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Tag: GDP

  • The Biggest Threat to the 2026 Economy Is Still Donald Trump

    The escalating trade war with China is currently on something of a hiatus. In October, the Trump Administration eased tensions by reversing its decision to expand the list of Chinese companies restricted from access to advanced U.S. technology. Earlier this month, Trump said he would allow Nvidia to export to China some high-grade computer chips, with the U.S. government collecting twenty-five per cent of the revenues. Wall Street seems to be tacitly assuming that the détente will last beyond Trump’s trip to China scheduled for April, but who really knows? If the government in Beijing doesn’t agree to the concessions that he wants, he could easily revert to a more coercive stance.

    Even if the economy can endure another year of the Tariff Man, there are other issues that could have a big political effect. They include jobs, prices, and health-care costs. Since April, growth in employment has averaged just forty thousand jobs a month. Last year, the figure was more than four times larger. Moreover, Powell said the Fed thinks the official monthly payroll figures are overestimating the actual numbers by about sixty thousand. If that’s right, the economy has been shedding twenty thousand jobs a month. Even going by the official figures, the number of people working in manufacturing, the sector which is supposed to be the primary beneficiary of Trump’s tariffs, has fallen by sixty-three thousand this year. Other industries that have recently displayed weak hiring are information and finance, which employ a lot of white-collar workers. This has provoked fears that A.I. is eliminating jobs. In a Reuters/Ipsos poll, seventy-one per cent of respondents said they were concerned that A.I. will be “putting too many people of out of work permanently.”

    Trump can’t be blamed for A.I., although the executive order that he issued two weeks ago in an effort to prevent states from regulating the potentially transformative new technology demonstrated how beholden he is to the Silicon Valley tech barons.

    He is more directly responsible for stubbornly high prices. His tariffs have helped raise the prices of many imported goods, including grocery staples such as coffee and bananas, and his mass deportations may be producing a labor shortage in some service industries, such as restaurants and hospitality, where there were almost a million job openings in the fall. When firms are struggling to find the workers they need, they have to offer higher wages, which raises their costs.

    As the midterms approach, Democrats will surely heed Barack Obama’s advice to focus on affordability, jobs, and health care. With Congress having adjourned without addressing the year-end expiry of enhanced subsidies for health-insurance policies purchased through Obamacare exchanges, some twenty-two million Americans will be affected. Going into 2026, many of them could face much higher premiums, more than double in some instances. With Republicans divided, and Trump still doing little more than publicly bashing Obamacare, there is no assurance of any resolution.

    Meanwhile, Trump’s presence in the White House is accentuating another big threat to the economy, which comes from financial fragility. Over the past three years, the S. & P. 500 has risen by more than seventy-five per cent, and the Nasdaq has more than doubled. Relative to earnings, stocks are trading at very high levels, historically speaking, and investors are borrowing record amounts of money to buy these stocks. On the basis of optimistic assumptions for revenues and profits, A.I.-related companies are raising enormous sums of money, in many cases from one another. And despite the revenues from Trump’s tariffs, the U.S. government is running a budget deficit of close to six per cent of G.D.P.

    Whether one categorizes this situation as a financial boom or a bubble is largely a matter of terminology. The key point is that the financial system is vulnerable to unexpected disruptions, and, as the Bank of England recently noted, the risks are rising. Conceivably, a shock could emerge from the A.I. complex, or from the private-credit sector—where hedge funds, private-equity firms, and other non-bank lenders have been expanding their lending very rapidly—or from Trump himself, as he moves to extend his power over the Fed, an institution whose independence many investors, here and abroad, regard as the primary guarantor of financial stability. Powell’s term as Fed chair ends in May, and Trump is set to announce a replacement early in the New Year. Kevin Hassett, who heads the National Economic Council at the White House, and frequently appears on television defending Trump’s policies, is the favorite to get the job—despite rumblings on Wall Street that he would be too much of a patsy.

    John Cassidy

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  • Deep Dive: Investors cautiously confident on China outlook amid trade war 2.0

    Deep Dive- Investors cautiously confident on China outlook amid trade war 2.0

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  • Trump immigration policies would slash workforce estimate by 15.7 million and slow GDP growth by a third over the next decade, study says | Fortune

    The U.S. immigration crackdown will cause net job losses in the millions and will lower the annual rate of economic growth by almost one-third over the next decade, a new study estimates.

    The Trump administration’s policies aimed at legal and illegal immigration would reduce the projected number of workers by 6.8 million by 2028 and 15.7 million by 2035, the National Foundation for American Policy’s study released Friday found. People entering the workforce won’t fully make up for the job losses, leading to a net reduction in the labor force by a projected 4 million workers by 2028 and 11 million in 2035. 

    “With the U.S.-born population aging and growing at a slower rate, immigrants have become an essential part of American labor force growth,” the think tank, which focuses on trade and immigration, said.

    In fact, immigrant workers were responsible for 84.7% of the labor force growth in America between 2019 and 2024, according to the report. 

    The study takes into account many of Trump’s far-reaching immigration policies for those eligible to work in the country, including reducing and suspending refugee admissions, a travel ban on 19 countries, ending Temporary Protected Status, and prohibiting international students from working on Optional Practical Training and STEM OPT after completing their coursework. The analysis does not account for a new policy that requires U.S. companies to shell out $100,000 in one-time fees for new H-1B visas.

    Labor reduction

    Trump’s immigration crackdown is already having an impact on the labor force.

    The Bureau of Labor Statistics household survey shows a decline of 1.1 million foreign-born workers since the start of the Trump administration in January through August, according to the report.

    And of the 6.8 million fewer projected workers in the U.S. labor force by 2028, 2.8 million would be due to changes in legal immigration policies, while 4 million would result from policies on illegal immigration, the study said

    At the same time, it doesn’t look as though U.S.-born workers are entering the workforce en masse as foreign-born workers exit, the report said. Instead, the labor force participation rate for U.S.-born workers aged 16 and older has ticked lower to 61.6% in August from 61.7% last year, according to the report.

    Labor economist and senior fellow at NFAP Mark Regets, said in the report it’s “wrong” to assume a decline in immigration helps U.S. workers when job growth slows.

    “Immigrants both create demand for the goods and services produced by U.S.-born workers and work alongside them in ways that increase productivity for both groups,” Regrets said. “While it is just one factor, we shouldn’t be surprised that opportunities for U.S.-born workers are falling at the same time an estimated one million fewer immigrants may be in the labor force.”

    But the White House says there’s a large pool of available U.S.-born workers.

    “Over one in ten young adults in America are neither employed, in higher education, nor pursuing some sort of vocational training.” White House spokeswoman Abigail Jackson told Fortune in a statement, referencing a July 2024 CNBC article. “There is no shortage of American minds and hands to grow our labor force, and President Trump’s agenda to create jobs for American workers represents this Administration’s commitment to capitalizing on that untapped potential while delivering on our mandate to enforce our immigration laws.”

    Economic fallout

    Previous reports have warned Trumps’ immigration policies also threaten negative economic consequences.

    In September, the Congressional Budget Office projected 290,000 immigrants will be removed from the country between 2026 and 2029, which may create a labor shortage and drive up inflation.

    And according to the NFAP study, Trump’s immigration policies will lower the projected average annual economic growth rate to 1.3% from 1.8% between fiscal year 2025 to fiscal year 2035. 

    There are also ramifications for the agriculture industry and food production. The Labor Department admitted earlier this month in a filing in the Federal Register that Trump’s immigration crackdown risked a “labor shortage exacerbated by the near total cessation of the inflow of illegal aliens.”

    That’s not the only sector feeling the talent squeeze.

    The $100,000 one-time fee for workers applying for new H-1B visas is expected to disrupt companies including Amazon, Microsoft and Meta, since they heavily recruit workers under this status. 

    And the policies are projected to have far-ranging effects on most areas of business, including a potential loss of hundreds of thousands of immigrant workers in sectors like information and educational and health services.

    In addition, individuals affected by Trump’s travel ban on 19 different countries represent a significant part of the economy, the American Immigration Council, a nonprofit research organization and advocacy group, has estimated.

    Households led by the recent arrivals from the countries earned $3.2 billion in household income, paid $715.6 million in federal, state and local taxes and held $2.5 billion in spending power, according to AIC.

    “These nationals made important contributions in U.S. industries that are facing labor shortages and rely on foreign-born workers,” like hospitality, construction, retail trade and manufacturing, the report said.

    But the White House said Trump will continue “growing our economy, creating opportunity for American workers, and ensuring all sectors have the workforce they need to be successful.”

    Nan Wu, research director at AIC told Fortune the recent NFAP study may not even fully capture the broader impact of the Trump administration’s immigration enforcement efforts. 

    “Given the unprecedented scale of these actions, it’s difficult to quantify the chilling effect they may have on immigrants who might otherwise choose to move to or remain in the United States,” Wu said. “For instance, international students—who are a critical source of high-skilled talent—may increasingly opt to pursue education or career opportunities in other countries. This shift could significantly disrupt the U.S. talent pipeline, particularly in sectors that rely heavily on STEM expertise and innovation.”

    Nino Paoli

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  • Opinion | Japan Gets New Kind of Leader

    Sanae Takaichi, a hawkish nationalist, wants to make her country great again.

    Walter Russell Mead

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  • S&P 500 has longest losing streak for over a month as Wall Street stumbles to third straight loss | Fortune

    Wall Street stumbled to a third straight loss on Thursday as U.S. stocks gave back more of their big gains for the year so far.

    The S&P 500 fell 0.5% and marked its longest losing streak in more than a month. The Dow Jones Industrial Average dropped 173 points, or 0.4%, and the Nasdaq composite sank 0.5%. All three indexes are still near their records set at the start of the week, though.

    Stocks felt pressure from reports showing the U.S. economy may be stronger than economists thought. While that’s encouraging news for workers and for people looking for jobs, it could make the Federal Reserve less likely to cut interest rates several times in the coming months.

    The Fed just delivered its first cut of the year last week, and officials had penciled in more through the end of next year. That was critical for Wall Street after U.S. stocks shot to records since April in large part because of expectations for rate cuts. Easier rates can boost the economy and make investors more willing to pay high prices for stocks and other investments.

    But a stronger-than-expected economy could remove some of the Fed’s urgency, particularly because cuts to rates carry the risk of worsening inflation that’s already stubbornly high. If the Fed doesn’t cut rates as often as investors expect, it would empower criticism that the U.S. stock market is too expensive after rising so much, so quickly.

    “Buckle up,” warned Jonathan Krinsky, chief market technician at financial services firm BTIG.

    Stocks look to be in their most vulnerable position since their April lows given how much complacency has built up and how the rubber band has recently been “as stretched as it gets in some parts of the market,” Krinsky wrote in a research report.

    Wall Street’s ultimate hope is that the U.S. economy stays in a delicate balance where it’s slow enough to convince the Fed to cut rates but doesn’t become so weak that it leads to a recession.

    Treasury yields ticked higher in the bond market as traders pared bets for the number of upcoming cuts to rates by the Fed. The yield on the 10-year Treasury rose to 4.17% from 4.16% late Wednesday.

    One of Thursday’s stronger-than-expected economic reports said that fewer U.S. workers filed for unemployment benefits last week. That could be a signal that the pace of layoffs is slowing.

    Another report said the U.S. economy grew at a faster pace during the spring than earlier thought, while a third said orders blew past economists’ expectations last month for U.S. manufactured goods with a relatively long life span.

    On Wall Street, CarMax tumbled 20.1% after the seller of used autos reported a weaker profit for the latest quarter than analysts expected. It sold fewer vehicles during the quarter than it had a year earlier. It also was hurt because it increased its expectations for losses from loans made in earlier years.

    Jabil fell 6.7% even though it reported a stronger profit for the latest quarter than analysts expected, thanks in part to demand coming because of artificial intelligence. It also gave forecasts for upcoming revenue and profit that topped analysts’ expectations.

    Such moves typically send a stock’s price higher, but Jabil came into the day with an already huge gain of 56.6% for the year so far. That was more than quadruple the S&P 500’s rise over the same time.

    Another AI winner, Oracle, gave back 5.6%. Earlier this month, it surged to its best day since 1992 after announcing several big contracts signed because of AI.

    Starbucks slipped 0.5% after the coffee chain announced a $1 billion plan to restructure, including the closure of stores and the cutting of 900 nonretail jobs.

    On the winning side of Wall Street was IBM. It rose 5.2% after HSBC announced a promising trial with IBM of quantum computing in hopes of improving bond trading. The bank said they delivered an improvement of up to 34% in predicting how likely a trade would be filled at a quoted price.

    Companies are racing to develop quantum computing in order to solve complex problems beyond the reach of classical computers.

    KB Home swung between gains and losses after the homebuilder reported a stronger profit for the latest quarter than analysts expected. CEO Jeffrey Mezger said he was encouraged to see mortgage rates ease through the quarter, which could encourage more potential customers to buy homes.

    Mortgage rates have been sinking on expectations for coming cuts to rates by the Fed. KB Home’s stock finished the day with a dip of 0.6%.

    All told, the S&P 500 fell 33.25 points to 6,604.72. The Dow Jones Industrial Average dropped 173.96 to 45,947.32, and the Nasdaq composite sank 113.16 to 22,384.70.

    In stock markets abroad, indexes dipped in Europe following modest moves across much of Asia.

    ___

    AP Writers Matt Ott and Teresa Cerojano contributed.

    Fortune Global Forum returns Oct. 26–27, 2025 in Riyadh. CEOs and global leaders will gather for a dynamic, invitation-only event shaping the future of business. Apply for an invitation.

    Stan Choe, The Associated Press

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  • China’s GDP growth slowed last quarter to 4.7%, below forecasts, as ‘insufficient’ domestic demand takes a toll on the economy

    China’s GDP growth slowed last quarter to 4.7%, below forecasts, as ‘insufficient’ domestic demand takes a toll on the economy

    China’s economy expanded at a slower-than-forecast 4.7% annual rate in the last quarter, the government reported Monday, while emphasizing signs of improvement in factory output, income and investment.

    The expansion was sharply below the 5.3% annual pace of growth seen in the first quarter of the year.

    The progress this year, after growth slowed sharply during the COVID-19 pandemic, has been “hard won,” the National Bureau of Statistics said.

    “Since the beginning of this year, global economic growth momentum has been weak, inflation is sticky, geopolitical conflicts, international trade frictions and other problems have occurred frequently, domestic demand is insufficient, enterprises are under great operating pressure, and there are many risks and hidden dangers in key areas,” it said in a statement.

    “There are many difficulties and challenges in promoting the stable operation of the economy,” it said.

    Economists say weak consumer demand and reduced government spending are dragging on growth in the world’s No. 2 economy.

    The statistics bureau said the economy grew at a 5% pace in the first half of the year, at the target set by the government for around 5% growth.

    In quarterly terms, the way many countries report their growth, the economy grew 0.7%.

    The update came as leaders of the ruling Communist Party gathered for a once-a-decade conclave to set economic policy that was expected to focus on self-sufficient strategies for growth in an era of tensions over trade and technology.

    The four-day meeting of the Communist Party’s 205-member Central Committee is the third plenary session of a five-year term that started in 2022. This year’s meeting was expected to be held last year, but was delayed.

    The policies resulting from the closed-door meetings are likely to come days after it ends.

    Party plenums usually focus on long-term issues, but business owners and investors are watching for any immediate measures to counter a prolonged downturn in the property market and persistent malaise that has suppressed China’s post-COVID-19 recovery.

    Recent bright spots suggest growth has stabilized.

    On Friday, the government reported higher than expected exports in June that further boosted China’s trade surplus.

    Exports grew 8.6% from the same time a year earlier, though imports fell 2.3%. The trade surplus widened to $99 billion, up from $82.6 billion in May.

    The statistics bureau said Monday that factory output rose 5.3% in June.

    Retail sales, a measure of consumer demand, were up 4.1% in January-May, while nominal disposable income, not adjusted for inflation, grew 5.4%, it said.

    But that level of retail sales is well below expectations, noted Yeap Jun Rong of IG.

    “Retail sales may be the biggest disappointment, with its significant underperformance reinforcing the weak state of consumer spending, in line with recent subdued price data and imports figure,” he said in a report.

    Expanding consumer demand is seen as key to supporting sustained strong growth, but has proven difficult as companies shed jobs during and after the pandemic, causing many Chinese families to tighten their purse strings.

    Despite the strong start to the year, policies to address the problems have been cautious and ineffective, as the property market continued to weigh on the economy, Louise Loo of Oxford Economics said in a commentary.

    “Stagnating household credit growth, consumer confidence, and personal savings rates hint at no sign of a genuine recovery yet,” she said.

    Although exports jumped in recent months, rising tariffs on imports of Chinese electric vehicles to the United States and Europe will add to obstacles facing Chinese manufacturers that are being encouraged to ramp up investment and production at a time of weak demand in the home market.

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    Elaine Kurtenbach, The Associated Press

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  • Credit growth in India expected to exceed nominal GDP this fiscal: SBI Capital Markets

    Credit growth in India expected to exceed nominal GDP this fiscal: SBI Capital Markets

    Credit growth in the Indian banking sector is expected to exceed nominal GDP growth in the current financial year 2024-25, growing at 13-15 per cent, according to SBI Capital Markets.

    Nominal gross domestic product (GDP) is growth, without adjustment for inflation. The growth according to the report would be amplified by long-term drivers such as buoyant economic growth, accompanied by formalisation, digitalisation, and premiumisation.

    Higher capacity utilization across sectors leading to capex, pick-up in MSME credit, and increased infrastructure and construction activity are expected to boost the industry segment, potentially achieving high single-digit growth in 2024-25, surpassing 2023-24’s performance SBI Capital Markets, incorporated in 1986 as a wholly owned subsidiary of the State Bank of India, is one of the oldest investment banks in India.

    “While PSBs (public sector banks) continue to lose share to PVBs (private sector banks), the pace has come down to a trickle as the former are now armed with well-capitalized balance sheets, and a war chest of deposits,” said the report released by SBI Capital Markets earlier this week.

    Terming banks as the beating heart of the Indian economy, the report said they are seeing excellent blood flow — record high profits and superlative credit growth. “With the blocks of bad assets cleared, asset quality and capital are in the pink of health.

    The question arises – will credit growth continue amidst countercyclical operations by RBI, or will there be a shortage of the lifeblood – deposits? Will vitals (asset quality, capital) remain stable, and can the profit pulse race further up?” SBI Capital Markets analysed some of these aspects in the report.

    Industry credit has grown at a CAGR (compound annual growth rate) of 5 per cent in the past five fiscals, slower than overall bank credit of CAGR 10 per cent. Interestingly, NBFC credit growth continues to outpace bank credit growth.

    The slow credit growth, it said, is as large private corporates are eschewing bank credit – their capex is being funded by copious profits, capital markets attracted by their healthier books, and through financial tie-ups with global capital-rich partners.

    “Infrastructure projects are increasingly funded by key financial institutions in early stages and capital markets (bonds, InvITs) for operational projects. Government capex is primarily funded by Budgetary allocations with some MLI assistance. These factors have limited the growth of bank infrastructure loans to a per cent 5 per cent CAGR in recent years.

    Proposed project loan provisions may extend this period of moderate growth,” it said. These developments have prompted the regulator to take countercyclical measures and boost risk weights for certain categories of credit within personal loans as well as loans extended to (and by) NBFCs.

    This could have a minor impact on capital ratios, and growth in these segments tapered down slightly in the second half of 2023-24.

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  • 2024 World Happiness Rankings: USA Falls Out of Top 20, Youngest Hit Hardest

    2024 World Happiness Rankings: USA Falls Out of Top 20, Youngest Hit Hardest

    What are the top 20 happiest countries in the world? How do mental health and well-being trends look in the United States and Canada? The 2024 World Happiness Report is in!

    The World Happiness Report is a research initiative to compare happiness levels between different countries.

    The project first launched in 2012, surveying more than 350,000 people in 95 countries asking them to rate their happiness on a 10-point scale.

    Each year they release a new report and the 2024 full report was just published a few weeks ago. There are some interesting findings in it that are worth highlighting.

    First let’s look at the happiness rankings by country.

    Top 20 Happiest Countries

    Here are the top 20 happiest countries in 2024 according to the report.

    The scores are on a scale of 1-10. Each participant was asked to think of a ladder, with the best possible life for them being a “10” and the worst possible life being a “0.” They were then asked to rate their current lives. The final rankings are the average score for each country.

    (By the way, this simple test for measuring subjective well-being is known as the “Cantril Ladder,” it’s a common tool used in public polling especially the Gallup World Poll.)

    The results:

      1. Finland (7.741)
      2. Denmark (7.538)
      3. Iceland (7.525)
      4. Sweden (7.344)
      5. Israel (7.341)
      6. Netherlands (7.319)
      7. Norway (7.302)
      8. Luxembourg (7.122)
      9. Switzerland (7.060)
      10. Australia (7.057)
      11. New Zealand (7.029)
      12. Costa Rica (6.955)
      13. Kuwait (6.951)
      14. Austria (6.905)
      15. Canada (6.900)
      16. Belgium (6.894)
      17. Ireland (6.838)
      18. Czechia (6.822)
      19. Lithuania (6.818)
      20. United Kingdom (6.749)

    The top 10 countries have remained stable over the years. As of March 2024, Finland has been ranked the happiest country in the world seven times in a row.

    There was more movement in the top 20 rankings. Most notably, this is the first year that the United States dropped out of the top 20 (from rank 15 to 23 – an 8 place drop).

    More alarming are the age gaps in happiness reports. In both the U.S. and Canada, those above the age of 60 report significantly higher rates of happiness than those below 30.

    Above age 60, the U.S. ranks 10 overall on the world happiness rankings. Below age 30, the U.S. falls to rank 62, just beating out Peru, Malaysia, and Vietnam.

    Could this be a sign of a continuing downward trend in places like the U.S. and Canada?

    Potential Factors Behind Life Evaluation

    How to measure happiness is always a controversial topic.

    To this day, psychologists and social scientists don’t really have a reliable way to determine happiness besides simply asking someone, “How happy are you?”

    However, the World Happiness Report attempts to take the above findings and break them down into six main factors that contribute to overall life evaluation on a societal level.

    These factors don’t influence the final rankings, they are just a way to make sense of the results:

    • GDP per capita – A general measure of a country’s overall wealth.
    • Life expectancy – A general measure of a country’s overall health.
    • Generosity – The level of a country’s trust and kindness through charity and volunteering.
    • Social support – The level of a country’s social cohesion and community.
    • Freedom – The level of a country’s freedom to live life as a person sees fit.
    • Corruption – A general measure of government competence and political accountability.

    Each factor helps explain the differences in overall happiness between countries, with some countries performing better in certain areas over others.

    One benefit of this model is that it looks beyond GDP (or “Gross Domestic Product”) which has long been the overall benchmark for comparing countries in the social sciences. The U.S. has the highest GDP in the world and frequently ranks in the top 10 per capita, but the happiness rankings show there is more to the picture.

    Conclusion

    The World Happiness Report is a good guideline for comparing happiness and well-being between different countries. How does your country rank? It will be interesting to see how these rankings change over the next few years, do you have any predictions?


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    Steven Handel

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  • Statistics Canada reports real GDP up in January 2024 – MoneySense

    Statistics Canada reports real GDP up in January 2024 – MoneySense

    What is GDP?

    Gross domestic product (GDP) is a statistic economists use to measure the total amount of goods and services produced in a country during a specific time period, usually a quarter or a year. This number is calculated in one of three ways.

    Read the full definition in the MoneySense Glossary: What is GDP?

    Where the GDP is going in Canada

    The agency added that it expected the growth continued in February with a preliminary estimate pointing to a gain of 0.4% for the month, helped by strength in the mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance sectors.

    CIBC senior economist Andrew Grantham said the Canadian economy appears to have started 2024 in the fast lane. “Even though January’s growth was flattered by a rebound in the public sector following strike activity in Quebec, solid momentum appears to have extended to February as well,” he wrote in a note to clients.

    Grantham added that with growth for the first quarter as a whole tracking well above the Bank of Canada’s previous expectation, there is no urgency for the central bank to cut interest rates at its April meeting.

    “However, a June move is still possible if labour market conditions continue to loosen and core inflation maintains its downward momentum,” he said.

    The Bank of Canada’s key interest rate is set at 5%. The central bank is expecting to be able to begin cutting interest rates sometime later this year, but according to its most recent summary of deliberations, its officials are split on timing. (Read “Making sense of the Bank of Canada interest rate decision on March 6, 2024.”)

    The current inflation rate

    Year-over-year inflation came in at 2.8% in February, but the central bank remains concerned that inflation risks trending higher than expected, particularly as shelter costs continue to climb. 

    Growing sectors in Canada

    Statistics Canada said that the growth in the economy in January came as the public sector, which includes educational services, health care and social assistance and public administration, rose 1.9% after two consecutive monthly declines.

    The educational services sector gained 6.0% after falling in November and December due to the strikes in Quebec, while the health care and social assistance sector, which was also impacted by the strikes, rose 0.8%.

    The Canadian Press

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  • U.S. manufacturing sector shrinks for 14th straight month in December

    U.S. manufacturing sector shrinks for 14th straight month in December

    The numbers: A closely watched index that measures U.S. manufacturing activity rose by 0.7 percentage point to 47.4 in December, according to the Institute for Supply Management on Wednesday.

    Economists surveyed by the Wall Street Journal had forecast the index to rise to 47.2. 

    Any number below 50 reflects a shrinking economy. Manufacturing has contracted for 14 straight months.

    Key details: The key new-orders index fell 1.2 percentage points to 47.1 in December.

    Production rose 1.8 percentage points to 50.3 from the prior month. Employment picked up slightly but remained below the 50-percentage-point threshold.

    Prices fell 4.7 percentage points to 45.2. That’s the biggest drop since May 2023. Inventories were down 0.5 percentage point to 44.3 in December.

    Customer inventories dipped back below 50 last month to 48.1 in December.

    Only one industry, primary metals, reported growth in December, while 16 reported contractions.

    Layoffs picked up in December, concentrated in the computer and electronics, machinery, and food and beverage sectors.

    Big picture: The contraction in manufacturing is the longest since 2000-01, after the dot-com bubble exploded, said Jay Hawkins, senior economist at BMO Capital Markets.

    Economists said that depressed capital spending has been the key drag on the factory sector, along with weak global trade. They expect that a sharp drop in long-term interest rates will improve the picture, but the change won’t happen overnight.

    What the ISM said: Tim Fiore, chair of the ISM manufacturing survey committee, was relatively upbeat about the data. He said the sector was closing the year in a “really good position” and forecast that the ISM factory index would rise above the 50-percentage-point threshold by March. Fiore said he also expects the inventory number to pick up in coming months.

    What economists said: “The survey indicates that conditions in the factory sector remain unusually weak and that output is likely to continue declining for at least a few more months,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

    Market reaction: Stocks
    DJIA

    SPX
    were lower in early trading on Wednesday, while the yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    rose to just below 4%.

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  • Health of several key sectors, including the U.S. consumer, plus an outlook from Fed’s Powell on radar this coming week

    Health of several key sectors, including the U.S. consumer, plus an outlook from Fed’s Powell on radar this coming week

    Recession fears are rising. Nothing beats fear better than good information and that’s what we will get this week. Investors and economists will get good insight into the mood of U.S. consumers and hear the last words of Federal Reserve Chair Jerome Powell ahead of the central bank’s next interest-rate meeting on Dec. 12-13.

    November consumer confidence

    Tuesday, 10:00 a.m. Eastern

    Economists surveyed by the Wall Street Journal expect that consumer’s view on the outlook have soured over the past few weeks. Geopolitical…

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  • U.S. economy growing only at a subdued rate in early November, S&P Global says

    U.S. economy growing only at a subdued rate in early November, S&P Global says

    The numbers: The U.S. economy expanded but at a relatively subdued pace in early November, latest data from S&P Global show.

    The S&P Global “flash” U.S. services index rose to 50.8 in November from 50.6 in the prior month, the highest level in four months. Economists surveyed by the Wall Street Journal had forecast a reading of 50.2.

    On the…

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  • America’s economic hot streak is just warming up as early data suggests the fastest growth in nearly 2 years during 3Q

    America’s economic hot streak is just warming up as early data suggests the fastest growth in nearly 2 years during 3Q

    The world’s largest economy probably expanded at the quickest pace in nearly two years during the third quarter on the back of a steadfast US consumer, a challenge for Federal Reserve officials who are debating whether additional policy tightening is needed.  

    Gross domestic product advanced at a 4.3% annualized pace in July-September, according to the median projection in a Bloomberg survey of economists. Such growth illustrates that the US remains the global economic powerhouse as Europe stagnates and Asia contends with a struggling China.

    Personal consumption, the primary engine of the US economy, is projected to advance at a 4% rate. Resilient demand is testing the policy skills of Fed officials after nearly two years of interest-rate hikes. While inflation is well off its peak, price pressures are still running almost twice as fast as their goal.

    Thursday’s GDP report won’t be enough to nudge the Fed toward a November rate increase, but sustained spending momentum in the fourth quarter would likely raise the prospects for additional tightening around the turn of the year.

    “Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” Fed Chair Jerome Powell said at the Economic Club of New York on Thursday.

    September income and spending data on Friday will give a sense of the momentum in household demand and inflation ahead of the fourth quarter. 

    Forecasters see a 3.7% increase in the core personal consumption expenditures price index, which is one of the Fed’s preferred measures because it excludes often-volatile food and energy costs. That would be the smallest annual gain since May 2021 and consistent with modest progress on inflation.

    What Bloomberg Economics Says:

    “Real 3Q GDP likely surged to a 4.7% annualized pace with consumers accelerating their spending to an unsustainable 4.2% pace amid a frenzy of summer travel and entertainment… We expect consumption to slow in 4Q given elevated inflation, high rates and the resumption of student-loan repayments. The Fed’s tightening cycle is taking time to hit the real economy, but we believe higher mortgage rate, credit card debt and business-loan defaults will hit growth this quarter.”

    —Anna Wong, Stuart Paul, Eliza Winger and Estelle Ou, economists. For full analysis, click here

    Turning north, the Bank of Canada rate decision on Wednesday will feature fresh projections for inflation, growth and the risk landscape for the economy. Governor Tiff Macklem is widely anticipated to maintain a pause while threatening that more hikes may be needed.

    Elsewhere, the European Central Bank may also keep rates on hold, Israeli officials take their first decision since war broke out, Chilean policymakers will probably cut borrowing costs, and peers in Russia and Turkey are likely to deliver large hikes. 

    Asia

    China’s top legislators, the standing committee of the National People’s Congress, meet through Tuesday and are likely to discuss a proposal for the early issuance of new local government debt and the appointment of key personnel. 

    China will also report on industrial profit in data that could show a continued recovery, as investors keep a close eye on the state of the world’s second largest economy. 

    In Japan, Prime Minister Fumio Kishida is likely to mull the results of special elections held over the weekend, with disappointing polling potentially encouraging further spending. 

    Tokyo inflation figures at the end of the week may give insight into whether price growth in Japan is continuing to slow, while investors are likely to keep a close watch on rising yields and the weak yen as the next Bank of Japan policy meeting looms at the end of the month.

    South Korea’s early trade data on Monday will provide a snapshot on the state of global demand, as will the country’s third quarter growth data. 

    Elsewhere in the region, Singapore releases inflation numbers and Thailand reports on trade. 

    Reserve Bank of Australia chief Michele Bullock speaks on Tuesday, with the country’s latest quarterly inflation figures out the following day. They may be pivotal in determining whether the RBA resumes raising rates at its Nov. 7 meeting.

    Europe, Middle East, Africa

    The UK will release a second batch of labor-market data on Tuesday, which may confirm a picture of waning momentum. 

    The same day, purchasing managers indexes in Britain and the euro zone are likely to show the contraction in manufacturing persisting in October, though possibly easing off its pace of deterioration. 

    Other euro-area reports in the coming week include consumer confidence on Monday and, two days later, Germany’s Ifo index, which is anticipated to show only mild improvement in business sentiment in Europe’s biggest economy. 

    Spanish gross domestic product on Friday is the first from the area’s key members showing what happened in the third quarter. The report is expected to show output defied weakness elsewhere to support a 10th quarter of expansion.

    At the ECB on Thursday, policymakers led by President Christine Lagarde are anticipated to keep borrowing costs on hold for the first time since June 2022, though they may signal that they can resume tightening if needed. Officials could well discuss the prospect of paring back bond holdings in future too.

    Meanwhile, some of the biggest money managers in Europe say traders are wrong to bet the ECB is done hiking interest rates. 

    A series of other key decisions are due from central banks around the region:

    • Israeli officials on Monday review policy for the first time since war broke out. With the shekel near an eight-year low before a likely ground invasion of Gaza, the central bank has signaled its focus is currency stability, meaning a rate cut is probably off the table.
    • Hungarian officials on Tuesday are poised to start slowing their easing cycle after five consecutive full-percentage point monthly reductions, to 13%. That’s still by far the highest rate in the European Union.
    • In Turkey, another large hike is anticipated on Thursday after inflation topped 60% last month, the fastest this year. While the central bank has more than tripled its key rate to 30% in four steps, price pressures are still intense.
    • On Friday in Russia, policymakers may add to three straight hikes in borrowing costs. With officials forecasting inflation at 6% to 7% this year, price pressures are likely to influence the decision, not least as the ruble’s slump has prompted the government to reimpose capital controls.

    The week ends with a flurry of sovereign credit reviews. Belgium, Botswana, Bulgaria, Finland, France, Italy and Sweden are among countries with assessments scheduled by major ratings companies.

    Latin America

    Mexico’s bi-weekly inflation report posted Tuesday should show a modest cooling in both the headline and core prints, though both remain over the central bank’s 3% target.

    Even so, one Banxico board member recently said that upcoming decisions will be “very data-dependent” and that policymakers are open to putting off the start of an easing cycle until mid-2024.

    In the region’s biggest economy, Brazil’s mid-month inflation print may have inched down from 5% posted in mid-September, keeping the central bank on track to continue 50 basis-point rate cuts through year-end.

    Argentina reports its GDP-proxy data for August on Tuesday. Triple-digit inflation and tight currency and import controls are pushing Argentina into its sixth recession in a decade, and have some analysts forecasting a second year of negative growth in 2024.

    Mexico also delivers its August GDP-proxy data, which should show a 22nd straight month of year-on-year growth, along with its September unemployment rate. Minimum wage hikes and a strong domestic economy have made for a tight labor market.

    In Chile, given steady disinflation and what policymakers see as below-potential growth, the central bank is all but certain to deliver a third straight jumbo rate cut from the current 9.5%.

    Vince Golle, Craig Stirling, Bloomberg

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  • U.S. economy seen growing at about a 2.2% annual rate in the July-September quarter, according to real-time New York Fed estimate

    U.S. economy seen growing at about a 2.2% annual rate in the July-September quarter, according to real-time New York Fed estimate

    The U.S. economy could expand at about a 2.2% annual rate in the current quarter, according to a revamped real-time estimate from the New York Federal Reserve released Friday.

    According to the weekly New York Fed’s Staff Nowcast, the economy has been on an upward trend since late July.

    The regional Fed bank had discontinued the real-time estimate during the pandemic. The New York Fed said the series will now be available weekly.

    The New York Fed’s estimate is much lower than the Atlanta Fed’s GDPNow model, which shows growth could expand at a 5.6% annual rate in the current quarter.

    Economists say the strength of the economy will be critical going forward in deciding whether the Federal Reserve needs to continue to raise its policy interest rate to cool inflation.

    The Fed has been expecting the economy to slow in the second half of the year. Fed officials forecast only 1% growth for 2023. In the first six months of the year, U.S. gross domestic product is averaging about a 2% growth rate.

    If the economy reaccelerates, it is likely that inflation will also move higher. Fed officials had been hoping that slower economic growth would continue push down inflation.

    Faster growth means “you are probably going to get some inflation numbers that aren’t going to be as good as people were anticipating,” said James Bullard, the former president of St. Louis Fed president and now dean of Purdue’s business school.

    “There is some risk that the Fed will have to go a little bit higher” even than the one more interest rate hike that the central bankers have penciled in this year, he said, in a recent CNBC interview.

    The first official government estimate of third-quarter growth won’t be released until Oct. 26.

    The picture of the health of the economy painted by U.S. GDP statistics can change quickly.

    The growth estimates for the first half of the year could be revised at the end of September when the Commerce Department releases benchmark updates to GDP data.

    The sharp revisions are one of the reasons why the Fed typically pays more attention to the unemployment rate and the inflation data.

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  • Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    For the last 18 months, all you’ve heard from the markets is that the U.S. economy is three months away from a recession. Now, the popular analysis is that that inflation is on a smooth glidepath down and the economy will never have a downturn again.

    Worries about a recession have evaporated, and all the talk is about a “soft landing,” with the Federal Reserve not having to hike interest rates more than once more, at most.

    But behind the scenes, in some economic circles, there is growing concern about another risk for the economy, dubbed a “no landing” scenario.

    What does “no landing” mean? Essentially it’s marked by economic growth that’s too strong to allow inflation to fall all the way to 2%, where the Federal Reserve aims for it to be, and therefore an economy that will need more Fed rate hikes, according to Chris Low, chief economist at FHN Financial.

    So instead of the U.S. central bank starting to cut rates early next year, there may be more rate hikes in store.

    “There is still considerable work to do before the inflation beast is fully tamed,” Low said.

    Former Fed Vice Chair Richard Clarida described the risk in crystal-clear terms. “If the Fed finds itself  in March 2024 with an unemployment rate of 4% and an inflation rate of 4% with some of that temporary good news behind them, they are in a very tough spot,” Clarida said in a recent interview with Bloomberg News.

    “It is a risk. It is not the base case. But if I was still there [at the Fed], I would be assessing it,” he added.

    So why does this matter? Why would the Fed be in such a tough spot? Two words: presidential election.

    A Fed that is dedicated to bringing inflation down might have to slam the brakes on the economy forcefully to get the job done. That gets tough during an election year, especially one that already seems poised to be filled with acrimony.

    “The Fed does not play politics with monetary policy. The FOMC will do what is right for the economy, election year or not. Nevertheless, FOMC participants are already sensitive to triggering a recession. Doing it in an overt way when Congress, a third of the Senate, and the White House are up for grabs would be reckless,” Low said.

    Andrew Levin, professor of economics at Dartmouth College and a former top Fed staffer, said “raising interest rates sharply in the midst of an election cycle could be a delicate matter. Even the vaunted inflation fighter, Paul Volcker [the Fed’s chairman from 1979 to 1987], decided to ease off the brakes midway through the 1980 presidential campaign.”

    Ray Fair, a Yale economics professor, thinks that, whether or not the Fed successfully lowers consumer-price inflation to the vicinity of 2% will be what really matters for the 2024 presidential election. If inflation does not go gently and the Fed is still fighting next year, it would likely be negative for President Joe Biden and the Democratic Party, he said.

    See: Inflation could rebound later this year. And that might be a good thing.

    To avoid hiking rates next year, the Fed, in Low’s view, will raise interest rates to 6% by the end of this year. That is an out-of-consensus call. Financial markets think the Fed is done hiking with its benchmark policy interest rate in a range of 5.25% to 5.5%.

    Many economist and the financial markets are talking more about prospective Fed rate cuts in early 2024 than any more hikes.

    Asked during a recent radio interview if he thought a “no landing” scenario was taking shape, Philadelphia Fed President Patrick Harker replied: “I don’t think so.”

    Harker said the economy was likely on track to return to the low-interest-rate and low-inflation environment of 2012-19.

    “I think about this a lot, and I asked myself what’s different fundamentally about the U.S. economy now then the way it was before the pandemic,” Harker said. He concluded that there wasn’t much difference.

    The big trend Harker mentioned was demographics, with baby boomers still moving in large numbers into retirement. “I don’t think we have to stay in a high-inflation regime. I think we can get back to where we were,” he said.

    Steve Blitz, chief U.S. economist at research firm GlobalData.TSLombard, said he puts the probability of a “no landing” scenario at about 35%.

    Blitz added it was a common mistake for economists, policy makers, traders and journalists “to presume that the expansion to come is going to look like the expansion that was.”

    “At least in the United States, that was never the case,” he added.

    Blitz said that if the U.S. economy were growing at a rate below 2% with an inflation rate higher than 3%, the Fed would have to raise the policy rate to about 6.5%. But if the economy is humming along with 3% growth and inflation over 3%, that would be a trickier spot. “Does the Fed really want to slow that down?” he asked.

    See: The U.S. economy is aiming for a three-peat: 2% GDP growth

    The range of possible outcomes for the economy remains wide. Some economists still believe that a recession early next is the most likely outcome.

    Other economists, like Michelle Meyer, chief U.S. economist at Mastercard, think the economy will continue to grow, with inflation coming down. Meyer described that outcome as “a soft landing with bumps.”

    Stephen Stanley, chief economist at Santander U.S., said he thinks the U.S. economy will “muddle through” next year with subpar growth in the range of 1% for several quarters and inflation slowing gradually.

    “Obviously, that optimism melts away if we’re back to readings of 0.4% and 0.5% on core CPI in three months or six months,” Stanley said.

    Economic calendar: See what’s on the U.S. economic-data docket in the coming week

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  • The U.S. economy might still be too strong for its own good

    The U.S. economy might still be too strong for its own good

    The economy is slowing all right, but oddly, it might still be too strong to get inflation to fall much faster and help the U.S. avoid recession.

    Gross domestic product, the official scorecard of the economy, decelerated to a 1.1% annual rate of growth in the first three months of this year. That’s down from 2.6% and 3.2% in the prior two quarters.

    The slowdown in growth is exactly what the Federal Reserve is aiming for.

    The central bank is trying to pull a rabbit out of a hat by cooling off the economy enough to extinguish the highest inflation since the 1980s and avoid a recession at the same time.

    To achieve its goal, the Fed has jacked up a key U.S. interest rate above 5% from near zero over the past 15 months. Higher borrowing costs slow the economy by reducing consumer spending and business investment.

    The strategy appears to be working. The yearly rate of inflation tapered off to 4.9% in April from a 40-year peak of 9.1% last summer.

    Yet it’s far from clear the economy will slow enough to put inflation on a track to reach the Fed’s 2% target without further interest-rate increases. The Fed raised rates again earlier this month, but signaled it hopes to stand pat for the rest of the year.

    The early evidence in the second quarter is mixed.

    Consumer attitudes about the economy soured in May amid talk of recession and looming U.S. debt-ceiling crisis, for one thing.

    Americans have also cut spending on many big-ticket items such as furniture and appliances and they are leery of taking on major new debt. Since last summer the savings rate has almost doubled to 5.1% from a 17-year low .

    The latest earnings report from Home Depot underscores the problem.

    Home Depot posted lower first-quarter profits and said sales this year could fall for the first time since 2009, when the U.S. was exiting a severe recession.

    The popular retailer sells many expensive goods such electric tools and appliances and provides the materials needed for many major home projects. These are the sorts of purchases Americans are putting on hold.

    Yet other measures show the economy is still expanding at a modest pace — and that it may have even perked up.

    Take retail sales. They rose in April for the first time in three months, led by an increase in auto sales.

    “Retail sales came in strong again, showing how the consumer isn’t showing any signs of slowing down,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance 

    Steady demand for new cars and trucks, in turn, has spurred automakers to ramp up, especially with shortages of key parts continuing to ease. U.S. industrial production rose 0.5% in April after stalling out for two months, mostly because of the auto industry.

    Auto sales are on track to increase sharply this year after falling to an 11-year low in 2022. Why is that a big deal? Recessions are basically unheard of absent an outright decline in car buying.

    It’s not just cars, either.

    Consumers aren’t spending as much on goods, but services are another matter. They have spent the bulk of their discretionary income on travel, recreation and dining out, the sort of things that are the first to go when times get tough.

    Hotel bookings, plane-ticket purchases and dinner reservations are all near pre-pandemic peaks — definitely not a sign of an approaching recession.

    The early read on second-quarter GDP, not surprisingly, is fairly positive. The Atlanta Federal Reserve’s GDPNow estimates growth at 2.9%. JPMorgan is more modest at 1%. And Nomura is at 0.7%.

    What’s keeping the economy going despite sharply higher borrowing costs is the strongest labor market in decades. Businesses are still hiring and the economy is still adding jobs, keeping the unemployment rate at an extremely low 3.4%.

    Even a recent increase in layoffs, as represented by rising jobless claims, overstates emerging weakness in the labor market. Major fraud in Massachusetts appears to have exaggerated how many job losses are taking place in the economy.

    A tight labor market would normally be a great thing. Now it’s a double-edged sword.

    Workers are reaping bigger pay increases to help them cope with higher prices, but rapidly rising wages are also adding to high inflation. Businesses have tried to offset higher labor costs partly by charging more for their goods and services.

    The uber-strong labor market leaves the Fed in a bind.

    If job openings and hiring don’t weaken a lot further, the economy is likely to grow fast enough to maintain the upward pressure on inflation. The Fed could be forced to come off the sidelines and raise interest rates again, raising the odds of a recession.

    Several senior Fed officials indicated this week they have not seen enough evidence to support a freeze in interest rates for the rest of the year.

    “Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate,” said Fed Gov.  Michelle Bowman.

    Even if the Fed doesn’t raise rates again, though, many Wall Street
    DJIA,
    -0.33%
    economists think a recession is inevitable by the end of the year. They view the seeming green shoots in April as a feint, pointing to softer consumer spending, waning business investment and the slumping housing and manufacturing industries.

    “The march to recession continues, with some rest stops along the way,” said chief economist Steve Blitz of TS Lombard.

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  • Canada housing market upturn could delay shift to BoC rate cuts

    Canada housing market upturn could delay shift to BoC rate cuts

    TORONTO, May 14 (Reuters) – Signs of recovery in Canada’s housing market after a year-long slump, just as higher borrowing costs are expected to slow much of the rest of the economy, could raise inflation and delay a shift by the central bank to interest rate cuts, analysts said.

    The housing market’s upturn comes after the Bank of Canada paused its interest rate hiking campaign last month, leaving the benchmark rate at a 15-year high of 4.50% since January.

    In addition, analysts say higher borrowing costs have so far caused less financial stress for homebuyers than they had expected, so the market has not had to accommodate a flood of supply from forced sellers.

    The BoC is counting on slower economic growth to return inflation to its 2% target. A rebound in the housing market could boost activity and contribute directly to price pressures.

    “The Bank of Canada at the end of the day is probably not going to be too thrilled if the housing market really starts to ramp up,” said Robert Kavcic, a senior economist at BMO Capital Markets. “From a shelter cost perspective, you are going to start to see more upward push on inflation in the second half of this year.”

    The cost of shelter has the highest weighting in Canada’s consumer price index, accounting for 30%. And, home prices tend to be highly visible, so an increase could have a pronounced impact on inflation expectations, analysts say.

    The average price for a home in the Greater Toronto Area, Canada’s most populous metropolitan region, rose in April on a month-over-month basis for a third straight month, while sales also moved higher. Other major markets have also showed gains.

    Despite higher borrowing costs, mortgage delinquency rates have remained low for now in Canada after mortgage borrowers were put through a stress test showing they could manage if interest rates were 2 percentage points higher than the rate on their loan.

    In addition, variable-rate borrowers have been sheltered from higher interest rates after lenders temporarily extended the period over which their debt is amortized, keeping their payments the same.

    “One of the reasons the market has been able to stabilize so quickly is because there’s just no forced selling,” Kavcic said.

    Things could change – Royal Bank of Canada recently warned of the risk that mortgage delinquencies rise by more than a third over the coming year.

    The other worry is that stress in the U.S. regional banking sector could spill over to Canada. Clues on that front could come from the BoC’s Financial System Review – an annual checkup of financial system tensions – which is due for release on Thursday.

    But there are also tailwinds to support a recovery, including supply shortfalls, record immigration and labor market strength, analysts said.

    Wage growth could cool over the coming months, helping to lower inflation, but the Bank of Canada “is unlikely to be in a rush to cut interest rates if house prices are roaring higher again,” Stephen Brown, senior Canada economist at Capital Economics, said in a note.

    Reporting by Fergal Smith; Editing by Steve Scherer and Jonathan Oatis

    Our Standards: The Thomson Reuters Trust Principles.

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  • Saudi Arabia could invest in Iran ‘very quickly’ after agreement – minister

    Saudi Arabia could invest in Iran ‘very quickly’ after agreement – minister

    RIYADH, March 15 (Reuters) – Saudi Arabia’s Finance Minister Mohammed Al-Jadaan said on Wednesday that Saudi investments into Iran could happen “very quickly” following an agreement to restore diplomatic ties.

    “There are a lot of opportunities for Saudi investments in Iran. We don’t see impediments as long as the terms of any agreement would be respected,” Al-Jadaan said during the Financial Sector Conference in Riyadh.

    Iran and Saudi Arabia agreed on Friday to re-establish relations and re-open embassies within two months after years of hostility, following talks in China.

    “Stability in the region is very important, for the world and for the countries in the region, and we have always said that Iran is our neighbour and we have no interest to have a conflict with our neighbours, if they are willing to cooperate,” Al-Jadaan later told Reuters in an interview.

    The hostility between the two Middle Eastern powers had endangered the stability and security of the Middle East and helped fuel regional conflicts including in Yemen, Syria and Lebanon.

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    “We have no reason not to invest in Iran, and we have no reason not to allow them to invest in Saudi Arabia. It is in our interest to make sure that both nations benefit from each others resources and competitive advantage,” Al-Jadaan told Reuters.

    “If they (Iran) are willing to go through this process, then we are more than willing to go through this process and show them they are welcome and we would be more than happy to participate in their development,” he said.

    CHINESE LEVERAGE

    The deal, brokered by China, was announced after four days of previously undisclosed talks in Beijing between top security officials from Saudi Arabia and Iran.

    China has leverage on Iran and Tehran will find it difficult to explain if it does not honour the agreement signed with Saudi Arabia in Beijing, another Saudi official told reporters, separately, on Wednesday.

    The official, who declined to be named, said China is in a unique position as it enjoys exceptional relations with both Iran and Saudi Arabia.

    “China is the first trading partner for both countries so the leverage is very important in that regard. And since we are building confidence, that commitment should be made with the presence of Chinese officials,” he said.

    Saudi Arabia cut ties with Iran in 2016 after its embassy in Tehran was stormed during a dispute between the two countries over Riyadh’s execution of a prominent Shi’ite Muslim cleric.

    The kingdom also has blamed Iran for missile and drone attacks on its oil facilities in 2019 as well as attacks on tankers in Gulf waters. Iran denied the charges.

    The most difficult topics in the talks with Iran were related to Yemen, the media, and China’s role, the official said without elaborating.

    Both sides have agreed to re-activate a 2001 security agreement, which covers cooperation in fighting drugs, smuggling and organised crime, as well as another earlier pact on trade, economy and investment.

    “Resuming diplomatic relations does not mean we are allies… Diplomatic relations are the norm for Saudi Arabia, and we should have them with everybody,” the official said.

    Additional reporting by Aziz El Yaakoubi; Writing by Clauda Tanios and Hadeel Al Sayegh; Editing by Christopher Cushing, Jon Boyle and Andrea Ricci

    Our Standards: The Thomson Reuters Trust Principles.

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  • China plans 7.2% defence spending rise this year, faster than GDP target

    China plans 7.2% defence spending rise this year, faster than GDP target

    • China’s 2023 defence spending to rise 7.2%
    • Increase to outpace GDP growth target of around 5%
    • Premier Li says armed forces should boost combat preparedness
    • China investing in new hardware including aircraft carriers

    BEIJING, March 5 (Reuters) – China will boost defence spending by 7.2% this year, slightly outpacing last year’s increase and faster than the government’s modest economic growth forecast, as Premier Li Keqiang called for the armed forces to boost combat preparedness.

    The national budget released on Sunday showed 1.55 trillion yuan ($224 billion) allocated to military spending.

    The defence budget will be closely watched by China’s neighbours and the United States, who are concerned by Beijing’s strategic intentions and development of its military, especially as tensions have spiked in recent years over Taiwan.

    In his work report to the annual session of parliament, Li said military operations, capacity building and combat preparedness should be “well-coordinated in fulfilling major tasks”.

    “Our armed forces, with a focus on the goals for the centenary of the People’s Liberation Army in 2027, should work to carry out military operations, boost combat preparedness and enhance military capabilities,” he said in the state-of-the-nation address to the largely rubber-stamp legislature.

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    This year’s hike in defence spending marks the eighth consecutive single-digit increase. As in previous years, no breakdown of the spending was given, only the overall amount and the rate of increase.

    The spending increase outpaces targeted economic growth of around 5%, which is slightly below last year’s target as the world’s second-largest economy faces domestic headwinds.

    Beijing is nervous about challenges on fronts ranging from Chinese-claimed Taiwan to U.S. naval and air missions in the disputed South China Sea near Chinese-occupied islands.

    China staged war games near Taiwan last August to express anger at the visit to Taipei of then-U.S. House Speaker Nancy Pelosi.

    Li Mingjiang, associate professor at S. Rajaratnam School of International Studies in Singapore, said defence spending outpacing the economic growth forecast showed China anticipates facing greater pressures in its external security environment, especially from the United States and on the Taiwan issue.

    “Chinese leaders are clearly intensifying efforts to prepare the country militarily to meet all potential security challenges, including unexpected situations,” he said.

    China, with the world’s largest military in terms of personnel, is busy adding a slew of new hardware, including aircraft carriers and stealth fighters.

    ‘STRENGTHEN MILITARY WORK’

    Beijing says its military spending for defensive purposes is a comparatively low percentage of its GDP and that critics want to demonise it as a threat to world peace.

    “The armed forces should intensify military training and preparedness across the board, develop new military strategic guidance, devote greater energy to training under combat conditions and make well-coordinated efforts to strengthen military work in all directions and domains,” Premier Li said.

    Takashi Kawakami, a professor of Takushoku University in Tokyo, said China would probably give priority to its nuclear capability.

    “As China strengthens the new area of cognitive warfare over Taiwan, I think it will also use the budget to build up its cyber and space capabilities, as well as its submarine forces to target undersea cables,” he said.

    China’s reported defence budget in 2023 is around one quarter of proposed U.S. spending, though many diplomats and foreign experts believe Beijing under-reports the real number.

    The fiscal 2023 U.S. defence budget authorises $858 billion in military spending and includes funding for purchases of weapons, ships and aircraft, and support for Taiwan and for Ukraine as it fights an invasion by Russia.

    China has long argued that it needs to close the gap with the United States. China, for example, has three aircraft carriers, compared with 11 in active service for the United States.

    The Ukraine war has prompted some elements in China’s military-industrial complex to call for an increase in the defence budget.

    An article published last October in the official journal of the State Administration of Science, Technology and Industry for National Defence, a central government ministry responsible for wartime logistics, recommended an increase in the military budget given surges in defence spending from NATO member-states besides the United States.

    “This matter is not about participating in the international arms race, but defending our national security,” it said.

    ($1 = 6.9048 Chinese yuan renminbi)

    Reporting by Yew Lun Tian; Additional reporting by Eduardo Baptista, and Nobuhiro Kubo in Tokyo; Writing by Ben Blanchard; Editing by William Mallard & Simon Cameron-Moore

    Our Standards: The Thomson Reuters Trust Principles.

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  • China sets modest growth target of about 5% as parliament opens

    China sets modest growth target of about 5% as parliament opens

    • GDP target around 5% at low end of expectations
    • Work report focuses on consumption, jobs
    • Defence spending to rise 7.2%, up from 7.1% rise
    • Budget deficit target at 3%, wider than previous 2.8%

    BEIJING, March 5 (Reuters) – China set a modest target for economic growth this year of around 5% on Sunday as it kicked-off the annual session of its National People’s Congress (NPC), which is poised to implement the biggest government shake-up in a decade.

    China’s gross domestic product (GDP) grew by just 3% last year, one of its worst showings in decades, squeezed by three years of COVID-19 restrictions, crisis in its vast property sector, a crackdown on private enterprise and weakening demand for Chinese exports.

    In his work report, outgoing Premier Li Keqiang stressed the need for economic stability and expanding consumption, setting a goal to create around 12 million urban jobs this year, up from last year’s target of at least 11 million, and warned that risks remain in the real estate sector.

    Li set a budget deficit target at 3.0% of GDP, widening from a goal of around 2.8% last year.

    “We should give priority to the recovery and expansion of consumption,” said Li, who spoke for just under an hour in a speech to open the parliament, which will run through March 13.

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    “The incomes of urban and rural residents should be boosted through multiple channels. We should stabilize spending on big-ticket items and promote recovery in consumption of consumer services,” he said.

    This year’s growth target of around 5% was at the low end of expectations, as policy sources had recently told Reuters a range as high as 6% could be set. It is also below last year’s target of around 5.5%.

    “While the official growth target has been lowered for the second consecutive year, which might be a disappointment to the market, we reckon investors (should) pay attention to the underlying growth momentum to gauge the recovery pace,” said Zhou Hao, economist at Guotai Junan International.

    Li and a slate of more reform-oriented economic policy officials are set to retire during the congress, making way for loyalists to President Xi Jinping, who further tightened his grip on power when he secured a precedent-breaking third leadership term at October’s Communist Party Congress.

    [1/5] Chinese President Xi Jinping and Li Keqiang talk at the opening session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China March 5, 2023. REUTERS/Thomas Peter

    During the NPC, former Shanghai party chief Li Qiang, a longtime Xi ally, is expected to be confirmed as premier, tasked with reinvigorating the world’s second-largest economy.

    The rubber-stamp parliament will also discuss Xi’s plans for an “intensive” and “wide-ranging” reorganisation of state and Communist Party entities, state media reported on Tuesday, with analysts expecting a further deepening of Communist Party penetration of state bodies.

    MILITARY BUDGET RISE

    Li said China’s armed forces should devote greater energy to training under combat conditions and boost combat preparedness, and the budget included a 7.2% increase in defence spending this year, a slightly bigger increase than last year’s budgeted 7.1% rise and again exceeding expected GDP growth.

    On Taiwan, Li struck a moderate tone, saying China should promote the peaceful development of cross-Strait relations and advance the process of China’s “peaceful reunification”, but also take resolute steps to oppose Taiwan independence.

    Beijing faces a host of challenges including increasingly fraught relations with the United States and a worsening demographic outlook, with plunging birth rates and a population drop last year for the first time since the famine year of 1961.

    China plans to lower the costs of childbirth, childcare and education and will actively respond to an ageing population and a decrease in fertility, the nation’s state planner said in a work report released on Sunday.

    The NPC opened on a smoggy day amid tight security in the Chinese capital, with 2,948 delegates gathered in the cavernous Great Hall of the People on the west side of Tiananmen Square.

    During the session, China’s legislature will vote on a plan to reform institutions under the State Council, or cabinet, and decide on a new cabinet line-up for the next five years, according to a meeting agenda.

    It is the first NPC meeting since China abruptly dropped its zero-COVID policy in December, following rare nationwide protests. Excluding the pandemic-shortened meetings of the previous three years, this year’s session will be the shortest in at least 40 years, according to NPC Observer, a blog.

    Additional reporting by the Beijing newsrooom; Writing by Tony Munroe; Editing by Himani Sarkar, William Mallard and Simon Cameron-Moore

    Our Standards: The Thomson Reuters Trust Principles.

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