Business

BEIJING — China must quicken the pace of reforms and do more to curb rising debt, the International Monetary Fund (IMF) said on Wednesday as it raised its growth forecast for the world’s number two economy. 

The International Monetary Fund expects China to expand by 6.7 per cent this year, faster than its previous estimate of 6.6 per cent due to expanding credit and investment.

That would match last year’s growth rate, which was the slowest in a quarter of a century. 

The economy is then expected to slow to an average of 6.4 per cent expansion between 2018 and 2020.

After years of blistering growth, China’s economy has been slowing as it moves from an investment and export-driven model to one more reliant on consumer spending.

However, Beijing’s Belt and Road infrastructure project, for which the government has earmarked hundreds of billions of dollars, has raised concerns it may be retreating from the difficult transition.

David Lipton, the IMF’s first deputy managing director, said it was “critical” that China capitalises on its still-strong pace of expansion to speed up reforms. 

“While some near-term risks have receded, reform progress needs to accelerate to secure medium-term stability and address the risk that the current trajectory of the economy could eventually lead to a sharp adjustment,” Lipton told reporters at the end of a two-week visit to China.

The IMF also called on Beijing to do more to rein in soaring credit, warning that runaway lending could lead to a bad debt problem if borrowers default on their loans.

China’s overall debt liabilities, which include corporate and household borrowing, are above 260 per cent of gross domestic product compared to about 140 per cent before the 2008 financial crisis.

When the debt-to-GDP ratio “rises quickly, when that rise gets beyond certain bounds, there tends to be vulnerabilities and a greater probability of crisis”, Lipton said.

The IMF also urged Beijing to phase out support for underperforming state-owned enterprises (SOEs) and so-called zombie companies — those firms that survive only on rolling credit from the banks. 

Lumbering SOEs and debt-choked companies have been a drag on the economy. While the government recognises the need for restructuring, it also fears mass lay-offs and social instability.

PARIS — Increased oil production in the United States is hampering efforts to balance out market supply and demand, the Organisation of Petroleum Exporting Countries (OPEC) said on Tuesday.

While a "rebalancing of the market" was "under way", it was "at a slower pace than originally anticipated", OPEC wrote in its latest monthly oil market report.

This was "due to changes in fundamentals, especially the shift in US supply from a forecast contraction to positive growth", the report said.

It was being observed, "despite the very high overall conformity to the production adjustments in the first four months of 2017", OPEC added.

Back in November, OPEC members agreed to cut production by 1.2 million barrels per day for six months beginning from the start of the year in a bid to reduce the glut of oil supplies on the shore up prices. 

Non-cartel producers led by Russia partially matched the cuts.

The measures helped stabilise oil prices at the beginning of the year, with the international benchmark Brent crude sticking above $50 per barrel.

At a meeting at the end of May, both OPEC and non-OPEC countries decided to roll over the output cuts for a further nine months. 

Nevertheless, increased output in the US was getting in the way of the rebalancing process, OPEC complained.

Brent has dropped back below $50 since the OPEC meeting.

American producers have benefitted from the OPEC and non-OPEC efforts to push prices higher.

Shale producers, in particular, can react quickly to market developments, because they are less capital intensive than other ventures. They have racked up production as prices rise.

The bulk of the upward adjustment in non-OPEC oil supply since December "has come from the US," OPEC said, adding that this was skewing the market.

"The revisions to non-OPEC supply growth have been much greater than the upward adjustments to world oil demand growth, accentuating the imbalance in the market," it said.

Looking at anticipated growth in global oil demand this year, OPEC reiterated its forecast of 1.27 million
barrels per day.

With regard to the global economic outlook for 2017, stronger-than-anticipated momentum since the beginning of the year led to an upwards revision in the growth forecast to 3.4 per cent following growth of 3.1 per cent in 2016, OPEC said.

LONDON — British inflation soared close to a four-year high in May, official data showed on Tuesday, boosted by the rising cost of energy, food and recreational goods.

Consumer Price Index inflation unexpectedly hit 2.9 per cent last month, which was the highest level since June 2013 when it last stood at that level.

The reading compared with a rate of 2.7 per cent in April 2017 and overshot market expectations for no change.

Inflation had held close to zero throughout 2015 — but has surged since then as a weak Brexit-hit pound raises import costs.

"Rising prices for recreational and cultural goods and services — particularly games, toys and hobbies — was the main contributor to the increase in the rate," the Office for National Statistics said in a statement on Tuesday.

"There were smaller upward contributions from increased electricity and food prices.

"These upward contributions were partially offset by falls in motor fuel prices, and air and sea fares, the latter two influenced by the timing of Easter in April this year."

British inflation remains stubbornly above the Bank of England's (BoE) 2-per cent target.

That could raise the pressure on the central bank's rate-setting monetary policy committee when it considers a rate hike later this week.

However, the outlook remains clouded by ongoing political uncertainty in the wake of Britain's election last week — and by looming Brexit negotiations.

"Inflation continues to push higher, but political and economic uncertainty mean the BoE is likely to tread carefully," said ING economist James Knightley.

"We do not expect a BoE rate hike until there is much greater clarity on the outlook."

The outlook is heavily dependent on what sort of divorce terms Britain reaches with the European Union and whether it can secure a trade deal.

ISTANBUL — Turkey’s economy grew a stronger-than-expected 5 per cent in the first quarter of 2017, official data showed on Monday, driven by a surge in export growth.

The robust data surprised markets, who had been expecting a consensus of 3.8 per cent, and indicated the economy is managing to turn the corner following a slump in the wake of a failed coup last July.

The Turkish economy grew 4.5 per cent in the first quarter of 2016, but only 2.9 per cent overall in 2016. The growth rate in the last quarter of 2016 stood at 3.5 per cent. The official data published by the Turkish Statistics Institute showed that the main driver of the strong first quarter was exports, with exports of goods and services increasing 10.6 per cent.
“That appears, in part, to have been a result of the weakness of the lira supporting the competitiveness of goods exports,” said William Jackson, senior emerging markets economist at Capital Economics in London. The lira has lost over 20 per cent against the dollar over the last year, although it has rallied slightly in recent months while imports increased only 0.8 per cent.

The strong data will be a boost for the government under President Recep Tayyip Erdogan, who in April narrowly won a referendum on boosting his powers with the economy a key issue.

Economists said the first quarter gross domestic product (GDP) data suggests that Turkey will grow faster this year than expected, requiring a revision of full year forecasts. 

Ozgur Altug, chief economist at BGC Partners, said he had revised his 2017 GDP growth forecast from 2.5 per cent to 4.7 per cent, versus a government forecast of 4.4 per cent.

“The data confirmed that the economy managed to recover in the fourth quarter of 2016 and with a faster pace in the first quarter after the failed coup attempt,” he said, saying government measures to stimulate activity were now being felt in the data. 

But he warned that a GDP restatement last year — which saw past data revised — and the discrepancy between monthly and quarterly figures continued to complicate making forecasts. 

DOHA/DUBAI/ABU DHABI — Shortages of US dollars hit money exchange houses in Qatar on Sunday, making it harder for worried foreign workers to send money home, as foreign banks scaled back business with Qatari institutions because of the region’s diplomatic crisis.

“We have no dollars because there is no shipment or transportation from the United Arab Emirates. There is no stock,” said a dealer at the Qatar-UAE Exchange House in Doha’s City Centre mall. “The shipment is blocked from the UAE.”

Several other exchange houses in Doha also told Reuters they had no supplies of dollars. At Qatar-UAE Exchange, dozens of people — some of the foreigners who comprise nearly 90 per cent of the population of 2.6 million — waited quietly in line to change money or make remittances to their home countries.

“I spoke with my wife this morning. She said, ‘Send your savings to me now.’ I am not panicked but my family is scared,” said John Vincent, an air-conditioning repairman from the Philippines. 

“I sent 2,000 riyals ($550) home but I have some more savings left here in Qatar. I will see what the situation is in coming days before I decide what to do.”

The dollar shortages do not mean Qatar, which is one of the richest states in the world per capita and has huge foreign reserves, is running out of money. But they show how the diplomatic crisis is disrupting parts of the financial system.

Saudi Arabia, the UAE, Bahraini and Egyptian banks began scaling back business with Qatar last week after their governments cut diplomatic and transport ties, accusing Doha of supporting terrorism. 

Then at the weekend, the UAE told its banks to exercise “enhanced due diligence” towards six Qatari banks which, it alleged, might have done business with people or entities on a terrorism blacklist.

That stopped short of a complete ban on business with Qatar but the effect may turn out to be much the same. UAE banks were absent from Qatar’s foreign exchange and money markets on Sunday, causing both those markets to slow down, because they feared any deals could expose them to legal risk, bankers said.

Some Western banks with a presence in Qatar continued business as normal, partly because they did not want to lose out on billions of dollars of building projects which Qatar plans before it hosts the soccer World Cup in 2022.

But other Western banks have halted new Qatar business including interbank and syndicated lending, while continuing to service existing business, banking sources said, declining to be named because of political sensitivities.

“Everybody is shocked — they’re not worried about Qatar’s credit, they’re worried about compliance and the risk that the local sanctions could be escalated to an international level,” said one foreign banker in the region.

Dollars

Exchange house dealers in Qatar said the dollar shortage was partly a seasonal phenomenon, because the Gulf’s hot summer and the holy month of Ramadan had begun, periods when there was traditionally high demand for travel abroad.

Sudhir Kumar Shetty, president of UAE Exchange, which has eight branches in Qatar, said his firm was continuing to handle remittances and currency buying as usual in that country. He said the firm hadn’t seen any major change in remittance volumes due to the diplomatic tension.

But he added that dollar supply was not meeting demand in Qatar and attributed this partly to flows of the US currency from other Gulf countries being disrupted.

“Everywhere, all the banks and exchange houses, there are no dollars. All the exchange houses are trying to get currencies from other countries,” the dealer at Qatar-UAE Exchange said, adding that his firm was hoping for a shipment from Hong Kong.

The six Qatari banks named by the UAE — Qatar National Bank (QNB), Qatar Islamic Bank, Qatar International Islamic Bank, Masraf Al Rayan, Doha Bank and unlisted Barwa Bank — did not respond to Reuters requests for comment.

The share price of all five of the listed banks fell on Sunday, with QNB losing 0.5 per cent, as investors reacted to the prospect of the banks facing funding difficulties because of reduced ability to borrow from foreign institutions.

Qatari banks have around 60 billion riyals ($16.5 billion) in funding in the form of customer and interbank deposits from other Gulf states, SICO Bahrain estimated. Most of this could eventually be withdrawn if the crisis continues.

Bankers expect Qatari banks to borrow from the central bank’s repo facility if they become short of funds. The repo rate is currently at 2.25 per cent and the cost of borrowing three-month money among Qatari banks rose near that level on Sunday, to 2.20 per cent, the highest in many years.

Central bank rules limit the size of the repos to 2 per cent of each bank’s private sector deposits. Bankers speculate the central bank may lift this cap; the central bank did not respond to requests for comment.

DUBAI/DOHA — Qatar's central bank has asked commercial banks to provide it with detailed information on foreign exchange trading; banking sources told Reuters on Thursday as Doha's diplomatic rift with other Gulf countries put its currency under pressure.

The riyal hit an 11-year low of 3.6530 to the dollar late on Wednesday after Standard & Poor's (S&P) cut Qatar's credit rating, citing this week's decision by Saudi Arabia and the United Arab Emirates to sever diplomatic and transport ties with Doha.

The dispute, over Saudi and UAE charges that Doha supports terrorism, triggered outflows of capital from Qatar which, if they persist, could eventually make it harder for authorities to maintain the riyal's peg of 3.64 to the dollar. 

The central bank's move to gather data on the currency market was in response to this concern, Qatari commercial bankers said.

"We now consider risks to external financing lines to the whole economy, including foreign direct investment, portfolio flows and to the financial sector, to be elevated, and this could lead to pressure on Qatar's pegged monetary arrangement," said S&P.

The sources said banks in Qatar were asked to provide daily information on their foreign exchange trading, a daily statement of withdrawals and transfers from deposits worth at least 10 million Saudi riyals ($2.7 million), and daily data on cash withdrawals and deposits.

Previously, banks were generally required to provide such information monthly.

The central bank also asked banks to supply on a weekly basis a breakdown of their customer deposits by maturity and type from Gulf Cooperation Council countries, Egypt and other countries, the sources said. The central bank did not respond to requests for comment.

The riyal rebounded to trade much closer to its peg in the spot market on Thursday; some traders said the central bank was supplying dollars to banks which wanted to close out their riyal positions, in order to avoid downward pressure on the currency.

"There's some stress in the Qatari riyal currency market but it's too early to talk about pressure on the Qatari peg," said a UAE treasury banker, who like most bankers declined to be named because of political sensitivities.

S&P estimated the government's liquid external assets were worth 170 per cent of gross domestic product, a massive amount equivalent to nearly 10 years of the country's imports — a much higher degree of backing for its currency than most countries. 

Tension

Nevertheless, there were other signs of tension in Qatari financial markets on Thursday. The riyal remained under pressure in the offshore forwards market, which banks use to hedge against future moves in the currency.

The cost of buying insurance against a Qatari sovereign debt default hit a seven-month high, and the cost of borrowing three-month riyal funds in the interbank market jumped to 2.16 per cent, the highest in at least several years — a sign nervous banks were holding back funds.

A major source of capital outflows from Qatar so far has been the stock market, which plunged 9.7 per cent over three days before partially rebounding on Thursday. Some foreign portfolio managers sold stocks and sent the proceeds home. In addition, some banks in Saudi Arabia and the UAE are closing out Qatari riyal long positions and offloading part of their riyal assets to reduce their risk. 

While Riyadh has told its banks it does not want them to do new business with Qatari institutions, neither Saudi Arabia nor the UAE has yet clarified whether banks will be required to liquidate existing deals. Some bankers are cutting exposure now to limit the pain if they are forced into a firesale of assets.

Other banks in Saudi Arabia and the UAE have halted all transactions in the Qatari riyal, viewing them as too risky, although some remittances of money between the UAE and Qatar were continuing on Thursday, bankers said.

A much bigger threat to the Qatari riyal than outflows from the stock market is the risk of an exodus in coming weeks and months from loans and deposits provided by foreign banks to Qatari banks. Foreign liabilities of Qatari banks increased to 451 billion riyals ($124 billion) in March from 310 billion riyals at the end of 2015.

KUWAIT CITY — A Saudi-led diplomatic and economic blockade against Qatar may threaten food imports, but the tiny emirate still has a lifeline through its gas and oil exports, experts said on Tuesday.

Saudi Arabia, the UAE, Egypt, Bahrain and Yemen have suspended all diplomatic ties to gas-rich Qatar, halting flights to and from the country and ordering Qatari citizens to leave within 14 days. 

Riyadh on Monday also cut off the Qatari peninsula’s only land border, threatening the import of both fresh food and raw materials needed to complete $200 billion worth of infrastructure projects for the controversial 2022 football World Cup. 

Food imports, aviation 

“An estimated 40 per cent of all of Qatar’s food supplies are transported across Qatar’s land border with Saudi Arabia,” said Anthony Skinner of the UK-based global risk consultancy Verisk Maplecroft. 

Its closure “will force the Qatari authorities to increasingly rely on sea and air freight, thereby increasing costs and inflation”, Skinner said in a report.

Fitch Ratings said the decision to cut diplomatic and economic ties with Qatar had no immediate impact on Qatar’s “AA”/Stable sovereign rating.

But if the dispute drags on, the economic and financial implications would be more serious, the international ratings agency said.

The economic impact of the diplomatic boycott was immediately visible on Monday, as shoppers flocked to Qatar’s main supermarkets to stock up on staples despite assurances by the government that there would be no food shortages.

Qatar’s only viable alternative for food imports is via Iran and the Gulf state of Oman by sea, and via Turkey, Europe and south Asia by air. 

Also hit by the economic measures is the bustling aviation sector in the Gulf.

Saudi Arabia and its allies have banned flights to and from Qatar.

Skinner said the move would force Qatar Airways, already hit this year by US President Donald Trump’s electronics ban, to change multiple routes, thus incurring even more costs.

Although Qatar has limited trade with Gulf states, its exports to Saudi Arabia — estimated at $896 million by the UN — are now expected to evaporate.

Energy sector 

Qatar is one of the smallest Arab nations with a population of 2.4 million, only 10 per cent of whom are Qatari. 

But the emirate has one of the largest per capita incomes in the world at over $100,000.

The closure of Qatar’s land border will likely leave contractors with no choice, but to import building materials by sea, driving up prices and potentially delaying the projects, Skinner said.

But Qatar’s energy supplies will remain unaffected with secured export routes through the Strait of Hormuz to Japan and southeast Asia.

Qatar is the world’s leading LNG exporter and supplies 80 million tonnes annually by sea. Only 10 per cent of its gas exports go to Middle East states, including the UAE and Egypt.

The emirate also pumps over 600,000 barrels of oil.

“I don’t see any threat to Qatar’s energy export routes. They will continue to its main Far East customers,” Kuwaiti oil expert Kamel Al Harami told AFP.

Qatar also has around $350 billion of foreign assets invested in major international companies, including a 17 per cent stake in Volkswagen.

But Qatar’s banking sector could still feel the heat of the diplomatic crisis. 

Non-resident deposits made up 24 per cent of deposits in the country’s 18 lenders in April, according to Qatar’s central bank.

“Qatari banks, already struggling with declining cash reserves and higher interest rates, could be hard hit if Saudi Arabia and UAE opt to withdraw their foreign deposits,” said James Dorsey, senior fellow at the S. Rajaratnam School of International Studies in Singapore.

DUBAI — Qatar’s stock market plunged on Monday after Saudi Arabia, Egypt, the United Arab Emirates and Bahrain severed ties with Doha, accusing it of supporting terrorism. 

The Qatari stock index sank 7.6 per cent in the first hour of trade. Some of the market’s top blue chips were hit hardest, with Vodafone Qatar, the most heavily traded stock, sliding its 10 per cent daily limit.

Qatar National Bank, the country’s largest bank, dropped 5.7 per cent.

Saudi Arabia, the UAE and Bahrain announced the suspension of transport ties with Qatar, and gave Qatari visitors and residents two weeks to leave their borders. 

With an estimated $335 billion of assets in its sovereign wealth fund, a trade surplus of $2.7 billion in April alone and extensive port facilities which it can use instead of its land border with Saudi Arabia, which has been closed, Qatar appears likely to be able to avoid a crippling economic crisis.

The six countries in the Gulf Cooperation Council (GCC) do little merchandise trade with each other, instead relying on imports from outside the region, and Qatar’s liquefied natural gas shipments by sea are expected to continue normally.

Saudi Arabia and other GCC countries traditionally account for only about 5 to 10 per cent of daily trading on the Qatari stock market, according to exchange data.

But the diplomatic rift could have a serious impact on some business deals and companies in the region, particularly Qatar Airways, which can no longer fly to some of the Middle East’s biggest markets.

Saudi Arabia called on international companies to avoid Qatar, raising the prospect that it might try to make foreign firms choose between doing business in Qatar and obtaining access to the much bigger Saudi economy.

Talal Touqan, head of research at Abu Dhabi’s Al Ramz Capital, said it was not clear how long the dispute would last and markets could recover quickly if tensions eased.

“This is a reaction to political noise which has a direct impact on volatility — it may be short-lived and fully reversible if the political situation starts to abate,” he said.

Kunal Damle, an institutional broker at SICO Bahrain, said Qatari state funds might step in to support their market later in the day.

Other GCC stock markets also fell, with Dubai losing 0.8 per cent and Saudi Arabia falling 0.2 per cent.

CANCUN, Mexico — Top airline industry players are meeting on Monday and Tuesday in Cancun to seek alternatives to the US and British bans on laptops and tablets on certain flights, which they say is hurting business.

The computer bans are looming large over the agenda as the International Air Transport Association (IATA) holds its annual meeting in the Mexican resort city.

Alternative proposals include sniffer dogs, bomb-detection technology, increased training — anything but the ban, which IATA says is threatening the industry just as it was enjoying a boom.

With fuel prices low and 3.8 billion passengers flying last year — a figure that is expected to double in the next 20 years — “The industry is doing quite well,” said IATA’s director general, Alexandre de Juniache.

“Airlines are in the black and it’s the eighth year in a row,” he told journalists during a conference call ahead of the meeting.

But the bright financial outlook is clouded by the in-cabin ban on electronic devices larger than a cell phone on flights between the United States and 10 airports in Turkey, the Middle East and North Africa — imposed in March by President Donald Trump’s administration.

Britain has imposed a similar ban for flights from six countries.

The move came after intelligence officials learned of efforts by the Daesh terror group  to fashion a bomb into consumer electronics.

The US Department of Homeland Security then threatened to slap the same ban on flights from Europe — though it indicated on Tuesday that it has backed off the idea for now.

IATA, whose 275 member airlines represent 83 per cent of global air traffic, says the bans have already taken a toll on business. It warns that extending them to European flights would be catastrophic.

WASHINGTON — US unemployment fell to a 16-year low in May, but monthly job creation has slowed sharply in the past three months, creating a mixed picture of the labour market.

The contrasting data could muddy the waters ahead of a Federal Reserve decision on interest rates later this month.

The economy added just 138,000 net new jobs in May, well below analyst expectations, and average job creation for the last three months slowed to 121,000, after the payrolls data for April and March were cut by a combined 66,000, the Labour Department reported on Friday.

However, the jobless rate decreased by a tenth of a point to 4.3 per cent.

But while that drop looks like good news, it also reflects the fact that some workers left the labour force, with the closely-watched labour force participation rate falling 0.2 points to 62.7 per cent.

As it has done in recent months, the White House once again hailed the good news in the labour market.

White House Press Secretary Sean Spicer said the employment report showed "Americans seeking jobs are having more success finding them than at any point in the last 16 years”.

"There's a lot of positive signs coming out of the job market," he told reporters.

US President Donald Trump has vowed to add 25 million new jobs to the economy over a decade, but economists say this goal is unrealistic and the latest data may bolster that view, especially with increasing reports that firms are struggling to fill open positions.

The employment report came a day after Trump announced he was withdrawing the United States from the 2015 Paris climate agreement in a bid to preserve US jobs. 

However, analysts say the US stands to gain more by participating in the development of renewable energy. One in every 50 new jobs added in the United States in 2016 was in the solar industry.
Implications for Fed 

Jim O'Sullivan of High Frequency Economics was among those who said the weakness in job creation last month likely was due to volatility and distortions from seasonal adjustments applied to the data.

"Through the volatility, we believe the trend in employment growth remains more than strong enough to keep unemployment trending down and the trend in wage gains upward," he said in a research note.

Most analysts still expect the Fed to increase the benchmark lending rate later this month, but expectations for another increase in September could be in doubt.

The falling jobless rate may support the views of Fed policymakers who say the economy has reached full employment, but weak job creation and weak wage gains may support those who want to be cautious about removing the stimulus of low interest rates.

Elise Gould of the left-leaning Economic Policy Institute said a June rate increase by the Fed would be "unfortunate", adding that prematurely declaring full employment would be far more costly than tolerating some wage growth and price inflation.

Still, the jobless rate has fallen 0.5 percentage points since the start of the year, and anecdotal reports in the Fed's own surveys increasingly suggest employers are having difficulty finding qualified workers, which raise concerns that wages will begin to rise, possibly stoking inflation.

And layoffs are at 40-year lows, which analysts say is because companies fear they may not be able to replace workers they let go. 

Meanwhile, the time needed to fill a job is now the longest in 17 years, Nariman Behravesh of IHS Markit said.

"Companies may be taking a more cautious approach to hiring, not because they are worried about sales, but because they are trying to assess whether the president and Congress will be successful in passing pro-growth policies," Behravesh wrote in a client note.
 Tepid wage gains 

Despite steady hiring, low unemployment and reports that firms are having difficulty filling positions, wage gains have been tepid.

Average hourly earnings rose 0.2 per cent for the month, and are up 2.5 per cent for the year, but this more or less keeps pace with inflation, with the Consumer Price Index for urban consumers up 2.2 per cent over the 12-month period. 

Job creation in the healthcare sector continued, with 24,000 new positions added. The mining sector, which includes oil and gas, added 7,000 positions and restaurants and bars gained another 30,000 new employees.

But some sectors were shedding positions, with the struggling retail sector employing 6,100 fewer workers, and automakers losing 1,500, amid declining new car sales.

Total manufacturing employment fell by 1,000 in the month.