June export data release to be delayed:
The release of export data for the month of June will get delayed as the both Bangladesh Bank
(BB) and Export Promotion Bureau (EPB) are correcting the data mismatch. "It will be late this
time because correction of data is going on and it is not possible to say exactly when the export
data can be released," said a senior official of the EPB asking not to be named. Usually, the EPB
releases the export data of a month on the second or third day of the next month. But it has delayed
in publishing export figures of June, the ending month of a fiscal year, after the BB reported that
July-April export earnings of fiscal year 2023-24 were around $14 billion lower than EPB's data.
German investor morale records first drop in a year:
German investor confidence fell for the first time in a year in July, a key survey said Tuesday, as
the prospects for Europe's largest economy seemed to darken once again. The ZEW Institute's
closely watched economic expectations index fell to 41.8 points, from 47.5 points in June. The
drop was anticipated by analysts surveyed by financial data firm FactSet, who predicted a fall to
42 points. The drop was the first time the indicator had dropped since July 2023, concluding a run
of 11-straight increases. "For the first time in a year, economic expectations for Germany are
falling," ZEW president Achim Wambach said in a statement. Wambach pointed to the fact that
“German exports decreased more than expected in May" as a factor behind the worsening mood.
"The political uncertainty in France and the lack of clarity regarding the future monetary policy by
the (European Central Bank)" also contributed to the drop, Wambach said. Recent snap legislative
elections in France failed to return a majority for any group, leaving Germany's neighbor in
political limbo. Meanwhile, the ECB is set to hold rates at its next meeting on Thursday after an
initial cut in borrowing costs last month. When and if the central bank will cut rates again to reduce
the pressure on households and businesses remains unclear. Red-hot inflation, which prompted the
ECB to raise rates in the first place, has come down but policymakers still see several risk factors
that could drive them up again. While overall German investor confidence fell, their assessment
of the current situation rose slightly to minus 68.9 points. Deutsche Bank analyst Robin Winkler
said the opposing moves meant he did not see “any clear economic signal in the new survey data".
Inflation teaches five lessons for the next crisis:
Central bankers are close to declaring mission accomplished. After inflation soared beyond 9
percent following the pandemic and Russia's invasion of Ukraine, it's tumbling back toward the 2
percent level targeted by the US Federal Reserve and its peers in Britain and Europe. They were
initially wrong-footed, but eventually responded with sharp and swift increases to benchmark
interest rates. And contrary to most predictions by economists and market strategists, this
aggressive policy did not trigger major recessions in the world's largest economies. For monetary
authorities, this is as good it gets. But before Fed Chair Jerome Powell, European Central Bank
boss Christine Lagarde and Bank of England Governor Andrew Bailey close the book on this
treacherous period, they would be well-served to acknowledge the amount of luck that was
involved and learn what they could do better when the next crisis rolls around. As Alan Greenspan,
one of Powell's predecessors, once said, "Excessive optimism sown the seeds of its own reversal."
In that spirit, here are five useful takeaways.
BE HUMBLE:
Modesty is a relative concept here. By the standards of corporate chieftains, central bankers are
typically even-keeled, soft-spoken and deliberate. During this economic cycle, however, they often
came off too confident in their convictions. That's particularly true for Powell and his penchant for
describing inflation as "transitory." He introduced the idea in March 2021, when yearly price
growth was still below 2 percent, but then stuck with it for months and only "retired it" eight
months later. By then, the Fed's preferred measure of inflation was more than twice its target rate.
A lingering anchoring effect probably played a part in the Fed's decision to wait yet another four
months before making it pricier to borrow. Group CEO Matthias Dopfner, and the buyout group
KKR. A century ago, renowned economist John Maynard Keynes urged investors to change their
minds when facts change. The tenet applies equally, if not more so, to interest-rate guardians.
TALK LESS:
In 1987, Greenspan famously told a congressional committee: "If I seem unduly clear to you, you
must have misunderstood what I said." It's hardly the case anymore. Pressure from investors,
politicians and media for central bankers to be less Delphic has opened the verbal floodgates. Since
January, ECB board members alone have delivered 55 speeches, opens new tab. In the United
States, the seven members of the Fed's main board and the heads of its 12 regional banks can often
be found behind a microphone somewhere, while in Britain, five internal and four external
members of the BoE's Monetary Policy Committee are talkative, too. Throw in parliamentary
appearances and the press conferences that follow interest rate decisions, and it's a veritable Tower
of Babel, or babble, to decipher. Investors seem baffled. When academics Anna Cieslak, Michael
McMahon and Hao Pang asked ChatGPT models to analyse some 7,700 articles about the Fed
published in the Wall Street Journal between 2020 and 2023, they found that more than a third of
them conveyed a degree of confusion. Even the professionals are crying uncle. Although they
praise Fed communications overall, nearly 60 percent of experts surveyed by Brookings Institution
said, opens new tab regional presidents should say less.
GET UNSTUCK:
Every central banker's worst nightmare is "1970s-style inflation." During that stretch, which
extended into the early 1980s, US prices nearly doubled, prompting the Fed, then-led by Paul
Volcker, to jack up interest rates to about 20 percent. In Germany, prices rose, opens new tab 46
percent between 1974 and 1982, spurring the Bundesbank to attempt similarly painful heroics.
Powell & Co feared that, as inflation accelerated, companies and workers would recalibrate their
own expectations for prices and wages and feed an uncontrollable upward spiral. In applying the
Volcker playbook, however, central banks failed to fully appreciate that price growth was largely
due to unusual shocks to supply chains and consumer behavior. In that sense, it was less like the
disco era and more like the one after World War Two, a cyclical, albeit prolonged, phenomenon
caused by the transition to peacetime economies. By mimicking Volcker, central banks risk
endangering economic growth. The euro zone and Britain already have experienced recessions,
albeit shallow ones, while US GDP expanded by just 1.4 percent year-on-year in the first quarter
this year, down from 3.4 percent during the last three months of 2023.
CHANGE MODELS:
One shortcoming laid bare has been within PhD-laden central bank research departments: their go-
to methods of data-crunching aren't necessarily well-suited for every economic situation. Take the
Phillips curve, for example. Developed by New Zealand economist William Phillips, it correlates
lower unemployment with higher wages, postulating that there are short-term trade-offs between
inflation and joblessness. Its corollary is that to tame prices, central banks have to hurt labor
markets. Powell said as much in a high-profile speech on August 26, 2022, which led to a rout in
stock markets. Since the Fed began raising rates, however, US unemployment has hovered around
a historically low 3 percent to 4 percent rate. Economists disagree on the reasons, but it's clear the
Phillips curve was unreliable this time around. One possible solution comes from another former
Fed chair, Ben Bernanke. When reviewing the BoE's forecasting methods after a series of mistakes,
he suggested embracing scenario analysis, or comparing a variety of likely economic outcomes
under alternative assumptions. Bernanke also advocated a "risk-management" approach to
policymaking and taking out "insurance" against potential pitfalls. It's what Greenspan did in July
1995, when the Fed unexpectedly cut rates because it feared the economy was weakening.
LOOK AHEAD:
Being at the helm amid choppy waters is a difficult and thankless task. If nothing else, however,
this two-year span has shown that economics is not, as Thomas Carlyle said in the 19th century,
"a dismal science," but a cheerless art. After obsessing for years over how to push inflation higher
and, in the Fed's case, changing its official target to reflect as much, central bankers were faced
with diametrically opposed conditions.
The reliance on historical upheavals and models did not serve them well, even though they may
yet engineer the elusive "soft landing." It's important to be thinking about the next crisis as much
as the previous or existing ones. For all their stumbles, Powell, Lagarde and Bailey deserve a
victory lap. As they circle the track, they would do well to embrace the lessons from recent
experiences and also recall what Powell told his assembled peers almost a year ago: "We are
navigating by the stars under cloudy skies."
The main obstacles to Chinese growth
China's top leadership meets on Monday to thrash out plans to boost growth, but the country's
economy remains weakened by sluggish consumption, a property sector in crisis and deflation
fears.
Here AFP looks at the main challenges facing the world's second-largest economy:
Fragile consumption
A high youth unemployment rate -- 14.2 percent in May -- and economic uncertainties are
weakening consumption, one of the driving forces behind the Chinese economy. China plunged
into deflation for four months starting last October, with the sharpest contraction in consumer
prices in 14 years taking place in January. They have since returned to positive territory but are
rising only slightly, with June's increase just 0.2 percent, according to data released on Wednesday.
Stagnant or falling prices are bad for the economy's health, forcing firms to cut back to clear their
stocks or reduce production in the absence of demand, which weighs on their profitability and
willingness to hire. Real estate in crisis The property sector, which enjoyed two decades of
meteoric growth as the population's standard of living rose, long accounted for more than a quarter
of China's GDP. But it has been under pressure since the government tightened credit conditions
for property groups in 2020 in order to reduce their debt. Many such firms are now on the verge
of bankruptcy. That disincentivises Chinese people to invest in property, especially as real estate
in China is often paid for before it is even built. The fall in prices per square metre is also a blow
to the wallets of homeowners, who have long seen property as a safe investment.
Local authorities in debt
The finances of some local authorities are stretched to the limit after three years of astronomical
spending to combat the Covid-19 pandemic and, above all, a property crisis that has deprived them
of a major source of income. The economic context is exacerbating their difficulties, according to
analysts at SinoInsider, an American consultancy specialising in China. And they point out that
some companies have recently complained about receiving tax arrears dating back to the 1990s.
SinoInsider noted that local governments are "trying various methods" to increase their revenues,
at the risk of weakening businesses that have already been tested by the economic situation.
Trade under pressure
China's exports are also a matter of concern for the country's leaders. Historically they are a major
growth driver and have a direct impact on employment for thousands of companies. But the sector
is under pressure from geopolitical tensions between Beijing and Washington, as well as those with
the European Union, a key trading partner for the Asian giant. In early July, the EU imposed
additional customs duties of up to 38 percent on imports of Chinese electric cars, a decision that
could become final in November. Brussels accuses Beijing of illegally favouring its manufacturers
through subsidies.
Weak investment
The economic situation in China, geopolitical tensions with Washington and the risk they pose to
supply chains are holding back foreign investment. The Chinese economy has potential, with its
doors wide open and private investment welcome, say China's leaders, who in recent months have
stepped up their efforts to attract foreign business figures. Over the period from January to May,
foreign investment nevertheless fell by 28 percent year-on-year, according to figures from the
commerce ministry.
Financial pressure
Given the economic climate, the financial sector is reluctant to invest in traditional growth sectors,
fuelling an "asset shortage", SinoInsider said. On the other hand, it is buying more and more "risk-
free" long-term government bonds, which is driving down yields. This is helping to depreciate the
Chinese currency, with the risk of accelerating capital flight, SinoInsider warned.
EU faces funding crisis amid ambitious transition goals
The European Union (EU) will fall short of funding for the Strategic Agenda set for 2024-2029,
which calls for investment in green and digital transitions, according to a report by Finance Watch.
The EU leaders agreed on a new Strategic Agenda for 2024 to 2029 last month, prioritising
spending and investment in defence, green and digital transitions, the health system, and education.
However, these goals, particularly in the green and digital transition, may face a shortfall in
funding from private capital, according to Finance Watch. This necessitates a pragmatic discussion
about the financial approach to supporting Europe’s long-term strategic plans. EU leaders agree
on a new strategic agenda every five years following the new leadership establishment. On 27
June, the European Council adopted the new agenda for 2024 to 2029, based on three pillars: a
free and democratic Europe, a strong and secure Europe, and a prosperous and competitive Europe.
These plans, particularly the third pillar sparked concerns about the EU's ability to finance its
ambitious goals in terms of green and digital transitions. It states that the transitions include:
"a genuine energy union and investment in game-changing digital technologies in
Europe…significant collective investment efforts, mobilising both public and private funding,
including through the European Investment Bank and integrated European capital markets". A
capital market is a financial market where long-term debt or equity-backed securities are bought
and sold, providing a mechanism for raising capital. This market is essential for funding large-
scale projects, as it allows businesses and governments to secure the necessary resources for long-
term investments. The statement from the European Council necessitates substantial financial
contributions from both private and public sectors. According to a new report by Finance Watch,
the EU is facing a substantial funding gap in delivering on the pillars of its Strategic Agenda for
2024-2029, as only one-third of the necessary funds can be sourced from capital markets. Chief
economist Thierry Philipponnat warned that addressing climate change alone would require
upfront investments amounting to between 5% and 10% of the EU's GDP per year. "With well-
targeted regulation and a lot of political will, we think capital markets can fund up to a third of the
EU's climate needs, in cases where the financial yield is sufficient," he stated. In the report,
Philipponnat argues that it is unrealistic to expect capital markets to contribute more than one-third
of the funding for the EU's climate change mitigation and adaptation projects. This is because
private equity investors typically expect higher returns than these projects can generate. Regarding
public funding, EU member states have limited capacity to service additional debt due to
regulatory restrictions. He also highlighted that relying heavily on capital markets to fund growing
deficits could lead to instability within the EU. The report urges EU leaders to recognise the
significant risk of under-investment in climate projects and to take measures to maximise the
contribution of capital markets while addressing the remaining investment shortfall. Previously,
former ECB president Mario Draghi emphasised to EU ministers that an "enormous amount of
money is needed in a relatively short time". Similarly, former Italian Prime Minister Enrico Letta
noted in his report that financing the transition is "arguably the most strategic choice the EU can
make" and called for "all necessary public and private resources" to be mobilised to achieve this
goal.
