Crypto News: Economics Daily: Sputtering motor

I'm Craig Stirling, a senior editor in Frankfurt. Today we're looking at the storm clouds still lingering over Germany's economy and China's debt problem. Send us feedback and tips to ecodaily@bloomberg.net or tweet to @economics. And if you aren't yet signed up to receive this newsletter, you can do so here.

The Federal Reserve is reaching a pivotal moment in its inflation fight.
Interest-rate cuts, a pickup in municipal bond sales and looser property policies are on the cards in China after a meeting of top leaders.
The Bank of Japan is widely expected to stick with negative rates.

Too many Germans worry about the future, according to Chancellor Olaf Scholz, who is responding to a surge in far-right support with frequent messages of hope for the country's prospects.

What's not helping him is persisting evidence that the economy is in trouble. It already succumbed to a recession earlier this year. Now the omens suggest that slump may not be over.

Two alarming reports this week are pointing that way. An index of purchasing managers released yesterday signaled contraction in Europe's biggest economy in the past month.

Meanwhile a highly watched survey of companies by the Munich-based Ifo index also showed more deterioration, both in the current situation and in businesses' prospects.

While that number was also for July, it was enough for Ifo President Clemens Fuest to declare that the economy probably shrank in the prior three months — prolonging its slump from the first quarter. The latest growth reading is due next week.

"It's pretty bad, I'm afraid," Fuest told Bloomberg Television. "It looks like the German economy is really having a hard time getting out of this recession."

The source of weakness right now is manufacturing, long the backbone of Germany's growth prowess. The country's energy crunch of the past year, and a drop in demand from China, have squeezed industry.

Tighter monetary policy has also hurt. The European Central Bank released a survey today showing demand for loans among companies in the euro zone plunged by the most on record in the second quarter.

Longer term, the carmakers that drove Germany's remarkable export performance in recent decades are struggling to adapt to the shift to electric vehicles.

The possibility that the ECB will pause its tightening campaign after a much awaited rate hike this week might yet offer some respite to German manufacturers.

But fixing the future will take more effort, and German government officials are scrambling to revamp the economy's growth model.

Just this week, Bloomberg reported on plans to dole out €20 billion to bolster the country's semiconductor manufacturing capacity. More such measures are likely in the coming months and years.

Coming up: The International Monetary Fund will publish forecasts for major economies, including Germany, on Tuesday.

India's move to ban certain rice exports has sparked some panic buying in various countries.
London's highest earners have reaped the biggest pay raises since the start of the pandemic, widening the gap between rich and poor.
Extreme temperatures threaten Europe's $2 trillion tourism industry.
The cheapest way for Japan to meet its climate goals is to deploy mature, clean technologies like wind and solar generation, and electric vehicles.
South Korea's economic growth accelerated a tad more than expected in the second quarter, mostly because of trade.
Canada's housing market offers a glimpse of what could play out elsewhere: a game of chicken between central bankers and consumers.

Framing China's debt problem as a trillion-dollar question may be an "understatement," according to Citigroup Inc. economists.

They estimate that if you count government debt in the broadest way — i.e. from the central government, municipalities and local government financing vehicles — it's reached 108.4 trillion yuan ($15.1 trillion), or nearly 90% of GDP as of the end of last year. That "may be exceeding comfort levels," Citi's economists including Yu Xiangrong and Ji Xinyu wrote in a research note earlier this month.

The problem is acute for local governments, whose debt could have exceeded some previous "red lines" suggesting that government GDP should not exceed 60% of GDP.

"Its ever-rising trend has not reversed or stopped," the Citi economists wrote in the note, adding that the pace of the rising debt-to-GDP ratio "hardly slowed amid Covid-19 and after various rounds of policy tightening and deleveraging campaigns."

"Quite contrary to the US and EU, economic upcycles in China only helped to stabilize the debt ratio instead of bringing it down," they added.

China's Politburo — the ruling Communist Party's top decision-making body led by President Xi Jinping — on Monday vowed to effectively deal with the risks of local government debt and "come up with and implement a series of new policies to reduce debt."