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US recession no longer in prospect, says Deutsche Bank – Industry roundup: 8 February

US recession in 2024 now unlikely, admits Deutsche Bank

The US economy will enjoy solid, if unspectacular growth in 2024 says Deutsche Bank, which had previously warned of a brief dip into recession during the first half of the year.

The German bank has updated its forecast for the world’s biggest economy and says its revised outlook is for US growth to continue, given cooling inflation and the labour market returning to a “better balance” without unemployment rising significantly.

In a note earlier this week, Deutsche Bank said that it now expects the US to grow by 1.9% this year, on a quarterly average basis, compared with its prior forecast of only 0.3%. Last November, in a notably downbeat assessment, the brokerage had warned that America’s economy was set to experience a mild recession in H1 2024 as the Federal Reserve tightened interest rates to tame inflation, narrowing the window for a soft landing.

"Though the economy continues to face several headwinds – namely, still-tight credit conditions, rising consumer delinquency rates and a slowing labour market – the resilience to date points to a more benign slowdown in 2024 than we had previously projected," said Matthew Luzzetti, the brokerage’s chief US economist.

Deutsche Bank still expects the Fed to start easing interest rates from June, but now anticipates 100 basis points (bps) of rate cuts this year, less than its earlier expectation of 175 bps.

“When we first adopted a mild recession as our baseline forecast, a key element was that, with an economy far from the Fed’s objectives, the history of central bank-induced disinflations showed the path to a soft landing was narrow if not unprecedented,” explained Luzzetti. “We now think the economy will land on this narrow path and that a recession will be averted with limited cost in the labour market.

“We see virtuous dynamics at play that could extend these positive developments, including an easing of financial conditions that has trimmed downside risks to growth”. 

The US economy grew a faster-than-expected 3.3% in the fourth quarter of 2023, amid strong consumer spending, with growth for the full year coming in at 2.5%, shrugging off dire predictions of a recession after the Fed's aggressive rate hikes.

Deutsche Bank’s revised forecast now tallies more with that of the Paris-based Organisation for Economic Co-operation and Development (OECD), which recently revised up its 2024 forecast for US economic growth from 1.5% to 2.1% but kept the 2025 projection unchanged at 1.7%.


China moves deeper into deflation

China’s consumer prices moved deeper into deflationary territory in January, recording their biggest drop since the height of the global financial crisis in 2009.

The country’s Consumer Price Index (CPI) dropped by 0.8% last month from a year earlier, according to the National Bureau of Statistics (NBS). It was the steepest fall since September 2009 and marks a fourth straight month of decline.

However, analysts suggested that the sharp drop was largely due to seasonal factors and the downturn may have already bottomed out. The NBS said holiday demand in January 2023, when the CPI rose 2.1%, contributed to making prices this year look particularly weak.

“[The] Lunar New Year falls in February this year compared with the end of January last year, causing distortions to the base,” HSBC economists said in a research note. Weak consumer demand last month also weighed on prices, the economists said.

Food prices in particular were a major drag on the index. The price of pork, a staple in the Chinese diet, was down by 17.3% from a year ago, marking the biggest drop among all consumption items, while vegetable prices fell by nearly 12%.

“China is still mired in a property slump, affecting wealth perceptions and making consumers more cautious about spending big,” commented Susannah Streeter, head of money and markets at financial services firm Hargreaves Lansdown.

“Small stimulus measures aimed at increasing trading activity and lending into the economy have helped revive the Chinese stock market this week, but these are likely to be sticking plasters rather than a longer-term treatment for a sluggish economy.”


India’s central bank keeps rates on hold

India's central bank has left interest rates unchanged, signalling that rate cuts may be some time away as it focuses on the “last mile of disinflation” towards its 4% medium-term target and the economy remains resilient.

The six-member monetary policy committee, consisting of three Reserve Bank of India (RBI) and three external members, left the key repo rate unchanged at 6.50%, for the sixth straight meeting. The RBI raised rates by 250 basis points (bps) between May 2022 and February 2023.

Monetary policy must continue to be actively disinflationary, RBI Governor Shaktikanta Das said in his statement. Most analysts correctly anticipated that the bank would keep rates unchanged.

Earlier this week Vijay Shekhar Sharma, the CEO of digital payments fintech Paytm, met India’s Finance Minister Nirmala Sitharaman, following the RBI’s recent order for its payment bank to halt business, leading to a share price rout.

At the end of last month the RBI asked Paytm Payments Bank to stop accepting new deposits in its accounts and its popular digital wallets from March, citing supervisory concerns and non-compliance with rules. “Tens of millions of merchants have been thrown into chaos by the RBI's decision to freeze Paytm Payments Bank operations,” reports Reuters.

“Discussions are on about addressing the regulatory concerns and compliance issues with both the RBI and the ministry,” a local source told the news agency.

The company has sought an extension of the 29 February deadline imposed by the RBI and has also been seeking clarity from the central bank regarding the transfer of its licence for the wallets business and digital highway toll payment service Fastag, the source said

“The RBI heard Paytm out without making any commitments,” a second source said.


Italy’s UniCredit and MPS report comeback stories

Shares of UniCredit hit their highest level since 2015 this week, after the Italian bank announcing it would return €8.6 billion (US$9.2 billion) to investors on the back of higher-than-expected profit.

The Milan-based lender shared details of the planned payout after reporting fourth-quarter profit of €1.9 billion, almost three times analysts’ expectations.

The payout, which will be delivered through a combination of buybacks and dividends, follows a strong year for the bank, which has been buoyed by higher interest rates.

UniCredit added that it would adopt a 90% payout policy from this year. The company’s “stated” net income in the October-December period came in at €2.8 billion, more than double a €1.2 billion average analyst consensus forecast provided by the bank.

Revenue also surpassed expectations, while UniCredit booked lower-than-forecast costs and provisions against loan losses.

Italy’s second-largest lender has tripled its value since Chief Executive Andrea Orcel took the reins in 2021, leading gains among European banks.

Meanwhile, Monte dei Paschi di Siena plans to pay its first dividend after a 13-year hiatus as the lender’s restructuring shows signs of success.

MPS, considered to be the world’s oldest bank, will distribute €315 million (US$339 million) in cash dividends on last year’s profit. Net income in the three final months of the year jumped to €1.12 billion as the bank released provisions for legal risks, pushing full-year profit to €2.05 billion, the highest annual amount ever.

Bailed out by the Italian state in 2017, the bank has been restructuring under CEO Luigi Lovaglio who pulled off a make-or-break capital raise in November 2022. After positive court rulings in recent months in several cases involving the bank, MPS was able to release €466 million in provisions against risks.

The lender, now 39% owned by the state after the successful placement of a stake on the market in November, has resumed dividend payments two years earlier than anticipated.


ADB agrees deal to broaden Cambodia’s trade finance

The Asian Development Bank (ADB) has signed up the Foreign Trade Bank of Cambodia (FTB) to its trade and supply chain finance programme, targeting swathes of small businesses in the South-East Asian country.

FTP will issue trade finance instruments backed by the ADB’s programme to both corporate and micro, small and medium-sized enterprise (MSME) clients in Cambodia.

“The agreement is part of ADB’s private sector development initiative to promote the sector’s participation in Cambodia’s economic diversification,” said Jyotsana Varma, ADB country director for Cambodia. “It will fill market gaps by providing financing through partner banks to support trade and MSMEs, representing about 99% of all enterprises in Cambodia.”

Signed by Varma and FTB chief executive Dith Sochal, the deal also aims to encourage more international banks to enter the Cambodian market, providing “further opportunities to expand support for regional and international trade and commerce”.

The deal builds on the ADB’s existing work in Cambodia, with the bank lending an annual average of US$363.3 million in development assistance between 2019 and 2023. It says it has already started working with FTB to boost skills in report preparation, training and performance measurement.

The ADB merged its trade finance and supply chain programmes in 2020, aiming to improve its response to disruptions during the pandemic. The bank says it has supported US$57 billion in trade through more than 45,000 transactions in emerging markets since 2009.


KKR raises US$6.8 billion for Apac infrastructure fund

Private equity giant KKR has attracted US$6.8 billion in capital commitments for its second Asia Pacific infrastructure fund. The firm’s inaugural Asia Pacific Infrastructure Investors fund closed at US$3.9 billion in 2021 and claimed to be the largest pan-Asia fund.

Since its launch in 2019, KKR’s Asia infrastructure platform has $13 billion in assets under management (AUM).

According to a KKR statement, the new fund will focus on “critical infrastructure with low volatility and strong downside protection”. The sectors of interest include renewables, power and utilities, water and wastewater, digital infrastructure and transportation.”

As Asia accounts for more than 60% of global growth, driven by rising domestic consumption and productivity, rapid urbanization, and an enormous emerging middle class, the need for new infrastructure and sustainable energy sources will continue to accelerate,” said Hardik Shah, a partner on KKR’s Infrastructure team based in Mumbai.


Saudi Arabia financing programme aims to improve contractor’s cash flow

Saudi Arabia’s Public Investment Fund (PIF) and the National Infrastructure Fund (Infra) have jointly introduced a new Contractor Financing Programme to strengthen the construction sector’s finances.

In a statement, the PIF said the programme would provide contractors with diverse, tailored financing solutions, foster a more integrated, dynamic and transparent construction ecosystem, and promote projects structured to improve contractor cashflows.

Despite record levels of contract awards in Saudi Arabia last year, construction companies continue to face financial challenges when taking on new projects, according to local reports. “Cash flow is the root cause of many of these difficulties, and if the problem is alleviated, the industry should be able to mobilise and deliver projects more quickly,” they suggest.

Separately, the National Development Fund’s Board of Directors, under the chairmanship of Prince Mohammed Bin Salman Bin Abdulaziz Al Saud, Crown Prince and Prime Minister of Saudi Arabia, has appointed Minister of Economy and Planning Faisal Alibrahim to be chairman of Infra.

In a statement, Alibrahim described Infra as the kingdom’s lead development financing partner for infrastructure, catalysing higher levels of private sector investment to accelerate the delivery of critical infrastructure projects.


Ebury launches Brazil-China cross-border payment solution

UK-based financial services provider Ebury has launched a new solution for direct transactions between the Brazilian real (BRL) and the Chinese yuan (CNY).

A press release notes that transactions between Brazil and China can be complex and may involve multiple intermediaries due to the difference between the Chinese currencies and their liquidity in the global market. Most transactions also involve intermediary currencies such as the dollar, euro and pound due to the yuan's low liquidity in the global market.

“Addressing this issue, the Ebury solution eliminates these complexities by helping companies carry out transactions directly between the currencies,” the release states. “This is already a reality for FX transactions via dealers involving BRL and CNY for foreign trade companies.”

In the official announcement, Brazilian government data shows that the total exports and imports between Brazil and China in 2023 alone amounted to over US$145 billion and solution “aims to facilitate and speed up trade between these two countries. This will benefit companies in the area in both traditional industrial and digital technology sectors.”

Ebury specialises in international payments, FX solutions, and risk management tools targeted primarily at SMEs. Its offering comprises products in over 130 currencies in large markets and emerging economies, as well as international cash management, foreign trade, and FX risk management strategies. The company also provides API solutions for fintechs, agrotechs, and digital platforms in the cross-border universe.


EY allies With MoneyLion to help banks’ digital transformation

‘Big Four’ consultancy firm Ernst & Young (EY) has allied with US enterprise and consumer fintech company MoneyLion. The partnership is “designed to bring further support to banks in their digital transformation and financial services modernisation initiatives.”

Specifically, EY’s US division will leverage MoneyLion’s embedded finance platform to accelerate revenue and profitability growth for its banking clients through product-line expansion, diversification and customer acquisition.

The aim is to make banks more efficient in their acquisition processes, ensure they can offer personalisation at scale and effectively deploy digital platforms. 

By onboarding MoneyLion’s platform, EY “aims to fast-track and streamline banks’ transition into the digital age, helping financial institutions overcome the challenges of an increasingly fragmented financial landscape,” a report added.

“Indeed, the proliferation of neobanks and other digitally-enabled financial services operators has created a rift in the market, where the digital capabilities of some organisations far outstrip other, often more traditional banks.”

As one of the world’s leading consultancies, EY hopes to level the playing field, making sure all financial services providers can offer a range of services to consumers through efficient, user-friendly platforms.


Mangopay and Sprinque partner on B2B cross-border payments

Payment infrastructure provider for marketplaces and platforms Mangopay is partnering with the B2B payments platform Sprinque on business-to-business (B2B) cross-border payments.

The collaboration aims to offer merchants and marketplaces a customisable payments infrastructure, enabling them to tap into B2B cross-border opportunities, said the companies in a press release. It will offer tools and a range of payment methods, including the option to introduce buy now, pay later (BNPL) services for their B2B customers.

Mangopay, established in 2013, provides modular payment infrastructure solutions to support various business models in the platform economy, the release said. With its programmable eWallet solution and end-to-end payment infrastructure, the company has assisted over 2,500 platforms and marketplaces. Mangopay’s payment services cover everything from pay-in to payout.

Sprinque, founded in 2021, facilitates frictionless purchasing between merchants and business customers, helping them expand globally, according to the release. By offering flexible net payment terms, Sprinque allows sellers to serve international buyers, while also managing risk, fraud and other financial operations. The company supports merchants across Europe and beyond.

The B2B marketplace industry has experienced growth in recent years, with reports suggesting an increase of up to 8.6 times since 2015, noted the release.

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