A Change Is Gonna Come! 02 June 2023
No statistics were readily available for real estate and properties transactions for the week ending 02 June 2023.
This week witnessed the most expensive sale of a penthouse on Palm Jumeriah with Luxhabitat Sotheby’s International Realty orchestrating a US$ 60 million sale for a shell-and-core mega penthouse at AVA on Palm Jumeirah, Dorchester Collection. The penthouse has a built-up area of 33.0k sq ft and occupies four floors, featuring a 360-degree infinity lap pool, (with views of Palm Jumeirah, Burj Al Arab, and Ain Dubai), a four-floor 200 mt indoor garden, a private panoramic elevator and private lobby, with a roof terrace. The actual AVA development comprises only seventeen residences, with direct access to private terraces with a pool, floor-to-ceiling windows, and a stunning 270-degree floor-to-ceiling view private beach and all the five-star amenities of the Dorchester collection.
Property Finder reports that May real estate transactions were 77.6% higher on the year, at 11.7k, driven by robust economic growth; last month, the aggregate value of property deals rose 28.3% to US$ 9.26 billion. Off plan sales continue to rise as a percentage of the total sales – accounting 49% of the total sales transaction volume and 43% of the value. The value of off-plan properties, rose 135.8% to more than US$ 3.95 billion, whilst the volume of off-plan property sales surged 109.9% to more than 5’7k transactions. Dubai’s property market trend in May follows a 53% surge in the value of deals and a 45% rise in the volume of transaction in April.
With construction starting twenty-one years ago, Palm Jebel Ali started well and by 2006, it already had a 17 km breakwater, 200 mt wide. Ten million tonnes of rock were brought in from Ras Al Khaimah to be dumped into the sea to form the barrier; a further two hundred sq mt of cap rock, sand, calcarenite and limestone came from the Jebel Ali Entrance Channel dredging works. By 2008, offshore work had begun on the six km “trunk” and the seventeen fronds, and all was on track for the project – twice the size of The Palm Jumeirah, with a projected population of 250k – to go ahead. That year, the GFC changed everything and Dubai – in line with the rest of the world – was impacted and it was no surprise then to see the mega project suspended. For more than a decade, Jebel Ali Palm lay dormant. In 2018, Nakheel’s then chief executive, Sanjay Manchanda, confirmed the project was still in long-term development but that there were no current plans to resume work. In 2022, it was announced that the project was to relaunch and be rebranded.
On Wednesday, the Dubai Ruler did not disappoint announcing the updated Palm Jebel Ali project, destined to be twice the size of the already iconic Palm Jumeirah, and how he sees this new destination as part of an ambitious plan to make the emirate “the most beautiful city in the world”. It will span an area of 13.4 sq km and have beaches that will spread for over 110 km and that “its marine, green pastures will provide housing, (estimated to house 35k families), with the highest quality of life.” HH Sheikh Mohammed added that “we announced our goal to double Dubai’s economy by 2033 . . . and every day we add a new brick in building the most beautiful city in the world.” More than eighty hotels and resorts will be built on the island, expected to draw in tourists and families from around the world.
Indians have lost their long-standing number one position in Dubai’s luxury residential property sector; prior to the onset of Covid, the top three property investors were Indians, Emiratis and Saudis. According to a report by Knight Frank, the top two positions now belong to the Chinese and British, with Indians now trailing in third place. The state of the UK economy – and indeed the country – has seen UK investors looking for safe havens to invest and, at the moment, Dubai ticks all the right boxes because of its booming economy, progressive government initiatives and high returns on property investment. Latest figures from Betterhomes point to the fact that, in Q1, there had been a 60%, year on year, hike in the number of UK investors, making them Dubai’s biggest source market so far this year.
In the first four months of 2023, the number of visitors to Dubai rose by over 18% to more than six million – and if this trend continues for the rest of the year, Dubai will be one of the three best cities in the world, economically, in accordance with the “D33” Economic Agenda. Over the past twelve months, the number of hotel rooms has increased by 6.1% to 148.9k, as the number of hotels rose 5.8% to 814. The source location markets – Western Europe, South Asia, Russia, CIS and Eastern Europe, GCC and MENA – remained the same, with total percentages of 22%, 16%, 15%, 14% and 13%. The top four source countries were India, Russia, UK and Saudi Arabia, with totals of 806k, 474k, 391k and 352k, with the first three countries recording visitor increases of 46%, 101% and 6%. YTD to 30 April, Dubai recorded an average occupancy rate of 80%, with the average duration of hotel guests’ stay about four nights, and the number of reserved rooms reaching 14.09 million overnight stays, compared to 12.65 million overnight stays in the comparative 2022 figures.
An initiative by Dubai’s Department of Economy and Tourism has made it mandatory for owners of holiday homes to display a QR code on the main entrances of their properties. The twin aims of the exercise are to improve transparency and increase confidence among investors and visitors in this real estate sector. It will also help facilitate DET’s inspections and ensure strict compliance with procedures. In a booming market, this sector witnessed an increase of 6.6k units (45.5%) to 21.1k, with room growth of 9.5k to 32.8k rooms. In Q1, these properties hosted 137.1k guests.
Flydubai is expected to recruit at least 1k more staff this year, as it continues to ramp up operations to over 110 destinations. The appointments will be needed across all the airline’s divisions, including pilots, cabin crew, engineers and support. Pilots, requiring 2.5k hours flying time on modern (EFIS), multi-crew, multi-engine aircraft and five hundred hours on B737-300 to 900 (NG/EFIS) type aircraft, will have remuneration including US$ 8.7k basic salary + housing allowance + transportation allowance, with variable flying pay of US$ 3.1k. Cabin crew will be on a US$ 2.0k basic salary + housing allowance + transportation allowance, with variable flying pay of US$ 1.0k (monthly average).
Virgin Atlantic will restart flights from London to Dubai in October, with bookings opening next week; the airline will run four Boeing 787-9 flights a week between October and March, with the plane having thirty-one upper class seats, thirty-five premium seats and 192 seats in economy. The service will also allow Dubai travellers to connect, via London, to Virgin Atlantic and Delta destinations in North America. The airline had discontinued its daily Dubai service in March 2019, after twelve years, citing economic reasons.
A report by Arthur D Little sees demand for EVs continuing to head northwards, with the UAE market expected to expand at a 30% compound annual rate over the next six years. The Minister of Energy, HE Suhail Al Mazrouei, noted that electric vehicle sales are “rapidly” increasing in the UAE, with EVs making up more than 1% of the overall car market in the country, as options for those who are going to own an EV have increased significantly with aggressive competition from Europe, the US and also from … China, [South] Korea, Japan and others.” The report also ranked the UAE eighth globally in terms of electric mobility readiness. Since 2020, the country has increased the number of charging stations across the country by about 60% to eight hundred, with DEWA stating that it is aiming for 1k public charging stations in Dubai by 2025, an increase from 620 at the end of 2022. On a global stage, electric car sales this year are expected to grow by 40% to fourteen million, driven by government subsidies and the tightening of carbon dioxide emissions standards, with EV market share jumping 4% to 18%.
The Ministry of Energy, as usual, adjusts fuel prices in the UAE on the first day of every month. According to the government, the UAE liberalised fuel prices, introduced in August 2015, help to rationalise consumption and encourage the use of public transport in the long run and incentivise the use of alternatives. The UAE Fuel Price Committee decreased all June retail petrol prices:
- Super 98: US$ 0.804 – down by 6.65% on the month and up US$ 0.63 (6.21%) YTD from US$ 0.757
- Special 95: US$ 0.774 – down by 6.89% on the month and up 6.46% YTD from US$ 0.727
- Diesel: US$ 0.730 – down 7.79% on the month and down 18.53% YTD from US$ 0.896
- E-plus 91: US$ 0.752 – down by 7.08.% on the month and up 6.52% YTD from US$ 0.706
The Ministry of Finance waited until yesterday to announce two major decisions relating to the new corporate tax legislation. Cabinet Decision No 55 of 2023 detailed the scope of Qualifying Income, being income from transactions with other free zone entities, as well as domestic and foreign-sourced income derived from conducting any of the qualifying activities. Ministerial Decision No. 139 of 2023 addressed qualifying activities and excluded activities covered qualifying activities and excluded activities. Excluded activities are transactions with natural persons, regulated banking/insurance/financing/certain leasing activities, ownership or use of intellectual property assets and ownership or use of UAE immovable property. Earning income from excluded activities, or earning any other income that is not a qualifying income, will result in the free zone company being disqualified from the corporate tax regime, subject to “de minimis requirements”; this allows a qualifying free zone person to earn up to 5% of their non-qualifying revenue, or US$ 1.36 million (AED 5.0 million), without being disqualified from the free zone corporate tax regime. As expected, the legislation clarified that a qualifying free zone company must maintain “adequate substance” in the country. Businesses can contact their free zone authority to confirm whether their free zone is eligible for the zero rate.
The Ministry listed nearly a dozen qualifying activities which include:
- the manufacturing of goods or material
- the processing of goods or material
- reinsurance services; holding of shares and other securities
- ownership, management and operation of ships
- fund management services
- wealth and investment management services
- headquarter services to related parties
- treasury and financing services to related parties
- financing and leasing of aircraft including engines
- distribution of goods or materials in or from a designated zone
- logistics services
- any ancillary activities to the activities listed above.
In Q1 and following an inspection of eight hundred and forty companies, for failing to comply with the anti-money laundering and combating the financing of terrorism legislation, the Ministry of Economy imposed fines worth US$ 18 million on 137 companies operating in the UAE’s designated non-financial business or professions sector. The investigations are part of the Ministry of Economy’s remit to monitor the operations of designated non-financial business or professions sector companies that are subject to its supervision, which include real estate agents and brokers, precious metals and gemstone dealers, auditors and corporate service providers. The law stipulates that such companies have to ensure the sector’s full compliance with the provisions stipulated by Federal Decree-Law No. 20 of 2018, with adherence to the law is necessary to ensure the country’s full compliance with the international standards issued by the Financial Action Task Force. Companies were found to have failed to establish internal policies and procedures to check customer databases and transactions against names mentioned on the terrorism list.
With a strategy of targeting the “adoption of crypto globally across twenty countries”, Gemini, founded by cryptocurrency pioneers and identical twins Cameron and Tyler Winklevoss, will “soon” start the process of buying a crypto licence to operate in the UAE. It seems that the Gemini management has been having discussions with regional stakeholders to learn more about local regulatory requirements. No timetable has been released.
The Investment Corporation of Dubai posted impressive 2022 financial returns, with record consolidated revenue 58.0% higher at US$ 72.86 billion and a record five-fold surge in profit to US$ 9.84 billion; the Net Profit attributable to the equity holder was US$ 8.12 billion. ICD’s portfolio also includes Emirates, Emirates NBD, Commercial Bank of Dubai, Dubai Islamic Bank, National Bonds Corporation, Enoc, dnata, flydubai and DAE. Margins also improved because overall revenues grew faster than operational costs. Assets grew 6.9%, reaching a record US$ 320.65 billion, and liabilities totalled US$ 247.44 billion, and with borrowings and lease liabilities declining 9.0%, the Group’s share of Equity rose 13.6% to US$ 58.99 billion.
In 2022, the Dubai World Trade Centre hosted sixty-three major events that generated US$ 3.54 billion in economic output, with US$ 2.02 billion (56.9%) being retained in the local economy; these events welcomed nearly 1.2 million attendees, with 405k being from overseas. The knock-on effect on Dubai’s economy was seen in various sectors – including entertainment, accommodation, restaurants, retail, transport, and government services – and a support for 48k jobs. The main sectors – healthcare, medical/scientific and IT – accounted for 57%, (US$ 1.17 billion), of the gross value added to the emirate’s economy.
In a press release that would bring a smile to Scrabble players, CBUAE (Central Bank of the UAE) has issued new guidance on AML/CFT, (anti-money laundering and combatting the financing of terrorism), for LFIs (Licensed Financial Institutions); its main aim is to assist such entities’ understanding of their legal obligations – it will also take FATF ( (Financial Action Task Force) standards into account. It will come into effect within one month. Among the discussion items are the risks of dealing with VA (virtual assets) and VASP (virtual asset service providers). The guidance outlines CDD (customer due diligence) and EDD (enhanced due diligence) for LFIs towards potential VASP customers and counterparties.
With its main aim of boosting the country’s manufacturing sector, the government has announced thirty innovative industrial projects worth over US$ 1.63 billion. The announcement, made at the beginning of the second Make it in the Emirates Forum, included a 9.1% increase of procurement opportunities in the domestic industrial sector, taking the total value of products targeted for localisation to US$ 32.70 billion. Furthermore, ADNOC will also allocate US$ 5.45 billion for the purchase of structures and metal products from national companies. It was also announced the provision of 5k sustainable job opportunities for UAE nationals in the industrial sector as FAB and Mashreq banks making available competitive financing solutions to the value of US$ 1.36 billion and US$ 272 million.
In DMCC’s latest Future of Trade 2023 report, it predicts that gaming revenue in the MENA will double to top US$ 6.0 billion over the next five years; it is estimated that the region now represents 15% of the global player base. The four main pillars behind the surge include high levels of digital connectivity, sufficient government support, the presence of a young and digital-savvy population, and high levels of digital connectivity. The DMCC is in the throes of enhancing Dubai’s position as “a global trade and economic hub, efficiently activating opportunities within the gaming sector will prove essential.” By 2025, there will be more than 318 million e-sports enthusiasts worldwide – 47.8% higher than the 2020 figure, with the global gaming market to reach US$ 304 billion, (a 71.4% increase) over the next four years. It is expected that the UAE and Saudi Arabia will continue to lead the region, supported by “high income levels, strong digital engagement, and public investment initiatives”.
The latest Alvarez & Marsal report notes that the combined Q1 net profit of the country’s ten largest banks rose by 35% on the quarter, driven by cost efficiencies, relatively low inflation rates, rising interest rates and lower impairment charges; their aggregate net income nudged 0.4% higher to US$ 5.0 billion, with a 12.5% rise in non-core income. The cumulative loans and advances (L&A) of the UAE’s top banks increased by 2% in Q1 over the same period last year, while deposits were up 6.2% on a quarterly basis, The consultancy expects that the UAE banking sector will maintain the gains of the first quarter, as the UAE’s economy is expected to grow 3.9% and 4.3% in 2023 and 2024, after expanding 7.6% last year – its highest rate since 2011. The UAE’s ten largest listed banks covered in A&M’s survey are First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al Khaimah and Sharjah Islamic Bank.
Brokerage companies at the Dubai Financial Market added 22.7k new investor accounts YTD to 31 May – well up on comparative 2022 returns of 15.4k accounts. The two months, with most activity, were March and May with 6.6k and 5.3k new accounts.
The DFM opened on Monday, 29 May 2023, 42 points (1.2%) lower the previous three weeks, gained 62 points (1.7%) to close the week on 3,603, by 02 June 2023. Emaar Properties, US$ 0.07 lower the previous week, gained US$ 0.06 to close the week on US$ 1.66. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.67, US$ 3.72, US$ 1.41, and US$ 0.39 and closed on US$ 0.68, US$ 3.76, US$ 1.44 and US$ 0.39. On 02 June, trading was at 369 million shares, with a value of US$ 221 million, compared to 142 million shares, with a value of US$ 96 million, on 26 May 2023.
The bourse had opened the year on 3,438 and, having closed on 31 May on 3,577 was 139 points (3.1%) higher. Emaar started the year with a 01 January 2023 opening figure of US$ 1.60, to close the first five months at US$ 1.68. Four other bellwether stocks, DEWA, Emirates NBD, DIB and DFM started the year on US$ 0.59, US$ 3.54, US$ 1.55 and US$ 0.41 and closed YTD at US$ 0.68, US$ 3.72, US$ 1.48 and US$ 0.40. On 31 May, trading was at 264 million shares, with a value of US$ 262 million, compared to 66 million shares, with a value of US$ 18 million, on 31 December 2022.
By Friday, 02 June 2023, Brent, US$ 3.04 higher (4.1%) the previous three weeks, shed US$ 0.96 (1.2%) to close on US$ 76.22. Gold, US$ 69 (3.9%) lower the previous three weeks, gained US$ 18 (0.9%) to US$ 1,964 on 02 June 2023.
Brent started the year on US$ 85.91 and shed US$ 13.33 (15.50%), to close 31 May on US$ 72.58. Meanwhile, the yellow metal opened 2023 trading at US$ 1,830 and gained US$ 132 (7.2%) to close on US$ 1,962.
Latest figures indicate that Singapore’s state investor, Temasek Holdings, had investment in failed FTX cryptocurrency exchange accounting for 0.09% of its net portfolio value of US$ 304 billion and that it has had to write off US$ 275 million. Accordingly, it has announced that it has reduced compensation for the team responsible for recommending this investment, as well as its senior management team. Although it did not disclose the specific amount of the compensation cut, it did confirm that it currently held no direct exposure to cryptocurrencies, and that “there was no misconduct by the investment team in reaching their investment recommendation.
Last Saturday, 27 May, Arabsat launched Badr-8 from the Cape Canaveral Space Force Station, Florida, as SpaceX’s Falcon 9 rocket lifted off with Arabsat’s communications satellite. It is estimated that the Badr 8 project, comprising the spacecraft manufacturing contract with Airbus, the launch agreement with SpaceX, insurance, and ground infrastructure, has cost US$ 300 million. The 4.5 metric ton communications satellite will provide television broadcast services, video relay, and data services across the Mena, Europe and Central Asia.
In relation to its prior exposure with disgraced financier Jeffrey Epstein, JP Morgan have been the recipient of two suits brought by two groups – one representing Epstein’s victims and another on behalf of the government of the US Virgin Islands, where he owned a private island. The bank had a fifteen-year relationship with Epstein from 1998 – 2013, during which time, in 2008, the disgraced financier had pleaded guilty to soliciting a minor for prostitution. Both its CEO, Jamie Dimon, and the bank have denied any wrongdoing and liability, with prosecutors alleging that the bank ignored warning signs about their lucrative client and continued profiting off him. Epstein, who reportedly committed suicide in 2019, kept hundreds of millions of dollars in more than fifty accounts at the bank until he was dropped as a client. Not surprisingly, it was alleged that Epstein had a high degree of familiarity with, and easy access to, JP Morgan executives, with the bank laying the blame on its former executive, Jes Staley, an Epstein ally, and Mary Erdoes, who, at the time, headed up the bank’s asset and wealth management division. Despite being aware of his conduct and his ongoing legal troubles, with a reported forty-eight employees flagging their suspicions about Epstein’s transactions, it is claimed that JP Morgan kept him on as a customer. Only recently, Deutsche Bank, who took Epstein on as a client, after JP Morgan cut ties with him, settled for US$ 75 million with Epstein accusers; to date, the Epstein estate has paid over US$ 150 million in settlements to more than one hundred victims.
By settling for a US$ 6.0 billion payment fine, Purdue Pharma has received full protection from future lawsuits relating to the massive US opioid crisis. The family-owned company, which filed for bankruptcy in 2019, when it was facing thousands of lawsuits, has finally got what it wanted – the Sackler family was awarded full immunity from civil suits. The US$ 6.0 billion will be used to address opioid addiction, with the money going to local and state governments, individuals who sued the company, as well as funding rehabilitation programmes and other addiction treatments. While the ruling protects the family from any future civil cases, they could still face potential criminal charges. Latest research points to the fact that there were more than 75k opioid overdose fatalities in 2021 and that Purdue Pharma promoted opioids as non-addictive painkillers.
The Australia-based aviation safety and product rating agency, in its latest survey, has ranked Air New Zealand the airline of the year, followed by Qatar Airways, Etihad, Korean and Singapore; Emirates came in at number ten, (but it did pick up awards for being the best-in-flight entertainment and best premium economy). The Qatari carrier, which had been number one in 2022, won the Best Business Class, Best Catering and Excellence in Long Haul Travel – Middle East awards. Singapore won the Best First Class award. The survey noted that 2022 was a year of recovery, after two years of reduced air travel, as most airlines suffered declines in passenger approvals as the industry struggled to get into the air. The study takes into account twelve key criteria that include fleet age, passenger reviews, profitability, investment rating, product offerings, and staff relations.
Air New Zealand has announced that it will be weighing passengers before they board international flights, as part of a survey to determine average passenger weight, pointing to the fact that, it would improve fuel efficiency in the future. The weight will be anonymously recorded in a database but not be visible to airline staff or other passengers. The carrier also noted that knowing the weight of everything that goes on its aircraft is a “regulatory requirement”. The survey, which started on Monday and will end on 02 July, will involve 10k passengers.
Despite Twitter having pulled out of the EU’s voluntary code to fight disinformation, the tech giant has been warned that the new laws would require compliance from all players and that Twitter will be legally required to fight disinformation in the EU from 25 August. Dozens of tech firms, including have already signed up to the EU’s disinformation code including Meta – which owns Facebook and Instagram – TikTok, Google, Microsoft and Twitch. The main aims of the code, introduced in June 2022, are to prevent profiteering from disinformation and fake news, as well as increasing transparency and curbing the spread of bots and fake accounts. Alongside the voluntary code, the EU has also brought in a Digital Services Act – a law which obliges firms to do more to tackle illegal online content; as from 25 August, compliance is compulsory for any platform, with more than forty-five million users in the bloc, with all having to comply legally with the new law.
Australian mining giant BHP has confirmed that it has underpaid 28.5k current and former employees indicating that they had received less holiday pay over a period of thirteen years; four hundred workers did not get additional allowances “due to an error with the employment entity.” The company has reported the incident to the authorities and confirmed that the errors will cost US$ 182 million before taxes. It appears that some affected employees had their leave incorrectly deducted on Australian public holidays, and they were owed a total of six days of leave on average. The world’s biggest miner has apologised for this embarrassing error and has commissioned a review of its payroll systems.
The RBA has confirmed that extremely high population growth is resulting in higher rents and that Australia needs to build more housing units. Since this cannot be carried out in the short-term, and the country facing rental vacancies at near record lows in most areas, there is no immediate fix to the problem, but that one short-term solution is for people to consider economising on their housing, (as many are forced to do), as rents and mortgage rates head higher. With this price mechanism at work, more people on average have to live in each dwelling, so that young adults moving back with their parents and co-sharing is becoming more prevalent. Meanwhile, the RBA had recently warned that the outlook for rent inflation has strengthened, and that higher rates were unfortunately driving rents higher, and that was feeding inflation in other areas of the economy; it expects that rents will be 10% higher by the end of the year which will cause even more problems especially because rents were the single largest component of the consumer price index (CPI); an ANZ study noted that low income earners are now paying more than 50% of their pay on housing. Simple economics show that if the Australian population is to grow 2.0% this year, at least 2.0% more housing units are needed – and, even more, bearing in mind the current shortage of stock. Until some sort of equilibrium reaches the market, higher rents will become a fact of everyday Australian life.
In Australia, the independent Fair Work Commission approved a 5.75% pay rise for workers on awards, with wages linked to movement in the minimum wage. With a technical reclassification for the national minimum wage, 0.7% of the country’s workforce will get an8.6% pay hike. The actual award will impact more than two million workers. Some analysts are concerned with this pay increment because it could be a catalyst to push inflation levels higher again, along with rising interest rates that could move 0.5% northwards before the end of July. The Australian Chamber of Commerce and Industry has estimated that this initiative would add an estimated US$ 8.34 billion in costs for businesses.
Iraq’s Development Road has launched a US$ 17.0 billion project to link its Grand Faw Port, in Iraq’s oil-rich south, north to Turkey, with a modern rail and road system, with the aims of transforming the country’s economy, (after decades of war and political/economic crises), and turning the country into a transit hub by shortening travel time between Asia and Europe. The project will see passenger and goods trains travelling at speeds up to 300 kph, new oil and gas pipelines to link the oil fields of the south to north of the country, and initiate links with other parts of Iraq and other countries. The country’s transport system is aged and inefficient, with a handful of lines and slow oil freight engines, and a single overnight passenger train that trundles from Baghdad to Basra, taking ten to twelve hours to cover five hundred km. Many of the country’s roads, rails and bridges are in a state of disarray. If all goes to plan, the project would be completed in 2029.
On the side-lines of last week’s Asia-Pacific Economic Cooperation conference in Detroit, China and South Korea agreed to strengthen dialogue and cooperation on semiconductor industry supply chains. China agreed to work with South Korea to deepen trade ties and investment cooperation at a time when there is an ongoing trade war between the world’s two superpowers – US and China – with concerns over chip supplies, sanctions and national security. South Korea requested China to stabilise the supply of key raw materials, (over all sectors and not just semiconductors), and asked for a predictable business environment for South Korean companies in China. About 40% of South Korea’s chip exports go to China, whilst US technology and equipment are necessary for South Korean chipmakers Samsung Electronics and SK Hynix.
The Commercial Aircraft Corporation of China launched its maiden commercial flight, MU9191 – Shanghai to Beijing – with the first ever “made in China” commercial plane. It has taken the manufacturer fourteen years to reach this milestone, having first started developing the narrow-body airliner in 2008, with production following three years later. However, it took another eleven years before the C919 received official certification to fly. China Eastern Airlines is the C919’s launch customer, with an order for five planes. It has taken the Chinese sector decades to start to compete with the two global leaders – Boeing and Airbus – in commercial jetliner manufacturing; both companies have a full order book going forward to 2030 so that any carrier, including Chinese customers, wanting narrow-body jets sooner, will have to seek an alternative. Comac has received more than 1k orders for the C919, though the majority are not confirmed, and many are from Chinese aircraft lessors yet to place the jet with an airline. The C919 – priced at US$ 99 million – remains certified only to fly within China, with the European certification process under way. Whether the manufacturer is in a position to fulfil orders remains a question, because of its reliance on overseas products from major suppliers such as GE, Honeywell International and, for the engines, CFM International – a venture between GE and France’s Safran.
A day after Recep Tayyip Erdogan won the run-off election against Kemal Kilicdaroglu, the Turkish lira slumped to a record low on Monday, trading at 20.20 to the greenback. Despite ongoing interventions by the Central Bank, including limiting the value of dollars that could be bought, the currency has struggled in 2023. In his victory speech, Erdogan acknowledged that inflation was the most urgent issue for the country, but the president noted that it would fall in line with the policy rate which stands at 8.5% and has fallen from 19.0% over the past two years. However, a main area of concern is the marked decline in the country’s foreign exchange reserves which will soon reach levels that could have a negative impact on the lire. However, it seems that the country is recovering from February’s earthquake which has reportedly cost the economy US$ 104 billion. There is no doubt that the president has tried to rewrite basic Economics – and has failed. Whilst the rest of the world has been raising interest rates to combat surging inflation, Turkey has headed in the other direction – reducing rates quicker than other nations were raising them. This policy has seen rampant inflation and the country’s foreign exchange drying up which, if it continues, may see a necessary but reluctant U-turn with belated hikes in interest rates. His current policy has limited the country’s access to sourcing international loans. The country has posted healthy growth figures of 11.4% in 2021, 5.6% last year and 3.0% in Q1 but there will be an inevitable slowdown for the rest of 2023, attributable to several factors including not only sinking foreign reserves but also a currency continuing to dive to record lows and a Q1 current account deficit of more than 6.0%.
There is no doubt that the Irish economy has benefitted greatly from the influx of major international tech and pharmaceutical companies drawn to Dublin because of its favourable taxable regime. New research indicates that just three companies accounted for 33% of all corporation tax collected in the Republic between 2017 – 2021; the Irish Fiscal Advisory Council confirmed that the three, including Apple which is reportedly the largest taxpayer in the country, contributed US$ 5.55 billion to the exchequer. In 2022, US$ 24.9 billion was collected in corporation tax collections – up over US$ 8.82 billion in the past five years. Little wonder that Ireland is oner of the few western countries with a budget surplus, but how longer this windfall will continue remains to be seen.
With a 63-36 vote for, the US Senate passed legislation lifting the government’s ceiling debt from US$ 31.4 trillion and averting a first-ever debt default. Earlier, the Treasury Department warned that it would be unable to pay all the government bills after 05 June. With this legislation, the statutory limit on federal borrowing will be suspended until 01 January 2025.
May’s US robust job creation numbers of 339k new positions continued to confuse analysts, who were expecting a much lower figure, as rising prices and marked increases in borrowing costs continue to cause concern and surprise to economists; the unemployment rate nudged 0.3% higher, on the month, to 3.7%. – its highest rate in seven months. However, inflation at 4.9% is more than double the Fed’s 2.0% target. To the casual observer, it seems that if the labour market continues to move higher, inflation will move in the same direction and rate increases are all but inevitable – with the next one maybe not this month but in July.
The overall rate of May inflation at UK grocers reached a new high of 9%, mainly attributable to raised prices of coffee, cocoa, chocolate and non-food goods. To try and alleviate the economic pain, the Sunak government is discussing the possibility of asking supermarkets to cap prices on food items to help limit the cost of basic foods such as bread and milk. But talks are likely to end in stalemate because the British Retail Consortium is opposed to “recreating 1970s-style price controls” and suggested that the authorities try to cut the red tape so resources could be “directed to keeping prices as low as possible”. The latest survey sees overall food inflation 0.3% lower, on the month, at 15.4%, whilst the pace of price rises for non-food goods grew from 0.3% in the year to 5.8% in May, with fresh produce slowing 0.6% to 17.8%. Despite supermarkets cutting milk prices by US$ 0.062 last month, they are still almost double that of pre-Covid 2020 prices. Although April inflation figures – at 8.7% – fell from double digit territory for the first time in ten months, it was still a lot less than what the market was expecting – and still more than quadruple the BoE’s 2.0% target, despite the fact that rates have been raised twelve consecutive times, now standing at 4.5%. Because of this, there is a school of thought which says that the rate may go up a further 100 bp to 5.5% by year end. There will be a lot more mortgage holders running for cover if that were to happen!
The latest Nationwide report indicated that UK May house prices edged 0.1% lower, with the average property price at US$ 326.8k – 4.0% lower than its August 2022 peak. Despite house prices being lower, the higher mortgage charges are making it more difficult for many first home buyers to get on the housing ladder. The BoE posted that the amount of mortgage debt in April was at its lowest level on record, with borrowers repaying US$ 1.74 billion more on their mortgages than banks lent out, and that net mortgage approvals for house purchases fell 5.4% to 48.7k on the month. Figures indicate that the current average interest rate on a two-year fixed-rate mortgage is now 5.49% – up from 3.25% from a year earlier. Official data sees nearly 10% of UK mortgages taken off the market last week and that the number of April transactions 25% down on the year to 82.1k. It does not take much imagination to see that mortgage rates will continue to head higher as official inflation data sees rates dipping to 8.7% – at a much slower rate than the market expected; currently at 4.5%, it will be at least 5.0% by Q4. The end result is that the UK property market is in trouble.
A report by the International Labour Organisation shows concern that soaring debt levels, compounded by high inflation and rising interest rates, have impacted on jobseekers’ hopes in developing countries. In its Monitor on the World of Work report, the ILO noted that only 8.2% of workers in high income countries willing to work are jobless, whilst this figure climbs to 21.0% in low-income countries; the figure is even higher in low-income countries in debt distress where the figure is more than 25%. The survey noted that this year, the global unemployment rate – at 5.3% or 191 million people – will be lower than pre-Covid figures. The 2023 global jobs gap, which refers to those who want to work but do not have a job, is projected to rise to 453 million people, with women 1.5 times more affected than men. The global labour situation is becoming worse, as time goes on, and it is highly unlikely that A Change Is Gonna Come!