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€12.2bn drop in credit supply to private sector shows how record high interest rates are ‘crushing’ demand

Bank lending to the private sector in the eurozone has fallen for the first time in five months, signalling continued weakness for the region’s economy as record high interest rates continue to restrict demand.

The €12.2bn monthly drop in eurozone private sector lending in January, reported by the European Central Bank on Tuesday, is the first such decline since August. 

Annual growth in the bloc’s private sector lending, excluding securitisations, has slowed from above 7 per cent in mid-2022 to only 0.4 per cent last month. The eurozone economy, in gross domestic product terms, flatlined in the final three months of last year, after it stagnated for most of 2023.

Economists said this showed that high interest rates were continuing to weigh on demand for bank loans from households and businesses, and would probably keep the eurozone economy stuck in stagnation at the start of this year.

Europe relies more heavily on bank lending than the US and many other countries, making growth and inflation in the 20-country single currency bloc particularly sensitive to changes in credit supply.

“High rates have crushed loan demand from firms and households,” said Neville Hill, co-head of consultants Hybrid Economics, adding that the latest figures showed inflation and domestic demand were likely to keep falling and suggested the ECB “has overtightened” on monetary policy.

Bank lending has dried up since the ECB raised its benchmark deposit rate to 4 per cent, the highest level in its history, from an all-time low of minus 0.5 per cent, in an effort to tame the biggest surge in inflation for a generation.

The breakdown of figures by the ECB on Tuesday showed eurozone household lending growth slowed to 0.3 per cent in the year to January, its weakest annual pace since 2015. Mortgage lending fell 0.1 per cent, the first decline for nine years. Corporate lending also slowed to 0.2 per cent.

After a slight pick-up in loan growth in the fourth quarter, some ECB policymakers had expressed concern that a rebound in bank lending could fuel a revival of inflation this year.

Isabel Schnabel, ECB executive board member, told the Financial Times this month that lower borrowing costs and increased lending could cause inflation to “flare up again”.

Andrzej Szczepaniak, an economist at Nomura, said the latest data should have “put paid” to that worry, adding: “Green shoots in the financial economy were decisively mowed down by the weak lending data.”

Melanie Debono, an economist at research group Pantheon Macroeconomics, said: “We expect growth to remain subdued in the first half of 2024, as a lagged response to the rise in interest rates over the course of last year and because lending standards remain tight.”

An earlier survey of banks by the ECB published last month showed they had continued to tighten lending standards in the final three months of 2023 and they expected to squeeze credit supply further at the start of this year. They also reported lower borrowing demand from households and businesses, but expected a small rebound at the start of 2024.

Bank deposits shrank €72bn between December and January, the biggest monthly drop in the history of the eurozone, reflecting a decline in low-yielding overnight deposits which was partly offset by growth in fixed-term deposits that offer higher rates.

Room rates look poised to rise as owners pass on escalating wage costs

Hotel owners have been on an epic hiring spree. Yet even after clawing back hundreds of thousands of jobs during the past two years, the industry is still light on staff and often struggling to adapt.

Daily housekeeping for all guests, room service and other amenities that were reduced or eliminated during the pandemic are still lacking at many properties.

At the same time, hotels across the U.S. have held their daily room rates near all-time highs this winter, in part to offset the increase in wages to lure workers back. Hotels will collectively pay $123 billion in compensation this year, up more than 20% from 2019, according to the American Hotel & Lodging Association.

Some hotel owners now fret that a guest backlash could be building as smaller staffs can compromise the level of service and higher wages threaten to push the cost of travel even higher.

“If we’re expecting empathy from consumers, we’re not going to get it,” said Bob Habeeb, chief executive officer of Maverick Hotels & Restaurants, which owns about two dozen hotels, mostly in Chicago and the Midwest.

Habeeb expects he will need to increase wages across his hotel portfolio by 10% this year—a cost that will be passed in part on to guests. “Consumers are going to have to pay more,” he said.

The leisure-and-hospitality category has bolstered U.S. hiring growth for much of the past two years. The industry’s appetite for even more workers could help sustain growth in the broader hiring market, said Nancy Vanden Houten, a lead U.S. economist at Oxford Economics.

The severity of hotel worker shortages when U.S. travel ramped up in 2021 has eased. But the industry is still below pandemic staffing levels. Employment in the accommodation sector is down 9% from early 2020, according to government data.

A number of reasons account for the lingering shortage. Workers are often hesitant to return to the hotel industry after the mass layoffs in 2020, said Chip Rogers, CEO of the American Hotel & Lodging Association. Many switched to other industries with big pay raises. Immigration laws are also capping the amount of seasonal workers the industry can hire.

The uneven recovery of travel is also to blame. Different workers are needed to cater to typical vacationers than are needed for big conferences or business travelers. Some hotels that staffed up for the rapid rebound of leisure travel still might not have the banquet staff needed for the return of conferences that is expected this year.

Now, the industry is experimenting with ways to reduce the need for workers, stirring more wariness among potential employees.

“Hoteliers figured out how to do more with less,” Rogers said. Many are leaning more on food-delivery apps than in-house kitchen staff and say they have made the housekeeping and check-in processes more efficient.

Hotel operators are also asking workers to do more. Employees doing laundry are helping strip beds at some hotels, and staffers at the front desk might also sling drinks at the bar when needed.

Not all hotel markets are suffering the same labor shortfall. Jenae Matthews, the area human-resources director for the Hard Rock Hotel in Daytona Beach, Fla., said the situation in Southern Florida is much improved from a few years ago.

Florida was among the first states to allow hotels to reopen in 2020, so the sector has had more time to revamp operations. Demand has come down over the past year, with more travelers returning to cruises and international travel. That has alleviated some of the pressure on staffing.

Still, Matthews has had to get creative about how the Hard Rock staffs certain positions. She said the hotel now encourages customers to order room service via QR code, rather than by calling a dedicated in-room dining attendant, a position that existed before the pandemic.

Across Atlanta-based Hospitality Ventures Management Group, which manages the Hard Rock Hotel Daytona Beach and more than 50 other hotels, openings are down to about 10% of total staff, said Sue Sanders, chief strategy and administrative officer.

Sanders said HVMG decided at the peak of the hiring challenges in 2021 to move its recruiting efforts to the corporate level, easing pressure on property managers and allowing more coordination. She said that initiative has reduced turnover and accelerated hiring when openings do occur.

The corporate team does regular market assessments to make sure its hotels are paying competitive wages. Wage increases have come down recently, she said.

Greg Miller and C. Patrick Scholes, analysts at investment bank Truist, said labor shortages and rising wages could be a key risk for hotels this year. Miller said unions in major markets, including San Francisco and parts of Hawaii, are set for contract negotiations this year and could secure big wage increases.

In markets where demand still hasn’t recovered to 2019 levels, lower occupancy means fewer tips for workers, making the job less desirable, Miller said.

HEI Hotels & Resorts, which manages dozens of hotels across the country, is keeping labor costs in check by moving more of its workers from contracted crews to in-house employees, Chief Operating Officer Rachel Moniz said. Many of its properties are also leaning more on technology, with some experimenting with virtual check-ins.

And while HEI’s hotels have brought back room service and daily housekeeping, those services have changed in ways that require less labor.

“The services are all back, but I think the way in which people expect them to be delivered is a little different,” Moniz said. “A lot of people are fine if you’re not necessarily doing a big formal fussy room service.”

Exxon says it could pre-emptively match the price Chevron offered Hess for its 30% stake in a booming oil prospect off Guyana’s coast

Chevron CVX -0.14%decrease; red down pointing triangle warned investors Monday that Exxon Mobil XOM 0.39%increase; green up pointing triangle and China’s Cnooc are asserting they have a right to pre-empt the company’s bid for a stake in a prolific oil project off Guyana, an emerging dispute that could derail Chevron’s megadeal for Hess HES 0.57%increase; green up pointing triangle.

Chevron said in a regulatory filing that Exxon and Cnooc say they have the right to counter Chevron’s offer for Hess’s stake in the Guyana project, which Exxon operates and is one of the largest oil finds in years. Chevron warned investors it may not complete its purchase of Hess “within the time frame the company anticipates or at all.”

Much of the value in Chevron’s $53 billion all-stock acquisition of Hess proposed last year was tied to the smaller New York oil company’s 30% stake in an Exxon-led drilling consortium in Guyanese waters. The partnership has expanded oil production far faster than most offshore oil projects and expects to pump over 1 million barrels a day in coming years.

The development is a potential blow to Chevron’s largest acquisition in years, though it isn’t clear if Exxon and Cnooc will make a counteroffer. At this point, they are only asserting their right to do so.

Chevron spokesman Braden Reddall said Chevron and Hess don’t believe a right-of-first refusal applies to the Hess deal. Chevron said the companies have engaged in “constructive discussions,” and though Chevron said the deal might fall apart, it believes the talks will “result in an outcome” that wouldn’t delay or prevent the deal.

“We are fully committed to the transaction,” Reddall said. “There is no possible scenario in which Exxon or CNOOC 883 0.24%increase; green up pointing triangle could acquire Hess’ interest in Guyana as a result of the Chevron-Hess transaction.”

If the talks fall apart, Chevron said in a regulatory filing, it or Hess could choose to have Hess’s Guyana subsidiary pursue arbitration. A Hess spokeswoman referred inquiries to Chevron, and Cnooc didn’t immediately respond to a request for comment.

The dispute boils down to the terms of a joint operating agreement, or JOA, signed more than a decade ago, which governs the consortium. Hess had entered the JOA in 2014 when it purchased its stake from Shell. Some JOAs allow existing partners, like Exxon, to participate in ownership changes, and pre-empt an offer for an ownership stake with an offer of their own.

Exxon spokeswoman Emily Mir said the conversations with Hess and Chevron are set to continue, and that the company is working with the Guyanese government on the matter.

“We owe it to our investors and partners to consider our pre-emption rights,” Mir said. Exxon is trying “to ensure we preserve our right to realize the significant value we’ve created” in Guyana. Exxon didn’t say whether it will make its own offer for Hess’s stake.

The exact terms of the JOA weren’t immediately clear, including whether pre-emption rights exist or whether Chevron or others would have the right to make another offer.

Exxon has a 45% share in the Guyana oil project and Cnooc owns the remaining 25%.

The clash with Exxon is a setback for Chevron Chief Executive Mike Wirth, who late last year disclosed delays and cost overruns for a massive oil project in Kazakhstan, as well as shareholder returns that have recently underperformed rival Exxon.

The California oil giant’s attempt to join the jungle-covered South American country’s oil boom has coincided with a retreat by the American oil majors to the Western Hemisphere as global conflicts abound. Exxon lost its stake in a major Russian project following the Ukraine war.

Exxon and Chevron have sold off billions of assets in Asia and Africa in recent years, underscoring the growing importance of the U.S. shale plays and South America. Chevron last year began pumping oil in Venezuela again as the Biden administration eased sanctions. It helped to restore production there to faster growth than the market anticipated. It also is investing in Argentina’s shale and is exploring for oil and gas off Suriname, near Guyana.

In recent months, Venezuela’s Nicholas Maduro has escalated its military presence near its border with Guyana, a country of 800,000 with little means of defense. Satellite images that became public this month showed light tanks, missile-equipped patrol boats and armored carriers near Venezuela’s border. Analysts said an invasion is unlikely.

Exxon has assumed the lion’s share of the risk in the Guyana project, drilling there for years before large amounts of oil were discovered. Exxon and its partners continue to drill for additional oil finds, and the project’s value could increase substantially. Exxon currently estimates the Guyana project to house nearly 11 billion barrels of oil and gas.

Exxon fired up a new Guyana offshore development in November, boosting output by 220,000 barrels a day to a record in the fourth quarter. The company is planning to have half-a-dozen oil projects pumping crude off Guyana by the end of 2027, with production climbing to about 1.2 million barrels a day.

Alleged head of Angels of Death cartel Ridouan Taghi convicted for ordering a string of assassinations

A key figure in the Dubai-based “super cartel” that supplied a third of Europe’s cocaine has been sentenced to life in prison by a Dutch court as international prosecutors close in on other drugs bosses still at large.

Ridouan Taghi, a Moroccan-born Dutch national who allegedly headed the “Angels of Death” cartel, was jailed for ordering a string of assassinations and belonging to a criminal organisation. The public prosecutor’s office described Taghi’s operation as a “well oiled killing machine”.

A court in Amsterdam on Tuesday sentenced Taghi — who had been the Netherlands’ most wanted man — and two other defendants to life in prison in the sensational Marengo trial, which shocked the liberal nation. Taghi was not present at the reading of the verdict, which can be appealed.

Taghi is also suspected of ordering three further murders during the trial, including of a top lawyer and a prominent journalist in the Netherlands, and pulling strings even from behind bars following his arrest in Dubai in 2019.

The United Arab Emirates has become a hub for powerful European traffickers and Taghi was a key player in the flow of drugs through the port of Rotterdam, which has made the Netherlands one of the bloc’s biggest markets and a growing production hub for synthetic drugs.

Taghi was extradited from Dubai in 2019, where key super cartel traffickers had lived opulent lifestyles believing themselves safe from capture.

His extradition paved the way for those of other top crime figures, including France’s convicted Moufide ‘Mouf’ Bouchibi, known as “The Ghost” and Raffaele Imperiale, an alleged Italian Camorra mafia boss who has turned state’s witness in Italy.

Europol in 2022 said it had smashed the heart of the super cartel’s command and logistics operations when it arrested 49 people in raids across Europe and in Dubai. Ireland’s Daniel Kinahan — considered by police and experts to be the biggest European drug boss still at large — is believed to be in hiding in the Gulf state, where he once partied with Taghi at the Irishman’s wedding in 2017.

The six-year trial put Taghi and 16 others in the dock — and the Netherlands’ reputation as a pivotal nexus in the European drug trade — firmly in the spotlight.

The trial began in 2018 with evidence from a suspected drug trafficker, identified by authorities as Nabil B, who became a crown witness in exchange for a reduced sentence of 10 years. Nabil’s lawyer and his brother were assassinated after he agreed to testify.

After his extradition, prosecutors believe Taghi pulled strings from jail to order the murder of Dutch crime journalist Peter de Vries in 2021, who had reportedly been in touch with the crown witness.

Two men have been convicted of killing the lawyer, and a verdict in the De Vries case is expected in summer.

Proceedings in the Marengo trial were further thrown into disarray last year when Taghi’s defence lawyer Inez Weski was arrested on suspicion of belonging to Taghi’s criminal organisation. Weski was said to have passed on sensitive information from Taghi to outside contacts while he was in confinement. She has previously called the allegation incorrect and is awaiting trial.

Taghi’s conviction comes as Irish prosecutors seek the extradition of Kinahan, who is under US sanctions and has a $5mn bounty on his head.

The Director of Public Prosecutions in Dublin has been reviewing a police file for several months on potential charges Kinahan could face. Dubai police visited Dublin in October last year to discuss co-operation, following a visit by Irish police to Dubai.

Earlier this month, Irish police seized a haul of crystal meth worth an estimated €33mn, exposing alleged links between Kinahan’s group and Mexico’s notorious Sinaloa cartel.

China’s BYD has announced discounts that put prices below that of gas-powered equivalents built by some foreign competitors

Competition in China’s car market is getting even more intense. That means cheaper Chinese electric vehicles. It is also terrible news for China’s competitors abroad.

As margins compress at home, China’s EV makers are increasingly eyeing global markets. And Western and Japanese automakers’ traditional strength in gasoline-powered vehicles won’t necessarily save them: BYD, China’s homegrown EV champion, is starting to undercut the prices of some internal combustion engine-based vehicles too.

The price war in the Chinese auto market that began in late 2022 shows no signs of stopping. BYD, which overtook Tesla in EV sales last quarter, dropped another bomb last week—cutting prices of some models by more than 10%. Its Qin Plus DM-i sedan now starts at the equivalent of $11,090—cheaper than some equivalent gasoline-powered cars from brands like Volkswagen and Toyota.

BYD advertised its price cut with the slogan “Bi You Di,” which means “cheaper than gasoline” in Chinese, but is also a play on its name, which stands for Build Your Dreams. The models in question are plug-in hybrids, which are usually cheaper than pure EVs due to smaller batteries. But the gambit is still significant because they are now explicitly competing with gas-powered cars head on. BYD’s move has already forced other automakers to follow suit—both foreign and domestic.

After years of explosive growth—one in three cars sold in China is now an EV—the market is starting to slow. In January, sales of new energy vehicles including plug-in hybrids fell 39% from the previous month—although that still marks a 79% increase from a year earlier, according to the China Association of Automobile Manufacturers. BYD reported a 44% month-on-month drop in car sales in January.

Some of the weaker players likely won’t survive: There are still far too many carmakers in China. Nomura says there are 180 auto brands in China. It expects two-thirds of those to eventually disappear.

Price cuts will also eat into margins, even for BYD. But falling raw material prices could help soften the blow. Goldman Sachs estimates that BYD’s battery cost could decline by 22% in 2024. Foreign carmakers, which dominated China’s internal combustion engine-based car market, will also need to grin and bear the hit to margins if they want to stay in the world’s largest automobile market.

BYD will probably seek other ways to shore up its margins, including selling more premium models and shipping more cars abroad. Around 77% of BYD’s revenue came from selling mass-market cars in China last year, according to Goldman Sachs. The bank expects that share to drop to 64% this year, and exports to rise to 16%—from 12% in 2023. The domestic premium segment will make up the rest.

January sales already contain possible hints of things to come. BYD’s export volumes in January were flat from the previous month, in contrast to the sharp fall in domestic shipments. Exports made up 18% of its car sales last month, compared with just 7% a year earlier.

China became the world’s largest auto exporter last year. Shipping gas-powered cars to Russia, which is under Western sanctions, was one key reason. But strong EV exports to countries like Brazil and Thailand also helped.

As Chinese EV makers find their domestic market growing tougher, they will set their sights abroad. BYD, especially, is dreaming big. That could become a nightmare for foreign competitors: not just for their EV businesses, but their legacy gas-powered ones too.

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