Germany now expects 2024 growth of only 0.2%

Germany has followed France in deciding that its initial forecast of economic growth for 2024 was too optimistic and revised it downwards.

Europe’s largest economy, which is believed to have recently ousted Japan as the third largest globally, now expects gross domestic product (GDP) to grow by just 0.2% this year, as the country wades in “tricky waters,” according to Germany’s Economy Minister Robert Habeck.

The revised GDP growth forecast compares against a previous estimate of 1.3%. Habeck added that the government now anticipates the German GDP will grow by 1% in 2025. Earlier this week France trimmed its own 2024 GDP forecast from 1.4% to 1.0%.

Speaking during a press briefing, the minister attributed the forecast revision to an unstable global economic environment and to the low growth of world trade, alongside higher interest rates.

“The economy is in tricky waters,” Habeck said in a statement released online. “We are coming out of the crisis more slowly than we had hoped.”

The bleaker outlook comes despite energy costs and inflation falling coupled with an upturn in consumer spending power, he said. Habeck nevertheless maintained that Germany has proven resilient in the face of losing access to Russian seaborne crude and oil product supplies, as a result of the war in Ukraine war.

The country narrowly avoided a recession in the second half of 2023, despite its GDP declining by 0.3% in the final quarter.

Habeck also addressed the outlook for inflation, saying it is expected to fall to 2.8% throughout 2024, before returning to the 2% target range again in 2025.

 

HSBC's results disappoint investors

Shares in HSBC fell by more than 8% on Wednesday as investors focused on an unexpected U$3 billion impairment charge on its 19% stake in China’s Bank of Communications (BoCom) in the annual results.

Higher interest rates around the world pushed the group’s pre-tax profits from U$17.1 billion in 2022 to U$30.3 billion last year, the best result in the 159-year-old bank’s history. However, they disappointed the stock market, which was expecting the figure to almost double, to US$34.1 billion. The impact of hyperinflation in Argentina, where HSBC also operates, also adversely affected earnings in Q4.

The UK ‘Big Four’ bank, which has a huge operation in Asia, has been an investor in BoCom for two decades as a way of tapping into profits in China’s banking market.

Noel Quinn, HSBC’s chief executive, called the charge a “technical accounting issue” and said: “It does not affect our view on China at all.” However, the bank topped up provisions to cover possible loan losses from Chinese commercial property by US$200 million in the fourth quarter, taking the overall charge last year for its exposure to the troubled sector to US$1 billion.

London-based HSBC was founded in Hong Kong in 1865 and has sprawling operations spanning East and West. While maintaining a high street business in the UK, it counts Hong Kong as its single largest market and has a big focus on mainland China.

Record profits at the bank drove a 12.4% increase to the group bonus pool for employees to almost US$3.8 billion.

HSBC also increased rewards for shareholders following its bumper profits and plans to return US$2 billion to stock market investors through a share buyback. The bank also declared an interim dividend of 31 cents a share, which will hand back a further US$5.9 billion.

 

London’s BT Tower sold to US hotels group for £275 million

British telecoms group BT announced that it has agreed to sell London’s iconic BT Tower —a feature of the city’s skyline for nearly 60 years— to US developer MCR Hotels for £275 million ($346.6 million).

The 189-meter structure, for many years an important piece of network infrastructure, is situated in London’s central Fitzrovia neighbourhood, when it opened in 1965 as the Post Office tower.

It carried telecommunications signals from London to the rest of the country, but its microwave aerials were made redundant more than a decade ago by the transition to fixed and mobile networks.

The tower was also known for a revolving restaurant on its 34th floor, which took 22 minutes to complete a rotation.

Now, it is set to become the latest London landmark converted into a hotel, joining the likes of the Old War Office and the former Metropolitan Police Headquarters.

MCR, the third-largest hotel owner-operator in the US, has a portfolio of 150 properties, including the TWA Hotel located in the former TWA Flight Centre at John F. Kennedy International Airport.

Tyler Morse, CEO of MCR Hotels, said the group would “preserve this beloved building and will work to develop proposals to tell its story as an iconic hotel.”

BT, the UK’s largest broadband and mobile services provider, is undergoing a massive cost-cutting programme, which includes up to 55,000 staff cuts by 2030, equivalent to more than 40% of its global workforce, with around a fifth replaced by artificial intelligence (AI).

 

Russia’s economy avoids bankruptcy while storing up problems

As Russia's assault on Ukraine enters a third year, it is an uncomfortable fact that its wartime economy is booming, even if longer-term problems are accumulating. 

“From a purely economic standpoint, Russia has considerable room to continue waging war," Hassan Malik, a global macro strategist and Russia expert at Boston-based investment management firm Loomis Sayles, told Business Insider.

The website notes that Russia has been sanction-proofing itself since 2014, when it was hit with a raft of trade restrictions after illegally annexing Crimea from Ukraine from Ukraine. While it has lost Europe as a market for its oil and gas exports, both China and India have been willing to step up their purchases.

BI cites five major drivers enabling Russia to keep its economy strong even after two years of waging war.

By waging war outside its own borders: “The war is being fought largely on Ukrainian land, and destroying largely Ukrainian homes, businesses, and farms such that the direct impact on Russian productive capacity and households has been comparatively limited,” says Malik.

In 2022, when conflict began,,Russia's economy contracted 1.2% according to official statistics. Analysts polled by Reuters expect Russia’s GDP to have risen 3.1% in 2023. In comparison, Ukraine'a gross domestic product (GDP) plunged 29.1% in 2022 while the central bank forecasts the country to have grown 4.9% in 2023.

By generating a demand for wartime goods and services: Russia’s military needs items ranging from weapons and ammunition to medical supplies. The demand boosts the industries that produce those goods; especially domestically as  imports into Russia are restricted due to sanctions.

Fighting a war also requires manpower. Russia faced a,demographic crisis, with a declining population and falling fertility rate even before its war with Ukraine. With the onset of the war, nearlyone million Russians, including draft-age men have fled their homeland and shrunk the labour pool further.

Last year, Russia faced a shortage of five million workers as workforce vacancies rose nearly 5% from a year ago. Thanks to the manpower shortage wages have risen, in turn supporting consumption and economic growth.

Being self-reliant in weapons and commodity production: Russia was still theworld's eighth-largest economy in 2022, helped by its strong position as a producer of commodities like oil, natural gas, wheat, and metals. Self-sufficiency in many items has helped it weather years of sanctions.

As one of the world's top arms exporters, Russia can also supply itself with most of its defence needs, even for sophisticated weapons.

By stimulating and steadying its economy with subsidies and policies: Government subsidies, spending, and policies are also propping up Russia's economy. Moscow's attempt to prop up its wartime economy has been so aggressive that subsidies for discounted mortgages have created a housing bubble. The government has rolled out other types of subsidised loans for businesses, further stimulating demand in the economy.

Policymakers also stepped in quickly to steady the market and economy after the invasion This included shutting the Moscow Exchange for weeks, imposing controls, and managing monetary policy.

Russia’s central bank made an emergency hike in interest rates from 9.50% to 20% in February 2022, then steadily eased them back to 7.50% over the subsequent six months. However, since last July they have steadily climbed back to 16%, with the most recent rise- from 15% to 16% - in December.

By keeping external debt low and exports strong: Russia entered the war with little external debt and its current account has been in surplus thanks in part to the war's impact on commodity prices. Nearly one-third of its 2024 budget has been allocated to defence spending, despite the impact of sanctions.

However, while Russia's contribution from the war is boosting its economy so much that there's risk of stagnation — or even an “outright crisis" — once the conflict is over, according to a January report from the Vienna Institute for International Economic Studies. 

“The longer the war lasts, the more addicted the economy will become to military spending,” wrote economists at the think tank.

And in an opinion piece for Bloomberg, its columnist Lionel Laurent draws attention to a recent event that suggests the exodus of professionals from Putin’s Russia of the past two years is “far from over” and Moscow’s could prove to be the West’s gain.

“It’s the end of an era for Russia’s best-known tech company, Yandex NV, once hailed as the country’s answer to Alphabet Inc.’s Google and valued at US$30 billion before the invasion of Ukraine,” he writes. “This month, it agreed to sell its domestic business for about US$5.2 billion, a cut-price level for the Russian tycoons picking it up under the Kremlin’s watch.

“Yet the deal also hints at a wartime brain drain of scientific and engineering talent that the West could do more to capture.”

 

Brazil to launch FX hedging programme with green credentials

Brazil's government is about to announce new measures to help foreigners with foreign exchange hedges on their investments in sustainable development, while avoiding currency and fiscal risks for the Treasury, according to a Reuters report quoting insiders.

The plan includes a new channel for about US$2 billion in forex derivatives, contracted by the Inter-American Development Bank (IDB) and distributed in Brazil by the central bank, said the sources,.

The initiative, leveraging the IDB's triple-A credit rating to facilitate longer-term and lower-cost currency derivatives to encourage foreign investment in Brazil's "green" development initiatives, is expected in an executive order.

Brazil's central bank is expected to sign a comprehensive derivatives contract with the IDB to make the program operational, said the sources.

In the same executive order, the government will also authorise the central bank to roll over its US$100 billion stock of swaps for longer terms, aiming to enhance liquidity and reduce currency volatility, said one source.

The green light for the central bank to roll over swaps for longer terms is deemed "structural" and "very important," as there is limited liquidity in the market for terms exceeding five years, they added.

With these adjustments, Brazil's swaps market could be far more dynamic, with horizons extending up to 15 years, which could have a significant impact on financing infrastructure projects.

 

HKMA provides guidance to Hong Kong banks on tokenisation

The Hong Kong Monetary Authority (HKMA) has published an 11-page circular on its standards for tokenisation and digital asset custody for locally authorized institutions. 

The document asks institutions to commit to comprehensive risk assessments and allocate sufficient resources for proper governance and risk management of their crypto custody services. Additionally, the regulator requests the entities to establish internal policies to properly address potential or existing conflicts of interest.

Such authorised institutions are also expected to segregate client assets from company assets and maintain contingency and disaster recovery plans to lessen “the risk of loss of client digital assets due to theft, fraud, negligence or other acts of misappropriation, as well as delayed access or inaccessibility of client digital assets," the HKMA guidance said.

Other requirements from Hong Kong’s de facto central bank include the full disclosure of risks involved with crypto custody arrangements and compliance with its anti-money laundering and countering terrorist financing guidance.

“Such [authorised institutions] or the relevant locally incorporated authorized institutions (with subsidiaries already engaging in such activities) should notify the HKMA and confirm that they meet the expected standards in the Annex within six months from the date of this circular,” the HKMA noted.

The guideline follows Hong Kong’s recent movement to regain its position as Asia’s crypto hub. Last June, the region officially started its crypto licensing regime for virtual asset trading platforms, allowing licenced exchanges to offer retail trading services. Hong Kong has granted licences to two platforms — HashKey and OSL.

 

Malaysia consults on adopting IFRS sustainability reporting standards

Malaysia’s Securities Commission announced that its Advisory Committee on Sustainability Reporting (ACSR) is launching a consultation on the proposed use of the IFRS Foundation’s International Sustainability Standards Board (ISSB) as the basis for mandatory reporting requirements for listed and large companies.

The consultation follows the launch by the Malaysia Securities Commission of the ACSR last year, aimed at facilitating the use of the ISSB standards in a new National Sustainability Reporting Framework for Malaysia (NSRF), in addition to identifying and supporting other elements of the NSRF, including a framework for assurance and capacity building.

The ISSB debuted at the COP26 climate conference, with the goal to develop IFRS Sustainability Disclosure Standards, driven by demand from investors, companies, governments and regulators to provide a global baseline of disclosure requirements enabling a consistent understanding of the effect of sustainability risks and opportunities on companies’ prospects.

The IFRS released the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards in June 2023, and in July, the International Organisation of Securities Commissions (IOSCO) called on regulators to incorporate the standards into their sustainability reporting regulatory frameworks.

Since the launch of the ISSB, many jurisdictions have announced their intention to adopt the standards, including the UK, Canada, Brazil, Japan and South Korea, among others, and the EU and Australia have moved to establish their own standards with strong interoperability with the ISSB.

 

Ripple clinches major deal in Africa

Egypt’s Commercial International Bank (CIB) is teaming up with Ripple “to implement blockchain technology, enhancing the efficiency of cross-border payments.” The bank is also entering the non-fungible token (NFT) field, allowing customers to create unique and collectible NFTs.

“This initiative establishes a digital token ecosystem for the tourism industry, streamlining payments and offering loyalty rewards to travellers,” the bank announced.

The CIB’s move into crypto coincides with the Egyptian government’s aim to actively explore the potential of blockchain technology and harness it for “innovative advancements across diverse sectors.”

The bank is the second major lo or local financial institution to announce a partnership with the US company, with the National Bank of Egypt doing so in 2021.

Ripple has been eyeing global expansion in the past few years due to the regulatory uncertainty in the US and its ongoing lawsuit against the United States Securities and Exchange Commission (SEC). Other financial institutions that have inked deals with the company in recent years include Thailand’s oldest bank – Siam Commercial Bank (SCB), and Morocco’s Attijariwafa Bank.

Ripple has also supported the efforts of several countries to launch a central bank digital currency (CBDC). In 2021, it collaborated with the Royal Monetary Authority (Bhutan’s central bank) to create a digital version of the ngultrum.

 

Nukkleus set to acquire cross border payments firm Mercury Global

US-based fintech Nukkleus Inc., has signed a term sheet for the acquisition of Mercury Global, a cross-border payments firm with operations in London and South Africa. This step marks Nukkleus’ strategic move to further strengthen its presence in the world of cross-border payments.

Under the proposed agreement, Nukkleus will acquire the entire issued share capital of Mercury Global, with the purchase price to be settled in a combination of the acquirer’s common stock and cash. The deal includes an initial equity issue at closing, followed by additional earn-out payments in equity and cash.

These subsequent payments are contingent upon achieving certain milestones related to business volume and client growth, employee retention, banking relationships, and the successful integration of technology.

Emil Assentato, CEO of Nukkleus, highlighted the strategic benefits of the proposed deal. “Mercury Global’s strong regulatory standing in the UK, its strategic presence in South Africa as a gateway to the South African Development Community (SADC) market, and its robust banking partnerships present an invaluable addition to Nukkleus,” he commented. “We are poised to unlock new and enhanced revenue streams, thanks to increased volumes and an expanded service offering.”

 

Worldline extends partnership with BNP Paribas Fortis.

Belgium's BNP Paribas Fortis, which in June 2020 signed a multi-year contract with payments firm Worldline, announced that the partnership between the two is being extended for a period of at least five years.

A release said that the extension “focuses on the delivery of best-in-class and customer-centric issuing solutions.

“Through the partnership, Worldline will continue to support BNP Paribas Fortis’s strategic initiatives and the completion of compliance projects to secure both qualitative and quantitative results.”

Alessandro Baroni, Head of Worldline Financial Services, added: “The extension of this partnership cements Worldline’s position as a key partner of banks, not only in Belgium, but across Europe and beyond.”