Simplifying EU Law: A Cumbersome Task with Mixed Results

Economic

Summary:

The volume and complexity of EU laws continue to increase despite measures taken in previous mandates to make existing legislation less burdensome.

Simplifying European Union law, improving its quality and reducing the burden of laws and regulation on EU businesses and citizens has long been a goal of the European Commission. As one five-year legislative term ends and the next begins, it is appropriate to take stock of whether simplification measures have worked as intended.

Regulatory burden has many different elements. In this analysis, we confine ourselves solely to some of the most obvious and rudimentary:

Has the volume of new EU law increased on balance?Have there been noteworthy reductions in the volume of EU law, or simplifications?Has the annual rate of increase in the volume of EU law increased, decreased or remained roughly stable?

The degree to which EU law is burdensome is a more complicated question than any of these. But if the volume of law is growing, the level of burden is unlikely to be shrinking.

EU firms perceive EU law as growing in complexity

A survey by the European Investment Bank (EIB) indicates growing concern on the part of businesses. 60.2 percent of large firms and 65.4 percent of small and medium-sized enterprises (SMEs) perceived business regulations such as licences and permits, together with taxes, as a serious impediment to investment (Marcus and Rossi, 2024). It is not surprising for businesses to complain about regulation, but in this case, we think that there are good grounds.

A study for the European Parliament (Rzepecka et al, 2024) on the impact of EU legislation such as the digital and green transitions on SMEs – which tend to feel regulatory burden the most – found that one should take seriously the concerns of SMES on “the introduction, in a short period of time, of a large number of new EU rules driving the digital and green transition [and] about the cumulative impact of the changes and the perception that rules may not be fully consistent in all cases”. Even though many of the new measures include articles that seek to reduce the impact on SMEs, those provisions are only partly effective because SMEs are often suppliers to larger firms that are obliged to flow their obligations down to their suppliers (Rzepecka et al, 2024).

A rough count based on the digital legislation dataset provided by Zenner et al (2023) shows a dramatic increase in the pace of new EU laws involving digitalisation after 2015. This corresponds to the point when the European Commission introduced its Digital Single Market strategy (European Commission, 2015). In 2000, there were only seven such laws in place. In 2011, there were still only 20 such laws. More than three quarters of the growth to 88 laws in 2024 took place after 2011 (Marcus et al, 2024). Perhaps even more important, a number of the laws enacted during the past two five-year terms can be expected to be particularly burdensome on the firms that they impact.

Attempts to simplify EU legislation

In his 2014 Political Guidelines, then Commission President Jean-Claude Juncker already placed a premium on achieving “a European Union that is bigger and more ambitious on big things, and smaller and more modest on small things” (Juncker, 2014). This goal was clearly reflected in the Commission’s Work Plan for 2017, which announced:

“This year we are proposing 19 withdrawals of pending legislative proposals which have become outdated, and we will repeal 16 pieces of existing legislation which have become obsolete … Many of the key initiatives we will present in the next year follow regulatory fitness and performance reviews (REFIT) and will update and improve existing legislation so it continues to achieve its objectives effectively and without undue burdens.”

One tangible result of Juncker’s emphasis on simpler and better EU law was a substantial update in 2016 to the Inter-Institutional Agreement in which the Commission, Council and Parliament committed to cooperatively implement good legislation. Of the ten sections within the Inter-Institutional Agreement, one entire section deals with simplification .

The three institutions jointly committed “… to cooperate in order to update and simplify legislation and to avoid overregulation and administrative burdens for citizens, administrations and businesses, including SMEs, while ensuring that the objectives of the legislation are met”. Regrettably, the Parliament and the Council have done relatively little to implement the ambitious Interinstitutional Agreement. Thus, many of the objectives are words that have not been followed up with deeds.

Under the von der Leyen Commission, the desire to reduce the regulatory burden has been largely transformed into a ‘Think Small’ principle and a ‘One in one out’ principle. Both programmes are substantially under-performing (Marcus and Rossi, 2024). The study for the European Parliament by Rzepecka et al (2024) observed euphemistically that the ‘Think Small’ principle “… is often seen as an administrative, rather than substantial, procedure at European level, and there is room for improvement in its application”.

‘One in one out’ – while a well-intentioned programme – needs serious re-thinking. It seeks to reduce the administrative burden of new laws, thus ignoring the potentially vastly greater costs of transition and of implementation of those laws. Even within this narrow focus, it is measured in ways that are largely irrelevant, since it is based on administrative costs of the law as proposed, which are often far less than the costs of the law as enacted. Actual savings in any case are minimal relative to what is needed (Marcus and Rossi, 2024).

Measures enacted per five-year mandate

It is relatively straightforward to analyse the number of legislative proposals put forward by the Commission per year or per term. While there was a steady increase in the number of legislative proposals from term-to-term, there was a marked break during the Juncker term. The number of legislative proposals increased by 16 percent from the Prodi Commission to the subsequent Barroso I Commission. It increased by an additional 14.2 percent from Barroso I to Barroso II, for a combined increase of about one third (32.6 percent) for the two terms (Figure 1).

The Juncker Commission explicitly sought to reduce the number of legislative proposals. This appears to have led to a reduction of some 24 percent in the number of legislative proposals in comparison with Barroso’s second mandate. Considering, however, that the volume of new legislative measures might otherwise have been expected to increase, the real reduction was significantly larger.

In von der Leyen’s first mandate, however, the number of legislative proposals resumed the previous pattern of growth – it was 14 percent higher than under Juncker, but it started from a lower base. At the same time, the number of proposals under von der Leyen was 13 percent lower than in Barroso’s second term, with the lower production in this case quite possibly more the result of the COVID-19 pandemic rather than of any conscious attempt to reduce the amount of new legislation.

Simplifying EU Law: A Cumbersome Task with Mixed Results_1

Complexity of the laws enacted per five-year mandate

If the Commission were merely scoring itself based on the number of legislative measures introduced, it could obviously game this metric by introducing fewer measures, but measures that are longer and more complicated. Has this in fact been the case?

To some extent, yes. If we look at the composite length of the active text of legislative proposals (articles plus annexes, ie the active text), they have grown in each of the five legislative terms (Figure 2). Under Prodi, the average length was 4,501 words, while under von der Leyen, it was 8,582 words. From Prodi to Barroso II, the combined average length of articles and annexes increased by 76 percent. From Barroso II to Juncker, there was a decline in average length of just 1.4 percent, followed by a modest increase of 9.7 percent in von der Leyen’s first term.

Preambles (ie recitals), financial statements and explanatory memoranda have also grown, but these should not translate into increased regulatory burden.

Simplifying EU Law: A Cumbersome Task with Mixed Results_2

Repealing some laws, simplifying others

Perhaps the most dramatic way to reduce regulatory complexity is to repeal laws completely. Consistent with the trend in the number of laws that were introduced, the rather deregulatory Juncker Commission repealed more laws outright than any other Commission before or since. The number of measures repealed under the von der Leyen Commission is closer to what was typical in previous five-year terms. In some cases, new laws replaced the laws that were repealed; thus, not every repeal constitutes a net decrease in complexity.

Simplifying EU Law: A Cumbersome Task with Mixed Results_3

Not all legislative measures increase complexity. Codifications seek to simplify existing laws. A codification consolidates all the provisions of an existing legal act and its amendments into a new legal act; a recast goes further by incorporating substantive amendments along with the consolidation.

However, very little of this type of simplification was done, probably because it is hard work and because politicians are unlikely to feel that this kind of work endears them to their voters. The von der Leyen Commission prepared 17 recasts and 8 codifications. The Juncker Commission proposed 22 recasts and 8 codifications. The Barroso II Commission put forward only 2 codifications and 14 recasts (Figure 4).

Simplifying EU Law: A Cumbersome Task with Mixed Results_4

Conclusions

Judged solely from the crude criteria of the net number of new laws introduced and the length of those laws, limited progress has been made to date in simplifying laws and reducing regulatory complexity. The number of new laws dropped by 24 percent during the Juncker five-year mandate, when significant emphasis was placed on regulatory simplification. This is noteworthy compared to the 14 percent to 16 percent growth from one legislative term to the next that otherwise characterises the long-term trend since the year 2000.

While many laws have been repealed and others have been simplified, new laws have been introduced at a substantially faster pace than the frequency with which old laws are repealed. Moreover, the length of the active text in laws (and presumably their complexity) continues to grow.

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Risk Warnings and Disclaimers

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Pepperstone

Economic

Central Bank

Goodbye to the inverted yield curve.

It was fun while it lasted, but DM government bond markets have seen a return to normality over recent weeks, with the 2s10s curves in the US, UK, and finally Germany having dis-inverted after a prolonged inversion over the last couple of years.

Macro Trader: The Curve Is Back To Normal_1

Of course, curve inversion is an unusual phenomenon where, as opposed to the traditional upward sloping curve where a greater yield is on offer for longer maturity debt, the opposite is true, with longer-term debt yielding less than comparable short-term notes.

It is central banks that we have to thank for restoring a degree of normality in the fixed income market, as policy normalisation gets underway in earnest, and rate cuts are delivered across G10. Said rate cuts, as the market discounts further easing in the short-term, have dragged short-term yields lower, with the front-end – as always – especially sensitive to policy developments.

At the same time, longer-maturity debt has actually sold-off of late, most notably in the US, causing the curve in its entirety to steepen. Stateside, this bear steepening has taken the 2s10s to just shy of 20bp, its widest since mid-2022.

Macro Trader: The Curve Is Back To Normal_2

Naturally, the bond market remains one of the most important signals of market-based expectations – whether those expectations be for policy rates, inflation, or economic growth.

The steepening in the Treasury curve appears to be sending a relatively clear message, in that participants are displaying an increasing degree of concern that the FOMC’s 50bp cut last week was too much, too soon, in terms of the removal of monetary policy restriction. Naturally, this is fanning the flames of concern that the magnitude of policy easing is too significant, into an economy that continues to grow at a solid clip, potentially raising the risk of inflation rearing its ugly head once more.

Consequently, it seems like the present steepening, which should continue across DM, is likely to remain more significant in the Treasury curve. While the US economy has grown at an annualised rate north of 2% in seven of the last eight quarters, and is set to notch Q3 GDP growth of 2.9% per the Atlanta Fed’s tracker, growth elsewhere remains significantly more anaemic.

Strengthening the case for a more rapid steepening across the pond is the FOMC’s clear desire to act aggressively in delivering rate cuts, adopting a much faster path back to neutral than G10 peers. While, for instance, the BoE seem set to deliver quarterly 25bp cuts, the FOMC are likely to deliver such a cut at every meeting, with the prospect of a larger 50bp move remaining on the table if the labour market were to further weaken – i.e., unemployment rising north of the 4.4% median SEP forecast.

Such a rapid return to neutral is likely to pose a headwind to the USD, with rally selling the preferred strategy in the short-term, parring any overt nods from other G10 central banks towards larger cuts in the months ahead – the BoC, and the ECB, have the highest potential here for a dovish turn.

Macro Trader: The Curve Is Back To Normal_3

Stocks, meanwhile, should remain underpinned for the foreseeable, with the path of least resistance continuing to lead to the upside, amid the forceful central bank put, whereby investors will retain confidence to remain further out the risk curve, safe in the knowledge that policymakers have as much as 200-250bp further room to ease were it necessary, in addition to being able to slow, or end, the process of balance sheet reduction were additional liquidity provision to be required.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Warren Takunda

Cryptocurrency

Bitcoin retargeted $64,000 on Oct. 1 after the BTC price monthly close set a new September record.

BTC/USD 1-hour chart. Source: TradingView

BTC price defies “Rektember” with 7% gains

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD rebounding after a brief trip below the $63,000 mark.

Coming in at $63,300, the September monthly close sealed BTC price gains of 7.3%, per data from monitoring resource CoinGlass — Bitcoin’s best-ever ninth month of the year. Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_2

Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_2

BTC/USD monthly returns (screenshot). Source: CoinGlass

While failing to flip $65,000 to support after hitting it last week, bulls nonetheless retained a key mid-term trend line in the form of the 21-week simple moving average (SMA).

According to Keith Alan, co-founder of trading resource Material Indicators, doing so was key to avoid “opening the door to a retest” of the range lows. Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_3

Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_3

Source: Keith Alan

“Losing the 200-Day MA is not a good sign, but holding the 20-Week MA (for now) is. Losing them both would be a sign of weakness,” he summarized previously in a post on X.

Popular trader Daan Crypto Trades eyed changing order book liquidity, this stacking at $62,700 and $67,000, marking support and resistance levels, respectively.

“Testing the Daily 200 Moving Average after breaking above it yet another tiime,” he continued, agreeing with Alan.

“So far this year it has struggled to hold on to that level. Whether $BTC trades above or below is a good mid/high timeframe momentum and strength indicator.” Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_4

Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_4

BTC/USD 1-day chart. Source: Daan Crypto Trades/X

On lower timeframes, fellow trader Roman was among those confident of upside continuation next.

“Some nice bull divs now forming on H4,” he told X followers, referring to a bullish divergence between price and the relative strength index (RSI) indicator.

As Cointelegraph reported, such scenarios often precede bullish BTC price performance.

“Expecting some upward movement /chop which will hopefully give us upwards consolidation instead of our 1D deviation,” Roman forecast.

Bitcoin dip-buying plans in full swing

Others suggested “buying the dip” as a suitable short-term strategy, despite progress so far fading beyond $65,000.

“Bitcoin officially made a higher high by closing above $65,000 - on the weekly as well,” trader, analyst and podcast host Scott Melker, known as “The Wolf of All Streets,” noted.

“Now we look for dips to buy as it potentially establishes another higher low. Altcoins largely look the same, backtesting their own key breakout resistances as support.” Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_5

Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_5

BTC/USD 1-day chart. Source: Scott Melker/X

Crypto trader, analyst and entrepreneur Michaël van de Poppe meanwhile doubled down on his plan for a new Bitcoin all-time high to come.

“Took the liquidity above the recent highs, and is coming back down,” part of an X post read before the monthly candle completed.

“I think we're in a new uptrend, which means that dips are for buying. In that sense, if we get a retest at $60.5-61.3K, I'm interested before we test the ATH.” Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_6

Bitcoin All-Time High Target Remains as BTC Price Bounces Back to $64K_6

BTC/USDT 6-hour chart with RSI, volume data. Source: Michaël van de Poppe/X

Source: Cointelegraph

Risk Warnings and Disclaimers

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S&P Global Inc.

Economic

Companies in the Malaysia, Mexico, Turkey and Vietnam manufacturing PMI panels were invited to take part in a special reshoring survey in May 2024. Firms offered their insights surrounding the impact of reshoring on order books, their expectations for the year ahead and anticipated challenges. The data were also analysed by detailed sector, region and company workforce size.

In short, the strongest increase in reshoring-related sales (domestic and exports) in the past year was seen in Vietnam, while manufacturers in Mexico and Vietnam were the most bullish about their ability to capitalise on reshoring opportunities over the coming 12 months. In all cases, large firms were most likely to have seen demand improve as a result of reshoring and were most optimistic.

When asked to identify challenges/risks likely to prevent firms from fully capitalising on growth opportunities, manufacturers generally cited the cost/availability of capital as a key obstacle. There were other more specific national issues at play. In Mexico, security was cited as a key hurdle, while in Turkey and Malaysia shortages of skilled labour featured prominently. Vietnamese firms were worried about being able to access the required technology.

Vietnam leads reshoring growth

Close to two-fifths of manufacturers in Vietnam (37%) signalled that they had seen an improvement in demand over the past 12 months as a result of reshoring, by far the highest of the four countries for which data were collected, where the equivalent figure was around the 20% mark in each case. For Mexico, where this survey was conducted for the second year running, the proportion of companies reporting growth as a result of reshoring was broadly in line with that seen in 2023 (18% in 2024 v 19% in 2023).

And, alongside Mexico, signals strongest degree of optimism

While progress over the past year in Mexico has been less than expected, manufacturers were increasingly optimistic of seeing growth opportunities over the coming year as a result of reshoring. Almost half (47%) of firms in Mexico were optimistic, broadly in line with the figure in Vietnam (46%). Meanwhile, proportions of firms expecting growth linked to reshoring were lower in Malaysia (30%) and Turkey (24%).

In all cases, large firms most likely to have seen demand improve as a result of reshoring

Common across all countries, large manufacturers were more likely to report growth linked to reshoring than small and medium companies. Large firms in Vietnam led the way (40%), just ahead of Turkey (35%). At the other end of the scale, small manufacturers in Mexico were the least likely to report demand improvements due to reshoring, with just 9% of firms responding yes to this question.

Meanwhile, large firms in Mexico were strongly optimistic of gaining from reshoring over the coming year, with close to two-thirds of companies optimistic. This put them just ahead of Vietnam, where 54% of large manufacturers predicted growth over the next 12 months. Again, large firms were more optimistic than SMEs, with the gap particularly stark in Mexico.

The cost/availability of capital was a key risk across the four monitored countries

When asked to comment on national challenges that might prevent them from fully realising gains from reshoring over the coming year, firms in all four countries highlighted the cost and availability of capital as being one of, if not the most important factor. Leading the way was Turkey, where some 71% of manufacturers indicated that this would pose a challenge, with the equivalent figures just over half in both Mexico and Malaysia.

Turkish manufacturers also widely pointed to shortages of skilled labour as a risk, reported by 64% of firms. In addition, companies also mentioned challenges around inflation and the sourcing of raw materials, particularly imported items.

For Mexico, the second most important national risk was around security (40%), including cargo theft, with other factors including water and power shortages as well as competition from other countries such as Mainland China. International competition was also mentioned by firms in Malaysia and Vietnam.

Vietnam was the only country covered where the cost and availability of capital was not the number one national challenge, although it did come in second place. Here, the top risk was access to required technology, which was reported by 46% of respondents.

In Malaysia, exchange rate fluctuations and labour costs were additional factors cited as potentially providing challenges to benefiting from nearshoring opportunities, while one-quarter of firms also noted the risk of shortages of skilled labour.

Apart from in Mexico, security was not seen as a likely barrier to gains from reshoring elsewhere, with infrastructure also generally coming further down the list of concerns.

Andrew Harker, Economics Director at S&P Global said:"It is clear from this special survey that the cost and availability of capital is a key factor determining success for firms looking to expand and take advantage of supply-chain reshoring."

Malaysia: Chemicals & Pharmaceuticals sector set to benefit the most from reshoring in the year ahead

Out of the nine broad areas of the manufacturing industry for which sufficient data were available, Chemicals & Pharmaceuticals achieved the highest position in the rankings for growth opportunities as optimism was signalled by 44% of firms. In second place was Transport Equipment (43%) ― which includes makers of motor vehicles, railway, aircraft and motorcycles. The third spot was shared by Electrical & Electronic Equipment and Mineral Products (both at 37%).

Around 35% of companies in the Food, Beverages & Tobacco segment expect growth opportunities in the year ahead, closely followed by Machinery & Repair (33%). Sentiment was relatively subdued at producers of Metals & Metal Products (13%) and Paper & Paper Products (18%).

Analysing the data by geographic breakdown, the results highlighted Southern Malaysia as the area with the most upbeat companies regarding reshoring opportunities. Nearly 40% of businesses in Johor, Malacca and Negeri Sembilan indicated positive sentiment. Moreover, looking at whether sales volumes had increased in the past 12 months due to reshoring, close to 30% of firms responded 'Yes'.

The proportion of panellists in the Central (Kuala Lumpur and Selangor) and Northern (Kedah, Penang, Perak and Perlis) areas signalling optimism was broadly similar, with the respective readings at 32% and 30%. When it comes to having already benefited from reshoring in terms of order book volumes, the share of firms reporting growth was equal (17%).

In East Malaysia (Sabah and Sarawak), circa 27% of manufacturers in the PMI panel attributed new order growth in the past 12 months to reshoring. This was higher than the national average of 20%. That said, looking at the outlook ranking scores, the Eastern region came last, with 27% of local businesses expecting reshoring growth opportunities in the year ahead. The sample size for the East Coast (Pahang) was insufficient to generate reliable results.

Mexico: Machinery & Repair leads expectations surrounding nearshoring opportunities

The highest proportion of firms expecting growth opportunities in the year ahead as a result of nearshoring was found in the Machinery & Repair segment (82%). As was the case last year, Electrical & Electronic Equipment came second (74%), followed by Chemicals & Pharmaceuticals (53%). Exactly 40% of companies in the Transport Equipment sector (manufacturers of motor vehicles, railway, aircraft and motorcycles) were upbeat about the outlook for nearshoring, while Textiles & Clothing propped up the rankings (8%).

When it comes to having already benefited from nearshoring trends, the share of firms indicating sales growth over the past 12 months rose in around half of the monitored sub-sectors relative to 2023. Among them were Chemicals & Pharmaceuticals (33%), Mineral Products (25%) and Metals & Metal Products (12%).

The Gulf Coast (Nuevo León, San Luis Potosí, Tamaulipas and Veracruz) saw the largest proportion of companies signalling higher sales in the past 12 months as a result of nearshoring. When assessing potential nearshoring benefits in the coming 12 months, 73% of firms were optimistic.

Around one-in-five panellists in Northern Mexico (Baja California, Baja California Sur, Chihuahua, Coahuila, Durango, Sinaloa and Sonora) indicated that sales rose in the 12 months to May 2024 due to nearshoring, while almost half of all survey participants (46%) foresee nearshoring-related growth opportunities in the year ahead.

Looking at the data for Western Mexico, 42% of firms expect growth. The Central region - which includes Hidalgo, México, Morelos, Puebla, Querétaro and Tlaxcala - came second in the growth opportunities rankings (59%). Meanwhile, 43% of firms in Mexico City were confident that they would benefit from nearshoring in the year ahead. Finally, in East Mexico 53% of companies expect growth opportunities in the year ahead.

Turkey: Transport Equipment the biggest beneficiary of reshoring trends

Transport Equipment manufacturers have been, and are set to be, the main beneficiaries of reshoring within the manufacturing sector. Some 38% of Transport Equipment firms have seen their demand improve as a result of reshoring, with a similar proportion (35%) expecting increases over the coming year.

Other categories to have seen notable demand growth over the past 12 months due to reshoring included Rubber & Plastics (30%), Paper & Paper Products and Textiles & Clothing (both 25%). At the other end of the scale, the Mineral Products sector (12%) was the least likely to have seen demand improve, just behind Wood & Wood Products (13%) and Chemicals & Pharmaceuticals (14%).

Looking to the prospects for demand over the coming year, the Textiles & Clothing sector came in just behind Transport Equipment as 32% of respondents in the sector predicted increased growth opportunities as a result of reshoring. Around one-third of Rubber & Plastics manufacturers are confident for the coming 12 months, just ahead of the Machinery & Repair category (29%).

Wood & Wood Products firms were the least optimistic for the future, but Mineral Products manufacturers expect to be able to better benefit from reshoring trends over the coming year (19%) versus the situation over the past 12 months (12%).

The Central Anatolia region posted the highest proportion of manufacturers reporting an increase in their demand as a result of reshoring over the past 12 months, at 43%. Other areas to outperform the national average were West Anatolia which contains the province of Ankara, and West Marmara (both at 30%). Just behind was East Marmara with 27% of manufacturers there having seen a rise in demand due to reshoring.

Turning to the prospects for the coming year, West Marmara was the top performer as 40% of respondents predicted increased growth opportunities, just ahead of the Central Anatolia region (38%).

Other notable performers included West Anatolia and East Marmara. The West Black Sea (13%) and Central East Anatolia (12%) regions were among the least confident, but the Mediterranean region was also relatively low, scoring just 14%.

Vietnam: Hanoi and Ho Chi Minh City regions see healthy optimism with regards to reshoring

Responses to the special reshoring survey were highly concentrated in the Red River Delta and Southeast regions, which contain the main two Vietnamese cities of Hanoi and Ho Chi Minh City respectively.

Approximately 43% of manufacturers in the Red River Delta region indicated that they had seen an increase in demand as a result of reshoring over the past 12 months. This figure rose to 45% when looking to the future, signalling that firms around the capital Hanoi expect to be able to continue benefiting from reshoring opportunities.

Meanwhile, in the Southeast region (which contains Ho Chi Minh City), just over one-third (36%) of manufacturers have seen an expansion in demand over the past year thanks to reshoring. Firms here, however, were more bullish about the future, with close to half (48%) projecting an improvement over the next 12 months.

Less positive was the picture in the Mekong River Delta, where around one-quarter (24%) of respondents saw demand strengthen as a result of reshoring over the past year, and 41% predict an expansion over the next 12 months.

Looking at the sub-sector performance over the past 12 months, the Machinery & Repair and Transport Equipment categories were the most likely to have seen growth as a result of reshoring, each scoring 54%. Meanwhile, just under half of respondents reported an improvement in demand in the Textiles & Clothing, Metals & Metal Products and Rubber & Plastics sectors.

At the other end of the scale, Chemicals & Pharmaceuticals (21%), Electrical & Electronic Equipment (22%) and Wood & Wood Products (26%) firms were the least likely to report reshoring gains.

Looking to the future, Machinery & Repair companies are extremely confident in their ability to expand based on reshoring opportunities, with some 71% of firms in the sector predicting growth. The reading for Transport Equipment (46%) was below that seen for the question about the past year.

Elsewhere, Rubber & Plastics (59%), Textiles & Clothing (55%) and Metals & Metal Products (54%) were all optimistic in the outlook for reshoring opportunities. Meanwhile, the same categories that have struggled for reshoring-related growth over the past year were the least confident in the potential for improvements in the coming 12 months.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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SAXO

Economic

As explained in the analysis, the latest PMI figures for September highlight the deepening risk of a recession in Europe, with both Germany and France experiencing significant contractions in their manufacturing and services sectors.

Additionally, the disinversion of the German yield curve for the first time since November 2022 indicates rising recession risks, as markets now expect the European Central Bank (ECB) to pivot towards rate cuts to support the slowing economy.

Based on this macroeconomic backdrop, we now assess the risks and opportunities ahead for investors, particularly in the context of potential ECB policy shifts and broader economic challenges.

Opportunities and Risks for Investors

Opportunities:

Bond Market Gains: As the likelihood of ECB rate cuts increases, European bonds, especially shorter-dated bonds, may offer opportunities. The market is now pricing in about 10 basis points of ECB rate cuts by October, with growing speculation for further easing in response to the deteriorating economic outlook.

Euro Depreciation: The euro continues to weaken against the U.S. dollar, providing an opportunity for investors in European exports and multinational corporations that benefit from a more competitive currency.

Risks:

Rising Recession Risks: The disappointing PMI numbers raise the chances of a deeper economic slowdown in Europe. Investors should be cautious of sectors most affected by reduced consumer and industrial demand, such as manufacturing.

Political Instability in France: Ongoing uncertainty about the stability of Macron’s government could lead to increased volatility in French bond spreads, making investments in French assets riskier.

Key Investment Insights:

Short-term Sovereigns: Solid choice for capital preservation with ECB rate cuts likely to accelerate;

Medium- and Long-term Sovereigns: Potential for capital appreciation, but keep an eye on inflation surprises or ECB policy shifts;

Investment Grade Corporate Bonds: A safer play for steady income, though rating downgrades could pose risks;

High-Yield Corporate Bonds: Attractive returns, but higher default risk in a weakening economy;

EUR/GBP & EUR/USD: Euro vulnerability remains; potential downside if ECB cuts rates further and Eurozone data continues to underperform.

To stay updated on all economic events of today, please check out our Economic calendar

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ChathamHouse

Economic

Energy

As concerns rise about the achievability of the 2030 Agenda for Sustainable Development, an opportunity is emerging to promote the circular economy as the solution of the future – and to put the concept at the heart of action on everything from tackling climate change to reducing poverty.

The transformative potential of the ‘circular economy’ in addressing global environmental and social challenges is receiving increasing international attention, with recent interest driven in particular by recognition that the existing UN-led sustainable development agenda is faltering. Until now, the circular economy has been largely peripheral to that agenda, despite featuring extensively in government thinking and having a rising profile as a sustainable alternative to today’s wasteful and polluting economic models. However, with the multilateral policy community considering as a matter of urgency both how to revive stalled progress on the Sustainable Development Goals (SDGs) and what any framework that replaces or extends the SDGs after 2030 should contain, there is an opportunity to embed circular economy principles more comprehensively and formally within the international system.

This research paper has been written with the express intention of contributing ideas to this emerging SDG reset, both at forthcoming events in the autumn of 2024 – most notably, the UN’s Summit of the Future – and in continuing discussions into 2025 and beyond. We make the case for accelerating and deepening the shift to circular economic models, taking into account the potential trade-offs and unintended consequences that disruptive innovations may bring. The paper underlines the vital role that expansion of the circular economy could play in supporting the SDGs and in shaping what comes after them. On the latter, specifically, we present a policy blueprint for development of the circular economy to 2050 (see Chapter 4, Table 2).

At the heart of our argument is the idea that the circular economy and the SDGs are naturally complementary. Prominence in the SDG framework could help the circular economy to reach a critical scale and breadth, which in turn would improve prospects for achieving many of the SDGs’ targets (see Table 1). Linking the two offers mutual benefits. The circular economy needs the imprimatur of the UN system and other multilateral institutions to establish itself globally. At the same time, the circular economy offers the prospect of vastly more effective action on the triple planetary crisis of pollution, climate change and biodiversity loss – precisely the sort of catalyst the UN’s ailing 2030 Agenda for Sustainable Development could use.

A ‘circular economy’ can be thought of as a system designed to deliver social and economic prosperity without requiring unsustainable levels of raw material extraction, consumption or pollution. In simplified terms, a circular economy combines three design principles: eliminating waste and pollution; extending the lifetime of products and materials for as long as possible; and regenerating natural systems. It can entail many different types of activity – ecodesign of goods, ‘product-as-a-service’ alternatives to product ownership, regenerative and restorative farming, and the use of refurbished and second-hand goods are just a few examples. Achieving a circular economy is not simply about recycling more: it requires reorienting and redesigning the fundamental goals and structures of societal provisioning systems (food, transport, energy, shelter) in ways that dramatically reduce raw material and energy consumption.

A robust scientific literature underlines the advantages of circular economic models over today’s predominantly extractive, resource-intensive ones (often described as ‘linear’ by researchers). By some estimates, moving to a circular economy could unlock up to $1.5 trillion in value in just three sectors of the US economy alone. It could help achieve 45 per cent of the global greenhouse gas emissions reductions needed to mitigate climate change by transforming the way products and materials are made and used. It could also restore global biodiversity to its 2000 levels within little more than a decade. Yet without introduction of the circular economy at scale, in contrast, resource consumption could increase by 60 per cent from 2020 levels by 2060, while over half of the 169 targets within the 17 SDGs may be unachievable. Put another way, the circular economy is becoming too important for policymakers to ignore, all the more so amid mounting concerns about rising global temperatures, the lack of progress on the SDGs, and the world’s failure to meet many environmental targets.

Yet the story of the circular economy so far has often been one of modest ambition, localized initiatives, and small-scale or experimental projects implemented incoherently. As we argue in this paper, the circular economy needs to be both scaled up and globally coordinated. One of the most basic challenges is that not enough circular economy activity is going on: according to one estimate, the global economy is just 7.2 per cent ‘circular’, if measured by the percentage of secondary (i.e. cycled) materials it consumes. A second problem is the lack of dedicated institutional representation. Whereas the UN Framework Convention on Climate Change (UNFCCC) exists for global climate policy coordination, and the International Energy Agency (IEA) provides a coordinating structure for the energy sector, no equivalent exists for the circular economy. What is needed is a kind of IEA for the circular economy, so to speak: a multilateral body that can champion the circular economy with policymakers and in the UN system, and that can coordinate policy, regulation and standards.

A third problem, partly stemming from the above, is that action on the circular economy remains fragmented at a global level. All countries depend to varying degrees on foreign trade for the materials, goods and services associated with circular activities. Equally, ‘ecodesign’ standards requiring products to meet strict circularity criteria will affect global supply chains, with implications potentially beyond the jurisdictions where such standards are enacted. However, the basic interconnectedness of the circular economy is not fully reflected in policy. More than 75 national circular economy action plans, roadmaps and strategies have been launched to date (another 14 are in development). These documents have been drafted unilaterally by the countries in question, resulting in a kaleidoscope of around 3,000 rapidly evolving commitments spanning 135 policy areas and 17 sectors. While the amount of activity is a positive sign of rising interest in the circular economy, fragmentation of its operating and regulatory environments risks increasing barriers to trade (for example, when regulations on the export of industrial waste or recycled electronics are incompatible between one country and another).

A fourth concern is that current government practice on the circular economy risks encouraging counterproductive resource nationalism and zero-sum economic competition, hurting resource-poor developing countries in particular and undermining the SDGs. In some cases, the national action plans and roadmaps mentioned above have narrow domestic goals, such as boosting competitiveness against trade partners, supporting the (often politically motivated) reshoring of industry and jobs, and reducing dependence on imported critical materials. Trends towards deglobalization and nationalism increase the temptation for governments to treat the circular economy as an opportunity to assert, or contest, control over supplies of critical raw materials.

Summary of recommendations

To address these challenges, this paper proposes solutions and ideas in two parts. The first part covers the period to 2030, the UN’s currently envisioned deadline for achieving the SDGs. The second focuses on 2030–50, a period during which the SDGs may be extended (most likely in modified form) or replaced with new goals as part of a refreshed sustainable development agenda.

In terms of immediate action on salvaging the SDGs between now and 2030, we have identified five priority areas for international collaboration on the circular economy. These proposed actions draw on input from stakeholder workshops and consultations with participants from Africa, Asia, Europe and Latin America, and are intended for a varied audience of multilateral institutions, governments and businesses. With the 2030 SDG deadline approaching, work on implementing these recommendations would need to begin immediately. The five priorities are as follows:

Embed principles of justice and inclusivity in circular economy development

This is more than a moral imperative; it is a pragmatic necessity both for engagement with the UN system, where such values already underpin the SDGs, and for achieving political and popular support around the world for the economic reforms implied by the circular economy. Key tasks include rectifying environmental injustices such as illegal dumping of waste in low- and middle-income countries, providing decent work and meaningful employment, and consulting a wide range of countries and stakeholders on the design of circular economy policies. Other recommendations include establishing UN guidelines on social equity in the circular economy; setting up a platform under the UN’s Economic and Social Council (ECOSOC) to facilitate sharing of expertise and best practices of Indigenous communities; and launching a global information campaign on the benefits of the circular economy.

Enhance global policy coordination on the circular economy

A multilateral or intergovernmental policy coordination mechanism is needed to help governments develop and implement national circular economy roadmaps. One option would be to establish a cross-sectoral circular economy alliance between UN development agencies. Such an alliance could work with national governments, multilateral development banks (MDBs), the private sector and civil society to offer guidelines, best-practice examples and technical knowledge. The Global Alliance on Circular Economy and Resource Efficiency (GACERE) – which currently consists of just 16 countries plus the EU – could conceivably be repurposed and expanded for this role. Another option would be to set up an international resource agency,6 akin to the International Energy Agency (IEA) in some respects but with a mandate specific to material resources and the circular economy. Additionally, the G7 and G20 should be encouraged to increase their ambition on the circular economy and to align policy in areas such as product and producer standards (see Chapter 3). International coordination between environmental agendas could also be improved by applying circular economy principles to achieve the targets set in multilateral environmental agreements such as the Convention on Biological Diversity and the Paris Agreement on climate change.

Reform the global financial architecture

Scaling up the circular economy will require significant investment. At present, the circular economy is poorly integrated into the global financial architecture, and thus largely off the radar of many investors or perceived as too risky. Creating a circular economy-specific framework for international financial institutions could facilitate development of investment taxonomies, financial benchmarks and technical criteria that would underpin the funding of projects, technologies and business models at scale. Multilateral development finance – though historically focused on ‘linear’ economic models – also has a role to play in de-risking circular economy investments. The ongoing reform of MDBs presents an opportunity to embed circularity principles in international public finance. Most fundamentally, MDBs will need to increase their lending capacity and adjust their mandates to allow the financing of global public goods. A Global Circular Economy Fund, financed through public sources and modelled on the Green Climate Fund, could also be set up to mobilize private capital, concentrating on low- and middle-income countries that might otherwise struggle to attract financing for their circular economy transitions.

Rewire the global trade system

Changes in policy and regulation are needed to support circular economy-enabling trade while preventing problems such as the illegal dumping of waste and trade in goods that inhibit the circular economy. Reconfiguring global supply chains to be circular in nature will require policies and regulations to streamline trade in many kinds of goods and services, including: remanufacturing and recycling equipment; second-hand goods; secondary raw materials; non-hazardous scrap and industrial residues; and design, rental and repair services. ‘Trusted circular trader’ schemes could be established to reduce red tape, pre-certifying circular economy-compliant exporters. ‘Resource recovery lanes’ similar to customs green lanes could expedite documentation for shipments of secondary raw materials. Technical cooperation to make circular trade compatible with the World Customs Organization’s Harmonized System (HS) codes is also needed. Finally, the informal circular economy working group hosted by the WTO’s Trade and Environmental Sustainability Structured Discussions (TESSD) would benefit from more formal status.

Develop shared standards and metrics

Common standards and metrics will be crucial to expanding the circular economy worldwide, and to reducing policy and regulatory fragmentation. In addition to supporting disclosures by businesses and organizations, new metrics will be needed for monitoring and reporting the circular economy’s aggregate impact on other multilateral environmental agreements, such as the Paris Agreement on climate change and the upcoming binding instrument to end plastic pollution by 2040. A circular economy-specific taxonomy of standards will need to cover many different areas, including product design, procurement, cleaner production, supply-chain transparency and traceability, and financial performance. The recent publication of the first tranche of ISO 59000 standards on the circular economy is a step forward, but micro, small and medium-sized enterprises (MSMEs) in particular may need support on compliance costs. The new voluntary Global Circularity Protocol (GCP), launched in 2023, could drive the development of universal metrics for assessing circularity.

After the SDGs – 2030 to 2050

Most of the SDGs will not be achieved by 2030. Only 17 per cent of the SDG targets are on track to be met globally by 2030.7 Some prominent voices propose that, instead of abandoning or replacing the SDGs, the UN should revise the current set of targets and extend the SDG framework to 2050.8 To provide ideas in this area, Chapter 4 presents an indicative, longer-term policy blueprint to be considered in the context of a possible extended or revised SDG framework post-2030.

Specifically, we propose a set of circularity targets in 17 categories for 2050, and corresponding levers and actions for achieving them. Each category of target is mapped to one of the 17 SDGs. For example, for SDG 1 (‘No poverty’), our proposed targets envisage the circular economy providing affordable basic services to the poor, and sustaining local businesses that can help make communities resilient to economic shocks and environmental disasters. For SDG 7 (‘Affordable and clean energy’), we propose actions that would enable societies to achieve full, affordable access to renewable and circular energy systems. Under this target, most critical materials would be supplied through secondary sources or substituted with alternative materials – highlighting the importance of circularity in ensuring that the resource demands of the energy transition are reduced as much as possible.

To enshrine circular economy principles more prominently in the next set of goals post-2030, we recommend several steps:

Introduce a specific high-level objective, within the extended post-2030 SDG framework, that recognizes the transformative potential of the circular economy for global development and for addressing the triple planetary crisis.Explicitly outline ambitious but achievable global targets related to reducing unsustainable resource use, reducing global waste generation, and enhancing circularity rates for key resources and materials.Ensure that circular economy targets are integrated across all SDGs, emphasizing the interconnectedness of sustainable resource management with economic, social and environmental objectives.Align the post-2030 framework and circular economy targets with the ‘Beyond GDP’ initiative that forms part of the UN secretary-general’s ‘Our Common Agenda’ vision.Develop clear, measurable indicators for inclusive circular economy practices with specific relevant targets for 2050.

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Investments from the World Bank’s private investment arm hit a record $56 billion in its financial year to end-June, the lender’s managing director told Reuters.

International Finance Corporation (IFC) commitments, which cover both its own short- and long-term financing as well as mobilised funding, had risen by 28 per cent year-on-year, said managing director Makhtar Diop.

This was chiefly driven by internal reforms as part of World Bank President Ajay Banga’s push to speed up lending across the group, which includes the IFC whose investments are targeted at spurring growth and reducing poverty in developing countries.

“(We) have been in a process of kind of seeing what we can do differently,” Diop said, adding apart from streamlining processes the IFC had also decentralised decision making, allowing directors on the ground to take more responsibility over the deployment of funds in their patch.

Looking ahead to the financial year ending in June 2025, Diop expected another increase, aiming for a target of $62 billion, with the lender focusing efforts on infrastructure more widely, especially roads and transportation, and working with sub-sovereign entities, such as municipalities.

“They (municipalities) are not often the best equipped to structure deals and to do PPPs,” Diop said, referring to public private partnerships. “If you manage to work with them and develop a good pipeline of PPPs and to help them to deliver school, health services, things that are under their responsibility, to help them have much greener cities ...you can have a huge amount of investment which is needed there.”

Diop also said he wanted to increase equity investments, shifting further away from traditional loans and bonds, possibly even as a cornerstone investor that would help take companies public on their domestic stock markets. However, the IFC would have to consider what this could mean for its coveted AAA rating, with equity investments bearing more risk than debt exposure.

“One objective that I can see in the equity business is to start investing in companies, having equity there, prepare them to be listed so that we can list them and exit maybe when they are listed,” Diop said.

Source: khaleejtimes

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Source: khaleejtimes

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