BERLIN (Reuters) - German federal and regional tax revenues rose 2.6% to 61.2 billion euros ($65.77 billion) in May from the previous year, helped by a one-off base effect that boosted income on the federal level, the finance ministry said on Thursday.

Growth in wage tax and in flat-rate withholding tax on interest and capital gains contrasted with lower revenues from sales tax and corporation tax compared with a year ago.

In the first five months of the year, tax revenues in Europe's biggest economy rose 2.8% to 322.3 billion euros, said the ministry in its monthly report.

The most recent tax estimates put this year's overall tax revenues 4.1% higher, at almost 864 billion euros.

The government is in the midst of discussions about the 2025 budget with the three parties, including Chancellor Olaf Scholz's Social Democrats (SPD), the Greens and Finance Minister Christian Lindner's Free Democrats (FDP) at odds in many areas.

Looking at the wider economy, the report said that although some indicators had moved sideways in May, the leading ones were increasingly pointing to a moderate recovery for the rest of the year.

($1 = 0.9305 euros)

SHANGHAI/BEIJING/BERLIN (Reuters) -Chinese automakers have urged Beijing to hike tariffs on imported European gasoline-powered cars in retaliation for Brussels' curbs on exports of Chinese-made EVs, the state-backed Global Times newspaper said on Wednesday.

In a closed-door meeting on Tuesday also attended by European car companies, China's auto industry "called on the government to adopt firm countermeasures (and) suggested that positive consideration be given to raising the provisional tariff on gasoline cars with large-displacement engines," according to the report.

The meeting, organised by China's Ministry of Commerce, was held in Beijing and attended by SAIC, BYD (SZ:002594) , BMW (ETR:BMWG), Volkswagen (ETR:VOWG_p) and its Porsche division, two people with direct knowledge of the matter said.

The main aim of the meeting was to put pressure on Europe and lobby against the tariffs Brussels announced last week to shield its car industry from Chinese competition, they added.

The meeting was also attended by Mercedes-Benz (OTC:MBGAF), Stellantis (NYSE:STLA) and Renault (EPA:RENA), two separate sources familiar with the matter told Reuters.

The ministry did not immediately respond to a faxed request for comment.

BMW, Volkswagen, Stellantis and Renault declined to comment.

A spokesperson for Mercedes-Benz said the group supports a liberal trade regime based on WTO rules.

"Against the background of globalisation and the economic interdependencies of our time, the motto for securing prosperity and peace is: dialogue and constructive cooperation. We are counting on the efforts of politicians to continue this dialogue."

Industry insiders say both Europe and China have reasons for wanting to strike a deal in the months ahead to de-escalate tensions and avoid the addition of billions of dollars in new costs for Chinese EV makers, as the EU process allows for review.

'TARIFF WAR'

The announcement to impose tariffs could trigger talks between Brussels and Beijing that are aimed at avoiding them, said Stefan Hartung, CEO of Bosch, the world's largest automotive supplier.

The European Commission said on Wednesday it was looking into the situation "with a view to discussing if a mutually agreeable solution can be found."

EU trade policy is turning increasingly protective amid concerns that China's production-focused, debt-driven development model could see the 27-member bloc flooded with cheap goods, including electric vehicles, as Chinese firms look to boost sales overseas due to weak demand at home.

The European Commission's June 12 announcement that it would impose anti-subsidy duties of up to 38.1% on imported Chinese EVs from July followed a move by the United States to hike tariffs on Chinese cars in May, and opens a new front in the West's trade war with Beijing.

"Personally, I think it is unfair to start a tariff war solely on the basis of (China's) capacity utilisation rate and insufficient demand for China's new energy vehicles," said Zhang Yansheng, chief research fellow, China Center for International Economic Exchanges.

"We can see that China has adopted a package of policies to solve the 'overcapacity' problem, so this year, next year, and into the next four years, China's capacity utilisation will continue to rise," he added.

The Global Times first reported late last month that a Chinese government-affiliated auto research centre was suggesting China raise its import tariffs on imported gasoline sedans and sport utility vehicles with engines larger than 2.5 litres to 25%, from the current rate of 15%.

Chinese authorities have previously hinted at possible retaliatory measures through state media commentaries and interviews with industry figures.

HOSTILE HINTS

The same newspaper last month also hinted that Chinese companies planned to ask authorities to open an anti-dumping investigation into European pork products, which China's commerce ministry on Monday announced it would undertake.

It has also urged Beijing to look into EU dairy imports.

Exports of passenger vehicles with engines bigger than 2.5 liters from Europe to China totalled 196,000 units in 2023, up 11% year-on-year, according to data from China Passenger Car Association. In the first four months of 2024, exports of such vehicles from Europe to China stood at 44,000 units, down 12% from the same period a year ago.

EU car exports to China were worth 19.4 billion euros ($20.8 billion) in 2023, while the bloc bought 9.7 billion euros of electric vehicles from China, according to EU statistics agency figures.

China accounts for about 30% of German carmakers' sales, and Germany is by far the largest exporter of vehicles with engines of 2.5 litres or above, having shipped $1.2 billion worth to China since the beginning of this year, Chinese customs data shows.

Mercedes Benz (ETR:MBGn)'s big-sized GLE Class SUV, S Class sedans and Porsche's Cayenne are the three most popular imported cars from Europe in China, the three of which accounted for more than one-fifth of the total 155,841 imported cars of European brands in the first five months, according to data tracked by China Merchants Bank International.

Slovakia is China's fourth-largest and the EU's second-biggest provider of cars with large engines. This year it has exported $803 million worth of sport utility vehicles.

The United States, the United Kingdom and Japan all also export large numbers of cars with engines bigger than 2.5 liters, and would presumably stand to benefit most from the proposed tariff increase.

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FRANKFURT (Reuters) - Europe must foster greater political stability, cut red tape and reduce energy price volatility to reverse a declining trend in foreign investment, consulting firm EY said on Wednesday based on a survey of business leaders.

Europe has struggled economically for years on surging prices and the fallout from Russia's war in Ukraine, fuelling populist sentiment that has lifted the far right in European Parliamentary elections and prompted French President Emmanuel Macron to call a snap national election.

Stagnant growth, big swings in energy costs and political uncertainty have all damaged the bloc's competitiveness, particularly when compared to a booming U.S., leaving the world's two biggest economic blocs on a diverging course.

The more than 500 executives surveyed rank political instability, including upcoming elections, populism and polarisation as the second-biggest risk, trumped only by an increased regulatory burden.

French opinion polls project that Marine Le Pen's far-right National Rally could for the first time top the June 30 and July 7 vote, even if it was unlikely to win enough seats to govern on its own.

This has rattled financial markets in recent days pushing up French borrowing costs on fears that a populist government would strain France's already limited financial resources.

"As geopolitical and global trade tensions intensify, European policymakers need to be equipped to respond rapidly and decisively," EY said. "Individual Member States must be aligned on key areas, including which industries need to be protected and where the threats lie."

Energy price volatility could be reduced by investing in better connected infrastructure and fostering a green transition given that Europe was overly reliant on Russia for decades.

But bureaucracy is the overall biggest threat, the executives said.

"European policymakers can alleviate these concerns by harmonizing regulation, reconsidering the pace of introducing new regulation and repealing outdated laws whenever possible," EY said.

By David Milliken and Suban Abdulla

LONDON (Reuters) - British inflation returned to its 2% target in May for the first time in nearly three years, official figures showed on Wednesday, as the economic effect of the COVID-19 pandemic and Russia's full-scale invasion of Ukraine faded.

The fall in inflation will be welcomed by both Prime Minister Rishi Sunak and the Bank of England - but likely has come too late either to turn around Sunak's fortunes at next month's election or to prompt a BoE rate cut on Thursday.

The drop in annual consumer price inflation from April's 2.3% reading was in line with economists' median expectation in a Reuters poll and marks a sharp decline from the 41-year high of 11.1% reached in October 2022.

The fall has been sharper than in the euro zone or the United States, where consumer price inflation in May was 2.6% and 3.3% respectively, belying concerns a year ago that British inflation was proving unusually sticky.

Even so, consumer prices are up around 20% over the past three years, squeezing living standards and contributing to the unpopularity of Sunak's Conservatives, who are around 20 points behind the opposition Labour Party in opinion polls.

The BoE has said a return of inflation to its target is not enough on its own for it to start cutting interest rates.

While most economists polled by Reuters think it will start to cut interest rates from its 16-year high of 5.25% in August, financial markets think a first move is more likely in September or October - and see just a 10% chance of a cut this week.

The most recent fall in inflation was driven by a cut in regulated household energy bills in April - the effect of which will fade later in the year, when the BoE forecasts inflation will rise again.

SHANGHAI (Reuters) - China will stick to a supportive monetary policy stance, while conditions for the central bank to start trading in the secondary bond market has become gradually ripe, the head of its central bank said on Wednesday.

China will flexibly use various monetary policy tools including interest rates and reserve requirement ratios, People's Bank of China (PBOC) Governor Pan Gongsheng told the Lujiazui Forum in Shanghai.

He added that China will resolutely prevent exchange rate overshooting.

By Leika Kihara

TOKYO (Reuters) -Bank of Japan policymakers debated the impact a weak yen could have on prices, with some flagging the chance of raising interest rates sooner than expected if inflation overshoots, minutes of the central bank's April policy meeting showed.

A few members of the nine-person board said the central bank must respond with monetary policy if exchange rate moves, which are among the key factors affecting the economy and prices, alter its view on the outlook and risks, the minutes released on Wednesday showed.

The weak-yen boost to inflation may have become bigger and more lasting than in the past, as companies are already keen to hike prices and wages, some members were quoted as saying.

"There are various upside risks to inflation," such as the fallout from a weak yen, expansionary fiscal policy and a tight labour market, one member said, according to the minutes.

"Currency moves are among key factors affecting the economy and prices. If the economic and price outlook, or the risks, change, the BOJ must respond with monetary policy," a few members were quoted as saying in the minutes.

At the April meeting, the BOJ kept interest rates around zero and highlighted a growing conviction that inflation was on track to durably hit its 2% target in coming years, signalling its readiness to hike borrowing costs later this year.

The minutes came in the wake of BOJ Governor Kazuo Ueda's comments in parliament on Tuesday that the central bank could raise interest rates in July depending on economic and price data available at the time.

By Tetsushi Kajimoto

TOKYO (Reuters) - Japanese manufacturers are markedly less confident about business than three months ago due to higher materials costs, the Reuters Tankan poll for June showed, though the index remained in positive territory for a fourth straight month.

The results of the monthly poll - a leading indicator for the Bank of Japan's (BOJ) closely watched tankan quarterly business survey - underscore the uneven nature of the country's economic recovery. The next BOJ tankan will be released on July 1.

The manufacturers' sentiment index declined to +6 from +10 three months ago and from +9 in May, with firms hurt by a yen that is trading near 34-year lows and inflating costs of raw materials that resource-poor Japan needs to import from abroad.

"Passing on materials costs to customers and the increase in labour costs are sapping appetite for capital expenditure and other spending," a machinery maker manager wrote in the comment section of the poll.

Some manufacturers also expressed concerns about the knock-on effects of a scandal in the auto industry where Toyota (NYSE:TM), Mazda and others have acknowledged irregularities in vehicle certification tests.

"The business environment surrounding industrial machinery is clearly changing for the worse," wrote a manager in the auto sector. "It's unclear how the certification issue will affect our business."

That said, manufacturers overall were a bit more upbeat about the months ahead and the index is expected to rebound to +9 in September.

The non-manufacturers index climbed to a three-month high of +31 in June. That was up five points from May but one point lower than three months ago. It is expected to stay at +31 in September.

Expectations that rising wages and income tax cuts from June will help underpin consumer spending are likely shoring up business confidence in the service sector, economists have said.

The Reuters Tankan poll was conducted June 5-14. Some 500 large non-financial companies were surveyed on condition of anonymity and roughly 230 firms responded.

The indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists.

MUMBAI (Reuters) - India is expected to grow by 7.2% in the current fiscal year, stronger than earlier expected, with its central bank opting for just a one-quarter-point rate cut in that period, Fitch Ratings said in its quarterly Global Economic Outlook (GEO) report published on Tuesday.

The ratings agency has also raised its world growth forecast for 2024 to 2.6% from 2.4% earlier as confidence in European recovery prospects improve, China's export sector revives and domestic demand in emerging markets excluding China shows stronger momentum.

"We still expect the RBI to cut its policy rate this year, but only once, to 6.25%. In the March GEO we expected 50 basis points of cuts this year. We then expect 25 bps of cuts in both 2025 and 2026," Fitch wrote.

India's growth forecast marks an upward revision of 0.2 percentage points versus their March forecast.

"Investment will continue to rise but more slowly than in recent quarters, while consumer spending will recover with elevated consumer confidence," Fitch said about India.

The agency, however, expects growth to slow in later years and approach their medium term trend estimate.

"We forecast real GDP growth of 6.5% in FY25/26 (unchanged from March), and 6.2% in FY26/27, driven by consumer spending and investment," they wrote.

Fitch expects headline inflation in the South Asian nation to continue declining to 4.5% by calendar year-end, and average 4.3% in 2025 and 2026, staying slightly above the mid-point of the Reserve Bank of India's 2% to 6% target range.

SEOUL (Reuters) - South Korea's central bank governor said on Tuesday the pace of consumer inflation is likely to continue to slow, feeding expectations the Bank of Korea will start cutting interest rates towards the end of this year.

"Considering the recent slowdown in international oil and agricultural product prices, future prices are expected to continue a gradual slowdown, in line with our May forecasts," Governor Rhee Chang-yong said in a statement prepared for the bank's biannual review of inflation conditions.

Inflationary pressure from domestic demand is likely to stay contained, while exports growth is expected to take the driver's seat in the economy seen growing 2.5% this year, he added.

Tuesday's assessment supports analysts consensus that the BOK will cut interest rates by 50 basis points in the fourth quarter as headline inflation is seen easing to its target rate of around 2% towards the end of this year or early next year.

The BOK extended its interest rate pause for an 11th straight meeting in May, keeping it restrictive after raising rates by a cumulative 300 basis points to 3.50% since mid-2021.

South Korea's headline inflation slowed for a second straight month to a 10-month low of 2.7% in May, while core inflation also eased to 2.2% from 2.3% in April.

The BOK also noted that although inflation is headed towards its target rate of 2%, the cost of living in Asia's fourth largest economy remains elevated compared to other major countries.

An index for the cost of food, shelter and clothes was at 155 for South Korea in 2023, above the average of 100 for countries in the Organisation for Economic Co-operation and Development, data compiled by BOK showed.

By Naveen Thukral

SINGAPORE (Reuters) -Pork suppliers from South America and the U.S. could gain market share in China if Beijing restricts imports from the European Union in response to escalating trade tensions, traders and analysts said.

Russia, increasingly a close trading partner of China that started exporting pork to China in February, could also step up meat shipments.

China's commerce ministry said on Monday it had opened an anti-dumping investigation into imported pork and its by-products from the EU, after the bloc imposed anti-subsidy duties on Chinese-made electric cars.

Any impact on EU exports will take time to emerge. China has said the investigation could last more than a year.

"Brazil, Argentina and the U.S. can export more pork and offal to China if exports from the European Union are restricted," Pan Chenjun, a senior analyst at Rabobank in Hong Kong, said.

"If the anti-dumping tax is too high, than shipments from other origins such as the US, Brazil and Argentina will increase."

The U.S. Meat Export Federation (USMEF) noted U.S. pork faces retaliatory duties of 25% in China in response to steel and aluminum tariffs, however.

"It is unclear whether U.S. pork will still be at a tariff disadvantage compared to EU pork, as is the case today," said Joe Schuele, vice president of communications for the USMEF.

Smithfield Foods, a unit of Hong Kong-listed WH Group (OTC:WHGLY) ltd, is familiar with the impact of Chinese tariffs on U.S. pork and would welcome relief on that front, spokesman Jim Monroe said.

Anti-dumping duties could hit Europe hard as China's pork purchases from Europe include parts such as feet, ears and offal that tend to only be used for pet food rather than human consumption in Europe.

Pan, however, said any impact on China's market would be limited.

"We don't see much impact on the local market in terms of supplies and prices if imports are restricted from the European Union. This is because China's imports of pork and offal are just 5% of total consumption," Pan said.

USMEF's Schuele said there could be further opportunities for U.S. pork variety meats in China, including feet, stomachs, heads and neckbones.

LEADING CONSUMER AND PRODUCER

In 2023, China imported $6 billion worth of pork, including offal, customs data showed.

It is the world's leading pig producer and consumes around half the world's pork.

Domestic hog prices had plummeted, but oversupply has eased this year as farmers slaughtered fewer pigs to boost the market.

One Asia-based trader who deals in animal feed said Brazil, China's leading agricultural trading partner, stood to gain from any EU trade disruption.

The trader, who asked not to be named because they were not authorised to speak to the press, said Brazil was very competitive in terms of pricing and would be able to easily increase market share.

Russia also has potential for growth, and according to Yuri Kovalev, head of the country's National Union of Pork Producers, it wants a 10% share of China's pork imports within three to four years.

As of June 2, Russia's pork shipments to China totalled 4,260 metric tons, but Sergey Dankvert, the head of Rosselkhoznadzor, Russian agricultural watchdog, said earlier this month Russia could export up to 100,000 tons of pork to China in 2024.

The head of Miratorg, one of Russia's major pork suppliers, Viktor Linnik told an investment forum in St. Petersburg that the agricultural holding was ready to supply China with about 40,000 tons of pork by the end of the year.

One meat trader in Shanghai, who asked not to be named, said his company was in contact with Russian pork exporters.