What A Shambles! 13 September 2024
Knight Frank’s Q2 Dubai Residential Market Review confirms that average residential prices increased by 21.3% over the past twelve months and again villa prices surpassed those of apartments. Over that period, villa sale prices grew by 24.3%, reaching US$ 516.62 per sq ft, equating to being 28% over the 2014 peak. Dubai’s luxury residential sector has also witnessed strong growth., with ‘Prime Dubai’, (covering The Palm Jumeirah, Jumeirah Islands, Jumeirah Bay Island, and Emirates Hills), accounting for 89.3% – eight hundred and fifty three homes – 5.0%, 3.6% and 1.1% respectively); there was a 7.0% rise in average transacted prices, which stood at US$ 1,009 per sq ft at the end of H1.
The study noted that the number of residential listings in Q2 fell by 22.8% on the year, and for the first time in over two years, the number of unique home listings in a single quarter has fallen below 100k. This trend was more marked in in ‘Prime Dubai’, with a 47% decrease in the supply of luxury homes in those four locations to 2.85k properties. Some of shortage is down to in an increase in ‘buy to stay’ and ‘buy to hold’, with purchasers increasingly focussing on buying for their own use, or as a second home, as opposed to being purely investment-driven to those looking to purchase for personal reasons.
Knight Frank has indicated that the total number of homes planned or under construction now stands at 308.1k and expects that to translate to some 51.4k homes a year up to 2029. Of these, 82% will be apartments, with the remainder being villas. This translates into an average of approximately 51.4k homes per year for the next six years, higher than the long-term completion rate of around 30k homes per year. The figure still falls short of the annual 73k homes the consultancy estimates will be required for the next sixteen years to accommodate Dubai’s vision of a population of 7.8 million by 2040
Yesterday, Dubai’s population was at 3.774 million – a 3.28% increase YTD on 01 January, when the population was clocked at 3.654 million. Extrapolating, the population at the end of the year could be 3.806 million, with an annual population increase of 4.16%. At that rate, the emirate’s population could well be 4.666 million – a 22.60%, (860k), rise over the next five years. This blog estimates that the apartment to villa ratio is 82:18; the latest official figures, in 2022, showed that there were 783.6k units – 639.0k apartments and 144.6k villas in Dubai – and assuming 50k unit increases in the seven years to 2029, that would give a 2029 year-end total of 1,133.6k, comprising 926k apartments and 207.6k villas. Further surmising that the average villa and apartment has 4.85 and 4.25 occupants, and the 2029 population grows 860k (27.66%) from 3.655 million to 4.666 million, then the updated units will accommodate 4.942 million – 3.935 million living in apartments (926k units*4.25 persons) and 1.007 million in villas/townhouses ( 207.6k units*4.85 persons).This figure, 4.942 million, is 5.9% higher than the expected 2029 population of 4.666 million but there are several caveats:
- it is highly unlikely that 50k units will be built every year
- the number of empty properties could be as high as 10%
- some properties are used as second homes
- some properties are being renovated
- an increasing number of properties are being used for Airbnb
When these factors are added to the equation, there may be a tight residential market come 2029, but in the meantime, demand will continue to outstrip supply. This cycle will not continue forever and it is almost certain that an “adjustment” will occur this decade – but it will not be as severe as those of 2008 and 2015.
Binghatti Ghost becomes the developer’s first project in Al Jaddaf this year, and its first at this location in over two years. Binghatti Development’s latest project, valued at US$ 1.09 billion, features seven hundred and seventy residential units. In addition to these sought-after living spaces, Binghatti Ghost will also include six premium retail shops, enhancing the community’s commercial appeal. The project features a hotel-style swimming pool and amenity floor as well as a children’s pool and play area. It will also feature a fully equipped gym, multi-purpose lawn, scenic jogging lane, and a viewing deck, offering panoramic views of the city. It will also include six premium retail shops, enhancing the community’s commercial appeal.
A new entrant to the Dubai property sector is Majid Developments, who plan to invest US$ 136 million in five new projects by 2025, to cash in on the rising demand for new units. Its first project will be Mayfair Gardens in Jumeirah Garden City, with a further two slated for same location and the other two in Jumeirah Village Circle and Arjan. Thereafter, it is looking “to launch at least twenty projects in Dubai and then move to the other emirates”, according to Mansoor Majid, CEO of Majid Developments.
One Beverly, located in Arjan, is offering three hundred and eighty-one apartments which include studio, one-bedroom, and two-bedroom units, with prices starting from US$ 177k, along with eight commercial shops. HMB Homes’ flagship project will also have the usual array of leisure activities including a state-of-the-art gym, an infinity swimming pool and a landscaped jogging track, with other features including a residents’ lounge, an open-air cinema for entertainment and a multi-purpose court.
Following the successful launch of the Como Residence on the Palm, the architectural firm of Benjelloun Piper is launching the Fairmont Residences Solara Tower in Downtown Dubai.
Al Aseel Contracting has been appointed by Dubai South Properties for a US$ 41 million contract towards the construction of its latest luxury apartment development, South Living Tower; the project is located at The Residential District in Dubai South. The project, which comprises two hundred and nine units, including studios, one, two, and three-bedroom apartments, is expected to be completed by Q1 2027.
HH Sheikh Mohammed bin Rashid, Ruler of Dubai, has announced the establishment of Dubai National University, with an investment of US$ 1.2 billion, (AED 4.5 billion). The plan is to establish the university as one of the top two hundred global education centres by 2044.
Furthermore, this week, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, issued Executive Council Resolution No. (49) of 2024 regulating healthcare activities and professions in Dubai. It will license healthcare establishments for periods of one renewable year at a time and can close down establishments and suspend professionals violating guidelines.
Emirates is expecting to receive five Airbus A350s in Q4, with the first due for delivery next month, but confirmed that they have yet to receive any Boeing jets so far this year and that ”due to delays in aircraft deliveries, we have had to extend the service of some of our current aircraft.” It earlier announced a US$ 3.0 billion aircraft retrofit programme that has now been extended to cover one hundred and ninety planes, following an increase in the number of aircraft targeted for modernisation. Some of the problems can be put down to the pandemic, when aircraft manufacturing cut back on production, (because nobody was flying), and laying off a percentage of workforce. When some sort of normality returned to the sector, and air travel literally took off again, then the supply chain could not keep up with demand – and that problem still continues and will continue for some time.
| Reports indicate that Malaysia could possibly reach a free trade agreement with the UAE by the end of 2024, perhaps leading to a CEPA sometime later; since last year, several rounds of discussions have been held relating to a comprehensive economic partnership agreement. Its Minister of Investment, Trade and Industry, Tengku Zafrul Aziz, commented “we are continuing discussions with the GCC for an FTA, and we are on track to conclude an FTA with the UAE by end of the year on a wider scale.” Last year, bilateral non-oil trade topped US$ 4.7 billion, maintaining the record levels achieved in 2022. The UAE has already signed two CEPAs with Asean countries – Indonesia and Cambodia – and continuing trade discussions with other Asean members, including the Philippines and Vietnam. Earlier in the week, Hong Kong confirmed that it was exploring options, including FTAs with the UAE and the Gulf to boost trade and investment ties . |
To meet its growing demand for large-scale offshore projects, Drydocks World has signed a contract with Shanghai Zhenhua Heavy Industries Co Ltd to purchase a new generation 5k-tonne Floating Sheerleg Crane. The design, construction, testing, and commissioning phase is expected to be completed by Q2 2026, and then the crane will boost Drydocks World’s heavy-lifting capabilities, allowing it to meet the growing demands of large-scale projects, such as high-voltage offshore converter platforms and Floating Production Storage and Offloading (FPSO) vessel topsides. The crane features a 160 mt-long A-frame, allowing heavy loads of up to 5k tonnes to be lifted 120 mt above the water, and a six hundred-tonne fly jib that can extend its reach to 180 mt. This capability enables the installation of larger vessel modules constructed in the yard and lifted onto the vessel for assembly, both nearshore and offshore. It can also accommodate up to fifty personnel offshore, thereby reducing the need for support vessels.
Initially starting in North India, Carrefour and Dubai-based Apparel Group have signed a franchise partnership agreement, in the sub-continent, with the first store openings expected in 2025. Although many foreign entrees have failed in the past, both parties have had Indian exposure and will be confident of success in a country, with a population of about 1.4 billion people, and being one of the world’s largest food markets, with the additional attraction of rising consumer spending power. Over a decade ago, Carrefour had attempted to enter the country, with a local retailer, but later withdrew, saying the market was underperforming. Both parties are exuding confidence, with the French conglomerate posting that “the arrival of Carrefour in India marks an important step in our strategy of expanding our franchise in more than ten new countries by 2026,” whilst Nilesh Ved, owner of Apparel Group, adding that “our goal is clear: to offer the best products at very attractive prices to all Indian customers and make Carrefour their favourite brand to shop.” The country is having major problems, with severe food price inflation, which accounts for almost 50% of the overall consumer price basket.
Preliminary figures by the Federal Competitiveness and Statistics Centre indicate robust Q1 growth in the country’s economy. UAE’s real GDP increased by 3.4% to US$ 117.17 billion, (AED 430 billion). Over the period, non-oil GDP came in 4.0% higher on the year.
At the end of trading last Friday, 06 September, helped by a robust economy, the country’s bourses showed a market cap, of all companies listed, reaching US$ 97.82 billion as it moves to its target of US$ 1.63 trillion by 2030. The twenty largest companies listed on the local stock exchanges by market value reached US$ 76.02 billion, accounting for 77.6% of the total market cap. International Holding Company was in first place, with a market cap of US$ 248.58 billion, equivalent to 25.4% of the market cap of the local markets, followed by Abu Dhabi National Energy Company (US$ 80.87 billion – 8.25%), ADNOC Gas, (US$ 65.40 billion – 6.7%), Etisalat by e&, (US$ 44.00 billion – 4.5%), First Abu Dhabi Bank, (US$ 40.22 billion – 4.1%), Emirates NBD (US$ 34.85 billion – 3.6%), and Dubai Electricity and Water Authority – DEWA, (US$ 32.43 billion – 3.3%). Three other Dubai-listed companies made the top twenty – Emaar (US$ 21.14 billion), Dubai Islamic Bank (US$ 12.18 billion) and Mashreq (US$ 11.63 billion).
The DFM opened the week, on Monday 02 September, one hundred and eighty-one points (1.7%) higher the previous four weeks and gained seven points (0.2%), to close the trading week on 4,380 by Friday 13 September 2024. Emaar Properties, US$ 0.15 higher the previous three weeks, shed US$ 0.02, closing on US$ 2.35 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.64, US$ 5.53 US$ 1.67 and US$ 0.35 and closed on US$ 0.65, US$ 5.45, US$ 1.68 and US$ 0.35. On 13 September, trading was at eighty-five million shares, with a value of US$ 54 million, compared to one hundred and nineteen million shares, with a value of US$ 73 million, on 06 September.
By Friday, 13 September 2024, Brent, US$ 8.71 lower (11.0%) the previous three weeks, gained US$ 0.55 (0.7%) to close on US$ 71.61. Gold, US$ 25 (1.7%) higher the previous week, gained US$ 84 (4.1%) to end the week’s trading at US$ 2,611 on 13 September 2024.
On Tuesday, for the first time since December 2021, the oil price dipped below the US$ 70 level, as it lost 3.7% in value, following Opec reducing its forecast for global oil demand growth; this was for the second consecutive month, amid signs of slowing consumption in major economies. The revised 2024 and 2025 forecasts posted expected growth of 2.0 million bpd and 1.74 million bpd – only 40k and 80k bpd lower than an earlier forecast. Opec accounts for 79.5% of the global output – equating to 1,243.5 billion barrels annually – with the six major contributors, (accounting for 91.7% of the total), being Venezuela, Saudi Arabia, Iran, Iraq, UAE and Kuwait with 24.4%, 21.5%, 16.8%, 11.7%, 9.1% and 8.2% of the total. Q4 forecasts indicate global oil production of 102.47 million bpd in Q4, while consumption is expected to be 103.72 million bpd; that being the case, global oil reserves will begin to decline plus the fact that the Opec+ production cuts will also add to reserves declining. Meanwhile, the US Energy Information Administration expects Brent crude to rise above US$ 80 a barrel and average US$ 82 a barrel in Q4. Other factors that could impact the oil prices include any possible flare up in the region, whether or not growth in the Chinese economy expands or contracts, and any further contagion from the Ukraine crisis.
In a bid to avoid a strike that could potentially shut down its assembly lines within days, Boeing had tried to entice its employees with a 25% pay offer over a four-year contract, with the union urging the workers to support the proposal, describing it as the best contract they had ever negotiated; the union’s initial target was a 40% pay rise. Also added into the mix, include improved healthcare/ retirement benefits, increased employee representation on safety and quality issues and a commitment by Boeing to build its next commercial airplane in the Seattle area. If the deal had been endorsed by the union, it would have been the first full labour agreement between the firm and the unions in sixteen years. But that was no to be, with an overwhelming rejection by the 30k workers resulting in a downing of tools, by the workers in Seattle and Portland, as from midnight Pacific Time (07:00 GMT) on Friday. Undoubtedly this is another body blow for a much-troubled company looking down the barrel of massive financial losses and further loss of business confidence.
After lowering its annual revenue and profit forecasts, Accenture announced plans to cut its global payroll by 19k, (2.5%), to 719k, including in the UK; it also confirmed more than 50% of the redundancies will come from its human resources, IT, finance and marketing departments over the next eighteen months. In the UK, it employs 11k. It expects the severance costs will top US$ 1.2 billion but that it will save around US$ 1.5 billion by closing offices globally. The company noted that “we initiated actions to streamline our operations and transform our non-billable corporate functions to reduce costs”. Previously, in 2020, it said that it was cutting up to nine hundred jobs because of the “additional strain” on the business caused by the coronavirus pandemic. It is not the first major tech giant to cut staff numbers – driven by a fall in demand amid high inflation and rising interest rates – and follows the likes of Amazon, Meta and Just Eat who have posted recent job losses.
Two of the biggest retail winners benefitting from the cost-of-living crisis have been the German interlopers – discounters Aldi and Lidl. Last year, Aldi’s revenue surged by US$ 3.14 billion, as its pre-tax profits more than tripled to a record US$ 702 million in the year; three factors behind the improvement in the figures were price rises, new store openings driving much of the rise in earnings, and new customers. This year, growth has slowed, and its market share is being eroded by its rivals, and it is no longer the fastest growing retailer it was in 2023. Two of its biggest rivals, Sainsbury’s and Tesco, have adopted “Aldi price match” campaigns, and all its rivals have their own loyalty card schemes, except Aldi, with its CEO, Giles Hurley noting, “I would view loyalty as keeping your commitments around your promises and we offer simple, straightforward pricing and our customers know that.” The budget chain has a long-term target of 1.5k UK shops with another one hundred stores being refurbished.
Having acquired Caprice Holdings in 2005, in a deal which included many of London’s most prominent restaurants, there are reports that Richard Caring is in the throes of selling the business, including his collection of Ivy restaurants, to Si Advisers, a little-known London-based firm; the deal, that could see the billionaire businessman US$ 1.30 billion richer, will cover almost all of his stake in The Ivy Collection, and its dozens of restaurants across the country (Other shareholders, including a Qatari fund, are also expected to sell – in 2019, he sold a 25% stake in Caprice Holdings to Hamad bin Jassim bin Jaber Al Thani, the former prime minister of Qatar, in a deal reportedly worth US$ 460 million). However, he will still retain his other restaurants, which include London’s Scott’s, Sexy Fish and J Sheekey, or clubs such as Annabel’s and Mark’s Club in Mayfair.
The investment firm, Aurea has managed to save the remaining one hundred and thirteen Body Shop outlets in the UK, along with outposts in Australia and the US. The retailer was bought out of administration by a consortium led by “Cosmetics King”, Mike Jatania, who along with Charles Denton, former chief executive of beauty brand Molton Brown, will head the new leadership team. The millionaire tycoon’s investment firm said the deal would “steer the Body Shop’s revival and reclaim its global leadership in the ethical beauty sector it pioneered”, adding, “with the Body Shop, we have acquired a truly iconic brand, with highly engaged consumers in over seventy markets around the world.
Another blow for a Big Four audit firm sees PwC’s Chinese auditing arm being suspended from the country for six months. In addition, it has been fined more than US$ 62 million over its work on the collapsed Chinese property giant Evergrande, with authorities claiming that it had covered up fraud at the property monolith. It was also penalised by the security watchdog which confiscated the revenue PwC earned auditing Evergrande and has also issued a fine. In apologising for the impact on its clients, the firm admitted that its work had fallen “unacceptably below the standards” expected within the firm and apologised for the impact on its clients. It is reported that PwC has sacked six partners and has launched a process to fine responsible team leaders. The Chinese authorities have accused Evergrande and its founder, Hui Ka Yan, of falsely inflating revenues at the firm to the tune of US$ 78 billion, and imposed fines and bans on him personally as well as on the business.
This has been a bad week for tech giants, starting with Apple being ordered, by the EC, to pay Ireland US$ 14.0 billion in unpaid taxes; in 2016,, the watchdog blamed the Irish government for giving the US conglomerate illegal tax advantages – and for the past eight years, it has consistently argued against the need for the tax to be paid, but now has said it would respect the ruling, whilst Apple said it was disappointed with the decision and accused the EC of “trying to retroactively change the rules”. The court concluded that Ireland granted Apple unlawful aid which Ireland is required to recover. The original decision covered the period from 1991 to 2014 and related to the way in which profits generated by two Apple subsidiaries, based in Ireland, were treated for tax purposes. Those tax arrangements were deemed to be illegal because other companies were unable to obtain the same advantages.
In contrast, Google seem to have got off lightly, with a European Court of Justice (ECJ) ruling that the company has to pay US$ 2.62 billion for market dominance abuse, of its shopping comparison service, ending a long-running case from 2017. At the time, it was the largest penalty the Commission had ever levied – though a year later it issued Google with an even bigger fine of US$ 4.74 billion over claims it used Android software to unfairly promote its own apps. The court ordered Google, and owner Alphabet, to bear their own costs and pay the costs incurred by the EC. On Monday, Google was taken to court by the US government over its ad tech business – it has been accused of illegally operating a monopoly. Last week, UK regulators provisionally concluded Google used anti-competitive practices to dominate the market for online advertising technology. The EU is also currently investigating the firm over whether it preferences its own goods and services over others in search results, as part of its Digital Markets Act. If found guilty, the firm could face a fine of up to 10% of its annual turnover.
The search giant has amassed fines of US$ 9.09 billionn from the Commission, which has repeatedly alleged it abused its dominant market position. These are:
- 2017 US 2.64 billion fine over shopping results
- 2018 US$ 4.74 billion fine over claims it used Android software to unfairly promote its own apps
- 2019 US$ 1.65 billion fine for blocking adverts from rival search engines
Industry insiders have been keeping a close eye on the EU case, with suggestions that its outcome may illuminate the direction of travel of the many other antitrust cases Google is currently facing from the EC.
The Food and Agriculture Organisation of the United Nations trimmed its 2024 forecast for global cereal production to 2,851 million tonnes – nudging 0.2% higher from 2023 – attributable to hot and dry weather conditions in the EU, Mexico and Ukraine. However, it did lift its 2024 forecast for both global wheat output and for rice, with the latter expected to top a record high of five hundred and thirty-seven tonnes. World cereal stocks are forecast to expand by 1.2%, at the end of the 2025 season, as international trade in total cereals is now pegged at 485.6 million tonnes, down 3.3%, on the year, led mostly by lower traded volumes in coarse grains.
Last year, Greece had the second worst performing economy in the EU which its Prime Minister, Kyriakos Mitsotakis, has vowed to improve, starting with a new set of policies aimed at boosting citizens’ purchasing power and tackling the country’s housing crisis. Among the measures to be introduced include a 14.0% increase in the minimum wage, to US$ 1.05k by 2027, a 2.5% rise in pensions, a new tourist tax, a green transition using cheaper energy and the mitigation of the effects of the runaway growth in tourism, by the introduction of a new fee for passengers disembarking from cruise ships in Greek ports. He also announced new incentives to boost the birth rate and tax benefits to galvanise the rental market, as well as a Golden Visa scheme for foreigners investing at least US$ 276k in start-ups. The US$ 243 million revenue from a windfall tax on energy companies will be distributed to vulnerable citizens. Average annual income in the country was half the European average last year, with the minimum monthly wage of US$ 916 – less than half that of France.
After five consecutive months of deceleration, Egypt’s inflation rate quickened last month, to 26.2%, as the Sisi’s government’s reduction in fuel subsidies took its toll on consumer prices. The 0.5% monthly rise, which surprised market analysts, was mainly down to a 1.9%, month-on-month, increase in consumer prices – the largest since February. The main factor behind the rise was a monthly 10.7% hike in transportation prices – and 29.8% on an annual basis – (following the decision to raise energy prices in July ahead of an IMF review). Other rises were seen in food and beverage prices – 1.8% higher on the month and up 28.1% on the year – clothing/footwear, housing/utilities, furniture/household equipment and health care, all moving higher by 1.1%, 0.7%, 1.7% and 3.4%. In June, there had been a 300% increase in subsidised bread costs, with the government having also implemented a new wave of subsidy cuts, including price hikes of up to 15% for a range of fuel products and increases of between 15% – 40% in electricity tariffs. It is highly likely that the country’s central bank will maintain interest rates at a record 27.25%. Despite all this, it seems that the country has finally made progress in implementing long-awaited economic reforms and has been a recipient of consecutive bailout deals, worth more than US$ 60 billion, from international partners.
August data sees China’s inflation rising at its quickest pace in six months, attributable to increased food costs due to weather disruptions, while deflation in producer prices deepened. The world’s second-largest economy, and top crude importer, posted a 0.6% hike in its consumer price index, 0.1% higher than in July. Q2 GDP growth slowed to 4.7%, on an annual basis, compared to Q1’s 5.3%.
A new report from the Grattan Institute posted that Australia has the highest gambling losses in the world because governments have taken “a lax approach to regulating gambling”, and “let the gambling industry run wild”. It recommends limits on how much people can bet when at the pokies and via online betting platforms, as well as a complete ban on gambling ads – the latter move is in line with the intentions of the Albanese administration. It notes past reform pushes have failed “because of well-funded, coordinated attacks by vested interests” and that has led to big losses – in the 2020-21-year, gambling losses were estimated at US$ 16.01 billion, (AUD 24.0 billion). 50% of the losses were down to pokies along with 25% of the total down to betting, followed by lotteries, casinos and keno. About 8% of Australian adults placed a bet at least once a month in 2022 and overall losses on online betting grew from US$ 2.40 billion in 2008-09 to US$ 3.87 billion in 2020-21. The average annual loss per adult is US$ 1,091, well ahead of Hong Kong’s US$ 858, Singapore US$ 787, Ireland US$ 595, US US$ 540, Italy US$ 452, Bermuda US$ 430, Norway US$ 401, New Zealand US$ 390 and Iceland US$ 371. The report noted that other countries have stronger regulation than Australia to limit gambling harm and added that it is time governments stand up to online betting and gambling operators “rebutting their self-interested claims”.
Australia’s economy is growing at its slowest pace since the 1990s recession, (Q2 – 0.2% and just 1.0% over the past year), as unemployment levels rise; the soaring cost of living, and high inflation/interest rates have led to an estimated 5.8 million Australians having to struggle to make debt repayments. It seems that Michele Bullock, the Reserve Bank Governor, does realise that high mortgage rates are placing the number of owner-occupiers, with variable-rate mortgages, in a “particularly challenging situation”, as well as being aware lower-income borrowers are over-represented in the group of people who are “really struggling” right now. However, she admits her main aims are to bring inflation down, re-balance the economy and return people’s lives to some kind of normality. She does acknowledge that “those with mortgages are feeling the squeeze on their cash flows not just from high inflation, but also from the increase in interest rates that has occurred in response to it, and “as labour market conditions ease, more households will experience a strain on their finances from unemployment or reduced working hours”. Since mid-2022, the RBA has lifted the interest rate thirteen times, whilst inflation is remaining at a sticky 3.8%, (above the bank’s 2.5% target), with the Governor forecasting that inflation will return to 2.5% by the end of 2026.
The European Central Bank has moved to cut borrowing costs again, as the inflation threat continues to abate while the twenty-nation bloc’s economies continue to dither. Whether there would be a further cut by the end of the year will be data dependent, as the rate of inflation was tipped to rise again during Q4 having eased back towards the 2% target. Bank president, Christine Lagarde, noted “we are not pre-committing to a particular rate path,” and “we are looking at a whole battery of indicators.” Just like the conundrum facing most global central banks, some are more concerned about recession risks and will argue for more rate cuts, while others see wage pressures weighing on the timing and frequency, and either maintain current rates or head in the other direction. Markets are leaning to at least one further cut – perhaps two – in Q4.
In Q2, there were 0.2% rises, on the quarter, in the seasonally adjusted GDPs for both the euro area and the EU, compared to 0.3% in Q1. A year earlier, Q2 2023 increases were 0.6%, (for the euro area), and 0.8% in the EU, compared to rises of 0.5% and 0.7% in Q1 2023. Over Q2, the three highest increases were seen in Poland, Greece and the Netherlands – with 1.5%, 1.1% and 1.0%; on the flip side were decreases of 1.0%, 0.9% and 0.4% in Ireland, Latvia and Austria. Employment-wise, the number of employed persons increased by 0.2% in the euro area and by 0.1% in the EU in Q2 compared to 0.3% rises for both blocs in Q1. Ireland, Lithuania and Estonia registered the highest growth in employment with growth levels of 1.1%, 1.1% and 0.8%, whilst the Romania and Finland posted decrease of 0.5% and 0.4%. Eurostat estimates that in Q2, 218.6 million people were employed in the EU, of which 170.1 million were in the euro area.
As US August inflation continued to cool last month, with consumer prices 2.5% higher, compared to 2.9% in July, it may push Fed officials to cut interest rates, by 0.25%, next Thursday; this was the slowest pace of growth since February 2021. Last month, prices for petrol, used cars and trucks, and some other items fell, whilst housing costs moved in the other direction. Grocery prices, which were surging just a few years ago, were up less than 1.0% on the year and unchanged on the month, whilst petrol costs have fallen more than 10% on the year. Excluding food and energy, prices were up 3.2% over the year, as airline tickets, car insurance, rent, and other housing costs grew more expensive.
For what it is worth, Labour’s manifesto promised a kitty of US$ 3.27 billion to revitalise the UK steel industry – and two months after their whitewash of the Tories in the General Election, the government is warning of a “grim” September, with up to 6k jobs set to be cut across the steel and oil refining industries; they include 3.0k, 2.8k and 0.4k job losses at India’s Tata Port Talbot in Wales, at China’s Jingye British Steel in Scunthorpe, (both companies claim they are each losing US$ 1.31 million every day), and at Scotland’s Grangemouth oil refinery. The Starmer administration is taking a similar stance to that of the previous Sunak government – indicating that public money is only available to invest in new greener steel production facilities, rather than to subsidise large ongoing losses at carbon-intensive plants. There are reports that Tata could receive a US$ 654 million government grant towards the cost of building a US$ 1.63 billion electric arc furnace which will eventually replace the last remaining blast furnace at Port Talbot; electric arc furnaces are mostly used to melt down and repurpose scrap steel, and cannot replicate all grades of steel that are produced in blast furnaces. It does appear that the closure of blast furnaces at both Port Talbot and Scunthorpe would leave the UK without the ability to make virgin steel.
At Port Talbot, here have been more than 2k expressions of interest in the redundancy and re-training package being offered which includes workers receiving 2.8 weeks of earnings for every year of service, up to a maximum of twenty-five years, as well as signing up to a one-year skills and re-training scheme during which they will be paid US$ 35.3k.
Economists were surprised to see that UK’s July economy flatlined for the second month of stagnation, when growth of 0.2% had been expected. However, there is a little glimmer of hope in that there’s “longer-term strength” in the services sector, as the quarter ending 31 July posted 0.3% growth and the fact that, in H1, the UK had the best growth rate among the G7 nations. Growth in the services sector – attributable to computer programmers and the end of NHS strikes – was offset by declines for advertising companies, architects and engineers, along with falls in manufacturing output and construction, due to “a particularly poor month for car and machinery firms”. These factors point to no change in interest rates at the BoE meeting next week.
Senior bankers, who for some years now have gorged themselves on record profits, (and probably record bonuses), on the back of higher interest rates, could be in for a wake-up call. There are rumours that the Starmer government may well raise an existing surcharge that banks already pay, and/or will cut the amount of interest UK banks earn on reserves parked at the Bank of England. (The bank levy was introduced in 2011 to curb excessive risk and reckless growth following the GFC). Although both the Prime Minister and Chancellor Rachel Reeves have yet to publicly declare that this would be the case, the former has referred to the “tax” burden falling on those with “broader shoulders” – and this has fuelled concerns. Consequently, UK banks are intensifying their lobbying against possible tax hikes in the new Labour government’s first budget next month. It does note that “banks based in the UK pay a significantly higher rate of tax than those in New York. And our analysis shows that they are expected to pay notably higher rates of tax in future years than in other European capitals.”
Yet another report has indicated the greed, cronyism, opaqueness and fraud prevalent in the previous Conservative government. Transparency International UK has identified significant concerns in contracts worth over US$ 20.0 billion, (GBP 15.3 billion), awarded by the Conservative government during the Covid pandemic, equivalent to a third of all relative expenditure. The anti-corruption charity discovered one hundred and thirty-five “high risk” contracts, with at least three red flags – warning signs of a risk of corruption; they included twenty-eight contracts worth US$ 5.37 billion going to firms with known political connections, while fifty-one, worth US$ 5.24 billion, went through a “VIP lane” for companies recommended by MPs and peers, a practice the High Court ruled was unlawful. (There was no surprise that a Conservative spokesperson commented that “government policy was in no way influenced by the donations the party received – they are entirely separate”). It also noted that over 66% of high-value contracts to supply items such as masks and protective medical equipment, totalling over US$ 40.0 billion, were awarded without any competition. A further eight contracts worth a total of US$ 654 million went to suppliers no more than one hundred days old – another red flag for corruption. Normal safeguards designed to protect the process of bidding for government contracts from corruption were suspended during the pandemic resulting in “the cost to the public purse has already become increasingly clear with huge sums lost to unusable PPE from ill-qualified suppliers,” with Transparency International adding “as far as we can ascertain, no other country used a system like the UK’s VIP lane in their Covid response”. After the dust had settled, it was estimated that the Department of Health & Social Care wrote off US$ 19.50 billion of the US$ 62.94 billion worth of public money spent on private sector contracts, related to the Covid-19 pandemic; a further US$ 1.31 billion was spent on PPE that was deemed unfit for use. What A Shambles!
howesdubai.com 