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India to become world’s third US$10 trillion economy by 2035, report predicts – Industry roundup: 27 December

India’s ascent will give world a third economic superpower: CEBR

Global GDP will amount to US$104 trillion for 2023 and more than double to US$219 trillion by 2038, with much of that growth driven by an acceleration in less-developed economies such as Vietnam, Bangladesh and the Philippines, predicts the Centre for Economics and Business Research (CEBR).

The London, UK-based economic consultancy, which was founded in 1992, also expects India to become the world’s third US$10 trillion economy in 2035, resulting in a shift to global geopolitics as it joins the US and China as an economic superpower. Pushpin Singh, CEBR senior economist, said: “Bolstered by robust demographic trends and a diverse economic foundation, India’s upward trajectory is poised to persist.

China’s economy is still growing despite the problems of its property market this year but the CEBR, which 12 months ago forecast that China was set to overtake the US as the world’s largest economy by 2036, has put that date back by one year to 2037.

“China’s economy has faced several years of instability,” commented Sam Miley, managing economist at the CEBR. “The future prospects of the economy remain strong, however, and we expect China to overtake the US as the world’s largest economy within 15 years.”

However, the consultancy believes that China’s period at the top will be temporary. CEBR expects the US to overtake China again in the 2050s and that longer-term, India is set to become the world’s largest economy in the 2080s.

Russia’s ranking has already dropped as a result of economic sanctions following its invasion of Ukraine. Its position of eighth in 2023 is forecast to drop to 11th in 2024 and 14th by 2038, although economists warned that the outlook was highly uncertain. The CEBR is also pessimistic on prospects for Italy, which it expects to exit the top 10 economies by size by 2038, replaced by South Korea.

It is more optimistic than some other institutions on prospects for the UK, which it predicts will be Europe’s best-performing major economy in the next 15 years, narrowing the gap with Germany and extending its lead over France. GDP growth in the UK will settle between 1.6% and 1.8% in the period up until 2038, helping it retain its position as the world’s sixth-largest economy, it says.

The UK’s economy will be 10.2% larger than France in 2033, and the lead is forecast to increase to 19.9% by 2038. In that same period, the gap between the UK and Germany. which is nearly a third larger than the UK, is expected to narrow slightly to 28.8%.

The slight narrowing of the gap is attributed to a slowdown in Germany’s growth as a result of its reliance on Russia for energy to drive its manufacturing sector. Although Germany is expected to move out of recession in 2024 and resume growth, the pace will gradually slow by 2038 and it will relinquish its position as the third-largest economy to Japan in 2026 and cede fourth place to India in 2027.

The CEBR’s economists also observed that while longer-term issues such as climate change have been overshadowed by recent economic and political pressures they “have not gone away”. They warned that serious negative outcomes for the climate would start to occur with increasing frequency and begin to incur costs in the second half of this century.

Douglas McWilliams, deputy chairman of CEBR, said: “One of the driving factors behind the changing positions in the League Table this year is likely to be the differential pace of implementing Net Zero policies. The EU is in the lead on this. By contrast, Asian economies are likely to move less rapidly in the same direction.”

A further positive observation by the CEBR is that policies adopted by central banks worldwide to counter inflation appear to be working, although they will mean in the short term that global GDP in 2024 will grow at its slowest pace since 2002.


Maersk ready to resume shipping through Red Sea

Oil prices, which have risen strongly this week, have trimmed some gains as major shipping firms begin returning to the Red Sea despite continued attacks and escalating tensions in the Middle East.

However, the prospect of a prolonged Israeli military campaign in Gaza and the spillover of the conflict to attacks on ships in the region remain major drivers of market sentiment.

On Tuesday, Israel’s Chief of Staff Herzi Halevi told reporters that the Gaza war would go on “for many months,” while Yemen’s Iran-backed Houthi militia claimed responsibility for a missile attack on a container ship in the Red Sea.

MSC Mediterranean Shipping Company confirmed that one of its container ships was attacked on Tuesday while transiting the southern Red Sea, following claims made by Yemen’s Houthi rebels that they had attacked 8,204-teu MSC United VIII, built 2006.

MSC said the ship notified a nearby coalition task force warship of the attack and engaged in “evasive manoeuvres”. The Liberia-flagged ship was en route from King Abdullah Port, Saudi Arabia to Karachi, Pakistan

Despite the attack, major shipping firms such as Denmark’s Maersk and France’s CMA CGM were resuming passage through the Red Sea and Gulf of Aden following the deployment of a multinational task force to the region. Germany’s Hapag-Lloyd is expected decide on resuming shipments later today.

US crude oil stocks are expected to have fallen by 2.6 million barrels last week, while distillate and gasoline inventories likely rose, a preliminary Reuters poll showed on Tuesday.

Inventory reports from the American Petroleum Institute industry group and the Energy Information Administration, the statistical arm of the US Department of Energy, are expected today and on Thursday respectively, a day later than normal for both reports due to the Christmas holiday.

The Red Sea is one of the world's most important routes for oil and liquefied natural gas shipments, as well as for consumer goods. It is bookended by the Bab al-Mandab Strait - also known as the Gate of Tears - in the south near the coast of Yemen and the Suez Canal in the north.

Houthis have declared their backing for Hamas in its war with the Israelis, and the rebels based in Yemen have said they are targeting vessels which they believe are heading for Israel. Some ships have come under attack from drones and rockets.

The alternative route, around the Cape of Good Hope, adds about 3,500 nautical miles to the journey. This has led to fears of disruption to the supply of goods transported through the Suez Canal, and an increase in prices to cover the higher transport costs.

In a statement issued at the weekend, Maersk said that with this initiative under way, "we are preparing to allow for vessels to resume transit through the Red Sea both eastbound and westbound".

"We are currently working on plans for the first vessels to make the transit and for this to happen as soon as operationally possible." However, the world's second largest shipping company added that although security measures had been put in place, "the overall risk in the area is not eliminated at this stage".

"Maersk will not hesitate to re-evaluate the situation and once again initiate diversion plans if we deem it necessary for the safety of our seafarers," it said.


Ireland sustainability campaign to target “serial clothes shoppers”

Ireland’s government is to launch a public campaign in 2024 targeted at shoppers who buy clothes several times a week.

The so-called ‘high frequency purchasers’ will be encouraged to reduce their consumption of clothes and to adopt more sustainable behaviours.

Reports suggest that more than one in five Irish people buy clothes several times a week and half of those report buying items they never wear, according to Environmental Protection Agency (EPA) data.

Ireland is one of the biggest consumers and disposers of textiles in the European Union (EU), consuming 53 kg per person per year and throwing away 35 kg, compared to the European averages of 26 kg and 12 kg respectively.

“In terms of individual purchasers, [serial shoppers] might be the best representative of the consumer culture that we have,” said Solene Schirrer, textile waste campaign lead from the environmental NGO VOICE.“It’s not like those people are bad, it’s a reflection of what consumers are being offered – they’ve been taught to see clothes as disposable.

“It shows that there’s a clear lack of value put on the clothes, and that people don’t get the link between the clothes and the resources it takes to make them.”

Around 110,000 tonnes of textiles in Ireland end up in waste-to-energy plants or landfill each year. Recycling isn’t the answer according to Schirrer, as only 1% of clothes globally are recycled into new clothing,


French ruling on fossil fuels may impact European ESG funds

France’s stipulation for its sustainable and responsible investment (SRI) label could lead to billions of euros of divestments by pan-European investment vehicles, according to the Financial Times.

Pan-European funds claiming to invest on an environmental, social and governance (ESG) basis may need to sell all their fossil fuel holdings following a ruling by the French government, the paper reports. The move could lead to billions of euros worth of forced divestments over the course of 2024.

France has ruled that funds operating under its “socially responsible” label will, from the start of 2025, be barred from investing in any companies that launch new hydrocarbon exploration, exploitation or refining projects. Companies that exploit coal or “unconventional” hydrocarbons will also be off limits.

The sweeping nature of the new regulations is likely to radically reshape ESG fund portfolios.

“It is fair to assume that virtually every company focused on oil and gas exploration, production and refining is continuously looking to expand its oil and gas activities,” Hortense Bioy, global director of sustainability research at Morningstar, told the FT.

“Investors would be hard-pressed to find an oil and gas company that doesn’t plan to replace its declining production from old fields by developing new fields, be they on the oil side or the gas side.”

The stricter rules, unveiled by French finance minister Bruno Le Maire, will have an impact outside of France because many asset managers market the same ESG funds across Europe in order to minimise duplication and costs and maximise liquidity.

This is particularly true of exchange traded funds, which are typically listed on several exchanges and “passported” into other European countries.


CFO of Lidl UK departs after sales growth produces loss

Germany’s discount supermarket chain Lidl has announced that the CFO of its UK operations, Marco Di Costanzo is leaving after two years in the role. Reports suggest that he will be taking up another post in the Schwarz retail empire that owns Lidl once a successor is named in the New Year.

His departure comes as Lidl’s UK sales over Christmas are likely to remain buoyant as it pursues an aggressive expansion plan. Lidl has nearly 1,000 stores UK and is challenging Morrisons as Britain’s fifth biggest grocer. It recently opened its largest ever warehouse, in Luton, costing £300 million (US$380 million).

Ryan McDonnell, CEO of Lidl GB has said there is “no ceiling” on its expansion plans, but acquiring land for new stores has come at the expense of Lidl’s bottom line.

Although revenues rose 19% to £9.3 billion and the chain added 1.5 million customers, latest accounts show the chain recorded a pretax loss of £76 million in the year to February 2023 against the previous year’s profit of £41 million, after interest paid on its borrowings almost trebled to £108million. Lidl has almost £3billion of debt.

Despite the company’s aggressive expansion strategy, which propelled its revenue by 19% to £9.3 billion and added 1.5 million customers, this financial downturn marks a significant departure from the previous year’s profit of £41.1 million.

“Lidl UK is not running well,” said Marc Houppermans of Dusseldorf-based Discount Retail Consulting. “There is sales growth, but it is still loss-making,’

“I assume the projected profitability targets for this year are not being reached so someone has to be kept accountable. Normally it’s the chief executive who has to leave.”


South Koreas fines BNP Paribas and HSBC for short selling

Korea’s financial regulators have imposed a combined won (KRW) 26.52 billion (US$20.4 million) in fines on BNP Paribas, HSBC and their executing brokerage firms for illegal short selling.

The Securities and Futures Commission under the Financial Services Commission (FSC) concluded that the two global investment banks based in Hong Kong and financial firms that executed the transactions violated the capital market law by committing naked short selling.

The commission did not specify the names of the banks, but they were reported to be BNP Paribas and HSBC by several media outlets, including Bloomberg. Naked short selling is selling tradable assets without borrowing them first, which is illegal in Korea. Complaints against the banks and the local financial firms will also be filed to the prosecution.

The global banks responsible for the illegal practice traded assets worth RW56 billion from 2021 through 2022, according to regulators. One bank illegally shorted 101 stocks, while the other illegally shorted nine stocks.

The five-member commission, led by the FSC Vice Chairman Kim So-young, reached the conclusion two months after the Financial Supervisory Service reported the illegal practice.

“We imposed the largest fines for violations of short selling regulations after concluding that it is a serious matter that harms the order of the capital market and investor trust,” a statement from the commission read.

The largest ever penalty imposed by Korea’s FSC for illegal short selling was KRW3.87 billion, imposed on an undisclosed financial company in March.

The financial regulators reinstated a total ban on short selling of stocks last month, pledging to improve the system to eradicate illegal short selling.

The ban, which will last through the end of June 2024, also invited criticism that it could damage foreign investors' trust in the Korean market. It was also accused of being a political manoeuvre to appease retail investors before next April’s general election.

Financial regulators also fined three unnamed global hedge funds KRW2 billion for violations of capital market law, including illegal short selling and unfair trades. The FSC “will actively build related computerized system to dispel retail investors’ concerns on illegal short selling,” said Kim in a statement.


BBVA Mexico and Nestlé expand sustainability partnership

Banco Bilbao Vizcaya Argentaria's central America arm and Nestlé are expanding their “Crediproveedores” agreement to extend credit to up to 1,500 Nestlé suppliers in the agribusiness sector.

Under the terms of the partnership, BBVA Mexico will consider granting credit on favourable terms to primary- sector suppliers designated by Nestlé as part of its value chain. The arrangement sets the stage for up to pesos (MXN) 300 million (US$17.7 million) in new credit.

Álvaro Vaqueiro Ussel, Head of Corporate and Investment Banking at BBVA Mexico said: “The expansion of the Crediproveedores scheme with Nestlé represents a milestone in the commitment of both institutions to foster the development of SMEs that, in addition to being profitable, seek to support the environment and society. We appreciate Nestlé's strong commitment to its suppliers, to sustainability and to Mexico.”

Fausto Costa, CEO of Nestlé Mexico, added: “This is one more step in our commitment to the sustainable development of the Mexican countryside and in the transition to regenerative food systems. This alliance allows us to reaffirm our commitment to sustainability and to be very proud to continue driving positive change in small and medium-sized enterprises.”

Transfer Galaxy and Intergiro partner on cross-border payments

Sweden’s online money transfer service Transfer Galaxy and fintech Intergiro have partnered to launch a cross-border digital banking experience that “will make it easier for foreign-born nationals and digital nomads to send money abroad.”

A release adds that powered by Intergiro’s Banking as a Service (BaaS) platform, TransferGalaxy “offers users a pioneering banking journey right within their remittance platform. Integrated wallets provide users with a centralised and secure space to manage their funds, making it easier to track and control their transactions.

“Users can send money using a variety of methods, including bank transfers, debit cards, and mobile wallets. They can also track their transactions manage their accounts online and access a wider range of financial services, including currency exchange, bill payment, and mobile top-up.

Paired with the versatility of both physical and virtual debit cards, and the added convenience of integration with Apple Pay and Google Pay, the entire process has been thoughtfully crafted with the end user’s convenience and needs in mind.

“Every transaction is more than just money; it’s a sentiment, a memory,” said Yosef Mohamed, CEO of Transfer Galaxy. “This isn’t just about technology; it’s about bringing people closer. With Intergiro, we are ensuring these moments are cherished, bridging distances with every transfer.”


US holiday sales growth slower than in 2022

US retail sales over the Thanksgiving and pre-Christmas period rose at a much slower pace than in 2022, as selective shoppers sought value and promotions throughout the season according to early data from Mastercard SpendingPulse.

Retail sales, excluding autos, increased by 3.1% from 1 November to 24 December against a year earlier, according to the study, which uses transactions from Mastercard’s payment networks and survey-based estimates for other forms of payments. In 2022, a similar study from Mastercard SpendingPulse reported holiday sales growth of 7.6%.

“This holiday season, the consumer showed up, spending in a deliberate manner” said Michelle Meyer, chief economist, Mastercard Economics Institute. “The [US] economic backdrop remains favourable with healthy job creation and easing inflation pressures, empowering consumers to seek the goods and experiences they value most.”


Apple watch import ban takes effect

Apple is set to appeal after a patent row in the US saw a ban on sales of its Series 9 and Ultra 2 watches come into effect from Tuesday. The dispute follows a complaint by medical tech company Masimo that Apple used its technology, violating its patents.

“This patent row will inevitably cause some bruising for Apple given that the sales of the latest incarnations of the watch have been held up,” commented Susannah Streeter, head of money and markets at financial services company Hargreaves Lansdown. “It means that die-hard fans who always want to get their hands on the latest kit, will inevitably have a much longer wait, and it will disrupt the sales pipeline. The oxygen monitoring technology, which is at the heart of this case, has sparked a series of patent infringement disputes between Masimo and Apple. It’s estimated that Apple’s watch division, as a whole, will be worth around US$17 billion this year. So, it’s still small fry but has potential to become a much bigger fish in Apple’s pool of products.

“The US International Trade Commission doesn’t take accusations of patent infringement lightly which is why it invoked the ban in the first place, and the White House’s decision not to get involved, will be a blow for the tech giant. However, it is a win for smaller entrepreneurial tech firms, who need protection to spur on innovation. The health tech sector is expected to be an engine for growth in coming years, and big tech firms are super-keen to stay at the cutting edge of the market. This is particularly the case for Apple.

“Although it can rely heavily on the power of its brand, it can’t be complacent and it will keep having to develop desirable hardware to sell its packages of services, everything from health and fitness to music to TV apps. So, Apple will want to emerge from this scrap with its finger on the pulse of the latest health trends. It’ll come at a cost, but with its deep roots of funding, Apple is a tree which can weather this particular patent storm.’’

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