By Uditha Jayasinghe

COLOMBO (Reuters) -Sri Lanka has reached an agreement with the Export-Import Bank of China to cover about $4.2 billion of the island nation's outstanding debt, its finance ministry said in a statement on Thursday.

Sri Lanka is struggling with its worst financial crisis in more than seven decades after its foreign exchange dwindled to record lows, forcing the country to default on its foreign debt last May.

China is Sri Lanka's largest bilateral creditor, owing about $7 billion.

Sri Lanka started negotiating with its bondholders and key bilateral creditors including China, Japan and India last September, parallel to moving forward on a $2.9 billion bailout from the International Monetary Fund (IMF).

The agreement with China EXIM Bank will assist Sri Lanka in getting past the first review of the IMF programme in the coming weeks and in securing the release of the second IMF tranche of about $334 million, the statement said.

"This agreement constitutes a key milestone in Sri Lanka’s ongoing efforts to foster its economic recovery,” the statement added. "In the next few weeks, the Sri Lankan authorities and China EXIM bank will actively work on formalizing and implementing the agreed parameters of the debt treatment."

A debt rework deal between Sri Lanka and countries including Japan, India and France was expected this week. But those countries and the IMF were surprised on Tuesday when Sri Lanka made a deal with China.

Japan, France and India, which are co-chairs of a creditor committee for Sri Lanka, may need to see details of the agreement Sri Lanka has made with China EXIM Bank to proceed with debt restructuring negotiations.

SEOUL (Reuters) - South Korea's household borrowing grew in September for a sixth straight month, but by a smaller amount than the month before, central bank data showed on Thursday.

Total household borrowing from banks stood at 1,079.8 trillion won ($806.12 billion) at the end of September, up 4.9 trillion won from end-August, according to the Bank of Korea (BOK).

The rise was smaller than the 6.9 trillion won increase in August and it also marked the first slowdown in growth since household debt started to climb in April.

Growth in mortgage loans softened as financial institutions tightened loan criteria, while other loans fell at a faster pace due to seasonal factors such as holiday bonuses, the BOK said.

($1 = 1,339.5000 won)

(Reuters) - Goldman Sachs Group (NYSE:GS) sued Malaysia in a UK court on Wednesday, as tensions escalate over a settlement agreement on the bank's role in the multi-billion dollar 1MDB corruption scandal.

"Today, we filed for arbitration against the Government of Malaysia for violating its obligations to appropriately credit assets against the guarantee provided by Goldman Sachs in our settlement agreement and to recover other assets," a spokesperson for the bank told Reuters.

The arbitration has been filed with the London Court of International Arbitration, a source told Reuters. The lawsuit was earlier reported by Bloomberg News.

The office of Malaysian Prime Minister Anwar Ibrahim and the Attorney General's Chambers did not immediately respond to a request for comment.

The lawsuit comes less than two months after Anwar threatened to take Goldman to court.

The two sides are in disagreement over a 2020 settlement agreement, in which Goldman Sachs had agreed to pay $3.9 billion to settle Malaysia's criminal probe over its role in the scandal.

Goldman is also required to make a one-time interim payment of $250 million if the Malaysian government has not received at least $500 million in assets and proceeds by August 2022, the bank said in a regulatory filing earlier this year.

The two parties disagreed over whether Malaysia recovered at least $500 million as of August 2022 and whether any interim payment was due, Goldman has said.

Malaysian and U.S. authorities estimated $4.5 billion was stolen from sovereign wealth fund 1MDB in an elaborate scheme that spanned the globe and implicated high-level officials in the fund, former Malaysian Prime Minister Najib Razak, Goldman staff and others.

Prosecutors have said Goldman helped 1MDB raise $6.5 billion through bond sales, and earned $600 million in fees.

The United States has been returning funds it has recovered from seized assets that were allegedly bought with stolen 1MDB money.

By Tim Kelly

TOKYO (Reuters) - Most Japanese companies expect a slowdown in China's economy to persist into 2025, with nearly two thirds of firms that operate there looking to shift some production elsewhere in search of sales in other markets, according to a Reuters monthly poll.

That cautious outlook comes even though recent data suggests that an economy weighed down by infrastructure project debt and a downturn in property values has bottomed out. China's factory activity in September expanded for the first time in six months, with sales growth accelerating in August.

Of 502 major Japanese companies surveyed by Reuters, 52% said they expected the slowdown in China to continue into 2025, with 17% predicting weaker economic growth to persist until the end of 2024. Only 5% said they expected a rebound by the end of the first quarter next year.

"Cargo shipments are stagnant, and it's difficult for cargo handlers to take measures to tackle that," a representative from a transport company said, on condition the company was not identified.

More than two thirds of household wealth in China is tied up in the property market, and with youth unemployment rising, consumers and companies have been reluctant to spend.

Analysts polled separately by Reuters last month, predicted the World's No. 2 economy will grow by 5% this year and by 4.5% next year.

China is Japan's biggest trading partner. The value of that cross-border economic activity jumped 14% to 43.8 trillion yen ($294 billion) last year, according to the Japanese government. Japanese companies also operate from more than 31,000 locations in the country.

Some 45% of the firms that responded to the survey said the slowdown in China had affected their businesses. In addition to those companies shifting production out of China, 12% said they were curbing capital investment there.

In Japan, 86% of the companies said they want Prime Minister Fumio Kishida to boost the economy with a stimulus package worth more than 10 trillion yen, with nearly a fifth calling for at least 30 trillion yen of spending, including on measures to tackle price rises and to help companies raise wages.

"Priority should be given to creating an environment where wages can be increased over the medium to long term on the assumption that prices will continue to rise," said a manager at a wholesaler.

The Reuters Corporate Survey, conducted for Reuters by Nikkei Research between Sept. 27 and Oct. 6, canvassed 502 big non-financial Japanese firms.

They were polled on condition of anonymity, allowing respondents to speak more freely.

($1 = 148.8700 yen)

By Andrea Shalal and David Lawder

MARRAKECH, Morocco (Reuters) - U.S. Treasury Secretary Janet Yellen said the unprecedented attacks on Israel by Palestinian Islamist group Hamas posed additional risks to an already tepid global economic outlook, but the United States still appeared headed for a soft landing.

Yellen joined other top financial leaders in condemning Saturday's massive incursion into Israel from Gaza launched by Hamas and pledged Washington's strong support for Israel "in any way that's necessary."

Israel's declaration of war on Hamas and its pounding of Gaza following Saturday's devastating attack hung over the annual meetings of the International Monetary Fund and World Bank in Marrakech, Morocco, although the world's top financial experts said it was too soon to draw clear conclusions.

The sudden outbreak of war in the Middle East added a further risk factor to a global economy already strained by increasing economic fragmentation into two blocs led by the United States on one hand, and China and Russia on the other.

"The world has become more shock-prone, with increased risks to growth, development, jobs, and living standards that widen inequalities within and across countries," the IMF and World Bank, joined by Morocco's finance minister and central bank governor, said in a "Marrakech Proclamation" on Wednesday.

"We need to stand together, united in the goal of protecting our future prosperity and ending extreme poverty."

INFLATIONARY IMPACT

IMF first deputy managing director Gita Gopinath said the war could hit the economy if it expanded. "If it turns into a wider conflict and that causes oil prices to go up, that does have an effect on the economies," she told Bloomberg Television, adding that a 10% increase in oil prices could depress global output 0.15 percentage point the following year.

In its latest World Economic Outlook, released on Tuesday, the IMF left its forecast for global real GDP growth in 2023 unchanged at 3.0% but cut its 2024 forecast to 2.9% from its July forecast of 3.0%. World output grew 3.5% in 2022.

Yellen told a news conference that funding for Ukraine and "resources" for Israel were an "absolute top priority" for the Biden administration, a message also aimed at assuaging concerns that the Gaza war would siphon off resources urgently needed by Kyiv to advance its fight against Russia's invasion.

In Washington, the White House described active discussions with Congress about additional funding for Israel and Ukraine.

Crude oil prices jumped and safe-haven currencies like the yen rose as Israeli warplanes bombed Gaza neighborhoods ahead of a potential ground offensive and a U.S. aircraft carrier strike group arrived in the eastern Mediterranean Sea.

Yellen acknowledged the potential impact of exogenous shocks on the global economy, including Russia's invasion of Ukraine in February 2022, but downplayed the potential for the Gaza war to batter the global economy.

"Thus far, I don't think we've seen anything suggesting it would be very significant," she said, adding that she continued to expect a soft landing for the U.S. economy.

"Of course the situation in Israel causes additional concerns. I'm not saying soft landing is an absolutely sure thing. But I continue to think it's the most likely path," due to the resilience in the labour market and moderating wage pressure, Yellen told a briefing.

World Bank President Ajay Banga told a separate news conference the conflict would complicate the global economy's path: "I believe that wars are completely, extremely challenging for central banks who are trying to find their way through a very difficult situation, to a relatively soft landing."

SANCTIONS OPTION

Yellen said she had nothing to announce on whether the United States would impose new sanctions on Iran if evidence emerged that the country was involved in the attack, and said Washington also had sanctions in place on Hamas and Hezbollah.

"This is something that we have been constantly looking at, and using information that becomes available to tighten sanctions," she said. "We will continue to do that."

Asked whether Washington could reverse its decision to unfreeze $6 billion in Iranian funds as part of a U.S.-Iran prisoner swap in September, Yellen said those funds had not yet been touched, and Washington was keeping its options open.

"These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, funds that have not been touched. I wouldn't take anything off the table in terms of future possible actions."

U.S. Secretary of State Antony Blinken has said he had "not yet seen evidence that Iran directed or was behind this particular attack, but there’s certainly a long relationship."

The World Bank's chief economist has issued a warning about an impending global economic slowdown, primarily driven by high public and private debt levels accumulated in the aftermath of the Covid pandemic. The warning was issued on Wednesday, indicating that developing countries with high debt, like India, could be significantly affected.

The economist also raised concerns about the impact of rising US interest rates on countries that have borrowed internationally. This situation, coupled with slower trade growth and escalating global protectionist measures, could pose severe challenges for the global economy. The potential for oil crises further exacerbates these risks.

The urgency of managing inflation was emphasized, particularly in developing countries where its effects can be most damaging. The economist warned that unchecked inflation could derail economic recovery efforts and lead to instability.

Despite the overall concerns, the chief economist appreciated India's robust economic management over the past decade. He noted India's progress in infrastructure development, technological innovation, and effective implementation of Goods and Services Tax (GST) reforms. However, he criticized India's high debt-to-GDP ratio and its low female labor force participation rate, which is only half of China's.

The economist expressed disappointment over India's failure to capitalize on the "China Plus One" strategy. This strategy encourages businesses to diversify their supply chains by adding another country alongside China as a trading partner, thereby boosting trade. The inability to leverage this opportunity could limit India's potential economic growth.

In conclusion, the World Bank's chief economist urged nations to address high debt levels and manage inflation effectively to mitigate the risk of a global economic slowdown. He stressed that timely action is critical to ensure sustainable economic recovery and growth.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

In the wake of escalating operational risks and retaliatory measures from China, G7 nations, along with businesses such as Dell (NYSE:DELL), Apple (NASDAQ:AAPL), HP (NYSE:HPQ), and Mattel (NASDAQ:MAT), have started shifting their supply chains from China to friend-shoring and nearshoring countries like India, Thailand, Vietnam, Mexico, and Canada. This significant shift has been observed on Wednesday.

The retaliatory measures from China have had a profound impact on companies such as Micron Technology (NASDAQ:MU) and led to an iPhone ban, resulting in a sales decline for US brands since 2018. Notably, GM experienced a significant market share drop due to these developments.

De-risking efforts have inadvertently increased operational risks such as supply chain complexity and lack of transparency. Companies like South Korea’s SK Hynix and Boeing (NYSE:BA) have been affected by these challenges. Boeing's 787 aircraft production has faced setbacks due to these complications.

To mitigate the potential fallouts of this shift, several measures have been put in place. Government support has been extended in the form of the $52.7 billion US Chips Act subsidies. International agreements like the Indo-Pacific Economic Framework and CPTPP have also been implemented to help navigate these changes.

Another significant factor influencing supply chain decisions is the US Uyghur Forced Labor Protection Act. The legislation has further complicated the global supply chain landscape, adding another layer of consideration for companies as they make strategic decisions about their operations.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

By Tom Westbrook

SINGAPORE (Reuters) - Asia's stockmarkets rose on Wednesday and the dollar beat a retreat as a dovish shift in tone from Federal Reserve officials had traders paring U.S. interest rate expectations, though with a wary eye on U.S. inflation data due on Thursday.

The S&P 500 gained overnight and MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3% to a two-week high in morning trade. Japan's Nikkei rose 0.5%.

"I actually don't think we need to increase rates anymore," Atlanta Fed President Raphael Bostic told the American Bankers Association, to applause, in Nashville on Tuesday.

The remark follows several Fed officials noting that recent rises in longer-term yields may help do the work of tightening financial conditions and crimping inflation, leaving the central bank with less to do in terms of short-term rate levels.

Wagers on whether the Fed might hike again this year have pulled back a bit this week and Treasury yields have come sharply down from 16-year highs, yanking the dollar with them.

The 10-year yield fell 12.7 basis points on Tuesday and was steady in Asia on Wednesday at 4.64%, after touching 4.884% in the wake of strong U.S. jobs data on Friday.

On Wednesday the Australian and New Zealand dollars hit their highest levels on the dollar since the end of September, while sterling hit a three-week peak. The euro held at $1.0607, near Tuesday's two-week high.

Moves were small, however, while traders waited on the U.S. CPI figures.

"Signs underlying U.S. inflation is moderating could reinforce the more watchful tone from U.S. Fed members about future policy, exerting more pressure on the dollar," said Peter Dragicevich, strategist at cross-border payments firm Corpay.

A Bloomberg News report on China preparing stimulus to help its economy also supported the mood, though nerves remained as giant developer Country Garden warned it wasn't going to be able to meet its offshore payment obligations on time.

PIPE DOWN

In commodity markets oil prices have crept lower since bouncing on Monday on concern that Palestinian militants' surprise attack on Israel could spark a wider conflict.

Brent crude futures steadied at $87.80 a barrel on Wednesday, after hitting $89 on Monday. European gas prices, which had jumped on news of the Middle East violence, surged further on Tuesday on concern a gas pipe in Finland was sabotaged.

The subsea link connecting Finland with Estonia, which may take months to repair, was shut on Sunday and on Tuesday Finland's president said the damage was likely the result of "outside activity". Benchmark Dutch gas touched a seven-month high on Tuesday and settled 14% higher.

"Europe has higher than usual gas stockpiles for this time of year, as well as lower than normal gas demand, but these buffers still leave Europe exposed to a colder than usual winter and LNG imports in coming months," said CBA analyst Vivek Dhar.

Elsewhere the yen has clung to a small bounce made as the Middle East tension has supported safe-haven assets. U.S. stock futures were steady in Asia.

Samsung (KS:005930) shares jumped on a smaller-than-expected dive in third-quarter profit and on hopes the memory chip market is finally turning.

Pepsi began U.S. earnings season overnight with an upbeat report showing only a small 2.5% dip in volume but prices up 11% and the company's chief financial officer saying more rises are coming next year.

"Making more money with slimmer volumes is not a horrible outcome," said Sam Rines, managing director at research firm CORBU in Texas.

"With the angst around the consumer and snacks palatable, it is notable that Pepsi gave 2024 guidance and commentary ahead of schedule. And Pepsi’s management team was rather sanguine on the current state of the consumer."

India's economic growth forecast for 2023 and 2024 has been revised upwards by the International Monetary Fund (IMF) from 6.1% to 6.3%, according to the 'World Economic Outlook' report published on Tuesday. This adjustment, which represents an increase of 0.2 percentage points, was attributed to stronger-than-expected consumption between April and June. The IMF's projection suggests that India's performance may surpass that of China, the world's second-largest economy.

In contrast, the IMF downgraded its global growth prediction to three percent. Despite this global outlook, India is being viewed as a global bright spot and a powerhouse of growth and innovation, mainly driven by its skilled citizenry.

The Reserve Bank of India (RBI) anticipates a 5.4% inflation rate and a GDP growth of 6.5%, aligning with its medium-term inflation target, the IMF report noted. Furthermore, the IMF expects India's current account deficit to remain steady at 1.8% of GDP in FY24 and FY25. The updated forecasts were disseminated via a Syndicated News feed.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

By Joyce Lee and Heekyong Yang

SEOUL (Reuters) -Samsung Electronics Co Ltd reported a likely 78% drop in third-quarter operating profit on Wednesday, as the effects of an ongoing global chip glut drive losses in what is normally the South Korean tech giant's cash cow business.

The world's largest memory chip and smartphone maker estimated its operating profit fell to 2.4 trillion won ($1.79 billion) in July-September, from 10.85 trillion won a year earlier in a short preliminary earnings statement.

The profit beat a 2.1 trillion won LSEG SmartEstimate, which is weighted toward forecasts from analysts who are more consistently accurate.

The earnings guidance sent shares up 3.3% in early trade, versus a 1.8% rise in the wider market.

Although down sharply from last year, Samsung (KS:005930)'s third quarter profit is higher than the first quarter's 640 billion won and the second quarter's 670 billion won.

Samsung's first quarter profit was the lowest since 2009, according to company data.

The company reported losses of 4.58 trillion won and 4.36 trillion in its chip business in the first and second quarter respectively, as memory chip prices plunged and its inventory values were slashed.

A global economic slowdown and high interest rates have dampened demand for most consumer goods following a pandemic-driven boom, forcing chipmakers to cut production in an attempt to stem falling prices.

But in the third quarter, analysts said losses in Samsung's memory chip business likely shrank to around 3 trillion won as Samsung focused on more profitable, higher-end chips such as DRAM chips used in artificial intelligence, while continuing to cut production of older legacy chips.

Rival Micron Technology (NASDAQ:MU) also forecast a quarterly loss last month, triggering concerns of a sluggish recovery in the memory chip maker's end markets such as data centres.

But prices of DRAM chips, used in tech devices, began rebounding near the end of last quarter, while prices of NAND Flash chips used in data storage may start recovering as early as the current quarter, winding down the severe industry downturn that began last year, analysts said.

The third quarter is normally strong for Samsung's mobile and display businesses given that is when it launches its flagship smartphones, and demand for display panels from clients like Apple (NASDAQ:AAPL) rises before the debut of the latest iPhone.

Samsung's revenue likely fell 13% from the same period a year earlier to 67 trillion won, Samsung said in the statement.

The company is due to release detailed earnings on Oct. 31.

($1 = 1,342.1900 won)