Is South Korea's Economic Miracle Over?

Economic

Summary:

Decades of growth are tapering off as the country struggles to reform its model and reduce its dependence on manufacturing…

Outside the town of Yongin, 40 kilometres south of Seoul, an army of diggers is preparing for what South Korea's president has described as a global "semiconductor war".

The diggers are moving 40,000 cubic metres of earth a day, cutting a mountain in half as they lay the foundations for a new cluster of chipmaking facilities that will include the world's largest three-storey fabrication plant.

The 1,000-acre site, a $91bn investment by chipmaker SK Hynix, will itself only be one part of a $471bn "mega cluster" at Yongin that will include an investment of 300tn won ($220bn) by Samsung Electronics. The development is being overseen by the government amid growing anxiety that the country's leading export industry will be usurped by rivals across Asia and the west.

"We will provide full support, together with SK Hynix, to ensure that our companies won't fall behind in the global chip cluster race," South Korea's industry minister Ahn Duk-geun told SK Hynix executives during a meeting at the Yongin site last month.

Most industry experts agree the investments at Yongin are required for South Korean chipmakers to maintain their technological lead in cutting edge memory chips, as well as to meet booming future demand for AI-related hardware.

Is South Korea's Economic Miracle Over?_1

But economists worry that the government's determination to double down on South Korea's traditional growth drivers of manufacturing and large conglomerates betrays an unwillingness or inability to reform a model that is showing signs of running out of steam.

Having grown at an average of 6.4 per cent between 1970 and 2022, the Bank of Korea warned last year that annual growth is on course to slow to an average of 2.1 per cent in the 2020s, 0.6 per cent in the 2030s, and to start to shrink by 0.1 per cent a year by the 2040s.

Pillars of the old model, such as cheap energy and labour, are creaking. Kepco, the state-owned energy monopoly that provides Korean manufacturers with heavily subsidised industrial tariffs, has amassed liabilities of $150bn. Of the other 37 OECD member countries, only Greece, Chile, Mexico and Colombia have lower workforce productivity.

Park Sangin, professor of economics at the graduate school of public administration at Seoul National University, notes that South Korea's weakness in developing new "underlying technologies" — as opposed to its strength in commercialising technologies like chips and lithium-ion batteries invented in the US and Japan respectively — is being exposed as Chinese rivals close the innovation gap.

"Looking from the outside, you would assume that South Korea is extremely dynamic," says Park. "But our economic structure, which is based on catching up with the developed world through imitation, hasn't fundamentally changed since the 1970s."

Worries about future growth have been exacerbated by an impending demographic crisis. According to the Korea Institute of Health and Social Affairs, the country's gross domestic product will be 28 per cent lower in 2050 than it was in 2022, as the working age population shrinks by almost 35 per cent.

"The Korean economy will face big challenges if we stick to the past growth model," finance minister Choi Sang-mok told the Financial Times earlier this month.

Some hope that the expected global boom in AI will rescue the Korean semiconductor industry, and perhaps even the Korean economy at large, by offering solutions to the country's productivity and demographic problems. Is South Korea's Economic Miracle Over?_2

Is South Korea's Economic Miracle Over?_2

But sceptics point to the country's poor record in addressing challenges ranging from its plummeting fertility rate to its outdated energy sector to its underperforming capital markets.

That is unlikely to improve in the near future. Political leadership is split between a leftwing-controlled legislature and an unpopular conservative presidential administration, with the victory of leftwing parties in parliamentary elections earlier this month raising the prospect of more than three years of gridlock until the next presidential election in 2027.

"Korean industry is struggling to move on from the old model," says Yeo Han-koo, a former South Korean trade minister now at the Peterson Institute for International Economics. "It hasn't worked out what comes next."

One of the reasons why it is proving so hard to reform the "old model", say economists, is because it has been so successful.

The achievements of South Korea's state-guided capitalism, which took it from an impoverished agrarian society to a technological powerhouse in less than half a century, have come to be known as the "miracle on the Han River". In 2018, South Korea's GDP per capita measured at purchasing power parity surpassed that of its former colonial occupier, Japan. Is South Korea's Economic Miracle Over?_3

Is South Korea's Economic Miracle Over?_3

Seungheon Song, managing partner of consultancy McKinsey's practice in Seoul, notes that South Korea made two great leaps — one between the 1960s and the 1980s, when the country moved from basic goods to petrochemicals and heavy industry, and the second between the 1980s and 2000s, when it moved to high-tech manufacturing.

Between 2005 and 2022, however, only one new sector — displays — entered the country's list of top ten export products. Meanwhile, South Korea's lead in a range of critical technologies has dwindled. Having led the world in 36 of 120 priority technologies identified by the Korean government in 2012, by 2020 that number had dropped to just four.

Park says the country's leading conglomerates, or chaebol, many of which are now overseen by the third generation of their founding families, have drifted from a "growth mindset" born of hunger towards an "incumbent mindset" born of complacency.

He argues that the present model reached its apogee in 2011, after a decade during which Korean tech exports were driven by the related twin demand shocks of the rise of China and the global technology boom, as well as by massive investments by Samsung and LG to seize control of the global display industry from their Japanese counterparts.

Since then, however, Chinese tech companies have caught up with their Korean competitors in almost every area except the most advanced semiconductors, meaning that Chinese companies that were once customers or suppliers have become rivals. Samsung and LG are fighting for survival in the global display industry they dominated just a few years ago.

Park adds that many of the headline-grabbing gains made by the leading conglomerates have come at the expense of their domestic suppliers, who are subjected to price squeezing through exclusive contractual relationships.

The result is that small and medium enterprises, which employ more than 80 per cent of the South Korean labour force, have less money to invest in their employees or infrastructure, exacerbating low productivity, slowing innovation and stifling growth in the services sector.

"The rationale used to be that the chaebol should be sheltered from disruption at home so they can focus on disrupting rivals abroad," says Park. "But now they are the incumbents, they are both stifling innovation at home and highly vulnerable to disruption themselves."

The country's two-tier economy, in which according to Park almost half of the country's GDP was delivered by conglomerates that employed just 6 per cent of South Koreans in 2021, also feeds social and regional inequalities, which in turn feeds spiralling competition among young South Koreans for a small number of elite university places and high-paying jobs in and around Seoul.

That competition is helping drive down the country's fertility rate even further as young Koreans wrestle with mounting academic, financial and social burdens. The country has the widest gender pay gap and the highest suicide rate in the OECD.

South Korea also has one of the highest rates of household debt as a proportion of GDP in the developed world, according to the Institute of International Finance. The average newly-wed couple in South Korea has combined debts of $124,000. Is South Korea's Economic Miracle Over?_4

Is South Korea's Economic Miracle Over?_4

While South Korea's government debt to GDP is relatively low by western standards, at 57.5 per cent, the IMF forecasts that it will triple over the next 50 years in the absence of drastic pension reforms. Forty-six per cent of South Koreans are projected to be over the age of 65 by 2070, and the country already has the highest rate of elderly poverty in the developed world.

"Slowing growth has fed the declining birth rate, which will lead to even slower growth," says Song of McKinsey. "We are in danger of getting stuck in a vicious circle."

The Yongin mega cluster illustrates South Korea's challenge in sustaining an economic model that was first developed at a time when the country was much poorer and less democratic.

The project was announced in 2019, but was delayed for several years due to wrangles over construction permits and the site's water supply. Once the first cluster is completed in 2027 — more are planned for later — it will face a shortage of qualified labour. Without a sufficient supply of renewable energy, and without a bipartisan consensus on building new nuclear power plants, it is unclear how the cluster will be powered.

Despite the uncertainties that surround it, the plan reflects confidence that an expected boom in demand for AI-related hardware, including the Dram memory chips needed for large language models, will justify the titanic investments. Shares in SK Hynix have more than doubled over the past year amid investor excitement over its "high bandwidth memory" chips used with Nvidia's cutting edge processors.

Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association, says the country needs to press on with the Yongin project as potential rivals are making their own large investments.

He singles out the US and Japan's efforts to revive their own chipmaking capabilities with generous subsidies. "We could lose our status as a chipmaking powerhouse if our companies continue to build plants abroad, but if facilities are concentrated in our own country, our competitiveness will increase," he says.

Last week, Samsung announced a $45bn investment in Texas to meet expected AI-related chip demand, while SK Hynix is building a high bandwidth memory facility in Indiana.

In the long term, however, executives worry about US rivals absorbing Korean knowhow, as well as the risk that the proliferation of chip clusters around the world will lead to chronic oversupply and inefficiencies that could further undermine profitability.

Samsung's Texan investments, which have benefited from up to $6.4bn in federal subsidies from Washington, also highlight how the Korean government is struggling to match the incentives on offer in other countries.

Some see in the coming AI era an opportunity for South Korea to lift its sights beyond manufacturing and the preservation of its biggest players.

Sunghyun Park, chief executive of AI chip design start-up Rebellions, notes the country already has capabilities in three of the four pillars needed for AI — logic, memory, and cloud service providers — and now has the opportunity to secure reciprocal access to the world's most sophisticated AI algorithms, the fourth pillar.

"Our strength in hardware is important, but if we are to progress we need to move up the value chain into design and software," says Park. "That means investing our money in strategic partnerships with the makers of the world's leading large language models."

Park's argument resonates with those who worry that South Korea's continued emphasis on manufacturing and hardware — both in the chip sector and beyond — will prove unsustainable as costs continue to rise.

But Inseong Jeong, a former SK Hynix engineer and author of The Future of Semiconductor Empires, a book about the Korean chip industry, says the country should focus on its existing strengths. "The world will always need hardware, and the world will always need chips."

He adds that by remaining at the cutting edge of chip production, Korean companies will be more likely to benefit from future breakthroughs in AI.

"The moat between hardware and software is hard to cross, but it works both ways," says Jeong. "For example, our memory chip companies would be the main beneficiaries of a breakthrough whereby AI chips would more closely resemble the workings of a human brain. There are no guarantees that AI will run on Nvidia GPUs forever."

Some observers regard warnings about South Korea's economic future as overblown, noting that many western countries bitterly regret abandoning the kind of advanced manufacturing base that Seoul has managed to preserve.

The "tech war" between the US and China, they argue, is playing into Korean hands as Chinese rivals in the chip, battery and biotech sectors are restricted or barred from entry into growing western markets, while concern about Taiwan's security feeds demand for Korean alternatives.

South Korean companies in areas ranging from defence and construction to pharmaceuticals, electric vehicles and entertainment, have shown themselves to be more adept than many of their western counterparts in reducing their exposure to the Chinese market and seeking out growth in south-east Asia, India, the Middle East, Africa and Latin America.

The Bank of Korea has also said that the most doom-laden scenarios regarding the country's demographic crisis and growth prospects can be alleviated by bringing the country up to the OECD average on a range of metrics, including urban population concentration and youth employment.

But others argue that while there is much that South Korea could and should do to alleviate its problems, its record on reform is poor.

Spending on private tuition continues to climb as competition for university places grows fiercer, while the fertility rate continues to fall. Pension, housing and medical sector reforms have stalled, while long-standing campaigns to curb the country's dependence on the conglomerates, boost renewables, raise corporate valuations, close the gender pay gap, and make Seoul a leading Asian financial centre have all made little headway.

But finance minister Choi retains his faith that the country's economy can be reformed, insisting that "dynamism is embedded in the Korean DNA".

"We need to redesign policies to unleash that economic dynamism again," says Choi. "But the miracle isn't over."

Source: FT

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Alex

Economic

Central Bank

Japan's central bank, the Bank of Japan (BOJ), made global headlines in March with a bet that the deflation-ridden economy had finally turned a corner. The question now is whether the economy will do its part.

Bolstered by a stronger economy and steady wage growth, the BOJ drew a curtain on one of the longest-running monetary policy experiments in history, ending 11 years of an unconventional monetary easing that was aimed at reversing seemingly intractable deflationary pressures.

BOJ Gov. Kazuo Ueda announced the changes following a two-day meeting of the policy board on March 18-19. The central bank not only ended its negative interest rate policy that set short-term rates below zero but also terminated its buying of stock funds and its yield curve management program.

Together, these constituted the "bazooka" put in place by Ueda's predecessor, the eternally optimistic Haruhiko Kuroda, who came into office in 2013. Kuroda had a bold plan to create a low but sustainable inflation rate, vowing to succeed where prior governors had failed since the mid-1990s, when prices and wages seemed to enter a time warp. His plan was to create 2 percent inflation in two years by doubling the bank's monetary base.

Reality was a bit different. The 2 percent target now seems in place (although it may turn out to be closer to 1 percent), but it took more than a decade and saw the balance sheet balloon 4.5 times over the period to a record 760 trillion yen ($4.9 trillion)—a figure that is larger than Japan's total annual economic output.

As flashy as the news was, the change was not that great. The BOJ will now target the interest rate on the benchmark 10-year Japanese government bond at 0-0.5 percent, a move best described as a "normalization" rather than a real monetary tightening. It's usually overheating that prompts central banks to raise rates, but the Japanese economy is warm at best. Growth continues to be modest by global standards, and the economy narrowly avoided falling into a recession in the final three months of 2023.

Yet the policy change was significant in signaling that a global rise in input prices had been succeeding in creating inflation where years of monetary policy easing had largely failed. The most positive aspect was the recognition that wage growth, which had largely flatlined in the past 30 years, was now showing signs of life. With the multitude of economic shocks from the COVID-19 era, the closely watched "spring offensive" for union wage negotiations went up 3.6 percent in 2023, but this failed to create much good cheer, given that real wages continued their two-year losing streak with a 2.5 percent fall in 2023, the biggest drop since 1990.

This not only hit people's pocketbooks but also helped drive down the approval ratings for Prime Minister Fumio Kishida, a generally likable figure whose primary failure has been to be in the wrong place at the wrong time.

It also reminded policymakers who had for years decried the evils of a deflationary economy that for the average person it wasn't all that bad. Even though wages were stagnant, prices fell steadily if slowly from their 1990 bubble economy peak, meaning that paychecks stretched a little further each year. The problem was for wealthier Japanese, who saw their savings earn little in the way of return.

The landscape for 2024 has proved rosier. The spring round of talks produced wage gains of 5.3 percent, the highest in more than 30 years and enough to beat continuing but generally tame inflation of around 3 percent. The BOJ, looking for an exit ramp from its balance sheet bloat, seized on the news and announced, more quickly than many economists had predicted, that it would be ending Kuroda's guinea pig project for Japan's economy.

From an external perspective, the BOJ move has been a reaffirmation that Japan is now the place to be. Investing legend Warren Buffett, as is often the case, signed on early, having invested an initial $6.7 billion in Japan's five major trading companies in 2020, upping the stake to around 9 percent this year. Others have jumped on, pushing Japan's stocks above the 1990 peak that came to epitomize the country's once overinflated bubble economy.

BlackRock CEO Larry Fink said in March that Japan's economy appears to have turned a corner. "We are overweight in Japan, and our investors like the overweight," he told Japan's Nikkei newspaper, adding that he believed higher interest rates would actually help growth. "Having higher interest rates on your savings will stimulate more consumption, and that's what Japan needs."

But the domestic view is less optimistic. Some economists say the decision had little to do with confidence in the economy and was actually triggered by a sharply weakening Japanese yen, which has fallen 15 percent against the dollar in the past year and plummeted 50 percent since Kuroda's easing program began in 2013. "The action was clearly driven by the yen. The economy has been slowing down—it just scraped by avoiding a recession. This is not a situation where you tighten," said Martin Schulz, the chief economist for the electronics group Fujitsu. Higher interest rates tend to increase a currency's value, although the markets have taken the opportunity to send the yen even lower.

Japanese economists also point out that despite the fanfare, the yield on the benchmark 10-year Japanese government bond has remained at just 0.8 percent.

And while there is enthusiasm about economic prospects, pessimists have plenty of negative data points on hand, especially in relation to Japan's longer-term prospects. Japan has been a world leader in creating an aging society, with the population shrinking at a 0.5 percent rate. Even if Japan manages to come out of its aversion to mass immigration, society will have to change sharply.

The BOJ action is also a warning shot aimed at the government and its free-spending ways. In the years of Kuroda's monetary easing, the central bank bought virtually all new debt that the government issued, pushing Japan's already lofty government debt burden higher, to an estimated 264 percent of annual GDP, far above the level of any other functioning economy. Even a slight nudge higher in interest costs for the government will pose new problems as the Kishida government tries to keep up with growing social insurance costs while promising to sharply increase defense spending by somewhere between 60 and 100 percent over the next five years as the country faces a growing China threat.

There is also a hidden problem for the BOJ's own finances. In the Alice in Wonderland world of negative rates, the BOJ charged commercial banks for depositing their money at the central bank, producing a tidy revenue stream. But now the BOJ will return to the more conventional notion of paying interests on such deposits, meaning a revenue source now becomes a cost.

The bigger issue is how the BOJ can extricate itself from its massive holdings while helping a fragile economy to grow even as stimulative government spending becomes more costly. "It will be difficult because the economy is so dependent on government spending," Schulz said. "In terms of normalization, this is now the first step on the road. But it is a very long road."

Source: Foreign Policy

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Westpac

Economic

In Australia, the Q1 CPI printed 1.0% (3.6%yr) for headline inflation and 1.0% (4.0%yr) for underlying trimmed mean inflation, meaningfully higher than consensus and likely the RBA’s view too, based on our assessment of its June 2024 forecast (3.3%yr headline, 3.6%yr trimmed mean). The latest update is consistent with an ongoing moderation in consumer inflation, aided in large part by global disinflationary forces within tradables, but the detail did reveal some upside surprises in the quarter.

Electricity prices were not as weak as anticipated (–1.7% vs. –3.4% forecast), though it is worth emphasising that the Government’s Energy Bill Relief Fund remains an effective tool in shielding households from much worse outcomes. Additionally, the increase in pharmaceutical prices (7.1% vs. 4.7% forecast) and financial/ insurance premiums (2.0% vs. 1.4% forecast) were stronger than expected, while car prices also surprisingly lifted (1.0% vs. –0.6%). The upside surprises were generally not in categories that point to strong domestic demand, however.

As detailed by Chief Economist Luci Ellis in her note mid-week, evidence of a slower-than-expected pace of disinflation during the opening quarter have coincided with a firmer set of data prints on the labour market over recent months. The balance of risks points to the RBA Board retaining a cautious perspective over the next few months, as new information on the labour market, prices and economic growth are closely scrutinised for signs of upside risk to the inflation outlook.

All-in-all, we still anticipate that there will be no change to the RBA’s policy stance in May; however, we now expect policy to remain on hold for longer, with the first rate cut now forecast to occur in November rather than September. Thereafter, and assuming no further upside surprises to inflation, the RBA will have scope to lessen the contractionary setting of monetary policy at an incremental and measured pace. We expect 25bps of rate cuts per quarter through to Q4 2025, to a terminal rate of 3.10%.

Also critical to the medium-term economic outlook will be developments around fiscal policy. For an in-depth analysis on the national fiscal outlook ahead of the Federal Budget update in May, see our latest update published earlier today on WestpacIQ.

Offshore, the focus was on the US activity data showcasing a resilient economy. GDP expanded at an annualised rate of 1.6% in Q1, and while the headline result undershot expectations, the detail suggests this is not reflective of a weak domestic economy. Personal consumption rose 2.5% with services rising 4.0% – the fastest rise in services since 2021. A sharp rise in imports, centred on services, drove the weakness in the quarter. Excluding trade, GDP came in within expectations. Strong growth was accompanied by strong prices – the PCE ex. food and energy rose 3.7%yr and implies a 0.4%mth rise in core PCE out later today. This would mark a reacceleration in PCE inflation after two months of deceleration. All together, the US economy is in a strong position with consumption supporting inflation.

Durable goods orders rose 2.6%mth in March and 0.2%mth stripping out the volatile transportation and defence categories. Together with the tepid non-residential investment data from GDP, the outlook for growth in manufacturing and investment remains clouded by high borrowing costs. Recent data will likely prompt a more hawkish tone from the FOMC to temper inflation expectations, noting that it will take time for restrictive policy to cool inflation.

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WELLS FARGO

Economic

Real GDP grew at only a 1.6% annualized pace in Q1, held back by trade and inventories. Consumer spending in the service sector is not slowing, in fact, it is ramping up at a rate seldom seen in the past 20 years. That is problematic as core PCE prices are picking up again in defiance of higher rates. Wolf in Sheep's Clothing: Soft GDP Hides Surging Spending_1

Wolf in Sheep's Clothing: Soft GDP Hides Surging Spending_1

Not the Droids You're Looking For

It is tempting to see today's miss in GDP as a welcome indication that curiously strong growth is at last giving way to the inevitable gravity of higher rates and thus the first bit of data needed to warrant eventual rate cuts by the Federal Reserve. Despite the fact that headline growth came in almost a full percentage point below expectations, we see little in today's report that will warrant much legitimate justification for a softer monetary policy stance.

After an unsettling headline miss, the picture that emerges from the details in today's GDP report is actually more of the same in terms of the factors that are standing in the way of a lower rate environment.

Consumers are still spending, they are just prioritizing activities in the service sector. Spending on non-durable goods stalled in the quarter while outlays on big-ticket durable goods items contracted at a 1.2% annualized rate. That was not nearly enough to offset the much larger services category, where consumers spared no expense in the first quarter. Like a relief pitcher in the late innings, services spending came in throwing heat in the first quarter with a blistering 4.0% annualized growth rate—the fastest surge in consumer services spending since the stimulus-fueled binge in 2021. Excluding 2020 & 2021, services has only come in above 4.0% three times in the last two decades (once in 2014 and twice in 2004). Higher rates are intended to cool consumer demand; the trouble for the Fed is: it's not working.

The core PCE deflator rose at a 3.7% annualized rate in Q1, a notable acceleration after a sharp slowing the prior two quarters (chart). This data implies a strong 0.4% increase in March core PCE, set to be released tomorrow. Services excluding energy and housing rose at a 5.1% annualized rate in Q1, the fastest in a year. Wolf in Sheep's Clothing: Soft GDP Hides Surging Spending_2

Wolf in Sheep's Clothing: Soft GDP Hides Surging Spending_2

While higher rates may be restraining spending on goods that may be exposed to higher borrowing costs, households keep pulling out all the stops to keep spending. Real disposable income rose at a slower rate in the first quarter, but remained positive and households are saving less of that income on a monthly basis. The personal saving rate slipped to 3.6% during the quarter, which marks the lowest rate at which households have saved since the end of 2022. Wolf in Sheep's Clothing: Soft GDP Hides Surging Spending_3

Wolf in Sheep's Clothing: Soft GDP Hides Surging Spending_3

So why the long face? Why was the headline number so weak? Partly because there was a significant drag from trade. Net exports exerted a drag of 0.86 percentage points on the headline number. Without that drag, the headline number would have come in precisely in line with consensus estimates. While goods spending is weak, businesses are playing it smart by not importing too much in the way of goods. Goods imports subtracted about three quarters of a percent from growth in the first quarter which swamped only tepid growth in exports during the same period.

Businesses also look to be managing inventory levels fairly well. Real private inventories rose by $35.4 billion in Q1, but since they rose at a slower pace than in the fourth quarter of last year, they again resulted in a drag on headline growth, subtracting 0.35 percentage points from GDP last quarter.

In looking through some of these volatile factors, underlying growth remained quite solid in the first quarter. Real final sales to domestic private purchasers, which strips away net exports, inventories and government investment and gets at the underlying trend in domestic demand, rose at a 3.1% annualized rate during the quarter. The last three quarterly prints for this measure have all come in at 3.0% or higher, signaling healthy and stable growth. Don't underestimate this economy.

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Thomas

Economic

Political

How do you run a democracy when the mercury rises above 40 degrees Celsius?

That's the problem faced by voters in India. A swathe of the country's east is sweltering under a brutal heatwave. The city centre of Kolkata has emptied out, schools have cancelled classes, and one TV presenter collapsed on air with heat stroke.

The first round of seven-phase general elections, which took place on Friday (Apr 19), seems to have been another casualty: Turnout was down four percentage points relative to the last poll in 2019, the Indian Express newspaper reported. Multiple officials quoted by the paper cited the effect of extreme heat, adding also that a busy wedding season and general apathy may have been factors.

Some of the most intense temperatures last week were on the east coast, keenly watched battlegrounds where Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) has traditionally been weak relative to its performance in the rest of the country. There were roughly 7.6 million fewer voters in the 102 seats polled Friday, according to estimates by Yogendra Yadav, an election analyst and political activist.

The world's largest democracy is only going to struggle more with this as the planet warms. It will have to overhaul its hulking electoral machinery to keep up.

The length of voting lines in United States federal elections (especially in majority-black districts) are a perennial scandal, prompting lawsuits, protests and a Curb Your Enthusiasm story line. The challenges you'll face standing around in the middle of fall in the US are nothing, however, compared to an Indian pre-monsoon heatwave.

Monsoon, Wedding and Cropping Seasons

There are both idealistic and cynical reasons to change. Encouraging the highest possible turnout ought to be an end in itself for any democracy. (My own country, Australia, is one of more than a dozen where voting is mandatory.)

US elections have been held at the start of November since the mid-19th century because farmers in what was then a largely agricultural society had completed the harvest and the coldest winter weather was yet to come. That was seen as the best way of boosting turnout.

India may have ended up with its recent run of summer elections for similar reasons. Prime ministers, as in the United Kingdom, get to choose the date of the polls. Between monsoons, wedding seasons, religious festivals, three separate cropping seasons and surprisingly intense winters, however, there just aren't that many suitable dates. As a result, every Indian general election since 2004 has been held in April and May.

There's a more wily reason to target the changing seasons, too. Climate seems to have measurable, if much-debated, effects on voter behaviour.

In the UK, all but one of the 11 general elections since 1979 have also happened in April, May or June, when politicians appear to believe the spring sunshine will imbue people with a feeling of optimism that will benefit incumbents. By the same token, waiting in line in furnace-like temperatures might not be the best way to convince wavering voters the government has its priorities straight.

Making Voting Easier for A Billion Voters

There are plenty of fixes that could be made here. India has nearly a billion registered voters, but few provisions to make the ballot process easier.

Postal and absentee voting is only available to people with disabilities, those over 85 (raised this time around, from 80 in 2019), and certain essential services workers. Everyone else needs to turn up on the day or miss the opportunity.

Roughly half a billion people who've migrated from other areas of the country face barriers to voting in their home towns, an issue the country's Election Commission is only starting to address.

In-person pre-poll voting may be a challenge given the sheer scale of the vote. There simply aren't enough poll workers to run it in a country with a million voting booths. Still, postal ballots ought to be far more widely used.

Prime minister Narendra Modi rattled?

Above all, though, Indian politicians need to reconsider the timing of the vote. Punishing monsoon seasons aren't going away any time soon.

Indeed, they're only likely to get worse as the accumulated carbon pollution from richer countries, as well as that resulting from Modi's own failing renewables programmes, raises temperatures in April and May to still-more unbearable levels. An earlier ballot, perhaps kicking off after Republic Day in late January, would avoid the worst times.

It's possible the current election could provide the catalyst for such a change. Despite the BJP's roots as an urban, upper-caste party, the constituencies that Modi has increasingly relied upon since coming to power in 2014 have been precisely the rural, lower-income and lower-caste voters who are most likely to be put off by sweltering weather on election day. The low turnout Friday appears to have rattled him.

We should normally worry when populist leaders start messing around with the mechanics of elections. If it would mean more voters getting to India's polls without withering in the summer heat, that might be a risk worth taking.

Source: Bloomberg

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Glendon

Economic

The future of Ford Motor Company (F) hinges on its ability to navigate the treacherous waters of the auto industry. Investors are grappling with whether Ford's stock is a bargain bin treasure or a value trap, and the answer depends on your risk tolerance and investment horizon.

Undervalued Potential

Several factors suggest Ford might be undervalued. Analysts at Morningstar consider the stock a 4-star rating, indicating it trades below their estimated fair value of $19 per share. Ford's Value Score of A from Zacks also suggests it might be a steal for value investors seeking companies trading less than their intrinsic worth.

The company's recent earnings report offered some positive signs. Ford surpassed analyst expectations and boosted its free cash flow guidance, showcasing potential for financial growth. The company is also investing heavily in electric vehicles (EVs) through its Ford Model e division, a segment poised for significant growth in the coming years.

Ford's first-quarter earnings report in April 2024 presented a picture of a company in transition. Here's a breakdown of the key takeaways:

Bright Spots

Ford Pro Shines: The commercial vehicle and services division, Ford Pro, emerged as the star performer. Revenue surged 36% year-over-year, driven by strong demand for Super Duty trucks and Transit vans. This segment's profitability, with a nearly 17% EBIT margin, exceeded expectations.

Solid Overall Results: Despite missing analyst expectations on overall automotive revenue, Ford exceeded earnings per share estimates. The company also narrowed its capital expenditure forecast, indicating strong financial management.

EV Push Continues: While the Model e division is not yet profitable, it experienced an 84% revenue increase compared to the prior year. This suggests growing customer interest in Ford's electric offerings.

Areas of Concern

Ford Blue Struggles: The company's traditional internal combustion engine (ICE) business, Ford Blue, saw a significant decline in profitability. This was partially attributed to the launch of the new F-150 truck.EV Losses: While revenue increased, Ford Model e continued to generate substantial losses. The company is losing money on every EV sold currently.

Analyst Opinions

Analysts generally viewed the quarter as positive, highlighting the strength of Ford Pro and the company's commitment to EVs. However, concerns remain regarding the profitability of the EV segment and the overall health of the Ford Blue business.

Overall

Ford's Q1 earnings paint a picture of a company with a strong commercial vehicle business and a long-term vision for electrification. However, challenges remain, particularly in achieving profitabilit

Headwinds and Uncertainty

However, headwinds threaten Ford's smooth sailing. The Model e division is not yet profitable and is expected to incur significant losses in 2024. Investors will need to be patient as Ford scales up production and establishes a foothold in the competitive EV market.

The success of Ford's EV strategy hinges on the execution of its plans. The upcoming BlueOval City BEV factory opening in Tennessee in 2025 is a critical milestone. Delays or production issues could derail Ford's EV ambitions.

Mixed Signals

Technical indicators provide conflicting signals. Some analysts interpret a recent pivot bottom point as a buy signal, suggesting potential price increases. However, the long-term moving average indicates a sell signal, casting doubt on sustained growth.

The Verdict: Patience is Key

Ford's stock might be attractive for investors seeking a potentially undervalued value play, but patience is paramount. The company is in the midst of a significant transformation, and its EV ambitions are yet to come to fruition. Investors should consider factors like:

Risk tolerance: Can you stomach potential short-term losses as Ford navigates its EV transition?

Investment horizon: Are you invested for the long haul and willing to wait for the EV segment to mature?

Overall portfolio: How much exposure do you already have to the auto industry and the EV sector?

Conclusion

Ford's stock is a mixed bag. While the potential for future growth is undeniable, there are significant hurdles to overcome. For investors seeking a quick win, Ford might not be the best option. However, for those with a long-term perspective and a belief in Ford's EV strategy, the stock could offer an attractive entry point.

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Energy

Renewable energy sources generated over a third of Australia's utility-supplied electricity during the first quarter of 2024, a record share for solar and wind farms during the first quarter of the year and Australia's peak summer demand period.

Solar farms generated 13.11 terawatt hours (TWh) of electricity during the first quarter of 2024, up 13.5% from the same period in 2023, data from energy think tank Ember shows.

Wind power generated 7.53 TWh of electricity, up 6.5% from the same quarter a year ago, lifting total output from renewable sources to 20.64 TWh during the quarter, and the highest first-quarter total on record. Renewables Generate a Third of Australian Electricity in Q1 2024_1

Renewables Generate a Third of Australian Electricity in Q1 2024_1

The solar and wind production totals were the second highest ever on a quarterly basis after the final quarter of 2023, and indicate that Australia's build-out of utility-scale clean energy generation capacity is having a deep impact on the country's generation mix.

Fossil Fuelled

Up until the end of 2020, Australia relied on fossil fuels to generate 75% of its electricity, while renewable energy sources accounted for less than 20% of utility-generated electricity supplies.

Coal remains the primary source of the country's electricity, accounting for around 55% of total electricity generation so far this year.

But coal's share of the generation mix is down sharply from more than 70% in 2020 due to strong societal and policy support for reducing use of fossil fuels for power generation.

This in turn has spurred a rapid expansion in renewable generation capacity, both at the utility level and behind-the-meter in households and small businesses.

Rooftop solar installations across Australia have surged in recent years, with an estimated 3 million households deploying some form of solar generation, producing roughly 11.2% of the country's electricity in 2023 according to the Australian Clean Energy Council.

Around 2.9 GW of rooftop capacity was estimated to have been added in 2023, according to the International Energy Agency, but delays to grid connection and declining incentives for new customers have led to a slowdown in the pace of new additions, which are expected to decline to 2.5 GW in 2024 and 2 GW in 2025.

At the utility level, Australian solar electricity generation has grown by roughly 90% from 2020 to 2023, and wind power output has grown by roughly 40%.

These growth rates compare to a 12% decline in coal-fired generation and a 23% drop in gas-fired output over the same period, and reveal a significant swing in power sources within utility generation systems.

Renewables Generate a Third of Australian Electricity in Q1 2024_2

Large swings in generation capacity have also changed Australia's power production landscape.

Between 2018 and 2022, renewable generation capacity jumped from less than 20 gigawatts (GW) to more than 40 GW, or by 128%, Ember data shows.

In contrast, fossil fuel generation capacity expanded by only 5.6% from 51 GW to 53.8 GW.

This has resulted in the share of clean power capacity within Australia's utility generation system growing from 34% in 2018 to 48% by 2023, and likely around 50% by the end of 2023 once official capacity data for last year is released.

Growth Path

Analysts project continued rapid growth in renewable power capacity in Australia over the coming decades, which should mean that clean sources supply a majority of the country's utility-generated electricity by the end of this decade.

Solar power looks set to remain a major driver of clean electricity growth, with utility-scale generation capacity set to climb from around 22 GW by the end of this year to 80 GW or more by 2029, according to the Australian Energy Market Operator (AEMO.)

But that surge in solar capacity looks set to be dwarfed by potential expansion in stored energy capacity over the same period. Stored energy sites include batteries and pumped hydro dams, and can store renewable energy during peak output periods and dispatch it later to consumers during demand peaks.

Total utility stored energy capacity could grow from 1.6 GW in 2024 to just over 22 GW by 2030, AEMO data shows. Utility-scale wind power capacity is also set to grow sharply.

If all these projected expansions unfold as planned, Australia's electricity generation mix will become overwhelmingly powered by clean energy sources.

In turn, that could result in the country transforming from a relative clean power laggard at the start of the current decade, into a potential clean energy leader by the 2030's.