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Eurozone enters its first post-pandemic recession – Industry roundup: 12 December

Eurozone to succumb to first recession since pandemic, survey shows

The eurozone is entering its first recession since the pandemic, with the economy shrinking for a second straight quarter in the final months of the year, according to a Bloomberg poll of analysts.

A 0.1% contraction now predicted for the fourth quarter of 2023, while the previous survey forecast that output would remain unchanged. A modest recovery is expected for early 2024.

“We doubt that we’re at the start of an upswing,” said Joerg Angele, an economist at Bantleon Bank. “Headwinds remain strong, especially the ones stemming from the massive increase of interest rates.”

The region’s weakness is largely due to Germany, Europe’s largest economy, which is struggling to shake off its manufacturing slowdown. Beset by a budget crisis and weak global demand, the country is expected to experience a 0.2% downturn in Q4 of 2023 — double the 0.1% decline initially projected.

The survey results are more pessimistic than the European Commission’s November forecast, which foresees the 20-nation euro area returning to growth this quarter, helped by a steep fall in inflation and a robust jobs market.

Recent Eurostat data attributed the region’s recent weakness to changes in inventories, showing household consumption remaining strong. But shrinking industrial production numbers provided a reminder of the region’s enduring weakness.

While a major headwind has come from tighter monetary policy, the recent slowdown in consumer-price growth has surprised markets and policymakers alike, prompting predictions that the European Central Bank (ECB) could bring forward its first interest rate cuts to next spring.

Economists lowered their projections for inflation through September 2024. But the quarterly forecasts were lifted higher beyond that, and don’t envisage price gains easing to the ECB’s 2% target during the period covered in the poll.

The forecast comes after recent data showed Industrial production in Germany and Italy began the final quarter of the year in reverse after France and Spain reported similar outcomes, pointing to a possible recession in the region.

Output in Europe’s biggest economy fell 0.4% in October from the previous month to the lowest level since August 2020, the German statistics office reported. In Italy, production declined 0.2% from September.


EBRD outlines its approach to nature

The European Bank for Reconstruction and Development (EBRD) has outlined its approach to nature at COP28, as part of the recent Nature Day at the climate change summit in Dubai.

The approach is described as a statement on how the Bank can deliver more benefits for nature and play its role in halting and reversing biodiversity loss by 2030. It outlines how the EBRD will scale up nature action across three pillars: protect, invest and disclose. The approach is guided by the goals and targets of the Kunming-Montreal Global Biodiversity Framework and the joint Multilateral Development Banks (MDBs) statement on nature, people and planet from COP26, which was held in Glasgow, Scotland in October-November 2021.

“Nature is in crisis. According to the Stockholm Resilience Centre, out of nine processes regulating stability and resilience on earth, six have now passed beyond the boundary that defines their safe operating zone,” said the EBRD. “In that sense, the climate crisis is only one dimension of the nature crisis; pollution, freshwater, land use and biodiversity are also all in critical states.

“The global decline in nature and biodiversity is driven to a great extent by market failures, including the overexploitation of public goods, the mispricing of nature in economic systems and a lack of appropriate regulation to redress this. Addressing the biodiversity crisis is therefore in line with the EBRD’s transition mandate.

“The EBRD will leverage its decades of experience in environmental protection and its position as a MDB focused on the private sector, guided by the goals and targets of the Kunming-Montreal Global Biodiversity Framework to deliver on the commitments set out in COP26’s joint MDB statement on nature, people and the planet.

The new paper outlines the EBRD’s role in scaling up action for nature and biodiversity, and how the Bank will apply its operating model to this essential element of economic transition. The approach outlines how the Bank will:

  • Protect nature, by reviewing its Environmental and Social Policy to maintain good international practice in safeguarding and leveraging environmental due diligence to identify opportunities for Biodiversity Net Gains.
  • Invest in nature, by exploring new models for financing in three main areas: blue-green infrastructure, pollution prevention and the circular economy, and nature governance. This will include engaging in policy dialogue and working with donors to address market failures, incentivise better operational practices and develop new nature finance models.
  • Disclose nature-related information, by observing relevant disclosure standards and timelines for reporting on nature impacts and dependencies and working closely with other MDBs to align on definitions and reporting principles. The EBRD will also support its clients in making nature-related disclosures and sharing biodiversity baseline data through the Global Biodiversity Information Facility using a technical guidance document that the EBRD recently developed.


Big Five economies back global nuclear supply chain

The US, Canada, France, Japan and the UK have agreed to mobilise government-led investments totalling US$4.2billion to develop a global nuclear supply chain.

The decision was announced at the Net Zero Nuclear Summit at COP28 in Dubai, United Arab Emirates.

The investments will improve uranium enrichment and conversion capacity up to 2027 and establish a secure and resilient global uranium market.

Collectively dubbed Sapporo 5, the five countries, each a member of the G7, have agreed to encourage public-private investment in uranium enrichment production capacity. The agreement follows the recent pledge by 22 countries including Canada, Finland, Moldova, the Netherlands, Sweden and Ukraine to triple nuclear capacity by 2050.

The countries have agreed to encourage international financial institutions and regional development banks to include nuclear energy in their organisations’ energy lending policies, and to actively support nuclear power.

Nuclear energy has the potential to contribute to global net-zero greenhouse gas emissions and keep the target of a global temperature increase of 1.5°C within reach.

The five nations now backing the nuclear supply chain are collectively responsible for half the world’s capacity for uranium conversion and production enrichment.

They have recognised the need to develop resilient supply chains including fuel, and to deliver safe and secure nuclear technologies. They also agreed to establish a global supply market for uranium free from Russian influence.  

The countries will work to enable government or private-led investment to increase their conversion and enrichment of uranium and to advance efforts to secure reliable suppliers of nuclear fuel. Their goal is to build a long-term supply strategy that can bring confidence to the industry.

UK’s Crown Commercial Service opens open banking procurement network

The UK government’s Crown Commercial Service (CCS) has set up a commercial solution aimed at reducing fraud and improving prompt payment across the public sector.

CCS, first set up in 1991 is the UK’s biggest public procurement organisation, offering commercial expertise to help buyers in central government and across the public and third sectors to benefit from its collective purchasing power when buying goods and services.

The new initiative is named the Open Banking Dynamic Purchasing System (DPS) and is “the first of its kind from CCS, giving public sector organisations access to a suite of open banking services and account-to-account payments under one agreement.”

CCS said it could reduce the relevant payment costs for organisations by up to 80% and reduce fraud and error in payments.

The DPS will off customers three types of service;

  • Enabling them to make or receive payments digitally without the need for bank cards
  • Supplying account information, with users’ consent, as part of processes such as fraud identification, income verification and identity confirmation
  • Confirmation payee services, which involves checking on names or accounts to verify individuals and/or organisations.

Suppliers will be able to join the DPS at any time over its eight-year lifespan.

Open banking services allow for read-only financial data to be shared between banks and third-party service providers, which can be used to provide alternative payment methods and assist with wider financial capabilities. These services are designed to digitise and streamline traditional banking practices. 

Instead of relying on card payments, organisations will be able to receive payments in real time, removing many of the fees and delays associated with traditional payment methods. Debit card payments incur varying processing costs in the UK, but open banking negates these fees to leave plenty of scope for savings.

CCS said the information shared as part of the open banking process can also help reduce the volume of fraudulent or in-error payments made throughout the public sector by confirming or denying the identity of account holders. This will unlock the ability of open banking to clamp down on fraudulent activity, including false tax and benefit claims, which in turn will create significant savings. 

It added that, while open banking is a relatively new market that has not yet had the chance to fully realise its potential in the public sector, its market engagement and research has established that there is vast scope for its use. It is expected that it would be able to provide improvements such as a more accurate understanding of personal financial circumstances, which would enable more precise assessment of means, and allowing vulnerable members of society to receive vital payments more quickly.


Goldman Sachs projects two Fed rate cuts in 2024 with first in Q3

Investment banking group Goldman Sachs has brought forward its estimate for the Federal Reserve's first post-pandemic US interest-rate cut to Q3 of 2024 from a previous forecast of Q4.

The shift comes as bitcoin and the broader crypto market have bot surged in recent weeks on a bullish cocktail of an expected spot exchange-traded fund (ETF) launch in the US, the impending Bitcoin mining reward halving and the decline in the 10-year US Treasury yield, the so-called risk-free rate.

The Fed's benchmark interest rate is currently 5.25% to 5.5%, with traders of the Fed funds futures anticipating a decline to a range starting at 4% by the end of 2024. This month’s interest rate decision, dur Wednesday, is expected to be one of no change.

The Fed began its recent tightening cycle in March 2022 to tame inflation, raising rates from as low as 0%-0.25% with the most recent increase imposed in July. The rapid rise in borrowing costs weighed on risk assets, including cryptocurrencies, last year.


Falling pork prices evidence China’s deflation risk

Pork prices in China fell by more than 6% last week to reach their lowest mark since April 2022, Bloomberg data shows, with falling prices for the country’s most popular protein are the latest warning sign China is dealing with deflation.

In its third cycle of purchases for the year, Beijing announced last month that it was buying up more pork for its strategic reserves, but that has failed to prevent prices from falling. At the same time, authorities have requested farmers to sell hogs as soon as they are ready rather than hoarding them.

Falling pork prices provide the latest indicator that China has yet to escape concerns around deflation and disappointing economic growth.

The country's consumer price index fell 0.5% year-over-year in November, the national statistics bureau reported at the weekend, a weaker-than-expected reading and the most significant slide since November 2020. An official from the People’s Bank of China (PBOC) pointed to softening pork prices as a primary drag on consumer prices.

At the start of the yeae, as China was preparing to unwind pandemic lockdowns, global strategists were anticipating booming demand and an economic rebound. Yet massive debt loads in the country's real estate sector, low consumer optimism, unfavourable demographics, and more have all prevented the economy from seeing a post-Covid boom in growth and activity.

China’s  agriculture ministry said last week that pork consumption over the coming spring holiday season will remain weak, while hog output should climb.


HSBC launches digital ‘fast-track’ trade finance demand guarantee

HSBC has launched a ‘fast-track’ digital trade finance demand guarantee to help customers trade internationally in “a more seamless, secure and efficient way.”

The solution allows customers to issue digitally processed guarantees that can be issued to a beneficiary in real time, reducing issuance times from a typical three or four days down to potentially minutes, marking a significant milestone for the banking industry.

The ‘fast-track’ digitally processed trade finance guarantee will be available to customers via HSBC Trade Solutions, the bank’s trade finance platform set up to digitise and simplify customer journeys, which is being deployed globally in 2024 and 2025.

The first transactions of this kind were completed earlier month, with HSBC issuing a Tender Bond for the consultancy and accounting firm KPMG in Qatar and an Advance Payment guarantee for UK international corporate Russell Finex.

Vivek Ramachandran, Global Head of Global Trade and Receivables Finance (GTRF) at HSBC said: “The digitisation of world trade is a driver of economic success. At HSBC, we are bringing together our extensive expertise and innovative technology solutions to make paperless trade a reality for our customers.

“We have spent considerable time with our customers to understand how we can help their businesses succeed, and then brought together the best people and technology to design and build a capability that we genuinely see as a ‘game-changer’ in the industry.”


Visa and Mastercard reduce Canadian interchange fees

Canada’s government has finalised a deal with Visa and Mastercard to lower credit card interchange fees for the country’s small businesses.

From autumn 2024, small businesses and non-profits with less than US$300,000 in Visa sales and less than US$175,000 in Mastercard sales will qualify for fee cuts of up to 27%.

Bringing in-store transactions to an annual weighted average interchange rate of 0.95% is expected to save eligible Canadian small businesses about US$1 billion over five years, says the government.

In addition, the deal sees Visa and Mastercard provide free access to online fraud and cybersecurity resources.

Rechie Valdez, minister for small business, said: “Reducing costs on small businesses will enable them to further invest in their business and its growth, while helping support their success now and into the future.”

The Canadian Federation of Independent Business (CFIB) said the agreement “brings some welcome relief,” but called for the addition of other credit card providers and a rise in the thresholds.


Swiss arm of BBVA taps Ripple-owned Metaco for crypto custody

The Switzerland-based division of Spain’s Banco Bilbao Vizcaya Argentaria (BBVA) has migrated its crypto custody services to Ripple-owned infrastructure provider Metaco. According to a press release, the collaboration agreement will see BBVA Switzerland using Metaco‘s Harmonize platform to connect between multiple blockchain networks.

With Metaco, BBVA’s Swiss branch wants to expand its services beyond Bitcoin and Ethereum networks for fund managers and large companies, that need to “explore new business opportunities and opportunities to exchange value in a digital environment,” BBVA Switzerland says. In addition to custodian services, Harmonize will also serve as a trading platform as well as a tool for real-world assets tokenization, the press release confirmd.

In early November, HSBC also partnered with Metaco to launch a new platform for tokenised securities custody, marking a significant step forward for the bank in its digital asset strategy. The collaboration complements HSBC’s existing digital asset offerings, which include the HSBC Orion bond tokenisation platform and the HSBC Evolve platform for trading tokenised physical gold.

In May this year, Ripple acquired a controlling stake in Metaco, a Swiss firm specialising in digital asset custody and tokenisation technology. The deal, representing Ripple’s first major acquisition, signals the company’s growing focus on the custody market. With the completion of the Metaco share acquisition, Ripple became the sole shareholder of the Swiss crypto custodian.


Intellect partners with Indian Bank for transaction banking

Chennai, India-based software company Intellect Design Arena announced that the Indian Bank, also headquartered in Chennai, has chosen Intellect’s eMach. ai-powered cash management system to bolster their corporate banking modernisation.

A release stated; “This strategic partnership is a pivotal moment to Intellect’s growing footprint in the Indian banking, financial services and insurance (BFSI) industry, rendering the capabilities of a cognitive enterprise for revolutionising transaction banking.”

As a part of its broader project ‘INDLEAP’ – aimed at digitalising its transaction banking and expanding its market reach – the Indian Bank has taken on the objective of digital transformation by leveraging technology wherever possible with transaction banking and supply chain management being the key growth engines.

“We take pride in being the technology partner of choice for Indian Bank, one of the top PSU banks in India,” said Ramanan S V, Chief Executive Officer, India and South Asia, Intellect Design Arena. “Against their meticulous evaluation of technology players in the cash management solution domain, Intellect’s selection underscores our unwavering commitment to leading-edge technology and delivery excellence.”

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