German economy officially in recession
Germany’s economy entered a technical recession in the first quarter of 2023 as household spending dipped. Data from the German statistics office showed a downward revision to gross domestic product (GDP) from zero to -0.3% for Q1.
The fall followed a 0.5% contraction in the last quarter of 2022, making two consecutive quarters of negative growth that define a technical recession.
Europe’s largest economy has been under heavy pressure, particularly in the wake of Russia’s invasion of Ukraine in February 2022 and the subsequent decision of European leaders to cut ties with Moscow and impose sanctions.
According to the statistics office, German households cut their spending significantly in the first three months of 2023, with final consumption expenditure falling 1.2% over that period, as consumers were reluctant to spend their cash on big ticket items such as furniture, cars and clothing.
“Germany did fall into recession at the end of last year, after all, as the shock in energy prices weighed on consumers’ spending,” Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, said in note to clients.
He added that although it is unlikely that the German GDP will continue to fall in the coming quarters “we see no strong recovery either.”
The latest economic data reflects a backdrop of high inflation and high interest rates across the eurozone. The European Central Bank (ECB) is expected to raise rates again at its next meeting on June 15. The central bank has lifted its rates by 375 basis points since last July.
German Central Bank Governor Joachim Nagel, thought to be one of the most hawkish members of the central bank, said earlier this week that the ECB has “several” more rate increases ahead.
Deutsche Bank CEO Christian Sewing said earlier rthis week that the ECB should continue raising interest rates to tame the highest inflation in decades, ."This poison must go out," he said, referring to inflation at an event in Berlin. He warned that inflation weakens consumption and hinders growth in the long term.
High inflation is having a massive impact on consumers, Sewing said. At least 30% of banks' customers could no longer meet their normal expenses with their income and had to use their savings, he said. Consumers could only make use of savings accumulated during the pandemic for a limited time, Sewing warned.
Two banks admit anti-competitive activity in UK bond market
Deutsche Bank and Citigroup have admitted anti-competitive activity by exchanging sensitive information on UK government bonds between 2009 and 2013, the UK’s anti-trust watchdog announced, as it provisionally found five banks in breach of competition rules.
HSBC, Morgan Stanley and Royal Bank of Canada meanwhile, have not admitted any wrongdoing over the alleged sharing of information in one or more one-to-one conversations between a small number of traders in Bloomberg chatrooms in the aftermath of the global financial crisis.
The UK’s Competition and Markets Authority (CMA) said in a statement it would consider further representations from the banks before reaching a final decision on its next steps and the possible issue of financial penalties.
“These alleged activities are … very serious and warrant the detailed investigation we have undertaken,” said Michael Grenfell, executive director of enforcement at the CMA. ”This could have denied taxpayers, pension savers and financial institutions the benefits of full competition for these products, including the minimsation of borrowing costs.”
The CMA said the conversations are alleged to have related to the buying and selling of UK government bonds — specifically, gilts and gilt asset swaps — and included details on pricing and other aspects of trading strategies.
The regulator has yet to decide if there was sufficient evidence of an infringement of competition law for it to take enforcement action against any of the banks. Until then, no assumption should be made that any of them had broken the law, it stressed.
Having alerted the CMA to its involvement, Deutsche Bank will not be fined if the provisional findings are upheld. Citi also struck a settlement with the CMA and will also likely receive a discount if a fine is imposed.
In the wake of the financial crisis in 2008, the Bank of England shored up the UK economy and markets by buying UK government debt, aka gilts, via regular buy-back auctions. Those auctions prompted some of the alleged exchanges of information among some of the banks involved, the CMA said.
Financial sector workers use Bloomberg chatrooms to communicate with customers and colleagues. The company itself is not being investigated.
South Africa hikes interest rate to 14-year high of 8.25%
South Africa's central bank has raised its main interest rate to a 14-year high, a move Governor Lesetja Kganyago described as "bitter medicine" needed to tame inflation.
The South African Reserve Bank's (SARB) lifted rates by 50 basis points (bps) to 8.25% as it raised its inflation forecasts for this year and 2024 and said risks were to the upside. The decision was unanimously agreed by Monetary Policy Committee members and followed a 50 bps hike at the SARB’s previous policy meeting in March.
The SARB has now raised rates at 10 meetings in a row, adding a total of 475 bps to the repo rate since it began tightening policy in November 2021. The bank said in a statement that the policy rate was now in “restrictive” territory. Previously it had described its policy as accommodative or supporting the economy.
Kganyago told a news conference that the South African economy is suffering from inflation. ”The medication might be bitter, but if the patient does not take the medication they will end up in surgery and in intensive care,” he said.
The rate increase was larger than the 25 bps increase expected by the majority of economists in a Reuters poll published last week, although it was broadly in line with market pricing.
The rand hit a new all-time low against the dollar, down around 2% on the day, after the decision was announced, with one analyst saying some traders had bet on a larger 75 bps hike.
The central bank of Africa’s most industrialised economy is trying to bring inflation back within its target range of 3% to 6%. Inflation fell more than expected to 6.8% year on year in April from 7.1% in March, data showed this week.
But the bank's updated forecasts show that the SARB now expects 2023 inflation to average 6.2%, up from 6.0% previously. “With core goods and food higher in the near term, headline inflation for 2023 is revised up,” the bank announced.
“Given upside inflation risks, larger domestic and external financing needs, and load-shedding [aka power outages], further currency weakness appears likely."
The bank now predicts that inflation will only sustainably revert to the mid-point of the target range by Q2 2025, versus Q4 2024 at its March meeting.
Citi drops US$7 billion Banamex sale plans
Citigroup Inc plans to sell shares of its Banamex unit in Mexico via an initial public offering (IPO), ending talks for a potential US$7 billion divestiture to a local buyer in a deal that faced complications from Mexico’s president.
The US bank had been close to a deal to sell most of Banamex’s retail operations to Grupo Mexico SAB. Although several bidders had been vying for Banamex over the past year, the pool of potential buyers dwindled after Mexican President Andres Manuel Lopez Obrador placed conditions on any deal, including a requirement that Mexican capital back the transaction and there be no massive layoffs. He also wanted to preserve the historically important art collection that Banamex owns.
After a two-decade push for growth in Latin America, Citi announced last year that it planned to explore options for the Banamex business, which included a possible sale of the company to a rival bank or a major investor. Under CEO Jane Fraser, Citi has been looking to simplify its business and pull out of 14 international markets where the bank does not have scale or significant operations.
But Banamex, aka Banco Nacional de Mexico, is not a small part of Citi's business. Since buying the company in 2001, Citi has developed Banamex to Mexico's fourth-largest banking company, with 1,300 branches and 13 million customers. Banamex employs roughly 38,000 workers in the country.
Since first announcing its plans for Banamex more than a year ago, any deal has come with significant political complications. Mexican politicians had pushed for job guarantees and there were fears that Citi would move Banamex's substantial Mexican art collection out of the country. In a statement, Citi said all Banamex art and historic buildings will remain part of the new company.
Citi expects Banamex to separate the two businesses by the end of 2024 and the newly separated company will go public sometime in 2025.
China-led AIIB plans to launch emergency relief fund
The Asian Infrastructure Investment Bank (AIIB), China’s equivalent to the World Bank, said that it is planning an emergency relief fund for member countries affected by natural disasters and climate change, as its Covid-19 recovery facility winds up later this year.
The multilateral bank is in talks with members about the crisis response facility which would supply them with financial assistance, said Vice President and Corporate Secretary Ludger Schuknecht.
Schuknecht is currently in South Korea’s capital of Seoul and has met with the country’s First Vice Finance Minister Bang Ki-sun, who said that South Korea wishes to expand ties with the AIIB and find new joint project opportunities.
During the meeting, Bang asked Schuknecht to continue giving support to local financial organizations seeking investment opportunities with the AIIB and also requested that the bank expand its employment of South Korean staff.
Schuknecht expressed gratitude for South Korea's contributions to the development of the AIIB by utilising its unique development history and advanced technologies. The AIIB wishes to solidify cooperation with South Korean businesses and financial institutions, he added.
South Korea is the fifth-largest stakeholder of the AIIB, with its share at 3.86%. China is the biggest holder at 30.72%, followed by India, Russia, and Germany with 8.63%, 6.74% and 4.63% respectively.
The Beijing-based AIIB started operations in 2016 with a focus on funding sustainable, green infrastructure in developing countries. Last October its President, Jin Liqun, told the Financial Times that the bank plans to boost financing to “more than US$10 billion a year” through 2025 and would also expand its portfolio beyond Asia to other regions throughout the developing world.
Boeing CEO warns of lengthy supply chain disruption
Boeing warned that supply constraints in the aerospace industry could drag on for more than half a decade, delaying deliveries to airlines and hampering the industry’s rebound from the CovidD-19 pandemic.
“I can see supply constraints for a very long time,” said Chief Executive Officier Dave Calhoun, appearing on a panel alongside Qatar Airways CEO Akbar Al Baker at the Qatar Economic Forum in Doha this week. “We have backlogs that go out five to six years so if the backlogs would suggest supply constraints that far, that means it’s even further.”
Aircraft manufacturers have struggled to increase production at a time when airlines are clamouring for new jets to meet the surge in demand for travel. Component shortages have restricted output as Boeing and archrival Airbus struggle to scale up production. Calhoun said only after the industry has regained what he called stability – a process that will take about a year and a half – can it really ramp up production rates.
Al Baker said that along with delays of new jet deliveries, supply constraints are also a hurdle for existing fleets, forcing airlines to ground some planes that need spare parts for everything from engines to avionics.“This is all the consequence of the pandemic,” he added.
HSBC adds point-of-sale financing for B2B transactions
HSBC has announced the launch of point-of-sale financing for business-to-business (B2B) transactions, a first-to-market banking solution in Hong Kong that enables B2B sellers to offer extended terms of payment to their business and institutional customers on their online platforms.
“Using APIs, a seamless and fully embedded financing option will be created at the check-out page of HSBC clients’ B2B eCommerce platforms,” said the bank. “HSBC will pay its commercial clients in one business day after they receive a purchase order. This solution will significantly enhance efficiency and convenience for the sellers who can reconcile their sales in a timely manner and optimise their working capital.”
From early June, the solution will be available on the digital freight logistics platform FreightAmigo,, to enable its business users to ship now, pay later. When a company places shipment booking on FreightAmigo, they can opt to pay on extended terms at no extra cost. “This innovative form of receivables finance helps FreightAmigo uplift the digital customer experience and seek new clientele by providing greater payment flexibility,” said HSBC
Aditya Gahlaut, Managing Director, Co-Head of Global Trade and Receivables Finance, Asia Pacific, HSBC, commented: “The last few years mark an accelerated shift to online buying and selling of goods and services.
Our brand new embedded point-of-sale financing solution will support our clients to maximise sales on their online platforms while maintaining better control over their cashflow. As people have higher expectation of having near-instant purchase experience, this API-enabled solution will unlock new sales opportunities for our clients by offering an additional payment option and almost immediately available finance to improve acceptance of their customers.”
France’s short-haul flights ban becomes law
France has formally banned domestic flights on short routes that can be covered by train in less than two-and-a-half hours.
The move is aimed at reducing airline emissions but has also irked the industry. Although the measure was included in a 2021 climate law and already applied in practice, some airlines had asked the European Commission to investigate its legality.
The change will mostly rule out air trips between Paris and regional hubs such as Nantes, Lyon and Bordeaux, with connecting flights unaffected. Critics have noted that the cut-off point for comparable train journeys is just short of the roughly three hours it takes to travel from Paris to Mediterranean port city of Marseille by high-speed rail.
The law does specify that train services on the same route must be frequent, timely and well-connected enough to meet the needs of passengers who would otherwise travel by air -- and able to absorb the increase in passenger numbers.
People making such trips should be able to make outbound and return train journeys on the same day, having spent eight hours at their destination.
The French government had already secured Air France’s compliance with the plan in exchange for a 2020 coronavirus financial support package. Competitors were banned from simply filling the gap.
Laurent Donceel, interim head of industry group Airlines for Europe (A4E), said that governments should support “real and significant solutions” to airline emissions, rather than “symbolic bans”. Brussels had found that “banning these trips will only have minimal effects” on CO2 output, he added.
A4E highlighted its own net zero by 2050 strategy, which includes switching to jet fuel from non-fossil sources and deploying battery- or hydrogen-powered aircraft.
D360 partners with Thunes for instant cross-border payments
Singapore-based cross-border payments company Thunes has partnered with Saudi Arabia-based digital bank D360 Bank to power instant cross-border payments across MENA and key global markets.
A release stated that the collaboration is set to enable D360’s customers in Saudi Arabia to carry out expedited and cost-effective B2B payments and international remittances throughout the world. In addition, D360 mobile app users are set to be able to transfer funds to their beneficiaries in Europe, the US, and the entire Middle East region in an instant and secure manner, with additional markets set to follow in due time.
The collaboration builds upon Thunes’ pledge last August to improve its capabilities by forming strong local collaborations with money transfer operators (MTOs), e-wallets service providers, and banks in Saudi Arabia.
Simon Nelson, Senior Vice President at Thunes added that the company looks forward to partnering with D360 and supporting their growth and ambitions, stating that by placing their technology together with D360’s customer base, they are enabling businesses and customers with the tools necessary to succeed in the digital age, while redefining how people experience banking and payments in Saudi Arabia and beyond.
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