Time To Move On?                                                                   23 June 2023

Last week, ending 16 June, produced mega results with 3,625 real estate and properties transactions totalling US$ 3.41 billion, but this week was even better. The 4,048 real estate and properties transactions totalled US$ 4.25 billion, during the week, ending 23 June 2023. The sum of transactions was 278 plots, sold for US$ 474 million, and 2,965 apartments and villas, selling for US$ 2.00 billion. The top three transactions were all for plots of land, one in Wadi Al Safa 3, sold for US$ 24 million, the second in Madinat Dubai Almelaheyah for US$ 20 million, and the third in Palm Jumeirah for US$ 19 million. Al Hebiah Fifth recorded the most transactions, with eighty-two sales, worth US$ 58 million, followed by thirty-one sales in Madinat Hind 4 for US$ 11 million, and twenty-seven sales in Jabal Ali First, valued at US$ 27 million. The top three transfers for apartments and villas were all for apartments – the first in Al Goze First, valued at US$ 60 million, another in Al Nahda First, for US$ 27 million, and an apartment in Palm Jumeirah for US$ 27 million. The mortgaged properties for the week reached US$ 1.53 billion, whilst one hundred and thirty-nine properties were granted between first-degree relatives worth US$ 254 million. Latest DLD statistics indicate that in the first five months of the year, 29k primary sales occurred – soaring 41% on the year – totalling US$ 18.46 billion.

According to EG Hermes, Dubai’s May off-plan sales surged more than 100% annually to 5.5k units, valued at US$ 3.8 billion. Dubai Harbour and Dubailand areas posted May sales figures of US$ 817 million, compared to US$ 37 million a year earlier, and US$ 313 million, (May 2022 – US$ 75 million). Off-plan market activity reached its highest level in a decade, with other areas, such as MBR City, Downtown Dubai and The Palm Jumeirah, recording strong sales. Total property transactions in Dubai – including land, apartments, villas and offices – rose 94% to US$ 12.26 billion, annually in May; total residential market transactions during the month were up 134% at US$ 8.91 billion.

This week, the Al Habtoor Group announced that units in the upcoming Al Habtoor Tower are now on sale and that it is seeing “massive interest”. The eighty-two-storey tower – slated to be the largest residential tower in the world – will house 1,619 apartments and 22 sky villas, (with prices for the 1 B/R, 2 B/R and 3 B/R units starting at US$ 572k, US$ 954k and US$ 1.28 million), with the sky villas yet to be priced. The developer has refused to disclose the height of the world’s largest residential tower. The company has even noted that there are some investors interested in buying the whole project, estimated to be worth over US$ 1 billion, but it has refused such offers. It seems that the tower would be a vertical city within Al Habtoor City, and will comprise “numerous retail and dining options, with multiple swimming pools on various levels, full-service spa, quiet spaces, kids’ areas, libraries and network rooms, among others.”

MAG has announced that its Q1 sales reached US$ 817 million; during the period, its luxury residential development, Keturah Reserve, located in Mohammed Bin Rashid City, District 7 in Meydan, recorded the sale of all available ninety-three townhouses, with 70% of the project’s units having already been sold. Furthermore, the ‘The Ritz-Carlton Residences, Dubai, Creekside,’ project recorded sales of the penthouses, with 360-views of the Dubai skyline, the two-bedroom Sky apartments, and two mansions out of the available twelve. MBL Royal Residences, a mixed-use luxury tower in JLT, was completely sold out within seventy-five days of its launch, as have 60% of 2B/R – 3 B/R townhouses. Earlier in February, MAG also launched MAG 22, a residential development offering two and three-bedroom townhouses at MBR City, and already 60% of its units have been sold.

A 4-B/R penthouse has been sold for US$ 22 million on Bluewaters Island, becoming the most expensive penthouse to be snapped up on the Island; the property encompasses 9.3k sq ft.

The latest report by Julius Baer indicates that the Europe, Middle East and Africa region is the world’s most affordable for the super-rich to live a luxury lifestyle, noting that over the previous twelve months, the price of all goods and services in its 2023 Global Wealth and Lifestyle index, increased on average by 13% in local currencies and by 6% in US dollars. Some of the biggest price increases occurred in high-demand, premium consumables, luxury cars and hospitality services. Asia remains the most expensive region in the world for HNWIs – defined as people with a net worth of US$ 1 million or more – with Singapore, Shanghai and Hong Kong taking the top three places.  Dubai is listed as the seventh most expensive city behind London, New York and Monaco, but ahead of Taipei, Sao Paulo and Miami; last year it was placed fourteenth.

The report commented that that Dubai “remains an object lesson in the saying, ‘Build it and they will come’ and is also a testament to the power of government to create hubs using financial and other incentives,” and that “it has become the place that companies and entrepreneurs seeking a base in the Middle East turn to and is popular with expats. Most recently, it has seen the relocation of large numbers of wealthy individuals, which has affected property prices and demand.”

There are three major classifications used in relation to Dubai’s residential sector – luxury, affordable and budget. The former category encompasses areas such as Downtown Dubai, Old Town, The Palm Jumeirah, Emirates Hills and the DIFC, while the affordable segment includes Business Bay, JLT, Dubai Marina, Emirates Living, Arabian Ranches and affordable units in Downtown Dubai. The budget segment comprises the likes of International City, Discovery Gardens, Dubai Sports City, Jumeirah Village, International Media Production Zone and MotorCity. In May, Dubai’s luxury home sales more than doubled to about US$ 3.0 billion, while affordable and budget home sales also more than doubled to about US$ 3.8 billion, and US$ 2.40 billion, respectively. Dubai Harbour registered the best annual price performance, at US$ 1.08k per sq ft, up from US$ 728 per sq ft in May last year. Other top-performing areas include MBR City and The Palm, while prices dropped in Dubai Marina, Tilal Al Ghaf and luxury homes in Downtown Dubai.

Last week, this blog contained details of the inflow boom in millionaires into the emirate, with a further 4.5k forecast to be added to the portfolio this year. Pre-Covid, Dubai would average an influx of around 1k new millionaires a year, but last year, the number jumped to 5.2k HNWIs – the highest in the world – mainly because of its quick exit from lockdown and progressive government initiatives. There is a myriad of reasons why Dubai has become such an attractive destination for many looking for a better lifestyle including:

• highly diversified economy, with strong financial services, healthcare, oil/gas, real estate, technology, and travel/tourism sectors
• one of the most competitive tax rates in the world, along with the likes of Bermuda and Monaco
• a progressive and dynamic government able to initiate a series of steps to steer the country towards greater economic growth and development
• quicker and more pro-active government decision-making – “green tape” rather than red tape
• luxury hub with world-class shopping destinations and restaurants
• excellent infrastructure
• world class leisure facilities
• one of the cleanest and safest cities in the world
• best in class international travel hub
• first-class health care system
• 140 international schools, with a mix of English National Curriculum / British schools/ International Baccalaureate and American schools
• top-end apartments and luxurious villas that are available
• Dubai came in at a relatively low 31^st in a 2022 Mercer survey ranking the cities with the highest cost of living in the world
• the country’s aim to develop and transform into a “comprehensive hub in all sectors and establish its status as an ideal destination for talents and investors”
• the Dubai Economic Agenda’s goal to double the size of the economy in the next decade and establish it as one of the top three global cities

To show how Dubai eateries have improved over recent years is borne out by the fact that two Dubai restaurants were included in the World’s 50 Best Restaurants 2023 at an event in Valencia, Spain. Dubai’s Tresind Studio (No 11) was named Best Restaurant in ME and Africa, ahead of Orfali Bros Bistro (No 46). Lima’s Central won the award for World’s Best Restaurant, as well as Best Restaurant in South America, followed by Disfrutar in Barcelona and Diverxo in Madrid. Last March, the Dubai Michelin awards were made, with Tresind Studio, located at Nakheel Mall on Palm Jumeirah, one of three restaurants to receive the coveted Michelin two-star accolade – the others being Il Ristorante – Niko Romito and Stay by Yannick Alleno.

All Emirates Airline employees are in line for a pay rise – just weeks after receiving a bonus payment equivalent to twenty-four weeks’ salary. Applicable to all employees, in Dubai and around the world, the payment includes a 5% pay rise on basic salary, increases in accommodation and transport allowances and a 10% increase in the education support allowance from September. Major global airlines have renegotiated wages and paid bonuses, driven by surging inflation pushing up food and energy bills for employees, and reflecting the intense competition for aviation workers, post pandemic, during which time the aviation sector was forced to slash jobs during lockdown when air travel came to a standstill. Last year, BA, Lufthansa and Air France all agreed to salary increases ranging from 2.5% to 8.0%.

It will be a hectic holiday period for Dubai International, as the world’s busiest international airport expects to welcome 3.5 million passengers over the fourteen-day period between 20 June and 03 July. The average total daily traffic will reach 252k and tomorrow, 24 June will see 100k passengers leaving DXB, whilst on 02 July the daily traffic numbers, at 305k, will break all records. As of 2022, the aviation sector in the UAE contributed, directly or indirectly, to about 14% of GDP, compared to 2-3% in major emerging markets and advanced economies.

DP World has signed an agreement with Indonesia’s Belawan New Container Terminal to manage the terminal and begin a major expansion. The venture will create Indonesia’s most direct link with the Malacca Strait, one of the world’s busiest shipping routes. Two of the main targets will be to more than double the port’s capacity from 600k TEUs to 1.4k TEUs and to enhance the port so that it will attract more direct calls, reducing North Sumatra’s reliance on regional hub ports to access regional and global markets. The Dubai-based port operator is also looking at working to connect and enhance other terminals and small ports on the Island of Sumatra.

Located at the DIFC Innovation One premises, the Dubai ‘AI and Web 3.0 campus” is to be established and will become home to state-of-the-art hardware, R&D facilities, accelerator programmes and collaborative workspaces. It will also be the largest cluster of Artificial Intelligence and tech companies in the MENA region and will host a myriad of visionary entrepreneurs, disruptors and engineers. By 2028, the campus will encompass an area of 100k sq ft, with this project becoming a major contributor to the local AI sector which is expected to account for 14% of the emirate’s GDP by 2030. The Governor of DIFC, Essa Kazim, commented that the campus “will significantly contribute to this growth as a global nexus for R&D, investment, and innovation by attracting over US$ 300 million in collective funds, 500+ global AI and Web 3.0 start-ups, and create 3k+ jobs by 2028.”

As Dubai strives to become the global destination of choice for digital entrepreneurs, it is reported that Dubai start-ups raised double the 2021 total to US$ 2 billion collectively last year. It is estimated that more than 30% of funding in the Mena finds its way to Dubai-based start-ups. The report by Dubai Chamber of Digital Economy also shows that 87% of all funding rounds for UAE-based companies are for start-ups based in the emirate, and according to Omar Al Olama, Minister of State for Digital Economy, AI and Remote Working System, one of the main causes is “the country’s proactive vision in developing legislation and initiatives in the digital field creates a favourable environment for start-ups and fast-growing companies”. In Q1, the Dubai Chamber of Digital Economy attracted thirty digital start-ups, with Dubai now home to more than 40% of all scale-ups, (totalling 306 and having raised more than US$ 11.7 billion in the twelve years to 2022), in the Mena region and 90% of all scale-ups in the UAE.

HH Sheikh Mohammed bin Rashid Al Maktoum has inaugurated the 900 MW fifth phase of the Mohammed bin Rashid Al Maktoum Solar Park that will provide clean energy to 270k Dubai residences in Dubai, whilst reducing 1.18 million tonnes of carbon emissions annually. This is probably the biggest project that will help achieve “the Dubai Clean Energy Strategy 2050 and the Dubai Net Zero Carbon Emissions Strategy to provide 100% of Dubai’s total power capacity from clean energy sources by 2050”. The US$ 545 million project – a 60:40 partnership between DEWA and Acwa Power – encompasses 10 sq km and, when completed in 2030, will have a capacity of 5k MW.

In its latest forecast, CBUAE maintained its growth forecast unchanged at 4.3% for next year, whilst stating that the UAE economy continued to grow at a solid pace in Q1 2023, “reflecting a strong performance of the non-oil sector, partially offset by a moderation in the oil segment of the economy”, and that the 2023 growth forecast has been revised down by 0.6% to 3.3%. The non-oil sector is expected to continue to support aggregate output, albeit at a more modest pace compared to 2022. Last year, oil GDP grew at 9.5%, with an average production of 3.1 million bpd, but has slowed to an estimated 3.1%, year on year, in Q1. However, with quota cuts of 144k bpd starting last month, the country will only pump 2.950 million bpd which will result in a downward revision of the expected GDP growth for 2023 to -0.3%;, it  is expected to rebound to 3.5% in 2024. The usual caveats – including “the evolution of the conflict in Ukraine, a faster than expected deceleration in global growth, further OPEC+ cuts or increases in oil production, and subdued production of other OPEC+ members” – apply.

 As at 30 April 2023, the value of gold reserves of the Central Bank of the UAE reached US$ 4.82 billion – 41.0% higher on the year and up 9.1% YTD. Over recent years, the central bank has significantly increased its gold balance which stood at only US$ 309 million, at the end of 2018, rising to US$ 1.20 billion a year later and to US$ 3.05 billion by the end of 2020.

This week, Sheikh Hamdan bin Mohammed bin Rashid visited the headquarters of Digital Dubai, where he was briefed on the progress of its various initiatives, the work done by various teams in preparation for upcoming stages of Dubai’s Digital Strategy and the latest projects Digital Dubai is developing in collaboration with government entities. To date, the Crown Prince noted that Dubai has completed three outstanding phases in its digital journey, starting with the launch of the region’s first e-government in 2001, followed by a smart government initiative in 2013, and then the government-wide digital transformation which culminated in fully eliminating paper transactions by the end of 2021.”

The city’s new Digital Strategy is based on a vision to digitalise all aspects of life in Dubai and establish a reliable, robust digital system that enhances the digital economy and empowers a digitally driven society. The Strategy is centred on seven key pillars, namely, the digital city, digital economy, data and statistics, digital talent, digital infrastructure, cybersecurity, and digital competitiveness. The Strategy aims to enhance the outputs of the digital economy, increase the positive impact of Digital Wellbeing by 90%, achieve top rankings in the United Nations’ Local Online Service Index, and launch fifty digital city experiences that are seamless, interconnected, proactive, predictable, and high impact. The strategy also aims to equip over 50k professionals with advanced digital qualifications.

The strategy, launched by Sheikh Hamdan, represents an advanced stage and a new milestone in Dubai’s digital transformation journey. The digitisation rate of government services is now at 99.5%, while the paperless government objective has been achieved 100% and digital transactions account for 87% of total government service transactions. Moreover, over one hundred and twenty government smartphone applications have been developed, while government entities have recorded a compliance rate of over 80% with cybersecurity indicators and 100% compliance with the Dubai Data Law.

Two DIFC-based firms have been fined by the Dubai Financial Services Authority for regulatory breaches, with Alessandro Faro Trading Ltd. fined US$ 25k, (for dealing in precious metals and stones without registering as a Designated Non-Financial Business or Profession) and, Fius Capital Limited US$ 11k for failing to submit a number of regulatory returns, despite several reminders. Both cases created serious risks of money laundering, but the DFSA decided that neither firm engaged in money laundering, and that the penalties would have been much higher had the two firms not agreed to settle the matter with the authority.

The Central Bank of the UAE’s April balance sheet grew by 6.3% on a monthly basis to reach US$ 167.2 billion, marking the largest level ever in its history; it also expanded 24.0% over the past twelve months and 13.8% YTD. On the asset side, the central bank held US$ 72.6 billion for cash and bank balances, along with reserved investments to the tune of US$ 55.6 billion; deposits stood at US$ 35.1 billion, loans and advances at US$ 1.1 billion and other assets at US$ 7.7 billion. As for liability and capital, CBUAE’s current and deposit accounts were at US$ 74.0 billion, monetary bills and Islamic certificates of deposit at US$ 55.1 billion, currency notes and coins issued at US$ 36.3 billion, and capital/reserves at US$ 3.9 billion. The bank’s other liabilities were at US$ 2.7 billion.

The latest US$ 500 million Sukuk by Arada saw the total listing on Nasdaq Dubai top US$ 77 billion, further enhanced the bourse’s position as one of the largest Sukuk listing venues globally. The Sukuk is the first issuance by UAE’s fastest-growing master developer on the region’s international financial exchange, following its Sukuk listing last year on the London Stock Exchange. Last year, Moody’s and Fitch assigned Arada first-time credit ratings of B1 and B+, respectively, both with a stable outlook, making Arada the youngest private company in the UAE to secure credit ratings in 2022. The six-year-old company has projects, valued at over US$ 10 billion, under development in Sharjah and Dubai, and has already completed over 7k homes.

The DFM announced that three companies – Gulf General Investments, Arabtec Holding and  Mara – are no longer listed with the bourse. The first delisting is in accordance with Article 1.13 (a) (iii) of the DFM listing rules and related laws, which empowers the market to delist any security that has been suspended from trading for a duration of six months or more. The delisting of the other two companies is in accordance with article 2.7 (d) (i) of the DFM listing rules and related laws, which empowers the market to delist the shares of any local company if a decision is taken to dissolve or liquidated the local company, or if it is dissolved or liquidated in any other way.

To celebrate the feast of Eid Al Adha, The Securities and Commodities Authority has announced that financial markets will close from 27 June until 30 June, with the DFM reopening on Monday 03 July.

The DFM opened on Monday, 19 June 2023, 338 points (10.1%) higher the previous three weeks, gained 7 points (0.2%) to close the week on 3,793, by 23 June 2023. Emaar Properties, up US$ 0.28 the previous three weeks, dropped US$ 0.08 to close on US$ 1.80 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.71, US$ 4.05, US$ 1.50, and US$ 0.40 and closed on US$ 0.72, US$ 4.06, US$ 1.49 and US$ 0.41. On 23 June, trading was at 411 million shares, with a value of US$ 116 million, compared to 539 million shares, with a value of US$ 207 million, on 16 June 2023.

By Friday, 23 June 2023, Brent, US$ 1.23 higher (1.7%) the previous week, shed US$ 1.98 (2.6%) to close on US$ 76.30.  Gold, US$ 3 (0.1%) lower the previous week, lost US$ 41 (2.1%) to US$ 1,971 on 23 June 2023.  

Oil prices extended their decline following the surprise BoE rate hike – an indicator that further monetary tightening is still on the cards which in turn will have a negative impact on economic growth and crude demand. Yesterday, Brent lost US$ 3.86 in trading to US$ 74.14 and closed the week on US$ 77.77. There is every chance that there are more rate rises on the cards from Threadneedle Street, and that being the case, Brent could easily move to under US$ 70 a barrel.

After Blackrock, the world’s largest asset manager, applied to US authorities to start exchange-traded funds, on 15 June, bitcoin has traded 21% higher, as the index of the largest one hundred virtual coins over the same period was up 13%. Other firms have followed suit with the likes of Invesco, WisdomTree and Bitwise submitting similar plans. To date, the SEC has resisted allowing such funds, citing risks such as fraud and manipulation in the token’s spot market but this entrée by Blackrock may see a change of heart by the authorities. Bitcoin ended the week on a healthy US$ 30,686, dragging smaller tokens such as Ether, Cardano and Solana, with it.

Last week, Airbus, to meet the increased soaring demand, and to replace aged planes, posted that it had raised its twenty-year forecast by 3.4% to 40.9k, of which 58% were expected for fleet growth and the balance for replacement. This week, it seems to be Boeing’s turn, noting a resurgence in international traffic and domestic air travel back to pre-pandemic levels, projecting global demand for 42.6k new commercial jets by 2042, valued at US$ 8 trillion. The plane maker expects the global fleet to grow at an annual rate of 3.5%, to nearly 48.6k jets, with airlines replacing about half of the global fleet with new, more fuel-efficient models. Boeing expects “further evolution of passenger traffic tied to global growth of the middle class, investments in sustainability, continued growth for low-cost carriers, and air cargo demand to serve evolving supply chains and express cargo delivery.” It also expects that Asia-Pacific markets will account for 40% of global demand, (with half of that total in China, and India accounting for 90% of the region’s traffic). North America and Europe each will account for about 20% of global demand, whilst low-cost carriers will operate more than 40% of the single-aisle fleet in 2042.

On Wednesday, Airbus confirmed that it had already recruited more than 7k people out of the 13k positions it seeks to fill in 2023, and this despite a global industry labour shortage, as plane makers ramp up production to meet higher demand. Most of the vacancies are in manufacturing, especially in engineering, digital and cyber. A further breakdown on numbers sees that 29% of the total are under the age of 28, 26% are women, and 33% of its total staff recruitment will be allocated to recent graduates. The European plane maker commented that “we are focused on attracting, training and developing the best diverse talents in our company to help us shape the future of sustainable aerospace.” Airbus currently employs more than 134k people globally, with Canadian aviation training company CAE estimating that the aviation industry will need to hire 1.3 million, by 2032, to keep pace with the expected growth of the commercial and private travel markets, and that it will need to recruit and train an estimated 1.18 million workers to fill vacancies arising from retirement, attrition and the expansion of the aviation industry.

At the start of this year’s Paris Air Show, Indian budget carrier IndiGo has placed a five hundred A-320 order with Airbus which is probably the most jets ever bought by a single airline – this comes after Air India purchased 470 jets, earlier in the year, in a multi-billion-dollar deal. It is expected that delivery will occur between 2030-2035 – indicators that plane makers continue to struggle to keep up with supply, and airlines could be over-ordering jets in pursuit of the same passengers. IndiGo, which accounts for nearly 60% of the Indian domestic market, has yet to decide which engine supplier to use for the latest order.

The Italian government has blocked a move by Sinochem, a Chinese state-owned company, that has a 37% stake in tyre maker Pirelli, to take over the 151-year-old Italian company. Last Sunday, Pirelli posted that the Italian government had ruled that only Camfin – a company controlled by Pirelli’s boss Marco Tronchetti Provera – could nominate candidates to be its chief executive, and that the government had decided that any changes to the company’s corporate governance should be subject to official scrutiny. In March, the major shareholder had advised authorities that it planned to renew and update an existing shareholder pact. Following close examination by the Giorga Meloni’s administration, and under the so-called “Golden Power Procedure” rules, which are aimed at protecting businesses that are viewed as strategically important to the nation, the decision to block the move was made.

It is reported that an anti-money laundering investigation has been initiated by French authorities into the activities of the world’s largest cryptocurrency exchange, Binance. The firm, which had earlier announced that it would be departing the Netherlands, after it failed to obtain a licence from that country’s central bank, confirmed that French authorities visited its offices last week and that they would comply accordingly. It is also facing challenges in the US, as well as Europe, as regulators around the world have looked to ramp up pressure on crypto exchanges in a bid to make them more transparent. In the UK, the company’s subsidiary, Binance Markets Limited, closed its doors last month leaving it with no authorised entities in the UK.

Intel will invest US$ 25 billion in a factory in Israel – making it that country’s biggest ever single international investment. Currently, Israel’s largest privately held employer and exporter, estimates that operations at the new plant will commence in 2027 and will create employment opportunities for thousands of people. As part of the agreement, Intel will pay a tax rate of 7.5%, an increase from the current 5.0%.

This week, Intel confirmed that it plans to invest US$ 4.6 billion, in Poland, to build a semiconductor assembly and test unit that, “will help meet critical demand for assembly and test capacity that Intel anticipates by 2027.” The project will result in 2k jobs being created, along with thousands of other indirect supplier and temporary construction jobs. Chief executive, Pat Gelsinger, added that Poland “is very cost-competitive with other manufacturing locations globally and offers a great talent base that we are excited to help to grow.” Not only will it assist Intel to expand its operations globally, but it will also boost Poland’s role in the global semiconductor supply chain. In May, the UK government unveiled a US$ 1.24 billion, twenty-year investment strategy into semiconductors, aimed at diversifying the supply chain in an attempt to enhance security. The global semiconductor market was valued at US$ 429.5 billion in 2021 and is expected to expand 8.8% annually to top US$ 712.4 billion within five years.

May saw Lebanon’s inflation rate soar to an unbelievable 260%, (and 5.4% on the month), not helped by a political impasse over the election of a president persisting, thwarting the enactment of reforms deemed necessary for the country to emerge from its worst economic crisis. As hyperinflation recorded its thirty-fifth consecutive month, its currency has already lost 90% in value over the past five months. The official exchange rate changed to 15k pounds to the US dollar, compared with the peg in place since 1997 of 1,507.50 to the greenback. According to the World Bank, Lebanon is in the midst of one of the worst economic crises in modern history because it could obtain a US$ 3 billion IMF rescue package, as well as billions from other international donors, if it could implement several reforms, including electing a President, with the country’s parliament failing to do so for the twelfth time, and other political reforms. In the recent past, Lebanon’s economy has contacted by 53%, between 2019 -2021, to US$ 21.8 billion, (at the time the largest fall on a list of 193 countries). Last year, it dipped 2.6% and the 2023 decline is forecast at 0.5%.

Although its inflation rate has been sliding lower, since hitting an 85.5% high last October, it has more than halved to under 40% by last month, but even at this figure it is still one of the highest in the world. The Turkish currency has been under severe pressure since President Erdogan began to enforce unorthodox economic monetary policies in 2018 that flew in the face of traditional economic theory, so that when global central banks have been pushing rates higher to try and dampen surging inflation, Turkey’s interest rates headed south. All changed on Thursday, when the Central Bank of Turkey nearly doubled its benchmark interest rate from 8.5% to 15.0% – the bank’s first increase in two years, but well below the median 20% estimate in a Bloomberg survey. Since the size of the rate hike disappointed the market, Turkey’s lira dropped 2.6% to a record low of 24.20 against the greenback. The fact that “the committee decided to begin the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations and to control the deterioration in pricing behaviour” is an indicator that the country is trying to rectify previous economic errors. Maybe a case of too little too late, but there is hope, especially with support from Saudi Arabia and the UAE, with the former depositing US$ 5 billion with the Central Bank of Turkey through the Saudi Fund for Development and, in 2021, the UAE forming a US$ 10 billion fund to support investments in the country. The central bank said it would closely monitor inflation indicators and underlying trends, as well as “continue to decisively use all the tools at its disposal” to restore price stability.

The 123-year-old Perth Mint is to face yet another enquiry following concerns over regulatory compliance and gold sales to China with lower purity; between 2018 and 2021, the mint sold gold to China that met broader industry purity standards for 99.99% pure gold but not stricter standards at the Shanghai Gold Exchange for silver content. The entity accepted that this was “damaging and unacceptable”, with the WA premier pointing to remediation work already underway. There then followed a probe by the London Bullion Market Association which ended with it permitting the mint to remain on a list of approved refiners. Another investigation by the ABC’s Four Corners questioned how a notorious former bikie was able to purchase US$ 18k worth of gold by only showing his driver’s license. It also found that Perth Mint could have breached commodities law in over twenty US states since the turn of the century. Its latest investigation will see Perth Mint facing a federal parliamentary inquiry, over the level of compliance with anti-money laundering and counter-terrorism financing laws. It will also probe the saga’s impact on Australia’s reputation with precious metals.

In recent weeks, this blog has carried details of the Australian accounting scandal involving a major audit firm leaking confidential government details to other staff members so as to benefit the firm, using that information, to solicit business. There is something wrong when a country with a population of twenty-six million – and ranks number fifty-five in the world by the number of inhabitants – has a consultancy sector that is the fourth biggest in the world, behind the US, UK and Germany. The sector was dominated by the Big Four – PwC, Deloitte, EY and KPMG – and their influence on government policy cannot be underestimated. It would be hard to believe that the leak by Peter-John Collins, who was advising the Australian government on new tax legislation to stop multinational companies avoiding tax, was an isolated incident. He had leaked information in 2016 to many of his colleagues, with internal memos showing how new business had been won on the back of guidance he had provided, with plans to win even more as part of the project ‘North America’. One has to agree with Senator Deborah O’Neill that this was only “the tip of the iceberg”, who also highlighted issues such as a “revolving door” between government departments such as the Australian Tax Office and Big Four consultants.

As expected, the BoE voted on Thursday for a hike in interest rates – what was not expected, and surprised the market, was that it was a 50bp increase to 5.0% – its thirteenth consecutive rate increase, as it continues to try to get to grips with persistently high inflation. Strangely, the pound is the best-performing currency among major economies this year, and last week rose over 2% against the greenback to U$S 1.282. Last Thursday, the Fed paused any rate hike until at least next month, whilst the ECB pushed rates higher to 3.5% – its highest level since 2001 – with another expected in July. The absence of any specific guidance from the ECB President, Christine Lagarde, has boosted confidence in the strength of the pound, as the BoE addresses inflation concerns – she has not. There is every likelihood that the BoE will raise rates by another 50 bp before the end of Q3.

In the UK, the Office for National Statistics has noted that public sector net debt, at the end of May, was US$ 3,265.6 billion, equating to 100.1% of GDP – a pointer that the country’s debt is now greater than its GDP – the first time since 1961 that this has happened. The ONS said government borrowing last month was US$ 25.54 billion, US$ 12.8 billion more than in May 2022, and the second-highest May borrowing since monthly records began in 1993.

Unusually good weather in May proved a fillip for the flagging UK economy, as the sun and shoppers came out which boosted sales overall, with the Office for National Statistics confirming that sales volumes came in 0.3% higher; online retailers and garden centres did particularly well. May saw consumers spending less on food, down by 0.5% lower, but fuel sales moving higher. Even though the inflation level is heading lower at a snail’s pace, (from 10.1% to 8.7% YTD), prices are still rising. Even though interest rates have been rising since December 2021 it does not yet seem to be having a big impact on consumer spending. Yesterday’s 50bp rate hike may change that and, if not, then more rate rises will eventually make an impact.

According to the Resolution Foundation, rising interest rates mean people looking to mortgage their homes will pay an average US$ 3.7k a year more from next year: the think tank has forecast that the average two-year fixed rate deal will hit 6.25% by the end of this year. It is bad news for many including the 800k expected to remortgage in 2024. The Bank of England’s base rate is currently at 5.0%, but the Resolution Foundation says this is expected to peak at nearly 6% in mid-2024, and, more worryingly, does not expect the average two-year mortgage deal to fall below 4.5% until the end of 2027.  It also estimated that repayments are on track to be US$ 20.26 billion a year higher by 2026, compared with prior to when the Bank started its rate-raising cycle in December 2021. It also reported that about 60% of the increase in annual mortgage payments was yet to be passed on to households, as borrowers move off existing fixed-rate deals and on to new ones. Late last week, Moneyfacts said the average two-year fixed-rate loan for homeowners stood at 5.98%, compared with 3.14% a year earlier. Worryingly, the report also predicted that this year’s rate rises would increase the cost of a typical mortgage by 3% of a typical household income, outstripping the 2.4% increase noted in 1989, when rates were at 15.0%.

Some more worrying news for many UK mortgage holders came in a report by the Institute of Financial Studies, citing that rising rates could see 1.4 million mortgage holders having their disposable incomes fall by more than 20%.  Furthermore, the think tank, warning that 690k of the total hardest hit would be under forty years of age, posted that high borrowing costs was “unquestionably going to cause serious difficulty for many families”. Compared to March 2022, mortgage holders would pay on average US$ 357 more each month, and, if mortgage rates remained at around 6%, people aged between 30 and 39 would typically pay about US$ 463 more. 8.5 million adults, (60% of those with a mortgage) are set to spend more than 20% of their incomes on mortgage payments – fifteen months ago, that figure was only 36%. In recent weeks, lenders have been pulling deals and putting up rates at short notice in expectation of interest rates being hiked again, and by Wednesday, ahead of yesterday’s rate hike, the average rate on a two-year fixed deal had risen to 6.15% – in March 2022 it was 2.65%.

Official figures seem to indicate that flying abroad, buying second-hand cars and going to live music events are some of the main reasons why May UK inflation has remained flat, and unchanged, at 8.7%; this, despite analysts forecasting that rates would start falling in Q2. The end result is that the BoE had no other option but to raise rates again by 0.50% to 5.0%, as in the words of Chancellor Jeremy Hunt that he would “not hesitate” in its resolve to support the Bank, which is an independent institution, as it “seeks to squeeze inflation out of our economy”. Prices for food and non-alcoholic drinks rose in May – but by less than in May 2022 – whilst “core” inflation – which strips out energy and food costs – is at the highest rate since 1992, and a rising cause for concern; service sector wages is a major driver. Prime Minister Rishi Sunak has pledged to halve inflation this year. There is no doubt that he is partly responsible for the debacle that is now the UK economy, but the main blame must rest on the vacillating Monetary Committee.

After raising rates by 50bp, the BoE Governor commented that if it did not raise rates now, “it could be worse later”, and denied that it was trying to create an economic slump after it put up interest rates to slow soaring prices. He added that “many people with mortgages or loans will be understandably worried about what this means for them… but inflation is still too high and we’ve got to deal with it,” and to get inflation lower, wage rises “cannot continue” at the rate they have been. It is hard not to agree with Karen Ward, (a member of chancellor Jeremy Hunt’s economic advisory council), who commented that the BoE had “been too hesitant” in its interest rate rises so far. In fact, the nine-member Monetary Committee should have acted more than fifteen months ago, when Inflation started soaring high above its 2.0% target and, indicating that this would be “transitory”, did nothing. Maybe the problems are the fact that the average age of the committee is fifty-nine and that they all sing from the ‘same hymn sheet’. How can nine people come up with the same wrong answer month after month? Maybe it is time to have younger and more dynamic economists on board – and for some members Time To Move On?