financial crisis, it took a while to get started. The economy either contracted or just about failed to grow for five consecutive years, starting from 2009.
Once the recovery did get under way, however, Spain managed several years of growth in the range of 2.5% to 3%. Not stellar, but perfectly respectable.
Unemployment has come down a long way from its peak, which was more than 26% for the adult population and almost 56% among young people.
The figures are still high. On both those measures, it is the second-worst in the EU after Greece. Still, the progress is very apparent.
Now, however, the outlook is somewhat cloudier. For next year, the International Monetary Fund forecasts growth of less than 2% for the first time since 2014.

Regional tensions

The political situation in Catalonia is a factor, as tensions continue between local separatists and the central government in Madrid.
The region accounts for 19% of the Spanish economy. It is the largest regional economy in the country (though only just ahead of Madrid).
After growing more quickly than the national average in 2016 and 2017, Catalonia slipped behind last year and probably will this year too, according to forecasts from economists at the bank BBVA.
Spain has also been affected by the global economic slowdown.
True, it is not as exposed as Germany, which as a big exporter of machinery and vehicles is especially vulnerable to the disruption of international trade that has followed from the more confrontational approach taken by US President Donald Trump's administration.
But tourism has been affected by weaker demand from European visitors, while some Spanish regions, particularly in the north of the country, have seen export performance weaken.
That said, Spain does not appear to be in imminent danger of suffering a recession, though the gloomier outlook does raise the spectre of the crisis.
Economy Minister Nadia Calviño said in a BBC interview that the pattern of growth now is more sustainable than in the past.
The crisis followed a boom in the construction industry and a surge in lending by banks, which were subsequently bailed out with the help of a eurozone loan.
Ms Calviño said construction now accounts for a much smaller share of employment than it did then and families and companies have "deleveraged": that is, they have lower debts.
However, the government's debt has more than doubled since before the crisis and a sharp economic slowdown would almost certainly force it to borrow more.

Friday, November 8, 2019

Reuters News - China, U.S. agree tariff rollback if phase one trade deal is completed

WASHINGTON/BEIJING (Reuters) - China and the United States have agreed to roll back tariffs on each others’ goods in a “phase one” trade deal if it is completed, officials from both sides said on Thursday, sparking division among some advisers to President Donald Trump.
The Chinese Commerce Ministry, without laying out a timetable, said the two countries had agreed to cancel the tariffs in phases.
A U.S. official, speaking on condition of anonymity, confirmed the rollback would be part of the first phase of a trade agreement that is still being put to paper for Trump and President Xi Jinping to sign.
White House spokeswoman Stephanie Grisham told Fox News Channel the United States is “very, very optimistic” about completing a deal that would defuse a 16-month trade war between the world’s two largest economies.
“I cannot get ahead of the talks with China, but we are very, very optimistic that we will reach a deal soon,” she said.
White House trade adviser Peter Navarro, however, said in an interview with Fox Business Network: “There is no agreement at this time to remove any of the existing tariffs as a condition of the phase one deal.”
“They’re just negotiating in public, trying to push this in a direction,” Navarro said of reports he said were put out by “Chinese propaganda press.”
Experts warn the pact could still fall apart. U.S. officials said a lot of work remained to be done when Trump announced the outlines of an interim deal last month.
Trump has used tariffs on billions of dollars of Chinese goods as his primary weapon in the protracted trade war. The prospect of lifting them, even in phases, has drawn fierce opposition from advisers in and outside of the White House who remain wary of giving up a key aspect of U.S. leverage.
U.S. stocks pared gains after Reuters reported that the plan faced internal opposition.
“There is no specific agreement for a phased rollback of the tariffs,” said Michael Pillsbury, an outside adviser to Trump.
“The American side has been ambiguous when and which tariffs will be lifted. The Chinese have some wishful thinking and are trying to soothe their domestic hardliners that the tariffs will someday come off.”
If an interim deal is finished and signed, it is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cell phones, laptop computers and toys.
Tariff cancellation was an important condition for any agreement, Chinese Commerce Ministry spokesman Gao Feng said, adding that both must simultaneously cancel some tariffs on each other’s goods to reach the phase one pact.
“Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations,” Gao told a regular briefing.
A spokesman for the U.S. Treasury department declined to comment and the U.S. Trade Representative’s office did not immediately respond to a request for comment.
Republican lawmakers are urging the Trump administration to tie any tariff rollbacks to Beijing’s compliance with specific elements of the agreement.
“The tariffs should be phased out piece by piece as China complies,” one congressional source said.
In what could be another gesture to boost optimism, China’s state news agency Xinhua reported late on Thursday that the Chinese customs and Ministry of Agriculture are considering removing restrictions on U.S. poultry imports.
China has banned all U.S. poultry and eggs since January 2015 due to an avian influenza outbreak.
The optimism over a phase one trade deal boosted stocks globally; bond yields shuffled higher.
A source previously told Reuters that Chinese negotiators wanted the United States to drop 15% tariffs on about $125 billion worth of Chinese goods that took effect on Sept. 1.
They also sought relief from earlier 25% tariffs on about $250 billion of imports, ranging from machinery and semiconductors to furniture.
A person familiar with China’s negotiating position said it was pressing Washington to “remove all tariffs as soon as possible”.
A deal may be signed before the end of the year by Trump and Xi at a yet-to-be determined location.
Dozens of venues have been suggested for a meeting, which had originally been set to take place on the sidelines of a now-cancelled mid-November summit of Asia-Pacific leaders in Chile, a senior Trump administration official told Reuters on Wednesday.
One possible location was London, where the leaders could meet after a NATO summit that Trump is due to attend on Dec. 3-4, the official said.
Gao declined to say when and where such a meeting could be held.
Since Trump took office in 2017, his administration has been pressing China to curb massive subsidies to state-owned firms and end the forced transfer of American technology to Chinese firms as a price of doing business in China.
The president’s tough stance on China has earned him praise from his political base, and he may be reluctant to appear conciliatory on the issue going into his 2020 re-election campaign. But Trump has also sought to portray stock market gains as a reflection of his stewardship of the economy, and the market has reacted positively to any hints of an end to the two countries’ trade dispute.
Reporting by Yawen Chen, Martin Pollard and Jeff Mason; additional reporting by David Lawder, Andrea Shalal, and Heather Timmons; Writing by Ryan Woo and Jeff Mason; Editing by Simon Cameron-Moore, Daniel Wallis & Kim Coghill

Thursday, November 7, 2019

BBC News - Bank split on rates as it warns Brexit deal would hit growth

Trucks being checked at customsImage copyrightGETTY IMAGES
Image captionThe Bank says customs checks will hit trade flows following Brexit
The Bank of England has warned that the government's Brexit deal will drag down growth over the next three years as extra trade barriers raise costs.
It came as two Bank policymakers called for an immediate interest rate cut to support the economy.
Policymakers said weaker global growth and ongoing uncertainty over Brexit would continue to weigh on the UK economy.
The Bank said the new EU withdrawal agreement struck by Prime Minister Boris Johnson had reduced the likelihood of a no-deal Brexit.
The Monetary Policy Committee (MPC) that sets interest rates said this would end some of the uncertainty facing businesses and households.
However, policymakers added that the transition to a new trade deal would introduce new customs checks and regulatory barriers.
The MPC said its assumption of a Canada-style "deep free-trade agreement" between the UK and EU would "raise administrative costs for firms" doing business with the continent.

What's the outlook for growth?

The Bank's Monetary Policy Report said weaker global growth and its new assumptions about Brexit would knock 1% off UK growth over the next three years compared to its forecast in August.
Policymakers expect the UK economy to grow by 0.4% in the three months to September, double its estimate in August amid a recovery in the UK's dominant services sector.
However, growth in the final quarter of the year is expected to fall back to 0.2%.
Spending pledges by the government are also expected to boost growth in the coming years.
Policymakers said Brexit would continue to dominate the economic outlook and could permanently reduce long-term growth.
The Bank also cited research that showed the level of business investment was around 11% lower because of Brexit uncertainty.
Interest rate graphic

What else did the Bank say about Brexit?

For the first time, Bank policymakers changed their assumption about the UK's future trading relationship with the EU.
It now assumes the government will strike a free-trade agreement with Brussels that will keep goods tariffs at zero but introduce customs checks at the border.
Policymakers said: "As a result, trade flows are likely to fall and some companies might exit the market".
Diverging regulations would also hit a wide variety of sectors across the EU, from law to banking.
The Bank also suggested that trade deals with new partners would be years away, reflecting the fact that "it typically takes several years for new trade deals to be negotiated and implemented".

What's the outlook for interest rates?

Michael Saunders and Jonathan Haskell, two of the Bank's external rate-setters, voted to cut interest rates to 0.5%, from the current rate of 0.75%.
They said inflation, which currently stands at 1.7%, suggested that there was little risk that the economy would overheat in the medium term if interest rates were cut.
Inflation graphic
The MPC expects inflation, as measured by the consumer prices index (CPI), to fall to around 1.2% by next spring as the impact of the government's energy price cap kicks in.
This is well below the Bank's 2% target.
While the unemployment rate remains below 4%, which is its lowest since the 1970s, Mr Saunders and Mr Haskell said they believed recent data suggested the "labour market was turning".
They also said there was a risk world growth could be weaker and Brexit uncertainties could persist for longer than the MPC's assumptions.
Financial markets believe interest rates will be cut to 0.5% in the coming year.
Lower interest rates are good news for borrowers and bad news for savers as commercial banks use the Bank of England as a reference point for the rates they offer on mortgages and savings accounts.

Will Mark Carney delay his departure from the Bank?

Bank governor Mark Carney is due to stand down from his role on 31 January next year. However, at the Bank's press conference he opened the door to staying on beyond that date.
He said that he had already agreed to extend his term twice in order to ensure the financial system was prepared for Brexit, and also to ensure a proper handover to his successor.
Mr Carney said it was understandable that a decision on the new governor had not been made "given the priority" that the Brexit negotiations have taken.
He committed to making sure that the transition to the new governor was "smooth".

Wednesday, November 6, 2019

BBC News - Bank of England: Dame Minouche Shafik is current government's choice

Minouche ShafikImage copyrightGETTY IMAGES

The Bank of England may see its first female governor in over 300 years if the current government remains in power after the general election in December.
The BBC understands that Egyptian-born Dame Minouche Shafik is the current government's favoured candidate to succeed Mark Carney when his term ends in January of next year.
However, the government feels it would be inappropriate to name a successor to one of the most important economic posts in the UK before the results of the election on 12 December.
A change of government in December would see a change in chancellor - the person who recommends the choice of governor.
The role of governor of the Bank of England is one of the most powerful positions in the UK. The bank is responsible for setting interest rates and policing the stability and behaviour of the UK's financial sector.
Although the governor is only one of a committee of nine people who set interest rates, he or she wields enormous influence over the way the UK's financial system is run.
Given the UK's position as arguably the world's most important financial centre, the job comes with global influence.
Dame Nemat Talaat Shafik, who is 57 and more commonly referred to as Minouche, has already served as a deputy governor of the bank and is currently director of the London School of Economics.
Other candidates for the role include Andrew Bailey, chief executive of the Financial Conduct Authority; Shriti Vadera, chair of Santander UK; and Ben Broadbent, Jon Cunliffe and Paul Tucker - all former or current deputy governors at the Bank.

Hawk or dove?

One former Bank of England insider told the BBC "she would be a very popular appointment internally. She has very good people skills which not all the other candidates do."
The most important question perhaps is whether this potential new governor is seen as a "hawk" or a "dove".
A hawk is someone who would rather raise interest rates early to head off inflation by increasing the cost of loans to discourage borrowing and spending.
A dove is someone who would rather wait and see whether cheap borrowing really leads to debt-fuelled spending before raising the rates at which consumers and home buyers can borrow.
Dame Minouche - who received her damehood in 2015 - has described herself in the past as an "owl" who would be "wise" when setting the rates at which we all borrow.
The incumbent government may have chosen its preferred governor. But it would perhaps be unwise to assume whether it gets to make that call.

Tuesday, November 5, 2019

Reuters News - China presses Trump for more tariff roll-backs in 'phase one' trade deal

WASHINGTON (Reuters) - China is pushing U.S. President Donald Trump to remove more tariffs imposed in September as part of a “phase one” U.S.-China trade deal, people familiar with the negotiations said on Monday.
The deal, which may be signed this month by Trump and Chinese President Xi Jinping at a yet-to-be determined location, is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cell phones, laptop computers and toys.
A U.S. official said the fate of the Dec. 15 tariffs is being considered as part of negotiations and a potential signing trip this month.
Another source briefed on the talks said Chinese negotiators want Washington to drop 15% tariffs on about $125 billion worth of Chinese goods that went into effect on Sept. 1. They are also seeking relief from earlier 25% tariffs on about $250 billion of imports from machinery and semiconductors to furniture.
A person familiar with China’s negotiating position said it is continuing to press Washington to “remove all tariffs as soon as possible.”
China’s request to remove the Sept. 1 duties was earlier reported by Politico, citing sources. The Financial Times newspaper also reported the White House was considering whether to roll back the Sept. 1 tariffs, which cover some clothing items, flat-screen televisions, smart speakers and Bluetooth headphones.
Geng Shuang, a spokesman at the Chinese foreign ministry, said the two sides remained in touch.
“Trade consultations have made progress and are advancing in accordance to plan,” Geng said.
On the tariff issue, Geng said he could only give an answer “in principle”.
“Adding tariffs is not the correct way to resolve trade issues,” he told reporters at a regular briefing in Beijing on Tuesday.Taoran Notes, an influential WeChat account run by China’s Economic Daily, said the removal of the additional tariffs already imposed by the United States was China’s “most core concern”.
“Any miscalculation on this issue could well cause further back and forth in the consultations,” it wrote.
Ralph Winnie, director of the China program at the Eurasia Center, said wrapping up the interim trade pact would provide a boost to both the U.S. and Chinese economies, while handing Trump an important win among farmers - a core constituency.
“It’s in both countries’ interest to have this trade deal,” Winnie said. “If he seals the deal, it will be looked on very favorably by the American people. It’s a win-win for both countries.”
Speaking on Tuesday at an import fair aimed at burnishing China’s free-trade credentials, President Xi Jinping called on countries to stand against protectionism and reiterated pledges to open China’s economy and strengthen protection of intellectual property rights.
Foreign governments and business groups have become skeptical of Chinese reform promises and have longed warned that China would invite retaliation if it didn’t match the openness of its trading partners.


Since Trump took office in 2017, his administration has been pressing China to curb massive subsidies to state-owned firms and end the forced transfer of American technology to Chinese firms as a price of doing business in China.
Analysts say the phase one deal will fail to adequately address these issues, focusing largely on Chinese purchases of U.S. farm goods and intellectual property protections related to copyright and trademark issues. It will not address industrial subsidies at all.
China was requesting some changes to the text, but parts of the agreement are “very close to finished,” including the text on financial services, said a U.S. source briefed on the negotiations. The text on agriculture was “dozens of pages long and nearly completed,” the source said.
“It is important to both sides to get this agreement across the finish line,” said the source, adding that the two presidents were very likely to meet this month.
Charles Boustany, a former congressman from Louisiana and counselor at the National Bureau of Asian Research, said any initial agreement would likely be short-term in nature and unstable.
“Even though there’s some talk about a phase one agreement, we don’t think it’s going to be substantive in terms of addressing any of the structural problems,” he said. “It would largely be a status quo situation where China continues to do what it’s doing.”
Some business groups complain that a central component of the “phase one” deal - increased access to China’s financial services market - will fall short of its promises, because of inconsistencies in China’s new foreign investment law.
In comments submitted to the Chinese government by the U.S. Chamber of Commerce, the American Chamber of Commerce in China and the U.S. Information Technology Office, the groups pointed out that Beijing’s draft regulations “do not address clear differences between the treatment of China’s state-owned enterprises and the private sector,” according to a person familiar with the comments.
Trump had said on Friday that negotiations on the initial phase agreement were going well and he hoped to sign the deal with Xi at a U.S. location when work on it was completed.
Additional reporting by Mekhla Raina in Bengaluru and John Ruwitch and Winni Zhou in Shanghai, and Ben Blanchard in Beijing; Editing by Chris Reese, Sandra Maler, Shri Navaratnam and Lincoln Feast

Monday, November 4, 2019

BBC News - General Election 2019: Public spending 'to rocket' in next parliament

MoneyImage copyrightGETTY IMAGES
Government spending is likely to head back towards 1970s levels over the next parliament whichever party wins the general election, research suggests.
Think tank the Resolution Foundation said both Labour and the Conservatives were planning big increases in the size of the state.
But it said they faced "huge questions" over how they would pay for it.
The Conservatives said they were focusing on people's priorities. Labour has been contacted for a response.
The 1970s are often described as a period of economic turmoil for the UK, with public spending soaring during the decade.
Manifestos for the 12 December general election have not been published yet.
But the Resolution Foundation, which aims to promote higher living standards for people on low and middle incomes, based its estimates on what the main parties have promised to date, as well as the underlying trends affecting the UK economy.

Conservative plans

It said that if the Conservatives won and simply maintained current spending levels - which were recently raised - then public spending as a share of the economy was likely to climb to 41.3% by 2023-4.
Sajid JavidImage copyrightLEON NEAL
Image captionChancellor Sajid Javid is pumping money into public services that were problematic for the Conservatives at the last election
That would be "well above" the average of 37.4% seen in the two decades running up to the financial crisis of 2007-8, and "marginally" below the 42% seen between 1966 and 1984.
However, any further spending increases on areas like the NHS would take it above the 1970s average, the Resolution Foundation said.

Labour plans

If Labour won the election, by contrast, the think tank said government spending as a share of GDP was likely to rise to 43.3% by 2023-4.
That assumes the party would re-commit to the £48.6bn of extra spending it promised in its 2017 manifesto, while investing billions extra in capital infrastructure projects.
"This would mean the size of the state under Labour being significantly above the 1970s average," the Resolution Foundation said.
John McDonnell and Jeremy Corbyn at Labour's conferenceImage copyrightEPA
Image captionJohn McDonnell and Jeremy Corbyn want to invest more in infrastructure
Labour has argued that its spending plans will create a fairer society and continue to grow the economy.
Meanwhile, Chancellor Sajid Javid has recently signalled his desire to boost spending to end austerity.
He said: "We make no apologies for focusing on the people's priorities. At this election, we will set our plans in a fully funded manifesto, balancing the need to keep borrowing under control and investing in our future."

'Taxes will rise'

However, the Resolution Foundation said that given current economic uncertainty facing the UK - and the growing cost of an aging population - both parties needed to explain how they intended to pay for their plans.
Matt Whittaker, deputy chief executive of the Resolution Foundation, said: "After an unprecedented decade of austerity, both main parties are gearing up to turn the spending taps back on.
"Whichever party wins is going to face huge questions about how they are going to pay for Britain's growing state. The fact is that whatever promises are made over the course of this election campaign, taxes are going to have to rise over the coming decade."
It said that Labour had specified £49bn of tax rises, but these were unlikely to be enough to fully fund its plans.
On the other hand, it said the Conservatives had placed more of an emphasis on tax cuts - leaving an "even bigger funding question" over their economic plans.