Economics

• The U.K. economy is worse off today than before Brexit, according to new analysis from Goldman Sachs.
• Britain’s decision to leave the European Union has hampered the economy to the tune of 5% versus other comparable countries, the estimates showed.
• The Wall Street bank attributed the shortfall to three key factors: reduced trade; weaker business investment; and lower immigration from the EU.

• Capital One is readying an acquisition of Discover Financial Services, according to The Wall Street Journal.
• The deal would merge two of the largest credit-card issuers in the US.
• Discover is coming off a difficult year after compliance lapses led to a CEO resignation.

The U.S. government is awarding $1.5 billion to GlobalFoundries (GFS.O) to expand semiconductor production, the Biden administration said on Monday, in a bid to strengthen domestic supply chains.

GlobalFoundries, the world's third-largest contract chipmaker, will build a new semiconductor production facility in Malta, New York, and expand existing operations there and in Burlington, Vermont, according to a preliminary agreement with the Commerce Department.

The grant will be accompanied by $1.6 billion in available loans, with the funding expected to generate $12.5 billion in overall potential investment across the two states.

• A Chinese firm started to build a massive tower plaza in Los Angeles but ran out of funds in 2019.
• The Oceanwide Plaza towers are now mainly used by graffiti artists and base jumpers.
• LA's City Council estimates it'll take $2 billion to buy the property and complete the project.

• Foreign firms only added $33 billion to their FDI liabilities
• Measure was lowest since 1993, indicates a lack of confidence

Foreign businesses’ direct investment into China last year increased by the lowest amount since the early 1990s, underscoring challenges for the nation as Beijing seeks more overseas investment to help its economy.

China’s direct investment liabilities in its balance of payments rose by $33 billion last year, 82% down on 2022, according to data

from the State Administration of Foreign Exchange released Sunday. That measure of new foreign investment into the country — which records monetary flows connected to foreign-owned entities in China — slumped to the lowest level since 1993.

The data shows the effect of the Covid lockdowns and weak recovery last year. The investment fell in the third quarter of 2023 for the first time since 1998. Although it recovered a little and returned to growth in the final quarter, the $17.5 billion in new money in that period was still a third lower than the same period of 2022.

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• BOJ Governor Kazuo Ueda is under pressure to alleviate Japanese yen weakness, stemming from the interest rate divergence between the U.S. and Japan.
• Yet, he is also constricted by high inflation that BOJ policymakers still deem unsustainable, even as it crimped domestic demand and tipped the economy into a technical recession.

Deutsche Pfandbriefbank, or PBB, a German lender focused on real estate, has set aside more money for bad debts as it braces for what it says is the worst decline in commercial property values in 15 years.

PBB increased its provisions for losses on loans in the fourth quarter of 2023, taking the total set aside for the year to as much as €215 million ($231.7 million), it said in a statement Wednesday, citing “persistent weakness of the real estate markets.”

• Advance retail sales declined 0.8% for January, down from a 0.4% gain in December and worse than the estimate for a 0.3% drop.
• Sales at building materials and garden stores were especially weak, sliding 4.1%. Miscellaneous store sales fell 3% and motor vehicle parts and retailers saw a 1.7% decrease.
• Also, initial claims for unemployment insurance totaled 212,000 for the week ended Feb. 10, a decline of 8,000 from the previous week’s upwardly revised total and below the estimate for 220,000.

Japan’s economy is now the world’s fourth-largest after it contracted in the last quarter of 2023 and fell behind Germany.

The government reported the economy shrank at an annual rate of 0.4% in October to December, according to Cabinet Office data on real GDP released Thursday, though it grew 1.9% for all of 2023. It contracted 2.9% in July-September. Two straight quarters of contraction are considered an indicator an economy is in a technical recession.

Japan’s economy was the second largest until 2010, when it was overtaken by China’s. Japan’s nominal GDP totaled $4.2 trillion last year, while Germany’s was $4.4 trillion, or $4.5 trillion, depending on the currency conversion.

A weaker Japanese yen was a key factor in the drop to fourth place, since comparisons of nominal GDP are in dollar terms. But Japan’s relative weakness also reflects a decline in its population and lagging productivity and competitiveness, economists say.

Commercial-property deals in the US are starting to pick up — at deep discounts that are forcing lenders around the world to brace for souring loans.

The shakeout in the $20 trillion US commercial real estate market has long been delayed for a simple reason: No one could figure out just how much properties were worth. And, more crucially, few wanted to.

Since the Covid-19 pandemic upended the use of real estate around the world, lenders have had little incentive to get tough on borrowers squeezed by soaring interest rates and take on loans that had lost value. Transactions ground to a halt as potential sellers were unwilling to unload buildings at distressed prices — an outcome that allowed them to pretend that nothing had fundamentally changed.

For many, the time to wait it out is nearing its end.

Across the country, deals are starting to pick up, revealing just how far real estate prices have fallen. That’s spurring widespread concern about losses that can ripple across the global financial system — as underscored by the recent turmoil unleashed by New York Community Bancorp, Japan’s Aozora Bank Ltd. and Germany’s Deutsche Pfandbriefbank AG as they took steps to brace for bad loans.

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Whenever a global economic transformation takes place, a single city usually drives it forward. Ghent, in modern-day Belgium, was at the core of the burgeoning global wool trade in the 13th century. The first initial public offering took place in Amsterdam in 1602. London was the financial centre of the first wave of globalisation during the 19th century. And today the city is San Francisco.

California’s commercial capital has no serious rival in generative artificial intelligence (AI), a breakthrough technology that has caused a bull market in American stocks and which, many economists hope, will power a global productivity surge. Almost all big AI startups are based in the Bay Area, which comprises the city of San Francisco and Silicon Valley (largely based in Santa Clara county, to the south). OpenAI is there, of course; so are Anthropic, Databricks and Scale AI. Tech giants, including Meta and Microsoft, are also spending big on AI in the city. According to Brookings Metro, a think-tank, last year San Francisco accounted for close to a tenth of generative-AI job postings in America, more than anywhere else. New York, with four times as many residents, was second.

As Valentine's Day approaches, the price of cocoa has never been higher.

The cost of the key ingredient in chocolate has been grinding upward for over two years. In the past year, it has more than doubled. This month, it broke the all-time record from 1977, the year before Hershey introduced Reese's Pieces.

By one tracker, US firms have announced 4,600 job cuts since May related to artificial intelligence.

United Parcel Service Inc.’s largest layoffs in its 116-year history were made possible, in part, by new technologies including artificial intelligence, CEO Carol Tomé said last week. Citing one example, she said that machine learning allows salespeople to put together proposals without having to ask pricing experts for guidance.

UPS is among a growing number of companies facing an AI two-step of sorts: Showing investors how AI helps do more with less while simultaneously avoiding the fear-mongering that comes with directly linking technology with job cuts. A UPS spokesperson later said AI is not replacing workers, and that executives did not make an explicit connection between AI and the permanent layoffs on the company’s earnings call.

BlackRock Inc. last month said it would dismiss about 600 employees. In a memo to staff, CEO Larry Fink and President Rob Kapito pointed to dramatic industry shifts “and perhaps most profound, new technologies are poised to transform our industry — and every other industry.” While Fink has been outspoken about his belief in AI’s potential to turbocharge productivity, the new tech was not cited as a reason for the cuts. The asset manager still expects to have a larger staff by the end of the year as it expands certain parts of the business, according to the memo.

Experts struggle to get an accurate picture of just how many jobs are being eliminated as AI rapidly advances. Since last May, US companies have announced more than 4,600 jobs cuts in order to free up resources to hire people with AI experience or because the technology replaced tasks, according to outplacement firm Challenger, Gray & Christmas Inc. But that estimate is “certainly undercounting” the true total, Senior Vice President Andrew Challenger said in an interview.

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From afar, China Evergrande Group had all the makings of a killer distressed-debt trade: $19 billion in defaulted offshore bonds; $242 billion in assets; and a government that appeared determined to prop up the country’s faltering property market. So US and European hedge funds piled into the debt, envisioning big payouts to juice their returns.

What they got instead over the course of the next two years is a harsh lesson in the dangers of trying to bargain with the Communist Party. The talks are now dead — a Hong Kong court has ordered Evergrande’s liquidation, and the bonds are nearly worthless, trading in secondary markets at just 1 cent on the dollar.

In the aftermath of the Jan. 29 wind-up order, the biggest in China’s history, key players on both sides of the negotiations paint a Kafkaesque picture of endless micro-managing by unidentified government handlers that was communicated to investors through a mind-numbing maze of channels, only to then be interrupted by months-long gaps in dialogue. The last of those gaps came — to the shock of creditors — after the court’s December ruling giving the two sides one final chance to cut a deal.

Bloomberg spoke with more than a dozen people with direct knowledge of the talks for this story. All of them requested anonymity because they weren’t authorized to comment publicly about private conversations.

While global money managers have long known that the Chinese government exerts influence over corporate affairs in ways that are uncommon across the developed world, Evergrande was nonetheless a first-hand education for many of them in just how much authorities will intervene for the sake of political and economic expediency.

Just a quarter of business economists and analysts expect the United States to fall into recession this year. And any downturn would likely result from an external shock — such as a conflict involving China — rather than from domestic economic factors such as higher interest rates.

But respondents to a National Association of Business Economics survey released Monday still expect year-over-year inflation to exceed 2.5% — above the Federal Reserve’s 2% target — through 2024.

A year ago, most forecasters expected the U.S. economy — the world’s largest — to slide into a recession as the Fed raised interest rates to fight a burst of inflation that began in 2021. The Fed hiked its benchmark rate 11 times from March 2022 to July 2023, taking it to the highest level in more than two decades.

As political paralysis grips Berlin, the energy crisis was the final blow for a growing number of manufacturers

In a cavernous production hall in Düsseldorf last fall, the somber tones of a horn player accompanied the final act of a century-old factory.

Amid the flickering of flares and torches, many of the 1,600 people losing their jobs stood stone-faced as the glowing metal of the plant’s last product — a steel pipe — was smoothed to a perfect cylinder on a rolling mill. The ceremony ended a 124-year run that began in the heyday of German industrialization and weathered two world wars, but couldn’t survive the aftermath of the energy crisis.

There have been numerous iterations of such finales over the past year, underscoring the painful reality facing Germany: its days as an industrial superpower may be coming to an end. Manufacturing output in Europe’s biggest economy has been trending downward since 2017, and the decline is accelerating as competitiveness erodes.

“There’s not a lot of hope, if I’m honest,” said Stefan Klebert, chief executive officer of GEA Group AG — a supplier of manufacturing machinery that traces its roots to the late 1800s. “I am really uncertain that we can halt this trend. Many things would have to change very quickly.”

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A strong performance in financial markets, particularly an outsize gain for the stock market in 2021, helped entrench existing trends of wealth inequality during the pandemic, new data released this week show.

According to a report from the New York Federal Reserve Bank, the real net worth of white individuals outgrew that of Black and Hispanic individuals by 30 percentage points and 9 percentage points respectively, from the first quarter of 2019 through the second quarter of 2023.

The period featured a remarkable level of government financial support and, after the initial shock of the pandemic, a surprisingly strong job market. The unemployment rate for Black Americans in particular is now at 5.3%, near a record low, compared to an overall unemployment rate of 3.7%. Earnings for the typical Black full-time worker are up 7.1% since before the pandemic.

Closing the wealth gap is more difficult because a significantly larger number of white households traditionally have money in stocks and mutual funds. A separate Fed survey shows that as of 2022, about 65.6% of white households had investments in stocks, compared with 28.3% for Hispanic households and 39.2% for Black households.

McDonald’s, Costco and other major brands say they are stepping up efforts to keep minors from the grueling, often dangerous work that goes into their products.

Many major U.S. companies — including some of the country’s biggest consumer brands — say they are taking steps to eliminate child labor in their domestic supply chains amid revelations that children are working throughout American manufacturing and food production.

As hundreds of thousands of migrant children have crossed the southern border without their parents since 2021, growing numbers have ended up in dangerous, illegal jobs in every state, including in factories, slaughterhouses and industrial dairy farms, The New York Times has reported in a series of articles.

Working to exhaustion, children have been crushed by construction equipment, gotten yanked into industrial machinery and fallen to their deaths from rooftops.

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A mundane contractual provision met with rampant corruption — revealing a serious vulnerability in one of the backbones of international commerce.

Like a lot of explosive financial scandals, the story of Michael Quinn and Brendan Cahill could fairly be described as a simple proposition that spun completely out of control.

Quinn was an Irish oil-and-gas man with warm eyes and a mustache; Cahill was his longtime partner, an accountant by training. The two had been working in Nigeria since the 1970s, doing small-time deals in the energy and defense sectors, like fixing tanks and siting oil wells. But in the mid-2000s, they spied a bigger opportunity. They knew that Nigeria’s refineries were burning off most of the gas that was recovered during oil drilling — a practice that poisoned the atmosphere and deprived the country of a source of electricity. Quinn and Cahill proposed a “gas leaning” plant, which would take in the “wet” gas that would otherwise be flared and spit out “lean” gas that could actually power the grid. It would transform waste into fuel.

Quinn and Cahill founded a new company for this purpose and gave it a forgettable name, Process and Industrial Developments Ltd. The two worked out of an office in Abuja, Nigeria’s capital. But P.&I.D.’s legal address was a P.O. box on Tortola, in the British Virgin Islands. This could shield the new entity from taxes and scrutiny, while also making it easier to raise capital on the international markets.

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But the contract had been drawn with a trapdoor at Article 20, a clause that transported you across the world. In the event of a dispute between the parties, nobody would go to court. They would settle their differences in a process called international arbitration, which had different rules than a trial and was closed to the press. “The venue of the arbitration shall be London,” the contract specified.

Quinn and Cahill hadn’t laid a single pipe for the gas-leaning facility, but this fact was immaterial. When the arbitration finished, the government of Nigeria had been thoroughly defeated. The decision was in P.&I.D.’s favor. The damages were $6.6 billion.

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Plummeting food prices feed steep annual drop amid renewed calls to stimulate economy and offset weakening demand

China’s consumer prices fell at their fastest pace in 15 years in January, as the world’s second-largest economy sank deeper into deflation amid weakening demand.

Data released on Thursday showed that China’s consumer price index tumbled last month, falling by 0.8% compared with a year earlier. It marks the fourth consecutive month of declines, as well as the sharpest drop since September 2009, when the global economy was still grappling with aftershocks from the 2008 banking crisis.

Food prices were the biggest drag on the headline inflation figure, having fallen by 5.9% on an annual basis, due in part to a 17% slump in pork prices. Fresh vegetables fell by 12.7%, while fruit dropped by 9.1%.

China’s economy has been struggling to recover from the Covid-19 pandemic after restrictions were lifted in late 2022. It has also been dealt a significant blow by the contraction in its indebted property sector, leading to the developer Evergrande being ordered to liquidate last month.

• Migrant surge will lift demand and increase the labor force
• CBO also projects $1 trillion more in government revenues

The surge in immigration will help bolster the US economy by about $7 trillion over the next decade by swelling the labor force and increasing demand, the Congressional Budget Office said on Wednesday.

The stronger growth will be good for the federal government, lifting revenues by about $1 trillion more than otherwise over the period, according to the non-partisan agency. Wages, however, will rise more slowly, in part reflecting the increase in the number of lower skilled workers, in the CBO’s estimation.

“Increases in the population boost the demand for goods, services, and housing,” the CBO said in its budget and economic outlook for the next 10 years. “They also expand the productive capacity of the economy by increasing the size of the labor force.”

The increased migration stems mainly from people entering the US illegally and from those released by Customs and Border Protection officials with humanitarian parole or with a notice to appear before an immigration judge. After a lag, many of those migrants join the labor force.

The agency’s estimates come amid a fierce political debate in Washington over the surge of migration at the US-Mexico border and what should be done to control it.

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