India’s economy has been among the fastest growing in the world. In the previous financial year ended March 2024, it surged 8.2 per cent, exceeding estimates. Most expect the economy to grow strongly this financial year too. According to the Reserve Bank’s projections, the GDP will grow 7.2 per cent this year. However, recent data trends are presenting a mixed picture, making one wonder if a slowdown is around the corner.

“There is some incipient pressure evident on the domestic economy,” warns the latest report by the State Bank of India’s research department.

It expects India’s GDP to have clocked a growth of around 6.5 per cent in the July-September quarter, which, along with the third and fourth quarter numbers, could push the overall financial year 2025 GDP growth closer to 7 per cent.

Soumya Kanti Ghosh, group chief economic adviser at SBI, pointed out that several high-frequency indicators signalled that aggregate demand continued to grow, albeit with a slower momentum than in the preceding quarters and painting a somewhat mixed picture.

ALSO READ | India markets jump, rupee falls to record low in morning trade on impending US Election results

For instance, domestic passenger vehicle sales, which is an indicator of urban demand as well as other indicators of consumption and demand such as diesel consumption, electricity demand and bitumen consumption, have eased, he noted. But, at the same time, transport and communication indicators like passenger and freight traffic at airports and toll collection are showing traction.

SBI’s research department tracks around 50 leading indicators in consumption and demand, agriculture, industry, service, and other indicators.

The section of indicators showing acceleration declined to 69 per cent in the second quarter of FY2025 versus 80 per cent in the year-ago second quarter and 78 per cent in the first quarter of this financial year. Ghosh believes it could well be a temporary impasse with the narrative changing from the third quarter onwards.

What will be comforting for policymakers is that rural demand is recovering, tractor sales jumped in October, rural agri wage growth accelerated in August, and two-wheeler and three-wheeler sales continue to show consistent growth, noted Ghosh.

ALSO READ | Hero MotoCorp launches new Karizma, Xpulse bikes at EICMA 2024

The report pointed out that every month in the first half of this year, rural consumer sentiment was over 100 and gradually converged to that of urban consumer sentiment.

“The recent buoyancy in rural demand/ consumption, juxtaposed against the somewhat declining urban demand/ consumption, with 85 per cent of rural indicators showing acceleration as against 73 per cent of urban indicators could be indicative of shifting contours of urban demographics, marked preferences to quick commerce outweighing consumption decisions to some extents,” he felt.

A higher consumer sentiment in rural areas will lead to higher consumer spending, supporting rural markets, job creation and income generation, the report argued.

The SBI report reiterated that governments should refrain from policy mistakes. It continues to believe that farm loan waivers have been a “self-inflicted harakiri” that distorted the credit culture of borrowers and “not even marginally serving” the purpose in the medium to long term. Similarly, it argued that only MSP (minimum support price) driven agriculture growth is more “fiscally extravagant” and results in extreme groundwater depletion.

The German car industry has long been seen as a metaphor for the state of Europe’s largest economy. The recent announcement by Volkswagen, the country’s biggest carmaker, that it plans to close plants and lay-off workers, has quickly become a symbol of Germany’s current political and economic malaise — and its ever dimming future.

Volkswagen — founded by the Nazis, later a symbol of Germany’s postwar economic miracle — is no stranger to scandal and strategic mis-steps. Its corporate misbehaviour, manipulating exhaust data in the diesel scandal, and then its shortsighted neglect of electric cars, now provides a case study of how everything German messed up. The German legend has become a German albatross.

The car industry plays a central role in Kaput, Wolfgang Münchau’s eloquent and comprehensive deconstruction of the German model. “I am not peddling a conspiracy theory when I say that the car industry is running Germany,” is his dramatic verdict on the impact of the automobile. And, “when the industry starts to decline, so will the country.”

As if on cue, since the book went to press, Intel’s plan to build a semiconductor facility, in eastern Magdeburg, subsidised by the German taxpayer to the tune of €10bn, stalled because it involved building the wrong kind of semiconductor. In the western Saarland, a semiconductor factory planned by Wolfspeed and the German automotive supplier ZF has also been postponed. Now the German export economy faces a renewed onslaught from a second Trump administration, and the government too is tearing itself apart with disputes about the right economic response. The bad news keeps on coming.

Münchau, a former FT columnist, paints a picture of an economy, political system, and society dysfunctional to the point of being terminally broken, ie kaput. Germany faces a choice, but is unable to summon the political and intellectual resources to make any decisive response.

This extends beyond the boardroom and factory floor. After Russia’s full-scale invasion of Ukraine shook all the assumptions of the old German foreign policy, Chancellor Olaf Scholz announced a complete rethink of his country’s basic model to suit a new age of geopolitics. It was, Scholz proclaimed, a Zeitenwende, or epochal turning point. Münchau is rightly sceptical and sees that as mostly rhetorical, smoke and mirrors.

What has gone wrong has an economic root, but is above all the product of a long-term political culture

His tale is entertainingly interspersed with personal stories of inadequacies, from poor or absent mobile telephony capacity, the anti-technical bias of school education (and more generally of German culture), the lagging universities, the unwieldiness of public bureaucracy, and a poor capacity to make use of the resources and skills brought by immigrants.

Münchau starts with “dodgy banks,” including another German icon, Deutsche Bank, but also the once powerful state-owned banks (“a slush fund to circumvent taxpayers”), then takes an automobile drive (taking in along the way “friends of Gerhard”, a clique of business pals of the former chancellor), before excoriating economic appeasement of Russia and China. Angela Merkel’s neo-mercantilism, when German exports “took off like never before,” provided an export vent to compensate for low investment during her 16-year chancellorship. The notorious debt-brake that limited public expenditure, including investment, has now become the cause of the collapse of the coalition government.

Although Schröder is lacerated, and Merkel mocked, no political figure emerges unscathed from Münchau’s diagnosis of a truly systemic problem. Thus “Neo-mercantilism is not a policy. It is a system. And everyone in Germany was supporting it.” Economic interests shaped the political culture, and no political party escaped, or could escape.

The two major political parties, the Christian Democrats and the Social Democrats, are equally guilty. The small, liberal Free Democratic party is obsessed with a fiscal rule that restricts public investment. Meanwhile, the Greens drove a senseless push to exit clean atomic energy that left Germany more dependent on carbon energy and on dirty coal. Nobody questioned the basic industrial model.

And Germany, Münchau argues, is ruining the EU. At the moment when Mario Draghi, the former ECB head, produced an important report on European competitiveness that emphasised, as does Münchau, the need for a capital markets union, Berlin pushed back ferociously against the attempt of the Italian bank UniCredit trying to take over Germany’s second-largest lender, Commerzbank. A new German hostility to technology is poisoning EU strategy, notably in AI regulation, where the EU is “delusional to think of itself as a global regulator in an area in which it has no experience”.   

What an indictment! Yet Germany was once a model, in the 19th century when it dominated scientific and industrial advance, but also recently when a commitment to workers’ rights and job security looked more appealing than the ruthless US version of capitalism. In the wake of the 2008 financial crisis, John Kampfner’s Why the Germans Do It Better (2020) gave us an overly rosy analysis of how the postwar wunderkind had grown into a mature country, with a harmonious corporate model, good labour relations, an appreciation of leisure and a high degree of tolerance. That was only a few years ago, but now everything appears changed.

What has gone wrong has an economic root, but is above all the product of a long-term political culture. The economic cause is the same story as the past triumphs when a focus on high-quality engineering was exemplified by the automobile. Improvements occurred through incremental tweaks, not through radical rethinking. There was no Schumpeterian creative destruction.

Not all the German story is as bleak as Münchau suggests. Is terrible industrial devastation always needed for rebirth and new development, or does incrementalism have some role? An often reported story, not presented by Münchau, takes the case of BioNTech’s miracle mRNA vaccine that is now being applied to the treatment of common cancers. BioNTech’s entrepreneurs were Uğur Şahin, born in Turkey, whose father came to Germany to work in the Ford automobile works, and his wife Özlem Türeci, born in Germany, to a surgeon of Turkish origin.

Despite the rise of the radical right Alternative for Germany party, which is not likely ever to be in power at the federal level, and notwithstanding horrifying incidents of political violence, most of Germany is still a civilised and decent place to live. There are still areas of scientific excellence; and also areas where immigrants play a transformative role. 

It is also difficult to imagine a large advanced industrial country that might serve as a better model. Britain or the US, with deeply dysfunctional politics? The Volkswagen story has a neat parallel in the travails of the American icon Boeing.

And ultimately, what will happen to Germany? The model of focusing on powerful export industries is German, but as Münchau acknowledges not uniquely so. This is the story of Japan, but also of modern China, and China is becoming the testing ground for the German model. China is replacing Germany, as the world’s manufacturing and export dynamo, because it was able to leapfrog to new technologies, notably in electric vehicles. There is also political capture there, leading to a neglect of new technologies.

What happens when the growth models collapse? Japan after the bubble burst in the 1990s, with an ever more striking ageing problem, had very slow growth, but no political or social, let alone a civilisational collapse. It still plays an important foreign policy role, and it still leads in some areas of design. Maturing is not the same thing as sudden death. A future Münchau may write a parallel analysis of Chinese stagnation, where the political fallout is likely to be much more destructive. The EU provides a protective framework for a broken wunderkind, and there is dynamism elsewhere, notably to the north and to the east, where the likes of Denmark and Poland have become the new economic exemplar.

Kaput: The End of the German Miracle by Wolfgang Münchau Swift Press £20, 256 pages

Harold James is the author of ‘Seven Crashes: The Economic Crises That Shaped Globalization’

Join our online book group on Facebook at FT Books Café and subscribe to our podcast Life and Art wherever you listen

The Bank of England (BoE) has announced a cut to its benchmark interest rate, lowering it from 5% to 4.75% – the Monetary Policy Committee vote was – 8:1. This is the second consecutive rate cut in recent months, aimed at boosting economic activity and addressing a softening inflation landscape. The decision, closely watched by markets, businesses, and consumers, reflects the central bank’s focus on supporting economic stability during uncertain times.

Why the Bank of England Cut Rates to 4.75%

The BoE’s decision comes on the heels of new economic data showing a significant cooling of inflation. In September, the UK’s annual inflation rate fell to 1.7%, marking the lowest level in over three years and well below the government’s 2% target. The unexpected drop in inflation, combined with slowing wage growth, provided the Monetary Policy Committee (MPC) with the justification needed to reduce rates once again.

What the Interest Rate Cut Means for Borrowers

Lowering the base interest rate has immediate implications for borrowers. Homeowners with variable-rate or tracker mortgages are expected to see reductions in their monthly payments, providing some relief as the cost of living continues to challenge many families. While fixed-rate mortgage holders may not experience immediate benefits, new deals could gradually become more competitive as lenders adjust to the BoE’s move.

High Street banks and other lenders are likely to lower rates on personal loans, credit cards, and other borrowing products, making access to credit more affordable. For individuals and businesses, this could stimulate spending and investment, boosting economic activity.

Related:UK Housing Market Sees Homes Selling Quicker in October 2024 

Impact on Savers: Reduced Returns Expected

Unfortunately, the news isn’t as positive for savers. Interest rate cuts typically lead to lower returns on savings accounts, ISAs, and other interest-bearing accounts. The current average rate for an easy-access savings account, around 3%, may soon see reductions as banks adjust to the new base rate.

To mitigate the impact of reduced rates, savers may need to explore alternative options such as fixed-term accounts, bonds, or investing in diversified portfolios.

Related:Share Tips 2024: Finance Monthly’s Leading Selections for This Week

Future Outlook for Interest Rates

While today’s rate cut to 4.75% demonstrates the BoE’s commitment to stimulating growth, uncertainty about future interest rate movements remains – particularly as there is likely to be increased economic demand given the recent budget. Key factors such as inflation trends, wage growth, and global economic conditions will play pivotal roles in shaping the BoE’s next steps. The central bank’s goal is clear: to provide a supportive economic environment without allowing inflation to spiral out of control.

Practical Steps for Borrowers and Savers

For borrowers, this rate cut presents an opportunity to reassess their financial options. Those with variable-rate mortgages should see immediate relief, while others may want to consider refinancing or exploring new deals. On the other hand, savers will need to evaluate their portfolios and consider strategies to maximize returns in a low-interest-rate environment.

Hero-owned semiconductor engineering firm Tessolve announced on Wednesday that it is acquiring European chip design firm Dream Chip Technologies, in what could signal a new way forward for India to leapfrog ahead in the lately crucial global semiconductor race.

The deal is worth Rs 400 crore. Bengaluru-based Tessolve is a division of Hero Electronix, owned by the Munjal family behind Hero, the world’s largest selling motorcycle brand.

There have been major developments in recent months in India on the semiconductor front, ever since the nation formulated a Semiconductor Mission in end-2022 on the heels of the global supply chain breakdown post-COVID-19 which saw semiconductor chips in short supply, leading to anyone from electronics makers to the auto sector falling behind in production.

ALSO READ: India to get first national security semiconductor fabrication plant as part of collaboration with US

Semiconductors, essentially made up of millions and millions of transistors, form the backbone of computing, powering everything from smartphone to household electonic appliances and increasingly, cars and bikes. In the last few days, Nvidia, a software and fabless company which designs and supplies GPUs, System-on-a-Chip units as well as APIs for high-performance computing, had brushed past Apple as the world’s most valuable company.

While India has been good in the chip design side, it is now looking to make a mark in semiconductor production as well. However, this is easier said than done. Big conglomerates like Vedanta had made grandiose announcements on it, though nothing much has come out of it yet. Tata is the latest biggie announcing semiconductor fab in the country. The field is currently dominated by the likes of US, Taiwan and Japan, while China has been gaining ground.

ALSO READ: In major push to India’s chip-making business, Centre approves setting up 3 semiconductor-making units

Prime Minister Narendra Modi had recently remarked that semiconductor sector will become big in India in the next five years. While the nation has been globally noted in semiconductor design with global companies setting up their R&D as well as GCCs in the country, efforts on the other aspects like manufacture is a long haul and remains to be seen. However, moves like Tessolve’s takeover of Dream Chip will ensure that India’s domination in the chip design side of it, at least, will not be challenged so quickly.

“This acquisition solidifies our position as a top-tier semiconductor engineering firm globally with unmatched design to productisation capabilities,” said Srini Chinamilli, co-founder & CEO of Tessolve. “Dream Chip’s capabilities further strengthen our ability to take on leading edge ASIC design projects and greatly enhances our European footprint.”

Ujjwal Munjal, chairman of Tessolve, said, “With the synergy brought by Dream Chip Technologies, Tessolve is poised to become a world leader in this space with unparallelled capabilities. As major companies increasingly shift towards custom chip design, this acquisition positions Tessolve more strongly than ever to meet the growing demands of the custom chip market.”

October saw the UK host a major investment summit aimed at attracting more money into the many investment opportunities our country offers.

But it wasn’t just prime minister Keir Starmer and chancellor Rachel Reeves making the case for inward investment; we also had the hugely successful American businessman and politician Michael Bloomberg “convinced the future’s bright for Britain”.

Now, when our clients invest, they expect a regular income from their asset in the form of interest and/or dividend payments. Those investing for the long term can move away from the safety of bank deposits into bonds and equities from which we can hope for capital gains too.

Many moderate risk investments will deliver these gains over time, even though their month-by-month asset value growth progression may deliver a saw-toothed graph rather than a smooth incline.

However, occasionally, some of your clients’ investment portfolios may enjoy a windfall gain.

With a defined contribution pension, such as a SSAS or Sipp, the gain is all theirs

Perhaps a pharma company has completed clinical trials on a new drug and found it helps with some cancers and is free of unwanted side effects. Great news for society and a windfall investment gain for those that put money into the company to enable it to research and develop new treatments.

If it was some of your clients’ pension assets that enjoyed this windfall gain, then what happens to the money depends very much on what sort of pension they have.

With a defined contribution (DC) pension, such as a SSAS or Sipp, the gain is all theirs. It will show up immediately in their pension pot if you have advised them to invest directly in the shares. Or it will show up the very next day if they invested via a fund with daily pricing.

If they are age 55 or older, they might choose to take that windfall amount out straight away, less tax, and celebrate by buying the thing they’ve always wanted that’s always been just out of reach.

CDCs give each member an immediate increase to their annual pension amount where schemes benefit from a windfall

However, with a defined benefit (DB) or final salary pension, it’s pretty much the opposite.

DB pensions are ‘balance of cost’ schemes, in which the employer contributes whatever it costs to provide the promised pension. A windfall investment gain typically means the employer can reduce pension contributions, while the members’ benefits remain unchanged.

Today, it may simply accelerate the progress towards scheme buy out with an insurance company – whereupon those benefits become fixed in stone.

With a collective DC (CDC) scheme (there is now one single employer scheme live in the UK – Royal Mail – and a lot more coming as the government unfurls the legislation for multi-employer CDC) it’s a lot more complicated.

Two-thirds of retirees today are living as couples and, for many of them, the gender pensions gap is all too real

CDCs give each member an immediate increase to their annual pension amount where schemes benefit from a windfall. This will be of most value to those on the cusp of retirement, who are about to receive it and have many years of retirement income ahead of them.

However, it will be of much less value to the very old with not long left to draw on their CDC pension, or to young members with decades to go before they draw a pension.

Let’s return to DC schemes for a concluding thought, as that’s where most of your clients are saving for retirement today.

When your clients tot up any windfall investment gain and cry out “it’s all mine!”, do remind them of their obligation to support their spouse or partner’s retirement income as well.

After all, two-thirds of retirees today are living as couples and, for many of them, the gender pensions gap is all too real.

Adrian Boulding is director of retirement strategy at Dunstan Thomas