Essequibo referendum: Is Venezuela about to seize part of Guyana?

Venezuelan President Nicolas Maduro is organising a referendum on Sunday to decide whether to create a new state in the Essequibo territory, an area currently under the control of neighbouring Guyana. Does Caracas have the means for its territorial ambitions, or is it just political grandstanding?

On December 3, Venezuelans vote for or against the creation of a new Venezuelan state in the Essequibo region. In the eyes of Venezuelan authorities, it is a “consultative” referendum designed to put an end to over 200 years of territorial conflict. 

However, there is one big problem: the land Venezuela wants to potentially extend control over is recognised by the international community as a part of neighbouring Guyana – a sparsely populated country with some 800,000 inhabitants.

The issue has become an obsession for populist President Nicolas Maduro, who often repeats the phrase “El Essequibo es Nuestro” [The Essequibo is ours] in his speeches.

Among four other questions, the referendum asks citizens whether they favour “the creation of the Essequibo state and the development of an accelerated plan for comprehensive care for the current and future population of that territory”.

The outcome of the vote is hardly in doubt according to French daily Le Monde, which reported Thursday that the referendum “will take place without observers” and that no one dared to campaign for the “no” vote.

This situation is causing concern for Guyana’s leaders. Caracas is threatening to deprive its eastern neighbour of more than half of its territory and to make the approximately 200,000 inhabitants of Essequibo Venezuelan citizens.

“The long-term consequences of this referendum could be Venezuela’s de facto annexation of a region which covers 160,000 square kilometers, a significant portion of Guyana [215,000 km²],” says Annette Idler, associate professor at the Blavatnik School of Government at the University of Oxford and a specialist in international security.

On top of significant gold, diamond, and aluminium deposits, the Essequibo has become an offshore paradise for oil and gas interests. Since Exxon discovered hydrocarbon deposits off the coast, black gold has given an unprecedented boost to the economy, raising Guyana’s GDP by no less than 62 percent in 2022.

© Guillermo Rivas Pachecor, Paz Pizarro, Jean-Michel Corbu, Patricio Arana, AFP

Writing in 2015, an American specialist in Latin America, Jose de Arimateia da Cruz, argued the discovery of these underwater oil reserves “strengthened Venezuela’s determination to support its territorial claims on this region”.

The Venezuelan government has been particularly angered by Exxon’s choice to negotiate exclusively with the Guyanese government, suggesting that the US oil giant recognised Guyana’s sovereignty over these waters and the Essequibo region.

A territorial dispute dating back to 1811

The territorial dispute over Essequibo dates back to the colonial era. In 1811, when Venezuela proclaimed its independence, it believed the region was part of its territory. Despite the claims, the United Kingdom, which occupied the territory of present-day Guyana, placed the region under the authority of the British crown. In 1899, an arbitration court ruled in favour of the UK, even though the United States had supported Caracas.

The dispute resurfaced in 1966 when Guyana gained independence. The Geneva Agreement, signed by the UK, Venezuela, and British Guiana, urged countries to agree to a peaceful resolution through dialogue, but Guyana has since sought a resolution through the International Court of Justice (ICJ) – a procedure which Venezuela rejects. 

If the Venezuelan government is pushing for a referendum now, it is partly “because the International Court of Justice declared itself competent in April to settle the dispute”, says Idler.

Maduro does not want to recognise the ruling of the ICJ – a branch of the UN with nonbinding legal authority. He even called on United Nations Secretary-General Antonio Guterres to mediate between Venezuela and Guyana.

Venezuela's President Nicolas Maduro casts his vote during a consultative referendum on Venezuelan sovereignty over the Esquiba region controlled by neighbouring Guyana, in Caracas on December 3, 2023
Venezuela’s President Nicolas Maduro casts his vote during a consultative referendum on Venezuelan sovereignty over the Essequibo region, controlled by neighbouring Guyana, in Caracas on December 3, 2023. © Venezuelan Presidency via AFP

There is also – perhaps most importantly – a domestic political element to the referendum. “We must not forget that the presidential election takes place in a year, and Nicolas Maduro is trying to rally support around him by playing to the national sentiment of voters,” explains Idler.

By presenting himself as the champion of nationalism, “he puts the opposition in a delicate position”, she adds. What’s more, “some observers believe he could escalate the situation with Guyana to declare a state of emergency and cancel the presidential election if necessary”.

Faced with the Venezuelan threat, Guyana is relying heavily on international law. A case was referred to the ICJ on October 3 to prevent Caracas from proceeding with its referendum. 

On Friday, the ICJ called on Caracas to take no action that would modify the disputed lands – but it did not mention the referendum.

Is Maduro bluffing?

The risk is that Venezuela may want to take advantage of international attention being focused on two major conflicts in Ukraine and Gaza. Venezuelan troops are already on the border with Guyana “carrying out anti-illegal mining activities”, reports the Financial Times.

If Venezuela were to genuinely attempt to annex Essequibo, “it could destabilise the entire region”, says Idler. Countries like Brazil or Uruguay could be forced to choose sides in this territorial conflict.

But the annexation threat could also be a bluff. Venezuela may not have the means to seize the territory, says Idler. “The authorities exercise limited control over the border regions from where Caracas would need to launch troops to take possession of this region.”

Venezuela’s president knows that such a move would prompt the United States to reimpose the sanctions that Washington has just lifted on oil exports, says Idler. Economically very fragile, Venezuela may think twice before taking such a risk.

Regardless of how the roughly 20 million eligible Venezuelans vote, little will change in the short term – the people of Essequibo are not voting, and the referendum is nonbinding.

Either way, says Idler, Maduro can hardly afford to act on his nationalist impulse.

“He will then have to choose between discrediting himself in the eyes of voters and facing new American sanctions.”

This article was translated from the original in French.

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The ultimate work perk? This company provides a free place to stay in Spain

Some workers go to great lengths to hide hush trips from their bosses.

But employees of the Polish company PhotoAid needn’t bother.

The company, which helps travelers take their own passport photos at home, allows its employees to stay at an apartment in Spain for free — provided they work while they’re there.

The apartment is in Tenerife, the largest of Spain’s Canary Islands, an archipelago west of Morocco. Employees can stay up to three weeks at a time and can visit as many times in year as they like, depending on demand from other employees.

The company reimburses half of employees’ airfare too, up to 1,000 Polish zlotys ($246), once a year. Flights from Warsaw to Tenerife can start at around $150 for a six-hour direct flight.

Employees can stay up to three weeks at a time at the Tenerife apartment and can visit as many times as they like.

Source: PhotoAid

The company started renting the apartment in Tenerife’s capital, Santa Cruz de Tenerife, in the summer of 2022 as a way to create relationships and build morale among its employees, all of whom work remotely, said co-founder Rafal Mlodzki.

Plus, Mlodzki said he and the other co-founders, Marcin and Tomasz Mlodzki — who are also his brothers — wanted to offer a company perk that would stand out.  

How the ‘workcations’ work

PhotoAid is a small company with a young workforce, so most employees don’t have children, said Mlodzki. But those who do tend to group together and use the benefit in the summer months when schools are closed.

Employees can request to bring their partners too, which the company reviews on a case-by-case basis, he said.  

Employees must abide by several rules, he said, such as the check-in and check-out protocol. Employees must upload a photo of the apartment on arrival, then do the same on departure to show the next group of employees how they left it.

Workcation time spent in Tenerife doesn’t count as employee vacation time, which is up to 26 days a year, said PhotoAid co-founder Rafal Mlodzki.

Source: PhotoAid

On arrival, employees are assigned a cleaning task too, but the company hires a professional cleaner for deep cleans, he said. While drinking wine on the balcony and chatting into the night are regular occurrences, employees are not allowed to drink during work hours, he said.   

Mlodzki told CNBC Travel that employees like to visit Tenerife with coworkers with shared interests. For example, a recent group played sports in their free time, while another group went to music concerts.

‘The best onboarding in the world’

Around 50 of PhotoAid’s 143 employees have now stayed at the Tenerife apartment, many meeting their teammates in person for the first time during their stays. Around 10 were onboarded as new starters there too, said Mlodzki.

“One of the reasons we decided to open this office was the possibility of offering the best onboarding in the world for senior team members. Those onboarded are not only thrilled but also deeply understand the company and their role in it,” said Mlodzki.

Coworkers with shared interests — such as sports and music — travel to Tenerife together.

Source: PhotoAid

“Often, spontaneous moments occur. For example, after a series of 45-minute sets with 10-minute breaks, we might go on a mini mountain trip and continue onboarding informally. It might even transition into an evening on the terrace.

“We just onboarded our new chief operating officer during a workation in Tenerife, and he was deeply impressed. He had never experienced an onboarding like this before.”

Two senior leaders have scheduled a strategic planning and brainstorming session at the apartment this winter, where average temperatures in January are 68 degrees Fahrenheit, higher than 34 F in the Polish capital of Warsaw.

The apartment

The 3,200-square-foot apartment overlooks the port of Santa Cruz de Tenerife. It has three bedrooms, a spacious lounge with board games, two balconies and a small gym. There are also eight workspaces with high-speed internet, computer monitors and ergonomic chairs.

The apartment has eight workspaces with high-speed internet, computer monitors and ergonomic chairs.

Source: PhotoAid

There’s a bakery next door for fresh bread, with restaurants, bars, wineries, and vermuterias (bars specializing in Spanish vermouth) nearby.

Workation as a ‘wow’ factor

When she was interviewing, Aleksandra Staromiejska said the Tenerife benefit made PhotoAid stand out. Now a company digital public relations specialist, she stayed in the apartment for two weeks in May, along with a colleague from her team. 

Aleksandra Staromiejska started her work days early to maximize her time at the beach, she said.

Source: Aleksandra Staromiejska

She started and finished her work early, she said, to spend as much time as possible at the beach, a 20-minute bus ride away. Over the weekend, she and her colleague went hiking in Macizo de Anaga (Anaga mountains).

“I noticed my productivity levels were higher,” said Staromiejska. “I really wanted to do my job quickly so I could finish my work day and have time to go to the beach.”

Vacations to Spain’s Canary Islands are popular with employees of PhotoAid, a company based in the much colder city of Warsaw, Poland.

Source: PhotoAid

“It was actually a very relaxing trip. Just being in nature is something else. My batteries were just charged up,” she said.

The Spanish apartment is often mentioned in employee satisfaction surveys, said Mlodzki.

“When we recruit, it’s an attractive benefit that candidates always react positively to.”

A vacay with the boss?

Enamored by the culture and scenery, Mlodzki said he spends half his time in Warsaw and half his time in Tenerife, staying in the master bedroom at PhotoAid’s apartment. 

Mlodzki acknowledged that some people might feel nervous about spending so much time with their boss. (Indeed, Staromiejska admitted she did before her workation.) But he said it’s great for rapport.

“It’s super interesting for me to get to know more people. To give and get feedback is very enriching for me,” he said.

Rafal Mlodzki, Aleksandra Staromiejska and Michel Jonca. “It’s super interesting for me to get to know more people,” said co-founder Mlodzki.

Source: PhotoAid

From leasing the apartment to paying for employees’ flights, Mlodzki said the investment has been worth it.

 “We think about the Tenerife office as the ‘company charger’ with the goal of reenergizing employees and boosting team spirits that can get depleted by remote work.”

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‘El Loco’ at the helm: What next for Argentina under outsider president Javier Milei?

A former TV personality-turned political maverick, Argentina’s president-elect Javier Milei has promised no half-measures as he bids to make his stricken country “great again”. Riding a wave of anti-establishment rage, the far-right outsider known for his foul-mouthed outbursts will have no time to bask in his stunning victory as he inherits an economy mired in crisis, with no experience and few allies to implement his radical agenda for change.

For years, Argentina’s discredited ruling class has been sitting on a powder keg, unable to lift the country out of a seemingly intractable crisis that has sowed anger and despair in South America’s second-largest economy.

On Sunday, the long-simmering anger boiled over, carrying to power a chainsaw-wielding political outsider who has promised to “blow up” the system and whose own supporters call him “El Loco” (the madman).

Milei, a former economist and TV pundit with almost no political experience, has surged to power on a wave of anger over decades of economic mismanagement. He has vowed to “put an end to the parasitic, stupid, useless political caste that is sinking” a country crippled by triple-digit inflation, where the poverty rate has reached 40%.

The self-styled “anarcho-capitalist” handily defeated his Peronist opponent, Finance Minister Sergio Massa, in a runoff election on Sunday – defying forecasts of a close race in a contest analysts had described as a tussle between two deeply flawed candidates.

“Argentinians were forced to choose between two very unappealing options,” said Benjamin Gedan, head of the Washington-based Wilson Center’s Latin America Program and director of its Argentina Project. He cautioned against reading the result as a wholehearted endorsement of Milei’s personality or agenda.


“On one side, you had the current finance minister who has presided over an utterly failing economy,” Gedan explained. “On the other, a very radical outsider figure who offered something extraordinarily different: who wants to dolarise the economy, close the central bank, liberalise gun ownership and the sale of organs, a quirky individual who has cloned his dog and claims his pets are his senior advisers.”

Trump, Bolsonaro – and Wolverine

Milei’s astonishing rise to power is a measure of the frustration of Argentinian voters, laying bare the depth of resentment at the ruling class and the country’s state of affairs. It is also a product of television channels plugging provocative talking heads to boost their ratings, mirroring the rise of extremist pundits-turned politicians elsewhere.

Read morePushing far-right agenda, French news networks shape election debate

Argentina’s next president made his name by furiously denouncing the “political caste” on television programmes, while also rambling on about inflation and his sex life. His anti-establishment rage resonated with Argentinians yearning for change, while his dishevelled mop of hair – inspired by X-Men anti-hero Wolverine – and profanity-laden rhetoric only contributed to his notoriety.

Two years ago, Milei’s rising television stardom helped him secure a lawmaker seat in Argentina’s lower house of Congress. He was seen as a very long shot for the presidency only months ago – until he scored the most votes in August primary elections, upending the political landscape.

Before entering the public spotlight, Milei was chief economist at Corporación America, one of Argentina’s largest business conglomerates that runs most of the country’s airports. His flagship economic policies include “dollarising” the economy by 2025 to halt the “cancer of inflation”, meaning he would drop the peso – Argentina’s battered currency – and thereby relinquish control over monetary policy.

Milei has cast himself as a fierce adversary of the state, which he accuses of curtailing people’s freedoms and emptying their pockets. At campaign rallies he often appeared on stage revving a chainsaw to symbolically cut the state down to size. He has vowed to slash public spending by 15%, privatise state companies and reduce subsidies on fuel, transport and electricity.

The president-elect, who is due to take office on December 10, started to outline some of his planned policies in a radio interview on Monday morning, saying would quickly move forward with plans to privatise state-run media outlets that gave him negative coverage during the campaign, describing them as “a covert ministry of propaganda”.

“Everything that can be in the hands of the private sector will be in the hands of the private sector,” he told Bueno Aires station Radio Mitre, adding that the state-controlled energy firm YPF would be revamped so it can be “sold in a very, very, very beneficial way for Argentines”.

Javier Milei brandishes a chainsaw at a campaign event in La Plata on September 12, 2023.
Javier Milei brandishes a chainsaw at a campaign event in La Plata on September 12, 2023. © Natacha Pisarenko, AP

An admirer of former US president Donald Trump, Milei has likewise embraced his maverick status, commanding unrivalled attention throughout the campaign with his provocative statements. He has not shied away from lashing at revered compatriots, including Pope Francis, whom he branded an “imbecile” for defending social justice.

It is no surprise that he has adapted Trump’s best known slogan, promising to “Make Argentina Great Again”.

Like Trump and his Brazilian ally Jair Bolsonaro, Milei has appealed to the conservative vote by promising a crusade against progressive politics. He has described sex education as a Marxist plot to destroy the traditional family unit and has proposed a plebiscite to repeal abortion, which Argentina legalised in 2020. He also rejects the notion humans have a role in causing climate change.

All of this is “very worrying not only for women, but for minorities in general, because Milei is waging the same cultural wars that the far right is waging elsewhere”, said Juan-Pablo Ferrero, a senior lecturer in Latin American politics at the University of Bath.

“He is also rolling back on the human rights agenda that has gained Argentina international recognition” since the transition to democracy, Ferrero added. “Minorities will have to resist his moves in parliament and on the streets.”

Taking another page from the Trump and Bolsonaro playbooks, Milei also made unfounded claims of election fraud before Sunday’s runoff, raising concern about his respect for democratic norms. His victory also means the rise of Victoria Villaruel, his controversial running mate who has minimised the number of victims of Argentina’s brutal 1976-1983 dictatorship.

A ‘stress test’ for Argentinian democracy

In the run-up to the vote, Massa and his allies had warned Argentinians that Milei’s plans would sharply curtail hard-won rights and the public services and welfare programs many rely on. Their margin of defeat suggests the strategy – which Milei had dismissed as a “campaign of fear” – may ultimately have backfired.

“Despite Milei, despite all his campaign mistakes, despite all his peculiarities that raise doubts, concerns (…) despite all of that, the demand for change prevailed,” Lucas Romero, the head of Synopsis, a local political consulting firm, told the Associated Press.

Having cast himself as the “only solution” to Argentina’s woes, Milei will have little time to bask in his victory. Even before his election, analysts had already shed doubt on the feasibility of many of his campaign pledges, starting with his much-touted “dolarizacion”.

Ditching the peso in favour of the dollar requires a hefty stock of greenbacks, and the International Monetary Fund (IMF) has warned that Argentina’s dollar reserves are dangerously low. Analysts have flagged the risk of a run on the peso as people panic believing dollarisation is imminent.

“Milei is someone who promises big new ideas but maybe too big and maybe not feasible,” said Gedan, noting that the president-elect has no parliamentary majority to back him and even less of a foothold in local government. “It’s far from clear he can implement his agenda, given his fledgling party, his few allies in Congress, the small and inexperienced group that surrounds him, and the fact that he controls none of the country’s provinces,” he added.

Milei’s Liberty Advances party counts just seven seats out of 72 in the Senate and 38 out of 257 in the lower Chamber of Deputies. He will be hoping to win support from the mainstream right of former president Maurico Macri, which threw its electoral weight behind him ahead of Sunday’s runoff in a bid to ensure defeat for the incumbent Peronist camp.

“It remains to be seen whether this electoral support will translate into a political agreement,” said FRANCE 24’s Argentina expert David Gormezano. “Will some of Macri’s circle join the government? Will conservative lawmakers offer their support? It’s too early to know.”

The lure of power, and a common detestation of Peronism, could be enough of an incentive.

“One can imagine the conservative camp going a long way to back Milei, including in some of his excesses, in order to get their revenge over the Peronist camp,” Gormezano added, though noting that Milei would still be short of a majority in Congress even with conservative support.

According to Ferrero, Milei’s election signals the “biggest stress test” for Argentina’s democracy since the end of military rule. Under the country’s constitution, “presidents have the power to rule by decree in exceptional circumstances – but that tests the system,” he explained. “We will see to what extent he makes use of those powers.”

There will be plenty of scrutiny of Milei’s first steps on the international stage, too. The Argentinian provocateur has already raised alarm bells in a number of Latin American countries and said he would seek to reduce trade with China, Argentina’s second-biggest trading partner after Brazil.

While Trump and Bolsonaro were quick to hail the election result on Sunday, neither is currently in power. The centre-left leaders of Argentina’s two largest neighbours, Brazil and Chile, have been noticeably more guarded in their response.

Brazil’s President Luis Inacio Lula da Silva on Sunday extended his best wishes to the newly elected president, but did not make direct mention of Milei. He had previously expressed his hope that Argentinian voters would choose a president who supports democracy and the Mercosur trading bloc – which Milei has suggested Argentina should leave.

Milei has criticised Brazil’s president multiple times and labelled him an “angry communist” with a “totalitarian” bent. On Monday, a close Lula aide said Argentina’s president-elect must apologise to the Brazilian leader before talks between the two can be organised.

“He freely offended President Lula,” Social Communications Minister Paulo Pimenta told reporters. “It’s up to Milei, as president-elect, to call and apologise.”

Whether at home or on the international stage, Argentina will be sailing through uncharted – and choppy – waters with “El Loco” at the helm.

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Establishment insider or political provocateur? Argentina faces stark presidential choice

Amid skyrocketing poverty and inflation, Argentinians face a stark choice on Sunday between two wildly different presidential candidates. Libertarian Javier Milei has led a disruptive campaign that has galvanised voters and won support from a faction of the traditional far-right. But a shock first-round victory for current Economy Minister Sergio Massa has set the scene for a down-to-the wire race in the final round of voting on Sunday.

As the results for the first round of voting were announced on October 22, cheers and hugs broke out in the campaign headquarters for government minister Massa.

Two months earlier Massa – who has overseen triple-digit inflation in Argentina – had achieved a mediocre result in the open primaries, which determined the first-round candidates. The economy minister brought in 27.3 percent of the vote, placing him third behind the leader of the far-right coalition Patricia Bullrich (28 percent) and first-round victor, political outsider and self-proclaimed “anarcho-capitalist” Milei (30 percent).

But, weeks later, the tables had turned dramatically. Massa, representing Union for the Homeland (UP), defied the polls and stormed to a spectacular first-round victory with 36 percent of the vote, pushing Milei into second place with 29.9 percent, and third-place Bullrich out of the race.

The return of Peronism

Political magazine Nueva Sociedad said the 51-year-old’s victory was a form of protest against his main opponent, writing “in the face of Javier Milei’s chaotic utopia, support for Massa ended up being a sort of defensive vote by a section of society”.

While Milei’s campaign was characterised by fiery outbursts and stunts such as wielding a chainsaw onstage, “Massa emerged as ‘the adult in the room’”, it said, “position[ing] himself as the only politician capable of managing the Argentine state. In short, he donned the suit that suits him best: that of a pragmatic politician”.

With an unexpected leap from 27.3 percent of the vote to 36 percent in just two months, Massa seems to have succeeded in convincing Argentinians worn out with incessant inflation that a Milei victory would mean a dangerous leap into the unknown both economically and democratically.

Positioning himself as the first line of defence against an opponent who wants to ditch the peso for the US dollar, privatise health and schooling and make it easier to buy guns and human organs has been no easy feat for Massa.

As the current economy minister, he is a figurehead for the unpopular outgoing administration, which has left Argentina in dire financial straits with poverty rates soaring and inflation jumping 143 percent.

Argentine congressman and presidential pre-candidate for La Libertad Avanza Alliance, Javier Milei (left) and and Argentine Economy Minister and presidential pre-candidate for the Union por la Patria party, Sergio Massa (right). © Alejandro Pagni, Luis Robayo, AFP

Crushing the right

Massa’s victory has also thrown Argentina’s political right into chaos.

Three days after being eliminated in the first-round vote, Bullrich, from center-right coalition Together for Change (JC), threw her support behind outsider Milei, urged on by former centre-right president Mauricio Macri.

“Javier Milei and I had our differences, that’s why we ran against each other,” she told the press. “However, we are faced with a dilemma: change or continue with mafia-style governance in Argentina. We must put an end to … the domination of corrupt populism which has led Argentina towards total decadence [of the Peronist government]. We have an obligation to not remain neutral.” 

In doing so, Bullrich, who formerly held the post of security minister, also re-endorsed one of the pillars of her own campaign: the “eradication” of Peronism, an Argentine political ideology embodied by the current government, including deeply unpopular vice-president and Massa supporter Christina Fernandez de Kirchner.

That evening, former rivals Bullrich and Milei shared a warm exchange on a television programme, while social media showed images of Milei as a lion holding Bullrich, depicted as a goose, in his clutches.

But other figures on the political right refused to follow Bullrich in endorsing Milei and accused ex-president Macri of having played into the far-right populist’s hands throughout the campaign.

Gerardo Morales, president of the Radical Civic Union (UCR) party, a longstanding part of the coalition on the right, called Milei a “puppet”, “emotionally unbalanced” and “a very dangerous figure for Argentine democracy”.

The implosion of the political right and the spectacular rise of Massa has redrawn the political landscape in Argentina and left its political class facing difficult questions.

Milei has denounced the right as a “parasitic political caste” – if it’s politicians were now to endorse the outsider candidate, would it help or harm his campaign?

“The problem of support is that it contributes to the dislocation, or at least the toning down, of Milei’s anti-system rhetoric,” said Gaspard Estrada, executive director of Sciences Po’s Political Observatory of Latin America and the Caribbean (OPALC).

“Before the first round, Milei criticised the political class,” he said. “The fact that, from one day to the next, he made an alliance with an establishment figure will dilute the strength of his message.”

But at the same time, there is “a real desire for change and to turn the tables” among Argentine voters, said FRANCE 24’s correspondent on the ground Mathilde Guillaume.

“Most poor workers that we have been speaking to in working-class neighbourhoods want to see change and Javier Milei has managed to channel that desire,” she said. “Support from Mauricio Macri, who is a favourite among the establishment, gives [Milei] a sheen of respectability and increases his chances of being elected.”

Controversy vs national pride?

Even so, the desire for change at any cost that many in Argentina are feeling often clashes with Milei’s radical ideology.

During a debate held between two rounds of voting the provocative candidate had warm words for an old Argentine adversary, ex-Prime Minister Margaret Thatcher, who led Britain during the Falklands War.

Thatcher was “a great leader in the history of humanity,” Milei said.

Directly to Massa he added, “Thatcher had a significant role in the fall of the Berlin Wall and it seems that its fall and the crushing of the left bothers you. That’s your problem.”

“Yesterday, today and forever, Thatcher is an enemy of Argentina,” came Massa’s stinging response, reaffirming Argentine sovereignty of the Falklands, which Argentina claims as Islas Malvinas, and honouring the memory of the soldiers who lost their lives in the 1982 conflict.

Argentinian presidential candidates Sergio Massa and Javier Milei take part in a debate in Buenos Aires, Argentina on November 12, 2013.
Argentinian presidential candidates Sergio Massa and Javier Milei take part in a debate in Buenos Aires, Argentina on November 12, 2013. © Reuters Luis Robayo

Falklands war veterans have strongly criticised Milei’s proposals to open negotiations with the British government to bring the chain of South Atlantic islands back under Argentine jurisdiction.

Massa has also played on another source of national pride during his campaign, saying that he would be in favour of a visit to Argentina by Pope Francis, who was born in Buenos Aires.

In doing so Massa has made a direct appeal for the Catholic vote and further differentiated himself from Milei, who shocked some supporters when he said the Catholic leader was “representative of the evil one on Earth” and an “imbecile who defends social justice”.

If taking a provocative stance on Thatcher and the Pope may have harmed Milei’s standing with voters, his running mate, Victoria Villaruel, has done little to calm their fears.

As Argentina celebrates 40 years of democracy this year, Villaruel has been a staunch defender of military personnel convicted of active participation in the the country’s military dictatorship from 1976-1982.

Villaruel, a colonel’s daughter, is a long-term advocate of the “two demons theory”, which blames both the revolutionary left and the military dictatorship for political violence committed in the 1970s.

During a debate between the two vice-presidential candidates, Villaruel contested the widely accepted estimate that 30,000 people were disappeared by the military during the dictatorship as “a lie” propagated by the left.

The 2005 annulment of Argentina’s amnesty laws, which had previously blocked the prosecutions of crimes committed under the country’s military dictatorship, has never been called into question.

Read moreMy father, the war criminal: Children of Argentina’s dictatorship grapple with dark past

Villaruel’s adversary Agustín Rossi accused her of trying to destabilise Argentinian politics by “breaking the democratic pact that all political forces had concluded”.

But imprisoned military personnel convicted of crimes against humanity have expressed public support for the Milei-Villaruel ticket.

Change or continuity?

On Sunday, Argentina will make its choice between a libertarian provocateur with outlandish solutions to its economic crisis or a member of the political establishment who symbolises painful economic realities.

So far, opinion polls show Massa and Milei are neck-and-neck in a presidential race that is too close to call.

Awareness that Milei is using tactics similar to successful populists such as former US President Donald Trump and former Brazilian leader Jair Bolsonaro is no guarantee that Arentina “will avoid an extreme right government,” said Argentine historian Ezequiel Adamovsky.

It is extreme economic distress – for which Massa as minister for the economy holds responsibility – that has pushed Argentina to embrace Milei as an outsider candidate.

And it is Milei who has created a seemingly formidable opponent out of an unpopular establishment figure.

“Sergio Massa has not found himself in this position [of winning the first round] because of his own merits as a candidate, and even less so because of the merits of the government, but because of the enemy he faces,” said Adamovsky. “It takes two to tango, as the old proverb goes.”

This article has been adapted from the original in French.

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UBS sees a raft of Fed rate cuts next year on the back of a U.S. recession

U.S. Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, U.S, September 20, 2023.

Evelyn Hockstein | Reuters

UBS expects the U.S. Federal Reserve to cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world’s largest economy tips into recession.

In its 2024-2026 outlook for the U.S. economy, published Monday, the Swiss bank said despite economic resilience through 2023, many of the same headwinds and risks remain. Meanwhile, the bank’s economists suggested that “fewer of the supports for growth that enabled 2023 to overcome those obstacles will continue in 2024.”

UBS expects disinflation and rising unemployment to weaken economic output in 2024, leading the Federal Open Market Committee to cut rates “first to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to stem the economic weakening.”

Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%.

The central bank has since held at that level, prompting markets to mostly conclude that rates have peaked, and to begin speculating on the timing and scale of future cuts.

However, Fed Chairman Jerome Powell said last week that he was “not confident” the FOMC had yet done enough to return inflation sustainably to its 2% target.

UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter. However, yields have risen and stock markets have come under pressure since the September FOMC meeting. The bank believes this has renewed growth concerns and shows the economy is “not out of the woods yet.”

“The expansion bears the increasing weight of higher interest rates. Credit and lending standards appear to be tightening beyond simply repricing. Labor market income keeps being revised lower, on net, over time,” UBS highlighted.

“According to our estimates, spending in the economy looks elevated relative to income, pushed up by fiscal stimulus and maintained at that level by excess savings.”

The bank estimates that the upward pressure on growth from fiscal impetus in 2023 will fade next year, while household savings are “thinning out” and balance sheets look less robust.

“Furthermore, if the economy does not slow substantially, we doubt the FOMC restores price stability. 2023 outperformed because many of these risks failed to materialize. However, that does not mean they have been eliminated,” UBS said.

U.S. Treasury yield curve will likely continue to steepen, analyst says

“In our view, the private sector looks less insulated from the FOMC’s rate hikes next year. Looking ahead, we expect substantially slower growth in 2024, a rising unemployment rate, and meaningful reductions in the federal funds rate, with the target range ending the year between 2.50% and 2.75%.”

UBS expects the economy to contract by half a percentage point in the middle of next year, with annual GDP growth dropping to just 0.3% in 2024 and unemployment rising to nearly 5% by the end of the year.

“With that added disinflationary impulse, we expect monetary policy easing next year to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025. We forecast some slowing in 2026, in part due to projected fiscal consolidation,” the bank’s economists said.

Worst credit impulse since the financial crisis

Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are “much worse now than 12 months ago,” particularly in the form of the “historically large” amount of credit that is being withdrawn from the U.S. economy.

“The credit impulse is now at its worst level since the global financial crisis — we think we’re seeing that in the data. You’ve got margin compression in the U.S. which is a good precursor to layoffs, so U.S. margins are under more pressure for the economy as a whole than in Europe, for instance, which is surprising,” he told CNBC’s Joumanna Bercetche on the sidelines of the UBS European Conference.

Signs of a recession may be on the horizon, says fmr. Fed economist Claudia Sahm

Meanwhile, private payrolls ex-health care are growing at close to zero and some of the 2023 fiscal stimulus is rolling off, Kapteyn noted, also reiterating the “massive gap” between real incomes and spending that means there is “much more scope for that spending to fall down towards those income levels.”

“The counter that people then have is they say ‘well why are income levels not going up, because inflation is falling, real disposable incomes should be improving?’ But in the U.S., debt service for households is now increasing faster than real income growth, so we basically think there is enough there to have a few negative quarters mid-next year,” Kapteyn argued.

A recession is characterized in many economies as two consecutive quarters of contraction in real GDP. In the U.S., the National Bureau of Economic Research Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” This takes into account a holistic assessment of the labor market, consumer and business spending, industrial production, and incomes.

Goldman ‘pretty confident’ in the U.S. growth outlook

The UBS outlook on both rates and growth is well below the market consensus. Goldman Sachs projects the U.S. economy will expand by 2.1% in 2024, outpacing other developed markets.

Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, told CNBC on Monday that the Wall Street giant was “pretty confident” in the U.S. growth outlook.

“Real income growth looks to be pretty firm and we think that will continue to be the case. The global industrial cycle which was going through a pretty soft patch this year, we think, is showing some signs of bottoming out, including in parts of Asia, so we feel pretty confident about that,” he told CNBC’s “Squawk Box Europe.”

Trivedi added that with inflation returning gradually to target, monetary policy may become a bit more accommodative, pointing to some recent dovish comments from Fed officials.

“I think that combination of things — the lessening drag from policy, stronger industrial cycle and real income growth — makes us pretty confident that the Fed can stay on hold at this plateau,” he concluded.

Correction: Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%. An earlier version misstated the range.

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Central banks look to have hit peak rates. Here’s how markets think they’ll come down

A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, July 26, 2023.

Brendan McDermid | Reuters

The world’s major central banks paused their interest rate hiking cycles in recent weeks and with data suggesting economies are softening, markets are turning their attention to the first round of cuts.

The U.S. Federal Reserve, European Central Bank and the Bank of England dramatically hiked rates over the last 18 months in a bid to tame runaway inflation.

The Fed on Wednesday held benchmark interest rates steady at a target range of 5.25%-5.5% for the second consecutive meeting after ending a string of 11 hikes in September.

Though Chairman Jerome Powell has been keen to reiterate that the Fed’s work on inflation is not yet done, the annual rise in the consumer price index came in at 3.7% in September, down from a pandemic-era peak of 9.1% in June 2022.

Yet despite Powell’s refusal to close the door on further increases in order to finish the job on inflation, markets interpreted the central bank’s tone as a slightly dovish pivot and rallied on the back of the decision.

The market is now narrowly pricing a first 25 basis point cut from the Fed on May 1, 2024, according to CME Group’s FedWatch tool, with 100 basis points of cuts now expected by the end of next year.

Since last week’s decision, U.S. nonfarm payrolls came in softer than expected for October, with job creation below trend, unemployment rising slightly and a further deceleration in wages. Although headline inflation remained unchanged at 3.7% annually from August to September, the core figure came down to 4.1%, having roughly halved over the last 12 months.

“Core PCE, which is the Fed’s preferred inflation metric, is even lower at 2.5% (3-month, annualized),” noted analysts at DBRS Morningstar.

“The lagged effects of a cooler housing market should reinforce the disinflationary trend over the next few months.”

But despite the dovish data points, short-term U.S. Treasurys reversed course to sell off on Monday, which Deutsche Bank’s Jim Reid chalked up to investors beginning to “wonder if last week’s narrative about rate cuts was overdone.”

“The U.S. economy is also proving more resilient than the U.K. and euro zone,” he said.

“For instance, market pricing for the Fed now implies a 16% chance of another rate hike, up from 11% on Friday,” Reid said in an email Tuesday.

“Moreover, the rate priced in by the December 2024 meeting was up +12.4bps to 4.47%. So there was a clear, albeit partial unwinding of last week’s moves.”

Reid also highlighted that this is the seventh time this cycle that markets have notably reacted on dovish speculation.

“Clearly rates aren’t going to keep going up forever, but on the previous 6 occasions we saw hopes for near-term rate cuts dashed every time. Note that we’ve still got above-target inflation in every G7 country,” he added.


The European Central Bank late last month ended its run of 10 consecutive hikes to keep its benchmark interest rate at a record high of 4%, with euro zone inflation falling to a two-year low of 2.9% in October and the core figure also continuing to decline.

The market is also pricing almost 100 basis point of cuts for the ECB by December 2024, but the first 25 basis point reduction is mostly priced in for April, with economic weakness across the 20-member common currency bloc fueling bets that the central bank will be the first to start unwinding its tight policy position.

Gilles Moëc, group chief economist at AXA, said October’s inflation print confirmed and amplified the message that “disinflation has come in earnest to Europe,” vindicating the ECB’s “new-found prudence.”

ECB done with hikes barring unforeseen shocks, Bank of Portugal's Centeno says

“Of course, the current disinflation does not preclude the possibility that a ‘line of resistance’ would be found well above the ECB’s target. Yet, the confirmation that the euro area was flirting with recession last summer reduces this probability,” Moëc said in a research note Monday.

After the October meeting, ECB President Christine Lagarde batted away the suggestion of rate cuts, but National Bank of Greece Governor Yannis Stournaras has since openly discussed the possibility of a reduction in the middle of 2024 provided inflation stabilizes below 3%.

“This implicitly advocates a forward-looking version of monetary policy which takes lags into consideration to calibrate its stance. In clear, waiting for inflation to reach 2% before cutting rates would be ‘overkill,'” Moëc said.

“There is no doubt in our mind that the current dataflow is clearly favouring the doves, but the hawks are far from having given up the fight.”

The Bank of England

The Bank of England on Thursday kept its main policy rate unchanged at 5.25% for a second consecutive meeting after ending a run of 14 straight hikes in September.

However, minutes from last week’s meeting reiterated the Monetary Policy Committee’s expectations that rates will need to stay higher for longer, with the U.K. CPI holding steady at 6.7% in September. Despite this, the market on Monday was pricing around 60 basis points of cuts by December 2024, albeit starting in the second half of the year.

BNP Paribas economists on Thursday noted an “eye-catching” addition to the MPC’s guidance, which said its latest projections indicated that “monetary policy was likely to need to be restrictive for an extended period of time.”

Watch CNBC's full interview with Bank of England Governor Andrew Bailey

“Governor Andrew Bailey’s comments at the press conference indicated that this guidance was not intended as push-back on the market-implied policy rate path that underpins its latest forecasts, where a 25bp cut is not fully priced in until the second half of 2024,” they said.

“Instead, the intention was to indicate that cuts are not likely to feature as part of the conversation any time soon.”

At Thursday’s news conference, Bailey emphasized the upside risks to the bank’s inflation projections, rather than entertaining any suggestion of cuts on the horizon.

“While we don’t think it is necessarily indicative of a high risk of further hikes in the near term, we read it as a further sign that the MPC is not considering rate cuts and will not do so for a while,” BNP Paribas added.

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Fed holds rates steady, upgrades assessment of economic growth

The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.

In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.

The decision included an upgrade to the committee’s general assessment of the economy. Stocks rallied on the news, with the Dow Jones Industrial Average gaining 212 points on the session.

“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”

Powell added that the FOMC is not considering or even discussing rate reductions at this time.

He also said the risks around the Fed doing too much or too little to fight inflation have become more balanced.

“This signals that while there is a potential risk for the Fed to do more, the bar has become higher for rate hikes, and we are clearly seeing this play out with two consecutive meetings of no policy action from the Fed,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.

Economy has ‘moderated’

The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.”

Gross domestic product expanded at a 4.9% annualized rate in the third quarter, stronger than even elevated expectations. Nonfarm payrolls growth totaled 336,000 in September, well ahead of the Wall Street outlook.

There were few other changes to the statement, other than a notation that both financial and credit conditions had tightened. The addition of “financial” to the phrase followed a surge in Treasury yields that has caused concern on Wall Street. The statement continued to note that the committee is still “determining the extent of additional policy firming” that it may need to achieve its goals. “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said.

Wednesday’s decision to stay put comes with inflation slowing from its rapid pace of 2022 and a labor market that has been surprisingly resilient despite all the interest rate hikes. The increases have been targeted at easing economic growth and bringing a supply and demand mismatch in the labor market back into balance. There were 1.5 available jobs for every available worker in September, according to Labor Department data released earlier Wednesday.

Core inflation is currently running at 3.7% on an annual basis, according to the latest personal consumption expenditures price index reading, which the Fed favors as an indicator for prices.

While that has decreased steadily this year, it is well above the Fed’s 2% annual target.

The post-meeting statement indicated that the Fed sees the economy holding strong despite the rate hikes, a position in itself that could prompt policymakers into a prolonged tightening stance.

In recent days, the “higher-for-longer” mantra has become a central theme for where the Fed is headed. While multiple officials have said they think rates can stay where they are as the Fed assesses the impact of the previous increases, virtually none have said they are considering cuts anytime soon. Market pricing indicates the first cut could come around June 2024, according to CME Group data.

Surging bond yields

The restrictive stance has been a factor in the surging bond yields. Treasury yields have risen to levels not seen since 2007, the earliest days of the financial crisis, as markets parse out what is ahead. Yields and prices move in opposite direction, so a rise in the former reflects waning investor appetite for Treasurys, generally considered the largest and most liquid market in the world.

The surge in yields is seen as a byproduct of multiple factors, including stronger-than-expected economic growth, stubbornly high inflation, a hawkish Fed and an elevated “term premium” for bond investors demanding higher yields in return for the risk of holding longer-duration fixed income.

There also are worries over Treasury issuance as the government looks to finance its massive debt load. The department this week said it will be auctioning off $776 billion of debt in the fourth quarter, starting with $112 billion across three auctions next week.

During a recent appearance in New York, Powell said he thinks the economy may have to slow further to bring down inflation. Most forecasters expect economic growth to tail off ahead.

A Treasury Department forecast released earlier this week indicated that the pace of growth likely will tumble to 0.7% in the fourth quarter and just 1% for the full year in 2024. Projections the Fed released in September put expected GDP growth at 1.5% in 2024.

In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP almost in half to 1.2% from 2.3%. The gauge takes in data on a real-time basis and adjusts its estimates with the latest information.

Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said it’s likely the Fed will keep its policy unchanged into next year.

“There are risks in both directions,” Watson said. “The rise in inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”

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Hamas war may push Israeli economy to brink

Just last month, Israeli Prime Minister Benjamin Netanyahu predicted a new era of peace and prosperity in the Middle East, based on growing acceptance of Israel within the region. Today, with the Israel Hamas war in its fourth week, that vision is in tatters.


The mobilisation of 360,000 reservists and the evacuation of 250,000 Israelis from their homes, according to numbers provided by the Israeli military, has upended many businesses. 

Restaurants and shops have emptied. Airlines have cancelled most flights to Israel, and tourists have called off trips. A main natural gas field has been shut down, farms have been destroyed for lack of workers and businesses have furloughed tens of thousands of workers.

Israel has vowed to crush the Gaza Strip’s ruling Hamas group, which killed 1,400 people and took more than 240 others hostage in a 7 October rampage in southern Israel. 

Israeli airstrikes have flattened entire neighbourhoods in Gaza and killed more than 8,000 people, according to the Health Ministry in Gaza.

Israel’s economy bounced back after previous wars with Hamas, but this round could last longer, possibly months, because the military’s self-declared mission is to end Hamas rule, not just contain the militants.

‘Come to your senses!’

Escalation of the conflict is a tangible threat. Israel is already engaged in low-level fighting on three additional fronts – Lebanon, the West Bank and Syria. A long and possibly multi-front conflict could make it more difficult for the economy to recover than in the past. And even before the war, Israel’s economy was smarting from Netanyahu’s controversial proposal to weaken the judiciary.

Israel’s Finance Ministry has presented an economic aid plan that includes $1 billion in grants for businesses hurt by the war. Critics say it doesn’t go far enough and have demanded the redirection of some of the billions of dollars allocated to pet projects of ultra-Orthodox and pro-settler parties under coalition agreements.

This week, a group of 300 leading economists called on Netanyahu and Finance Minister Bezalel Smotrich to “come to your senses!”

“The grave blow that Israel was dealt requires a fundamental change in national priorities and a massive rechanneling of funds to deal with war damage, aid to victims, and the rehabilitation of the economy,” they said in a letter, predicting wartime expenses would soar into the billions of dollars.

They urged Netanyahu and Smotrich to “immediately suspend funding to any activities that are not crucial to the wartime effort and the rehabilitation of the economy — and first and foremost, funds budgeted for coalition agreements.”

Smotrich, leader of a pro-settler party, told Israel’s Army Radio last week that “whatever doesn’t involve the wartime effort and the state’s resilience will be halted.” But scepticism remains.

Financial barometers paint a bleak picture. The local currency, the shekel, has reached a 14-year low, while the benchmark stock index is down about 10% this year. The tech industry, the engine of Israel’s economic growth, started bleeding even before the war began.

Fitch Ratings, Moody’s Investors Service and S&P all warned in recent days that an escalation of the conflict could result in a downgrade of Israel’s sovereign debt rating.

Israel’s central bank has cut its 2023 economic growth forecast to 2.3% from 3% — assuming the fighting is contained in the country’s south.

The central bank has earmarked $30 billion (€28 billion) to shore up the shekel. At a news briefing this week, central bank Governor Amir Yaron emphasised the resilience of an economy that he characterised as “robust and stable.”

“The Israeli economy knew how to recover from difficult periods in the past and return rapidly to prosperity, and I have no doubt that it will do so this time as well,” Yaron said.

The country entered the war with foreign exchange reserves of some $200 billion. Additionally, the Biden administration wants Congress to approve $14 billion in emergency aid for Israel, most of it military funding, in addition to the $3.8 billion it receives annually.

At the start of the war, Israel ordered Chevron to halt production at the Tamar natural gas field to lower the vulnerability to prospective missiles. Energy expert Amit Mor estimated the shutdown could cost Israel $200 million a month in lost revenue.


If the Hamas-allied Hezbollah militia in Lebanon joins the war in full force, that could affect production at two other fields, including Israel’s largest, Mor said. But he doesn’t think the war would have a chilling effect on further energy exploration.

“The players are aware of the political risk. It’s existed for a long time,” he said.

Israel’s pre-war economy in dire straits

Even before war broke out, Israel – an entrepreneurial dynamo with an economy rivaling countries in Western Europe — was struggling. 

Its coffers, once swollen by tech investments, were clobbered by the proposed judicial overhaul, which seeks to dilute the powers of the country’s courts. The government says the unelected judiciary has too much power, but supporters regard it as the most serious check on politicians’ powers. 

Concerns about Israel’s governance, rising inflation, and a worldwide slowdown in tech investments last year also weighed on the economy.


Investments in Israeli startups, which attracted a record $27 billion in 2021, sank by almost half last year. With investors spooked by the judicial proposal and the mass protests it sparked, investments plunged an additional 68% in the first half of this year, compared to the same period last year, according to Israel’s Start-Up Nation Policy Institute.

With tech accounting for 48% of Israel’s exports, its prosperity is crucial to the economy.

The government’s Israel Innovation Authority did a pulse check of startups during the war and found that the slowdown in capital-raising, along with employees’ call-up to reserve duty, “pose a challenge to a significant number of high-tech companies,” Chief Executive Dror Bin said.

“There are companies in danger of being closed within the next few months,” Bin said.

Still, Yaron’s emphasis on the Israeli economy’s resilience has a historical basis. The Bank of Israel calculated that the 2014 war in Gaza cost the economy 0.4% of gross domestic product, and the 2006 war in Lebanon pared 0.5%, said Professor Michel Strawczynski, an economist at the Hebrew University of Jerusalem and former director of the research department at the central bank.


“I’m expecting a big blow in the last quarter of 2023. It’s hard to say how bad, but I wouldn’t be surprised if it contracts 15% in annualised terms,” Strawczynski said. “But slowly, activity will resume” as economic activity pent up in wartime is released, he said.

If the war achieves its objectives, “then we will see a rebound in activity, though we don’t know when it will be,” Strawczynski said. “Things will also depend on how many fronts there are. But the important thing is length.”

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As the market enters correction territory, don’t blame the American consumer

An Inc worker prepares an order in which the buyer asked for an item to be gift wrapped at a fulfillment center in Shakopee, Minnesota, U.S., November 12, 2020. Inc | Reuters

The initial third-quarter report on gross domestic product showed consumer spending zooming higher by 4% percent a year, after inflation, the best in almost two years. September’s retail sales report showed spending climbing almost twice as fast as the average for the last year. And yet, bears like hedge-fund trader Bill Ackman argue that a recession is coming as soon as this quarter and the market has entered correction territory.

For an economy that rises or falls on the state of the consumer, third-quarter earnings data supports a view of spending that remains mostly good. S&P 500 consumer-discretionary companies that have reported through Oct. 25 saw an average profit gain of 15%, according to CFRA — the biggest revenue gain of the stock market’s 11 sectors.

“People are kind of scratching their heads and saying, ‘The consumer is holding up better than expected,'” said CFRA Research strategist Sam Stovall said. “Consumers are employed. They continue to buy goods as well as pursue experiences. And they don’t seem worried about debt levels.” 

How is this possible with interest rates on everything from credit cards to cars and homes soaring?

It’s the anecdotes from bellwether companies across key industries that tell the real story: Delta Air Lines and United Airlines sharing how their most expensive seats are selling fastest. Homeowners using high-interest-rate-fighting mortgage buydowns. Amazon saying it’s hiring 250,000 seasonal workers. A Thursday report from Deckers Outdoor blew some minds — in what has been a tepid clothing sales environment — by disclosing that embedded in a 79% profit gain that sent shares up 19% was sales of Uggs, a mature line anchored by fuzzy boots, rising 28%.

The picture they paint largely matches the economic data — generally positive, but with some warts. Here is some of the key evidence from from the biggest company earnings reports across the market that help explain how companies and the American consumer are making the best of a tough rate environment.

How homebuilders are solving for mortgages rates

No industry is more central to the market’s notion that the consumer is falling from the sky than housing, because the number of existing home sales have dropped almost 40% from Covid-era peaks. But while Coldwell Banker owner Anywhere Real Estate saw profit fall by half, news from builders of new homes has been pretty good.

Most consumers have mortgages below 5%, but for new homebuyers, one reason that rates are not biting quite as sharply as they should is that builders have figured out ways around the 8% interest rates that are bedeviling existing home sellers. That helps explains why new home sales are up this year. Homebuilders are dipping into money that previously paid for other incentives to pay for offering mortgages at 5.75% rather than the 8% level other mortgages have hit. At PulteGroup, the nation’s third-biggest builder, that helped drive an 8% third-quarter profit jump and 43% climb in new home orders for delivery later, much better than the government-reported 4.5% gain in new home sales year-to-date.

“What we’ve done is simply redistribute incentives we’ve historically offered toward cabinets and countertops, and redirected those to interest rate incentives,” PulteGroup CEO Ryan Marshall said. “And that has been the most powerful thing.”

The mechanics are complex, but work out to this: Pulte sets aside about $35,000 for incentives to get each home to sell, or about 6% of its price, the company said on its earnings conference call. Part of that is paying for a mortgage buydown. About 80% to 85% of buyers are taking advantage of the buydown offer. But many are splitting the funds, mixing a smaller rate buydown and keeping some goodies for the house, the company said.

Wells Fargo economist Jackie Benson said in a report that builders may struggle to keep this strategy going if mortgage rates stay near 8%, but new-home prices have dropped 12% in the last year. In her view, incentives plus bigger price cuts than most existing homes’ owners will offer is giving builders an edge. 

At auto companies, price cuts are in, and more are coming

Car sales picked up notably in September, rising 24% year-over-year, more than twice the year-to-date gain in unit sales. But they were below expectations at electric-vehicle leader Tesla, which blamed high interest rates, and at Ford

“I just can’t emphasize this enough, that for the vast majority of people buying a car it’s about the monthly payment,” Tesla CEO Elon Musk said on its earnings call. “And as interest rates rise, the proportion of that monthly payment that is interest increases.” 

Maybe, but that’s not what’s happening at General Motors, even if investor reaction to good numbers at GM was muted because of the strike by the United Auto Workers union. 

GM tops Q3 expectations but pulls full-year guidance due to mounting UAW strike costs

GM beat earnings expectations by 40 cents a share, but shares fell 3% because of investor worries about the strike, which forced GM to withdraw its fourth-quarter earnings forecast on Oct. 24. Ford, which settled with the UAW on Oct. 25, said the next day it had a “mixed” quarter, as profit missed Wall Street targets due to the strike. Consumers came through, as unit sales rose 7.7% for the quarter, with truck and EV sales both up 15%. GM CEO Mary Barra said on GM’s analyst call that the company gained market share, posting a 21% gain in unit sales despite offering incentives below the industry average.

“While we hear reports out there in the macro that consumer sentiment might be weakening, etc., we haven’t seen that in demand for our vehicles,” GM CFO Paul Jacobson told analysts. But Ford CFO John Lawler said car prices need to decline by about $1,800 to be as affordable as they were before Covid. “We think it’s going to happen over 12 to 18 months,” he said. 

Tesla’s turnaround plan turns on continuing to lower its cost of producing cars, which came down by about $2,000 per vehicle in last year, the company said. Along with federal tax credits for electric vehicles, a Model Y crossover can be had for about $36,490, or as little as $31,500 in states with local tax incentives for EVs. That’s way below the average for all cars, which Cox Automotive puts at more than $50,000. But Musk says some consumers still aren’t convincible. .

“When you look at the price reductions we’ve made in, say, the Model Y, and you compare that to how much people’s monthly payment has risen due to interest rates, the price of the Model Y is almost unchanged,” Musk said. “They can’t afford it.”

Most banks say the consumer still has cash, but not Discover

To know how consumers are doing, ask the banks, which disclose consumer balances quarterly. To know if they’re confident, ask the credit card companies (often the same companies) how much they are spending. 

In most cases, financial services firms say consumers are doing well.

At Bank of America, consumer balances are still about one-third higher than before Covid, CEO Brian Moynihan said on the company’s conference call. At JPMorgan Chase, balances have eroded 3% in the last year, but consumer loan delinquencies declined during the quarter, the company said.

“Where am I seeing softness in [consumer] credit?” said chief financial officer Jeremy Barnum, repeating an analyst’s question on the earnings call. “I think the answer to that is actually nowhere.”

Among credit card companies, the “resilient” is still the main story. MasterCard, in fact, used that word or “resilience” eight times to describe U.S. consumers in its Oct. 26 call.

“I mean, the reality is, unemployment levels are [near] all-time record lows,” MasterCard chief financial officer Sachin Mehra said.

At American Express, which saw U.S. consumer spending rise 9%, the mild surprise was the company’s disclosure that young consumers are adding Amex cards faster than any other group. Millennials and Gen Zers saw their U.S. spending via Amex rise 18%, the company said.

“Guess they’re not bothered by the resumption of student loan payments,” Stovall said.

Consumer data is more positive than sentiment, says Bankrate's Ted Rossman

The major fly in the ointment came from Discover Financial Services, one of the few banks to make big additions to its loan loss reserves for consumer debt, driving a 33% drop in profit as Discover’s loan chargeoffs doubled.  

Despite the fact that U.S. household debt burdens are almost exactly the same as in late 2019, and declined during the quarter, according to government data, Discover chief financial officer John Greene said on its call, “Our macro assumptions reflect a relatively strong labor market but also consumer headwinds from a declining savings rate and increasing debt burdens.”

At airlines, still no sign of a travel recession

It’s good to be Delta Air Lines right now, sitting on a 59% third-quarter profit gain driven by the most expensive products on their virtual shelves: First-class seats and international vacations. Also good to be United, where higher-margin international travel rose almost 25% and the company is planning to add seven first-class seats per departure by 2027. Not so good to be discounter Spirit, which saw shares fall after reporting a $157 million loss.

“With the market continuing to seemingly will a travel recession into existence despite evidence to the contrary from daily [government] data and our consumer surveys, Delta’s third-quarter beat and solid fourth-quarter guide and commentary should finally put the group at ease about a consumer “cliff,” allow them to unfasten their seatbelts and walk about the cabin,” Morgan Stanley analyst Ravi Shanker said in a note to clients.

One tangible impact: United is adding 20 planes this quarter, though it is pushing 12 more deliveries into 2024, while Spirit said it’s delaying plane deliveries, and focusing on its proposed merger with JetBlue and cost-cutting to regain competitiveness as soft demand for its product persists into the holiday season.

As has been the case throughout much of 2023, richer consumers — who contribute the greater share of spending — are doing better than moderate-income families, Sundaram said.

The goods recession is for real

Whirlpool, Ethan Allen and mattress maker Sleep Number all saw their stocks tumble after reporting bad earnings, all of them experiencing sales struggles consistent with the macro data.

This follows a trend now well-entrenched in the economy: people stocked up on hard goods, especially for the house, during the pandemic, when they were stuck at home more. All three companies saw shares surge during Covid, and growth has slacked off since as they found their markets at least partly saturated and consumers moved spending to travel and other services.

“All of the stimulus money went to the furniture industry,” Sundaram said, exaggerating for effect. “Now they’ve been falling apart for the last year.”

Ethan Allen sales dropped 24%, as the company said a flood in a Vermont factory and softer demand were among the causes. At Whirlpool, which said in second-quarter earnings that it was moving to make up slowing sales to consumers by selling more appliances to home builders, “discretionary purchases have been even softer than anticipated, as a result of increased mortgage rates and low consumer confidence,” CEO Marc Bitzer said during Thursday’s earnings call. Its shares fell more than 20%. 

Amazon’s $1.3 billion holiday hiring spree

Amazon is making its biggest-ever commitment to holiday hiring, spending $1.3 billion to add the workers, mostly in fulfillment centers. 

That’s possible because Amazon has reorganized its warehouse network to speed up deliveries and lower costs, sparking 11% sales gains the last two quarters as consumers turn to the online giant for more everyday repeat purchases. Amazon also tends to serve a more affluent consumer who is proving more resilient in the face of interest rate hikes and inflation than audiences for Target or dollar stores, according to CFRA retailing analyst Arun Sundaram said.

“Their retail sales are performing really well,” Sundaram said. “There’s still headwinds affecting discretionary sales, but everyday essentials are doing really well.

All of this sets the stage for a high-stakes holiday season.

PNC still thinks there will be a recession in early 2024, thanks partly to the Federal Reserve’ rate hikes, and thinks investors will focus on sales of goods looking for more signs of weakness. “There’s a lot of strength for the late innings” of an expansion, said PNC Asset Management chief investment officer Amanda Agati.

Sundaram, whose firm has predicted that interest rates will soon drop as inflation wanes, thinks retailers are in better shape, with stronger supply chains that will allow strategic discounting more than last year to pump sales. The Uggs sales outperformance was attributed to improved supply chains and shorter shipping times as the lingering effects of the pandemic recede.

“Though there are headwinds for the consumer, there’s a chance for a decent holiday season,” he said, albeit one hampered still by the inflation of the last two years. “The 2022 holiday season may have been the low point.” 

Deloitte predicts soft holiday sales

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What will Poland’s new government mean for the EU economy?

As President Andrzej Duda opens consultations with party leaders to form a new government, here’s how the opposition’s majority in the Polish parliament will affect the EU’s sixth-largest economy – as well as the bloc itself.


The Poles have said it loud and clear. After eight years of rule by the right-wing nationalist Law and Justice party, they have had enough.

With a record turnout of 74.4%, the elections in mid-October gave the three pro-EU parties – Civic Coalition (30.7%), Third Way (14.4%) and New Left (8.6%) – a parliamentary majority of 53.7% in total. Law and Justice got 35.4% of the votes.

The new government hasn’t been formed yet, but President Andrzej Duda is meeting with party leaders on Tuesday and Wednesday to start coalition talks.

As the Law and Justice party is unlikely to find a coalition partner, one man is in the pole position to become prime minister: Donald Tusk, who leads the Civic Coalition. He’s already asked Duda to let him form a government.

This political game change will have significant implications for the EU’s sixth biggest economy, as well as for the bloc itself. Here are some of the major economic impacts.

Unfreezing €112 billion in EU funds

Since 2015, Poland has been at loggerheads with the EU, after the ruling government brought in new laws that the bloc believed were undermining the independence of Polish courts and going against democratic standards.

The wrangling resulted in the EU blocking the country from accessing €35.4 billion in COVID-19 recovery funds in 2020 and €76.5 billion in EU cohesion funds in 2022.

With the Law and Justice party out of the way, some have speculated that Brussels might finally decide to reverse the decision and grant a significant boon for the Polish economy.

But the money won’t simply start flowing because there will be a different government.

First, Warsaw has to reverse the controversial judiciary rules, which will require the passage of new legislation. While it’s ultimately up to parliament to approve any such law, the speed of the process will depend on President Duda.

Duda, who is a long-time ally of Law and Justice, holds veto power over laws and is himself the author of some of these recent controversial changes.

Nevertheless, Rafał Trzaskowski, Warsaw’s mayor and a member of Donald Tusk’s party, has assured that unfreezing the bloc’s funds would be the most urgent task for the majority government.

“As soon as the president nominates the new government, the prime minister will travel [to Brussels] and will negotiate with the EU the unblocking of that money,” Trzaskowski said.

Poland joins hands with the EU… and perhaps the euro

The creation of a pro-EU government will pave the way for Poland to improve its ties with the bloc, facilitating collaboration and decision-making.

Paweł Tokarski, a Polish economist and senior researcher at the German Institute for International and Security Affairs, believes the new executive will be “a huge change for the EU because Poland will stop being a blocking member”.

“The shift in power also means that the risk of Poland leaving [the EU] is out, at least for a moment”, he added.

Indeed, Poland’s relationship with the EU is likely to come on in leaps and bounds if Donald Tusk truly is the country’s prime minister-in-waiting, not least thanks to his extensive experience in the Brussels bubble.

Tusk served as president of the European Council from 2014 to 2019 (taking a leading role in Brexit negotiations with outgoing member state, the UK) and of the European People’s Party from 2019 to last year.


“Tusk will be welcomed with open arms”, Tokarski said.

Improving the current state of Poland’s central bank is another avenue through which the country might wish to reconcile and forge stronger bonds with the EU.

Tokarski strongly criticised the bank’s president, Adam Glapiński, for not “fulfilling his role and fighting against inflation”.

Inflation is set to reach 11.4% in Poland this year, against the 5.6% projection for the euro area.

Poland still uses its own currency, the złoty, despite having previously pledged to adopt the euro. While the country’s outgoing administration has argued against integrating into the EU-wide currency any time soon, Tokarski pointed to the euro as “a way to repair the damaged reputation of the Polish central bank”.


Warsaw’s path to the common currency “would need to involve not only depoliticisation of the judicial system but also a stronger fiscal governance framework, especially concerning transparency and the legislative process, as well as the reigning in of populist financial policies”, he said in an article he co-authored.

Tokarski added that the new administration will re-evaluate the adoption of the euro, which will be “very positive” for the country.

Polish economy celebrates upcoming political shift

The election’s results generated a lot of economic optimism in Poland, which was reflected in the behaviour of stock and currency markets.

The country’s blue-chip index WIG20 hit a two-month high last week when the official vote count was released. The index has climbed almost 6% this month so far.

On the same day, the złoty jumped to 4.42 against the euro, its strongest rate since the beginning of August.


Tokarski said that private consumption is also expected to rise because the Poles now see a brighter future ahead of them.

Moreover, “the new government will pay more attention to small and medium-sized enterprises, which are responsible for more than 50% of GDP”, he added.

Concerning public finances, the opposition group will have to check its actual situation once in power. Tokarski explained that, since “the budgetary processes were to a large extent out of the control of the Parliament,” only the ruling government had access to all the exact data.

However, he doesn’t expect any drama here. In Poland, the debt-to-GDP ratio is lower than 60%, which is “relatively low in the context of the EU” (83.1% halfway through this year).

“Even if there are some problems, I don’t think it would cause a major crisis of confidence”, Tokarski said.

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