FirstFT: Ageing populations hit government credit ratings

Leading the news today, ageing populations are hitting public finances across the world, with rating agencies warning that recent interest rate rises have increased the impact of higher pensions and healthcare costs.

Moody’s, S&P and Fitch have all warned that worsening demographics are already hitting government credit ratings and that downgrades are likely without sweeping reforms, threatening to create a vicious circle of higher fiscal burdens and rising borrowing costs.

“In the past, demographics were a medium- to long-term consideration,” said Dietmar Hornung, associate managing director at Moody’s Investors Services. “Now, the future is with us and already hitting sovereign credit profiles.”

The US Federal Reserve, European Central Bank and Bank of England all raised interest rates this month to their highest levels since the financial crisis in response to surging inflation, increasing governments’ debt servicing costs.

“While demographics are slow-moving, the problem is becoming more urgent,” said Edward Parker at Fitch, which downgraded France’s credit rating last month and warned that President Emmanuel Macron’s reform agenda could stall. “We are well into the adverse effects in many countries, and they are only growing.”

Here’s what else I’m keeping tabs on today:

• Economic data: The EU releases inflation figures for April.

• UK: Labour leader Sir Keir Starmer and Bank of England governor Andrew Bailey speak at the British Chambers of Commerce in London.

• FTX: The US-based leadership team is due to appear in court to challenge the authority of liquidators charged with winding down the crypto company’s business in the Bahamas.

• Results: British Land, Experian, JD Sports, Mitchells & Butlers, Sage, Siemens and Zurich Insurance report.

Five more top stories

1. Volkswagen has held talks to use Huawei’s software in its cars in China, hoping to claim a bigger share of the world’s biggest electric-vehicle market. VW’s own Cariad software operation has been beset by problems since its creation in 2020, leading to delays in the launch of electric models.

2. The UK Labour party’s biggest financial backer is set to urge Sir Keir Starmer to reconsider the case for nationalising the entire UK energy sector after years of what it called “profiteering” and “greedflation” by companies. Here’s how the Unite trade union believes taxpayers would benefit from the state purchase of energy distribution networks.

3. The Estonian prime minister said she had to “plead” with local companies to decline lucrative deals that allowed Moscow to circumvent western sanctions. Kaja Kallas said in an interview with the Financial Times that the trade was attracting companies in the Baltic states despite the countries’ hawkish stance on the war in Ukraine.

4. US merchant bank Raine Group is set to make $65.5mn if World Wrestling Entertainment’s merger with Ultimate Fighting Championship closes successfully. The bank, launched in 2009, has built its reputation advising on some of the biggest sports and entertainment transactions, including the sale of Chelsea and potential sale of Manchester United.

5. Vodafone’s new boss has announced the biggest set of job cuts in the telecom group’s history, pledging to simplify a business that has come under criticism for its centralised decision-making and byzantine structure. “Make no mistake, you will see the numbers turning from here,” Margherita Della Valle said. Read more from the CEO’s interview with the FT.

The Big Read

Investors are pouring billions of dollars into companies that claim their cancer-screening tests can analyse DNA from a quickly taken blood sample to discover the disease early. But some scientists question if the tests help patients or cause them harm with misdiagnosis, over-diagnosis and overtreatment.

We’re also reading . . . 

• Turkey: Governments in Europe and the US are preparing for five more years of Recep Tayyip Erdoğan, as the unpredictable Turkish leader heads into a presidential run-off as the favourite.

• South Africa: More than $15bn worth of exports is on the line as Pretoria battles the fallout from a US accusation that it covertly supplied arms to Russia.

• Share buybacks: Company repurchases of their own stock hit a global record of $1.3tn last year, but such schemes are no substitute for thoughtful investment in growth and decent pay for staff, writes Brooke Masters.

Chart of the day

Thomas Flohr became an aviation superstar by taking on the private jet industry. Nineteen years after the founding of his disruptive VistaJet, questions loom about the Swiss entrepreneur’s strategy. Can lossmaking Vista, with its fleet of luxury aircraft, turn a profit and support the debt he used to build it?

Take a break from the news

Norman Foster, the British architect behind landmarks such as London’s Gherkin skyscraper, Hong Kong’s international airport and the British Museum’s Great Court, is having his first major retrospective at the Pompidou in Paris.

Additional contributions by Emily Goldberg