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ECONOMY

Swedish giant Ikea announced €1 billion investment in France

Ikea plans to invest more than €1 billion in France after announcing a US expansion, and the Swedish furniture giant will cut prices as inflation eases, the head of its holding company told AFP.

Swedish giant Ikea announced €1 billion investment in France
Photo by JOEL SAGET / AFP

The group unveiled last month plans to spend more than two billion euros to expand in the United States, creating 2,000 jobs in its biggest investment in almost four decades in the country.

On Sunday, on the eve of a foreign investment conference organised by the French presidency, Ingka Group, the holding company, announced a €1.2-billion spending plan in the country over the next years.

E-batteries, solar panels and medicines: France announces €13 billion of new foreign investment

“Ikea today is performing really well,” Ingka chief executive Jesper Brodin told AFP.

The group, which controls the majority of Ikea’s stores and accounts for more than 90 percent of its total sales, is aiming to woo new customers after a difficult 2022 marked by the fallout from Russia’s war in Ukraine and high inflation.

Brodin said supply chains, which have been disrupted since countries emerged from Covid pandemic restrictions, are “getting back to normality”.

At the same time, inflation in the United States and Europe is easing after central banks hiked interest rates to cool the economy.

Within a couple of months, the situation is expected to return to “the place we were before the pandemic”, Brodin said.

“We were probably one of the last companies to accept the fact that also we were not immune to inflation so we have to pass on some of the cost to our customers,” Brodin said.

“We know for a fact that some of our costs are coming down. We’re absolutely of the opinion that prices will go down. It’s not only our prediction, but it’s also our mission to do that,” he said.

In France, its third biggest market, the group believes it can “further grow our business”, Brodin said.

The 2023-2026 spending plan includes €906 million in new investment and €377 million still to be deployed from a previous announcement.

The money covers the acquisition of a sprawling shopping centre in Paris that was announced in April and where another store will relocate.

It will also open a new distribution centre in the southern city of Toulouse next year and another near Paris in 2026.

Ikea France chief executive Johan Laurell said the aim is to make the brand “even more accessible”, and new jobs will likely be created.

The company said the investment will accelerate its “omnichannel transformation” – a business that offers both choices of online and physical shopping.

The spending will also go into stepping up efforts to reduce the company’s carbon footprint, Ikea said.

Ikea has invested in a solar park in Langeron, central France, and delivering its products via the Seine river for Parisian customers.

It is also investing in Dutch startup RetourMatras, which recycles mattresses.

The aim is to increase recycling capacity in France by 500,000 mattresses, the company said in a statement.

The group wants in return for France to stop subsidising the incineration of mattresses, Brodin said.

He praised the European Union’s Green Deal, which aims to make the 27-nation bloc carbon neutral by 2050 as a “revolution” in terms of “supporting and incentivising the transition to a carbon free economy”.

But the $370 billion US Inflation Reduction Act, which promotes clean tech investments, has raised “fears” that it is “favouring” domestic companies, he said.

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ECONOMY

France and Italy face spending rebuke from EU

The European Union was expected to issue warnings to France, Italy and several other governments over excessive spending after new budget rules came into force this year.

France and Italy face spending rebuke from EU

The rebuke comes at a particularly difficult moment for France, where both the far left and far right are piling up spending promises ahead of snap polls triggered by President Emmanuel Macron’s crushing EU election defeat.

This will be the first time Brussels has reprimanded nations since the EU suspended the rules because of the 2020 Covid pandemic and the energy crisis triggered by Russia’s invasion of Ukraine, as states propped up businesses and households with public money.

The EU spent two years during the suspension overhauling budget rules to make them more workable and give greater leeway for investment in critical areas, like defence.

But two sacred goals remain: a state’s debt must not go higher than 60 percent of national output, with a public deficit – the shortfall between government revenue and spending – of no more than three percent.

The European Commission will publish assessments of the 27 EU states’ budgets and economies on Wednesday, and is expected to point out that some 10 countries including Belgium, France and Italy, have deficits higher than three percent.

The EU’s executive arm has threatened to launch excessive deficit procedures, which kickstart a process forcing a debt-overloaded country to negotiate a plan with Brussels to get back on track.

Such a move would need approval by EU finance ministers in July.

Countries failing to remedy the situation can in theory be hit with fines of 0.1 percent of gross domestic product (GDP) a year, until action is taken to address the violation.

In practice, though, the commission has never gone as far as levying fines, fearing it could trigger unintended political consequences and hurt a state’s economy.

The EU countries with the highest deficit-to-GDP ratios last year were Italy (7.4 percent), Hungary (6.7 percent), Romania (6.6 percent), France (5.5 percent) and Poland (5.1 percent).

They may face the excessive deficit procedures, alongside Slovakia, Malta and Belgium, which also have deficits above three percent, according to Andreas Eisl, expert at the Jacques Delors Institute.

The picture is complicated for three other countries, Eisl said. Spain and the Czech Republic exceeded the three percent limit in 2023 but should be back in line this year.

Meanwhile, Estonia’s deficit-to-GDP ratio is above three percent – but its debt is around 20 percent of GDP, significantly below the 60 percent limit.

The commission will look at the states’ data in 2023 but “will also take into account the developments expected for 2024 and beyond”, the expert told AFP.

Member states must send their multi-annual spending plans by October for the EU to scrutinise and the commission will then publish its recommendations in November.

Under the new rules, countries with an excessive deficit must reduce it by 0.5 points each year, which would require a massive undertaking at a moment when states need to pour money into the green and digital transition, as well as defence.

Adopted in 1997 ahead of the arrival of the single currency in 1999, the rules known as the Stability and Growth Pact seek to prevent lax budgetary policies, a concern of Germany, by setting the strict goal of balanced accounts.

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