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A Table Outside? More Diners Say No Way

Stretches of severely high temperatures across the U.S. are taking a toll on restaurants.

Customers are avoiding patios during heat waves, cutting into a key source of summertime sales for many restaurants, owners said. Visits in July and August declined from earlier in the year, industry data showed, with chains including Chuy’s and Cheesecake Factory reporting a decline in outdoor business this summer.

“No one’s sitting out in the patio at 100 degrees,” Steve Hislop, chief executive of Texas-based Chuy’s, said during an Aug. 3 earnings call.

Utility expenses are also rising as restaurants run air conditioning at full blast for long stretches of time, operators and industry groups said.

Temperatures climbing to the highest levels in recorded history this summer have hurt hospitality, sports, agriculture and many other businesses. In states such as Texas, weeks of days topping 100 degrees are expected to reduce overall economic productivity.

Restaurants are contending with heat and smoke as many operators are fighting for sales from cash-strapped consumers, and dealing with high inflation in food, labour and other costs.

Diners overall at restaurants in Arizona, Florida and Georgia dropped between 6% and 8% in the first part of August compared with last year’s period, according to OpenTable. The reservation tech company also recorded diner declines in other states running hot this summer, including Texas and North Carolina.

“This summer does feel different,” said Kelsey Erickson Streufert, chief public affairs officer for the Texas Restaurant Association trade group. “It’s a little tougher to get people to come out.”

Employees working at restaurants and bars dipped 1.5% in July compared with the month prior, with steep declines in cities such as San Antonio, New Orleans and Phoenix that recorded high temperatures during the month, according to Homebase, a small business workforce app. The declines likely stemmed from extreme temperatures disrupting consumer spending and foot traffic, Homebase said.

Worker advocates are increasingly making heat an issue in campaigns for improved conditions for restaurant workers. Some are pushing for better enforcement of existing standards and additional federal indoor heat regulations to provide employees breaks and water when temperatures rise.

“We’ve seen 86 degrees on the coolest side of the kitchen,” said Ariana Lingerfeldt, a cook at an Asheville, N.C., restaurant who is a member of the Restaurant Opportunities Centers United worker advocacy group, during an Aug. 9 event pushing for more heat standards. “The air conditioner is unable to keep up with the equipment.”

Some restaurant operators said they are giving their workers more water and rest breaks, since kitchen temperatures can climb steeply despite air-conditioning.

Many restaurants set up patios in the early days of the Covid-19 pandemic, and have come to rely on them to drive summer sales. New York City, for example, is poised to make expanded outdoor dining in roadways permanent from April to November, and supporters say patios have helped restaurants maintain sales and jobs.

Now, some restaurant owners said those patio sales are drying up when temperatures surge, or wildfire smoke blows.

“When the sun’s on it, it’s literally scalding out there,” said Marc Hochmuth, general manager of City Social restaurant in downtown Chicago, which has a patio. Hochmuth said his business dropped about 20% overall when temperatures soared this summer.

Zoe Dean-Neil, a 20-year-old Pennsylvania resident who was on vacation in Chicago in August, said she opted to eat inside in the air conditioning after a day walking around in the heat. “I don’t want to sit outside and sweat,” she said.

Smoke drifting into the U.S. from Canadian wildfires also affected business at restaurants in parts of the country earlier this summer. John DuBuque, a 31-year-old management consultant from Chicago, said he tried to have a glass of wine outside during one heavily smoky period in the city, and regretted it.

“It was not the vibe,” said DuBuque, who said he now makes more outdoor dining decisions based on the air quality index.

Restaurant owners are trying to work around the weather. Sue Rigler, owner of Hundred Mile Brewing Company in Tempe, Ariz., said she is misting and putting extra fans on her outside beer chilling units to keep them cool. She has also cut back on labor in response to slower sales that she attributes to the heat.

“July was a really hard month,” Rigler said. “We finally got a break at 108, and they call that a break.”

Tom Hutchinson, owner of La Posta de Mesilla and Hacienda de Mesilla in New Mexico, said his hotel and restaurants are promoting cold beers and margaritas to attract customers. He is also hoping to keep people coming to the outdoor space surrounding their adobe building at night when temperatures may fall to the 90s.

“We don’t have humidity in our state and you can tolerate that,” he said.

Longer term, restaurant operators are trying to adjust to more climate-driven variables.

Avram Hornik, owner of the FCM Hospitality group of restaurants, bars and outdoor pop-up venues in Philadelphia, said his sales are down 30% this summer because of weeks of heat and rain. Smoky conditions in June didn’t help, he said.

“I look at it such as being a farmer. The weather controls all,” he said.

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Buyer demand drives upward trend in home prices

An unexpected rebound in home prices across Australia’s biggest cities in the past few months shows no signs of slowing, with intense buyer demand driving another bumper weekend of auction activity.

An early start to the traditionally busy spring selling season has continued to strengthen and auction volumes on Saturday were up 12 percent on the previous week, according to data house CoreLogic.

“The volume of auctions has been rising through the second half of winter, with activity at the weekend up 27.8 percent from a month ago, and 22.1 percent higher than this time last year,” CoreLogic research team lead Duane Kaak said.

Even so, new for-sale listings remain well down on previous years, forcing a large pool of hopeful buyers to part with more cash to secure a home.

In Sydney, the weekend’s preliminary auction clearance rate is sitting at 73 per cent, with 305 successful sales from 419 results reported so far.

In Enmore in the city’s inner west, a pair of run-down neighbouring terraces on one title sparked a feeding frenzy among prospective buyers.

The successful bidder for 43 and 43a Edgeware Rd was 15 minutes late to the action but quickly made up for lost time, paying $1.918 million for the deceased estate. The sale price was well above the reserve of $1.4 million.

Meanwhile, a five-bedroom house at 4 Alsace Ave in Bardwell Valley in Sydney’s southwest fetched $2.15 million – some $550,000 above reserve, with five bidders battling it out.

Melbourne’s preliminary auction clearance rate of 68 per cent is based on 346 reported results from 704 scheduled sales.

A three-bedroom cottage at 10 Mckeon Ave at Pascoe Vale South in the northern suburbs drew strong interest, selling for $1.64 million – $190,000 above reserve.

It was the first time the retro wonder had come to market in 70 years.

Brisbane’s preliminary clearance rate of 59 per cent represents 17 sales from 29 reported results of a total 64 scheduled auctions on Saturday.

A prestige property at 41 Mayfield St in affluent Ascot fetched a whopping $4.03 million after swift bidding from nine parties.

Despite economic uncertainty, high interest rates and a cost-of-living crisis, high demand and low supply are putting upward pressure on property prices across the major capitals.

Home values across the country have recovered much of the declines seen throughout 2022, with a 2.79 per cent increase since December, according to the latest PropTrack Home Price Index.

“Interest rates were the primary driver of home price falls seen for much of 2022, but there are other factors – like the supply of properties for sale, labour market conditions, rate of immigration, home building, state of rental markets and interstate and regional migration –that also affect price growth, as well as how it is distributed across the country,” PropTracksenior economist Eleanor Creagh said.

In July, Sydney’s median home price rose 0.28 percent to $1.04 million and is 3.16 percent higher year-on-year.

Melbourne values remain flat, with a modest 0.01 per cent lift last month taking the median to $805,000, while in Brisbane, the median of $742,000 increased 0.37 per cent, up 1.98 per cent on July 2022.

“Although total stock on market has increased slightly, the flow of new listings has remained soft in recent months, leading to increased buyer competition and solid selling conditions with prices continuing to lift.”

 

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5 ‘Dream Kitchen’ Upgrades That Homeowners Tend to Regret

A YEAR AGO I found myself teetering demi-pointe on the soapstone counter of my newly renovated kitchen wondering why I had asked for cupboards up so high.

Why had I fallen prey to the Instagram Reels and TikTok videos that malign the gap between cabinets and ceiling? My top cupboards, which hiked the cost of my cabinets about 35%, finished the millwork handsomely, but they were basically unusable.

Before you, too, succumb to custom-kitchen lust, here are five “must-haves” that design pros, and some reality-checked clients, say you almost certainly don’t need.

1. Continent-Sized Kitchen Islands

When rapper Cardi B revealed her new New Jersey kitchen island on Twitter, now X, she strutted across its surface—and got quite a ways without even nearing the edge of what appears to be a six-slab marble behemoth. In marginally less flamboyant kitchens across America, islands of 15 to 18 feet, roughly the size of SUVs, roost.

Debbie Travis, a veteran host of home-design TV, wanted one for a villa in Tuscany where she welcomes guests for retreats. Her self-described vision: a 16-foot counter surrounded by “a dozen women making pasta, drinking prosecco and laughing.” With the dishwasher and sink on one side and the stove on the other, she says she’s “constantly pushing the cutting board across the island and running left or right to the other side.”

Said Atlanta-based kitchen designer Matthew Quinn of these expansive surfaces, “You literally have to use a Swiffer to clean the middle.”

2. Pot Fillers

“A wall-mounted faucet near a range in theory is great because you can fill a big pot with water and not have to carry it from the sink,” says Christopher Peacock, owner of an eponymous luxury cabinet company in New York. “But it’s ridiculous,” he pointed out. After you’re done, say, boiling several pounds of pasta, you have to carry the pot to the sink to drain the water. “For $5,000, this one’s often a complete waste of time.”

If you don’t use the tap frequently enough, Quinn warns, “you have to open the valve, drain it into a vessel and dump out that water, which will be full of sediment.”

3. Over-Glowing Pantries

“LED-lit shelves and drawers are huge,” said Jaqui Seerman. The interior designer says her Los Angeles studio creates pantries in which everything is decanted and then lit like a boutique. “A surge of people are asking themselves, ‘If I’m creating a Reel of myself cooking, how does the olive oil look and how does its background look too,’ ” she said, “but it’s vanity, not utility.”

4. Workstation Sinks

Brands from Delta to the Galley, a high-end purveyor, offer workstation sinks—trough-size basins up to 7 feet long with myriad inset components, including cutting boards, colanders, dish racks and entertaining kits rife with metal ramekins. Moving the parts looks cool on video.

The drawbacks? De-gunking the slim horizontal ledges and tight corners that support the layers of add-ons, not to mention storing these accoutrements. And those cutting boards? Architect-builder Robert M. Berger, in Westport, Conn., says they’ll often discolour, stain and warp. He advises sanding and treating them with mineral oil pre-use.

Quinn objects to the ergonomics. “We designers create work zones and task areas for comfort and efficiency,” he said, “and now everyone’s jammed into the sink trying to cut and prep and wash.”

5. Library Ladders

They may evoke sweetly analog book stores and reading rooms, but in a kitchen, library ladders “are 98% charm, 2% utility,” said Peacock.

Colleen Silverthorn had designer Meredith Heron install a single ladder that hooks onto rails in the kitchen, laundry and family room in her Regina, Saskatchewan, home. “You need two hands to bring down anything, but you have to hang on while you’re up there, so you only have one,” she admits. “It’s absolutely beautiful [but] doesn’t work at all in the kitchen.” In the other rooms she uses it to retrieve wrapping paper or books, “anything you can toss down onto the floor.”

Sophie Donelson is the author of “Uncommon Kitchens: A Revolutionary Approach to the Most Popular Room in the House” (Abrams).

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Is Germany’s Economic Model Truly Kaputt?

More than two decades after Germany was famously called “the sick man of the euro” by The Economist magazine, investors must wonder if the country’s industrial heart is once again critically weak. This week brought more dismal German economic data: Industrial production fell 1.5% in June from the previous month, worse than analysts expected. Though figures released on Friday showed a rise in exports, the volume of goods Germany sends abroad is still close to lows plumbed in the 2009 global financial crisis.

 

German gross domestic product has clocked three quarters of negative or zero growth , making the country the worst performer among major eurozone nations since 2019. Previously it was the top performer. How long this “slowcession” lasts is a crucial question for picking stocks in Europe. Despite the recent economic reversal, the DAX has been by far the best equity index in the eurozone over 20 years, returning almost 360%.

By comparison, investing in long-stagnant Italy yielded a paltry 140% return. German industrial output has been in decline since 2018, when global vehicle sales fell for the first time in almost a decade. A postpandemic rebalancing of spending toward services has made the situation worse. Growth in China, the fourth-largest market for German exporters, has slowed.

On Thursday, shares in Siemens —the largest industrial firm in Europe—fell 5% after it cited these two factors as the cause of a fall in orders during the second quarter. Some of the grit that has gotten into the German economic machine might be hard to dislodge . Chinese carmakers have turned from partners into fierce competitors as Volkswagen , BMW and Mercedes-Benz play catch-up in electric-vehicle technology.

It isn’t just China that is seeking to substitute imports for domestic products; the Biden administration is copying Beijing’s playbook. There is also energy. At the same time as German industry has lost Russia as its main source of cheap gas, Berlin has closed the country’s last three nuclear power plants. Angst has gripped German officials and executives in an echo of worries voiced at the start of the millennium, when unemployment surged and globalisation ravaged factories.

Back then, the response was a policy package that prioritised international competitiveness, incentivising the creation of low-pay “minijobs.” The government embraced fiscal austerity and nudged unions to push for wage restraint. The result was a 20-year decline in unemployment and a current-account surplus that reached an eye-watering 8% of GDP even as the U.S. ran huge deficits. Many economists praised German labor flexibility and fiscal austerity.

Conversely, critics pointed out that surpluses made most households worse off, and that Germany’s factory-job losses were just as large as America’s. Politics aside, it was largely a fortuitous jump in foreign demand that drove growth, allowing the nation to solidify gains in industries where it already had an advantage.

“Over the last 20 years, Germany always had an external sugar daddy: China, the eurozone and then the U.S.,” said Carsten Brzeski , chief economist at ING.

The flaw in this model was that it outsourced economic policy, leading to problematic dependencies on geopolitical rivals. It also fostered an excessive focus on old winners at the expense of new digital technologies and renewable energy.  Bearish investors are right that it will take years to rectify these problems, particularly given the complexity of consensus-based German politics. Yet the German export-led model also got a lot right. As in China or South Korea, it channeled demand toward higher-productivity, higher-wage firms.

 

Unlike in the U.S., German manufacturing became more complex. That allowed the country’s industrial base to survive better than in other Western countries. In a world where nations are scrambling to reshore industries, Germany already has them. The readiest answer to its growth challenge isn’t to turn away from manufacturing but to double down by taking a page from Chinese and now U.S. industrial policy.

The German government is already doing this with semiconductors as part of the European Chips Act. Back in June, it signed off on 10 billion euros (around $11 billion) in subsidies for American chip maker Intel to build two plants, and earlier this week it committed €5 billion to help Taiwan’s TSMC   set up a factory with local partners like Infineon.

A similar approach is needed to upgrade the country’s power generation and transmission and accelerate the transformation of carmakers and other industrial incumbents. Long-term energy guarantees could stem cost swings in the meantime. Given its political influence over the European Union, it seems hard to imagine that the bloc’s green-economy push could somehow leave Germany in a less dominant position . Historically, this is one patient that always leaves the hospital.

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When You’re the Boss, but Your Employees Make More Money

When NFL quarterback Justin Herbert and NBA star Jaylen Brown signed contracts this summer worth $262.5 million and $304 million, respectively, they struck the richest deals in their leagues’ histories. They’re also out earning their bosses by millions a year.

Professional athletes often command higher salaries than their coaches, since it’s harder to find people to execute plays than diagram them. And individual contributors can earn more than managers in a lot of fields, from finance and tech to sales and media.

The sticking point is how bosses and their charges deal with those imbalances.

There are two keys to a functional working relationship when a subordinate makes more money than their manager, people in both camps tell me: The boss must possess the humility to accept the situation and the confidence to project authority. And the highly paid employee can’t be a diva.

Richard Reice, a labor attorney and chief people officer of a restaurant group, says fat paychecks can lead to entitlement and make a highly paid employee practically unmanageable.

“Some refuse to do basic things, like attend meetings, just because they think they’re silly,” he says.

When leadership doesn’t pay

It’s hard to quantify how frequently rank-and-file workers make more than their bosses, but Reice says he has observed a shift from his dual perches in employment law and human resources. Many companies are scrapping the old notion that bigger titles should automatically mean bigger bucks. Instead of promoting star employees into management, where administrative duties can siphon time from their true talents, more businesses are keeping top performers in individual-contributor roles—and paying them like bosses.

Leadership, in these situations, is considered like any other skill, and not necessarily one that is worth more money.

We’re more likely to notice now when someone out earns the boss. The pandemic-era rise of distributed teams was accompanied by cost-of-living adjustments, which meant a manager based in an inexpensive town might earn less than direct reports living in pricier cities.

Pay-transparency laws have given some bosses the jarring experience of seeing less-senior positions at their companies posted on job boards with advertised salaries that exceed their own. Market demand can explain some discrepancies; in other cases, racial, age or gender biases could be to blame.

Keep your ego in check

Nikki Barua, who runs the women’s leadership program Beyond Barriers, says her clients in managerial positions sometimes feel underpaid relative to subordinates and are unsure whether discrimination is a factor. Bosses need to recognise there are often valid reasons behind pay, she says, and advises managers to pay more attention to what their fellow bosses make.

“The star performer is not the right comparison,” she says.

Barua says that in previous roles at technology and consulting firms, her knack for bringing in business sometimes led to incentives that pushed her pay over her managers’. She kept her ego in check by viewing her skill as a blessing, remembering that others might be equally good at different jobs that the labor market rewards less generously.

Now, as an entrepreneur trying to conserve cash, she’s sometimes paid herself less than her employees. She admits that, at times, it was hard not to resent people making more than she did, feeling that she’d be able to draw a salary if only they’d work harder or do better.

Founders often draw modest salaries, or none at all, in companies’ early days, says Jeff Bussgang, general partner in the Boston office of startup investor Flybridge Capital Partners.

“Naturally, if they own a big chunk of equity, it makes it all more palatable,” he says.

Plus, owners’ status is seldom in doubt, regardless of pay. Berkshire Hathaway CEO Warren Buffett, who acquired a controlling stake in the company in 1965, has for several decades taken an annual salary of $100,000. His total compensation last year was $401,589, while two vice chairmen earned more than $19 million apiece. Buffett, the world’s sixth-richest person with a net worth of $122 billion, according to the Bloomberg Billionaires Index, derives most of his income from investments.

Bosses who earn less

Ellen Taaffe, who sits on the compensation committees of several companies, including AARP Services, says corporate boards often set pay by studying the going rates for similar roles in other organisations. Boards can ease potential tension by giving junior executives lower base salaries and enabling them to surpass more senior leaders only through bonuses for exceeding expectations. Usually the people with the loftiest titles make the most money, but not always, notes Taaffe, who teaches at Northwestern University’s Kellogg School of Management.

For instance, the chief scientific officer of a biotech company—whose research might be the crux of the business’s success or failure—could be paid more than the CEO. George Yancopoulos, the chief scientific officer of Regeneron Pharmaceuticals, has received almost $435 million in total compensation since 2012, according to securities filings, making him the company’s highest-paid employee over that span. (Regeneron may be best known for its monoclonal antibody treatment for Covid.)

At some universities, the highest-paid employee isn’t the president; it’s the football coach or the person who manages the endowment. The $2.2 million pay package awarded to Yale University President Peter Salovey last fiscal year was one-third of what the chief investment officer earned, according to tax filings.

Leaders who successfully handle higher-paid employees find satisfaction in helping others shine, Taaffe says.

Warren Cereghino, a retired TV news director in California, says he kept pride at bay by reminding himself that viewers tuned in to watch his station’s anchors, who earned more than he did as their boss. He says the on-air talent didn’t abuse their sway.

Still, being privy to their contracts, he knew that some had negotiated a measure of editorial control in addition to large salaries. If there was a disagreement, he wouldn’t necessarily win.

“Even though my name was on the door of the news director’s office, there was a limit to my power,” he says.

—Theo Francis contributed to this article.

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Stella McCartney to Ralph Lauren Have Ventured Into Vegan Leather—Meet Their Supplier

As plant-based materials increasingly replace leather in luxury goods, NFW is one of the companies working behind the scenes to bring vegan materials to fashion brands like Ralph Lauren, Patagonia, and Stella McCartney

This self-proclaimed “material innovations company,” whose name stands for Natural Fiber Welding, is a leader in the wave of vegan materials. NFW’s founder and CEO is Luke Haverhals, who has a PhD in chemistry from the University of Iowa, but always had an interest in economics.

“I asked myself, ‘What is a reasonable way to replace the entire plastics industry, economically speaking?’” Haverhals says. “I was on a quest to make sure humans were less dependent on carbon high toxin materials, I thought what I could do to solve this problem?”

The answer was in plants. Haverhals founded Peoria, Ill.-based NFW in 2015, envisioning a plastic-free future.

“People think plastics are cheap, but they’re among the most expensive and toxic things that humans ever tried to create,” he says.

THE ITEM

NSW provides fabrics for many brands, including Stella McCartney’s MIRUM-made handbags, which are 100% recyclable and circular—meaning at the end of their life, the material can be reused to make something else.

The name of this fabric comes from the Latin word for “miracle,” Haverhals says. “We don’t call it ‘leather,’ but it’s a leather-like material. It allows us to work with fashion designers and brands and we aim to start well, stay clean, and end well with regenerative materials. We don’t add bioplastics or polyurethane.”

The collection of NFW’s Mirum-fabric includes the Falabella MIRUM Tiny Tote Bag and the Frayme bag. They were launched at the Fall/Winter 2023 runway show at Paris Fashion Week in spring of 2023, and are available for pre-order, shipping out this month. They’re the world’s first luxury handbags crafted from this new vegan, plastic-free alternative.

McCartney aims to source 100% of her products from recyclables by 2025. “McCartney has been instrumental to NFW, she is a guiding light to the industry,” Haverhals says. “If we can get more luxury brands onboard, it will be better for others to get clean materials into their products, as well.”

The collection is a “call-to-action to take a stand for our planet,” McCartney said in a statement. “I have long dreamed of the day when we would see a plant-based alternative to leather that does not kill a single creature and can be easily given back to Mother Earth, without creating waste.”

(NFW is also funded by the Collab SOS Fund, a US$200 million fund which invests in companies that power a more sustainable economy. McCartney is one of its co-founders).

THE PRICE

As an example of the luxury goods NFW provides materials for, the Falabella Mirium Tiny Tote Bag sells for US$1,170.

WHAT’S THE GOOD?

NFW uses natural ingredients like vegetable oil and citric acid. “They can easily be turned into natural polymers when they break down,” Haverhals says. “We use natural rubber, cotton, we source regenerative cotton, we use cork, leftover from wine bottles, we use rice hulls, which are thrown out, a lot of things that are overlooked in the supply chain.”

WHAT’S NEXT

The company is gearing up for a launch with Ralph Lauren. It recently opened a factory in Peoria, as part of their expansion, and plans to expand to Europe, Southeast Asia, Sri Lanka, and China. “It’s important for us to be in China and we are proud to be partnering with them, helping take care of people and animals on the planet we share,” Haverhals says.

More than 1,500 brands reach out to NFW. “Everyone wants to better their brand,” he says. “When you think of shoes, bags and apparel, we are cleaning up the supply chain,” Haverhals says. “That’s our mission—to enable the world in a transparent, traceable way—where we don’t have any polyurethane goblins hiding in the closet.”

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Seeking your next property investment? Look up

Apartments are now outperforming houses as a source of investment in the Australian property market.

New research released by property advisory service Hotspotting reveals that the apartment market has gained new ground in recent years as more people seek flexible, affordable housing options closer to existing infrastructure. As a result, the high density market was seeing stronger returns in both yield and capital growth.

Hotspot has released a National Top 10 Apartment report, identifying specific Australian suburbs with the greatest potential for investors. The Brisbane suburb of Annerley was the top pick, followed by Belconnen in Canberra, Clayton in Monash, Victoria and Dicky Beach on the Sunshine Coast.

The Sydney suburbs of Gymea and Stanmore were the only NSW areas to make the top 10 while Mitchell Park in the South Australian city of Marion was the sole entry from that state.

Hotspotting director Terry Ryder said the growing popularity of apartments for both homeowners and investors was complex.

“It’s not just about affordability – although that plays a big role in our largest cities – but our population is simply embracing apartment living more because of the opportunity to reside in more desirable locations as well as having easy access to lifestyle precincts,” Mr Ryder.

“Developers have also been constructing more owner occupier stock, such as three- and four-bedroom apartments, as well as offering superior resident facilities such as rooftop and barbecue areas, infinity pools and spas, private dining rooms and even the complimentary use of vehicles for those who don’t have transport.”

Hotspotting general manager Tim Graham said there was still plenty of room for growth, as evidenced by the apartment market in Europe and Asia.

“In London, apartments comprise 94 per cent of dwellings, while in Singapore it’s 93 per cent and in Hong Kong it’s 84 per cent,” Mr Graham said.

“In comparison, about 46 per cent of residences in Sydney are apartments, while in some smaller cities such as Hobart that percentage drops to just 15 per cent.

“More than 50 per cent of new dwellings currently under construction are higher density, however, this figure still falls short of the supply needed for our booming population, which is likely to push apartment prices higher over the medium-term.” 

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China Slips Into Deflation in Warning Sign for World Economy

HONG KONG—China’s consumer prices tipped into deflationary territory in July for the first time in two years, as a deepening economic malaise in the world’s second-largest economy enters a potentially dangerous new phase.

The data released Wednesday adds to a darkening picture for China, where the economic recovery has been losing momentum because of a host of problems. A drop in exports is accelerating, youth unemployment has hit record highs and the housing market is mired in a protracted downturn.

Now, the country is suffering an unusual bout of falling prices on a range of goods, from commodities such as steel and coal to daily essentials and consumer products such as vegetables and home appliances. It is the opposite of what happened in most of the rest of the world when Covid-19 restrictions eased, with many countries still trying to tame inflation.

Chinese consumer prices fell 0.3% in July compared with a year earlier. This could be transitory, however. Stripping out volatile food and energy prices, so-called core inflation rose to 0.8% in July, the highest level since January, from 0.4% in June.

The danger is that if the expectation of falling prices becomes entrenched, it could further sap demand, exacerbate debt burdens and even lock the economy into a trap that will be hard to escape using the stimulus measures Chinese policy makers have traditionally turned to.

Deflation is particularly risky for countries with high debt burdens such as China, since it will add to debt servicing costs for borrowers and likely prompt them to spend and invest less.

China’s total debt reached nearly three times the size of its gross domestic product in 2022, higher than that in the U.S., according to the Bank for International Settlements.

“The reality looks increasingly grim,” said Eswar Prasad, a Cornell University economist who once headed the International Monetary Fund’s China division. “The government’s approach of downplaying the risks of deflation and stalling growth could backfire and make it even harder to pull the economy out of its downward spiral.”

For now, Chinese policy makers say they are sanguine about falling prices, dismissing suggestions that deflation is here to stay.

Dong Lijuan, a statistician at China’s National Bureau of Statistics, on Wednesday said consumer prices will likely rebound gradually later this year as the high base effect begins to fade.

China’s predicament stands in contrast to those of the U.S. and other Western countries, where soaring inflation prompted central banks, including the Federal Reserve, to raise interest rates in an effort to cool growth without triggering a recession.

In the U.S., consumer prices rose 3% in June compared with a year earlier, the slowest pace of increase in more than two years, while annual inflation in the European Union stood at 6.4%, easing from 7.1% in May.

Falling prices in China may help ease inflationary pressure elsewhere around the globe, as Chinese exports become cheaper. They also pose a risk: a flood of low-price Chinese-made goods could hurt foreign competitors and lead to job losses in developed countries.

For China, the absence of inflation reflects an imbalance in the economy characterised by ample supply and dormant domestic demand, which economists say is partly the result of Beijing’s paltry social security support for households.

Wang Lei, who works at a video gaming company in Beijing, said his and his wife’s overall expenditures have fallen compared with last year’s. Seeing colleagues and friends get laid off spooked him into reining in any unnecessary expenditures, apart from renovating an apartment that he purchased two years ago.

“It’s better to save more and be cautious now,” said 40-year-old Wang. “The economic outlook is not certain.”

China’s central bank has trimmed interest rates several times this year, but fiscal and monetary policy makers haven’t launched any larger-scale stimulus measures, in part because of constraints such as elevated debt levels.

Prices charged at the factory gate, which have been contracting on a year-over-year basis since last October, fell 4.4% in July from a year earlier, narrowing from June’s 5.4% decline, according to data published by China’s National Bureau of Statistics on Wednesday.

But it was the consumer-price reading, which has remained positive even as producer prices turned negative, that marked the bigger shift.

After flatlining in June, last month’s 0.3% decrease in consumer prices represents the first negative print since February 2021, when the reading was thrown off by year-over-year comparisons to the early days of the pandemic when supply chains and food prices were in disarray.

Apart from a single month in the first year of the pandemic, both consumer and producer prices haven’t been in deflationary territory at the same time since 2009, at the depths of the global financial crisis.

July’s negative consumer inflation result was mainly driven by a drop in food prices from a year earlier, when food prices were pushed up by extreme weather conditions, a spokeswoman for China’s statistics bureau said Wednesday. Prices of pork, a staple of Chinese dinner tables, plunged 26% in July from a year earlier. Vegetable prices also fell last month.

Even so, consumer inflation isn’t likely to pick up much this year, economists say. The reason is consumer confidence, or rather the lack of it, as households continue to feel the lingering impact of three years of Covid uncertainty, regulatory uncertainty and ongoing concern about the health of the property market. The real-estate sector, one of China’s main drivers of growth for decades, is in a deep funk, with fresh worries stoked this week by default concerns around one of China’s biggest property developers.

Unlike many countries in the West, where government cash handouts to consumers during the pandemic fuelled a spending boom on physical goods such as furniture and personal electronics, Beijing so far has offered no such direct support to its households.

On top of that, a renewed downturn in the housing market has curbed Chinese consumers’ appetite for consumption, since many households have treated apartment units as their main store of wealth, and are highly sensitive to fluctuations in home prices, said Wei Yao, chief China economist at Société Générale.

“The problem is there’s no obvious driver to power recovery at the moment,” she said.

Even if consumer prices begin to pick up again, Chinese factory owners and exporters are likely to struggle with pricing power for some time, eroding their profit margins and hurting their willingness to expand production or hire more workers.

While producer price deflation eased in July, the 4.4% drop was worse than 4.1% expected by economists polled by the Journal.

During the pandemic, many factories in China ramped up production to accommodate a surge of overseas orders. Now, as demand in the West fades, producers of automobiles, consumer goods and other products are being saddled with excess inventory, forcing many to slash prices to reduce stockpiles.

One manufacturer of robot vacuum cleaners based in the southern Chinese city of Shenzhen is looking to sell more overseas, in part because domestic rivals are offering cheaper options and the sluggish recovery in consumer demand has eroded sales at home, according to a company executive.

The ultimate challenge for Chinese policy makers is how to forestall a self-reinforcing spiral in which a fall in prices leads to reduced production, lower wages and suppressed demand.

Economists expect China’s central bank to lower interest rates further in the coming months, though many are skeptical that such moves alone can dispel deflationary pressures.

That is because confidence among businesses and households has been slow to recover, resulting in limited appetite for them to invest and spend more. Such an environment renders moderate stimulus measures largely ineffective, argues Arthur Budaghyan, chief emerging markets strategist at BCA Research.

“The Chinese government has to do something very big to confront deflation,” he said. “I don’t think they’ve done enough yet.”

—Grace Zhu and Xiao Xiao in Beijing contributed to this article.

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Secondhand Sellers Are Going Premium

In theory, a weakening economic environment seems good for secondhand platforms: People are more likely to sell valuable items from their closets while bargain hunters emerge. In practice, it is a bit more complicated.

The RealReal, an online marketplace for luxury resale, said on Tuesday that gross merchandise value—the total value of goods sold through its platform—fell 7% in its second quarter, worse than the 5.7% decline that Wall Street analysts were penciling in. ThredUp, which sells more generic brands, fared better and reported revenue growth of 8%, exceeding expectations. Both companies reported narrower net losses than analyst expectations, sending The RealReal up 6% in after-hours trading and ThredUp by 2.8%.

Despite better-than-expected profits, the selling environment isn’t exactly hospitable for either platform.

ThredUp, which tries to keep its pricing 60% to 70% lower than what consumers could buy at regular retail, is facing a very promotional environment in which brands are offering steep discounts on new products. On the company’s earnings call on Tuesday, ThredUp said the market for selling clothes remains competitive, though it is improving.

Meanwhile, demand for luxury goods has generally been lukewarm in the U.S. Even the prices of highly coveted secondhand watches such as Rolexes have fizzled recently. ThredUp is projecting a slowdown in top-line growth this year compared with 2022, while The RealReal is expecting a slight decline in sales volume.

Both platforms are trying to attract wealthier, more resilient customers by upgrading their product mixes, even if it reduces their customer base in the near term. ThredUp said the budget shopper continues to look more challenged and said it is focused on attracting the “incrementally more premium buyer.”

The RealReal, meanwhile, has tweaked its commission structure for consignors by allowing them to retain more of the revenue earned from the sale of the most expensive, in-demand items while reducing incentives on products selling for less than $100. While that has reduced the company’s sales volume, it helped improve gross margins to 65.9% last quarter, up about 9 percentage points from a year earlier.

The tricky part for both platforms is that they haven’t been around long enough to know how their target buyers and sellers behave during downturns. Given that both businesses are, to some extent, supply constrained, further weakness could be a good thing if it encourages more people to raid their wardrobes. And, judging by the strong record at off-price retail during downturns, demand for value products should hold up.

So far, though, a weakening economic environment hasn’t been a bonanza for secondhand goods.

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Latin American Countries Aim to Curb Amazon Deforestation

SÃO PAULO—The Latin American countries that share the Amazon rainforest embarked on a two-day meeting Tuesday in the Brazilian jungle city of Belém with an aim to halt the deforestation that many scientists blame for accelerating climate change.

Brazil, home to 60% of the world’s biggest rainforest, held a meeting for presidents and top officials from countries that are home to the rest of the Amazon: Peru, Colombia, Bolivia, Venezuela, Ecuador, Guyana and Suriname. The summit is the first in 14 years for the Amazon Cooperation Treaty Organization, a group that arose from a treaty Amazonian nations signed in 1978 to promote harmonious development of the region. France, which oversees French Guiana on South America’s northeast shoulder, was represented by the French ambassador in Brasília.

The meeting comes as Brazilian President Luiz Inácio Lula da Silva seeks to position his country as a leading voice in the global fight against deforestation, and facilitator of cross-border environmental cooperation on the continent through the 45-year-old treaty.

“It’s never been more urgent to resume and widen this cooperation—it’s the challenge of our era,” said da Silva in his opening speech Tuesday.

Other countries with large tropical forests, such as Indonesia, Republic of Congo and the Democratic Republic of Congo, were expected to join the meeting along with Norway and Germany, which contribute to deforestation programs. The United Arab Emirates, which will host this year’s United Nations climate summit in Dubai, was also to attend.

Twice the size of India, the Amazon rainforest has long absorbed more carbon than it releases, acting as a vital brake on global climate change. But with close to 20% of the original forest now gone, scientists tracking the forest say the Amazon could be close to its so-called irreversible tipping point, at which it would dry out and eventually become savanna. The effects could be global. Climate scientists have blamed forest loss for contributing to global warming, which the U.S. Environmental Protection Agency has said explains why heat waves in countries such as the U.S. are becoming more common.

Deforestation in Brazil’s Amazon has hit its lowest level in four years since da Silva’s administration started in January, dropping about 34% in the first six months of this year compared with the same period last year, according to preliminary data from Brazil’s National Institute of Space Research, known as INPE. While da Silva has vowed to bring jungle destruction down to zero by 2030, he has argued that this can’t be done at the cost of the livelihoods of the some 30 million people who live in Brazil’s Amazon.

Instead, Brazil must build a new green economy in the Amazon with financing and investment from abroad, da Silva argues, as well as develop a regulated carbon market. Brazil relies on foreign donations to help operate its underfunded environmental enforcement agencies, which use helicopters, drones and other equipment to monitor illegal deforestation across the vast area.

“What we want is to tell the world what we’re going to do with our forests and what the world has to do to help us,” da Silva said in a government statement. Da Silva said he plans to pressure wealthy nations to fulfil the pledge they made during the 2015 Paris climate accord to provide $100 billion a year to help developing countries fight climate change.

Other Latin American countries, including Colombia and Peru, have set deforestation targets but face serious challenges from illegal mining and drug gangs that have tightened their grip over the forest in what the U.N. recently referred to as “narco-deforestation.”

Tackling deforestation is one of the most urgent tasks facing South America, scientists say.

Heavily-deforested parts of the Amazon’s southeastern region have already ceased to function as a carbon absorber and are now a carbon source, according to a study published in 2021 by Luciana Gatti, a researcher for INPE, which uses satellites to track deforestation.

The Amazon rainforest influences weather patterns around the world and as deforestation advances, this could make extreme weather events more common, said Daniel Nepstad, who heads the California-based Earth Innovation Institute and has worked in the Amazon for more than 30 years.

“The forest is a global air-conditioning unit…an enormous heat processing machine that influences weather around the world,” said Nepstad, adding that the willingness of all leaders to meet to discuss the issue was in itself a “hugely positive outcome.”

Deadly heat waves have upended daily life in large parts of the U.S., Europe and Asia this year, while unusually high temperatures in South America’s winter have melted snow in the Andes mountains.

Regional coordination is vital, environmentalists say. Deep in the Amazon, where indigenous communities often straddle borders and loggers and criminal groups move freely, one country’s efforts can easily be rendered ineffective by those of its neighbour.

Such a summit seemed a distant possibility just a year ago, when da Silva’s right-wing predecessor Jair Bolsonaro was president. Bolsonaro, who jokingly referred to himself as “Captain Chainsaw,” cut funding for environmental enforcement and bristled at attempts from foreign countries to influence his stewardship of the Amazon even as he called on them to fund deforestation efforts.

Under the conservative leader, a swath of forest bigger than Vermont was destroyed in four years, according to INPE data.

Da Silva’s election in October last year put much of South America in the hands of a group of loosely allied leftist leaders, easing regional talks on an issue, the Amazon, that had never resulted in tangible cooperation, political scientists said.

Points of conflict, to be sure, exist among the countries participating in the Belém summit.

While da Silva has mulled plans to develop offshore oil finds near the mouth of the Amazon River to help lower domestic fuel costs, his Colombian counterpart, Gustavo Petro, called last month for all new oil developments to be blocked in the region.

“As heads of state, we must assure the end of new oil and gas exploration in the Amazon,” Petro wrote last month in the Miami Herald. “We must exhibit courage, even as we address fundamental social issues within our countries, exacerbated by a cost of living crisis and rampant inflation.”

Marcio Astrini, who heads a coalition of environmental groups called the Brazilian Climate Observatory, said Amazonian countries are likely to find common ground on the need to protect indigenous communities, combat crime at the borders and support scientific research to better understand the forest.

“These countries are in different political situations…but they all found space in their agendas to agree to this and get together to discuss these sensitive issues,” said Astrini.

The biggest point they have in common, though, is their desire to get richer nations to help pay for all of this, said Astrini.

“Show me the money—that’s one thing they’ll all be saying in unison,” he said.

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Bygone elegance meets contemporary living in a rare prestige offering

If this property looks like something out of a magazine, that’s because it is. The six-bedroom, four-bathroom 1880s Italianate estate at 75 Ocean Street Woollahra has been showcased in Architectural Digest and Vogue Living no less. Known as ‘Icilus’, the property is set over three levels on 853sqm, including a basement area with fully equipped gym with bathroom and is surrounded by formal gardens and alfresco dining areas that would look at home in Europe.

Perhaps unsurprisingly, every detail of this property has been considered, from the marble kitchen with top of the range Wolf appliances to the auto turntable parking, which makes navigating this vibrant part of the city so much easier. There’s also a spacious home office large enough for two and separate playroom or retreat packed with storage.

Temperatures are managed all year round thanks to air conditioning and hydronic heating, while the abundant natural light ensures a comfortable ambience throughout the day.

On the upper level, the main bedroom suite includes walk through dressing room and generous ensuite. 

While the layout is perfectly placed for modern living, it’s the style of this house that will draw buyers in. Bespoke wallpapers, designer pendant lighting, Belgian steamed oak floors and marble fireplaces create a sense of opulence. Beautifully curated by Claire Delmar of CD Studio, spaces speak of bygone charm and contemporary elegance. The property has a price guide of $25 million.

 

Address: 75 Ocean Street, Woollahra

Price guide: $25 million

Auction: August 19 2023 at 12.45pm

Agent: Ben Collier 0414 646 476 bencollier@theagency.com.au

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CBA posts record profit as borrowers feel the pinch

The Commonwealth Bank has credited its continued focus on supporting customers and investing communities for its record $10.2 billion profit.

Releasing the full financial year 2023 results this morning, the six percent increase in cash net profit after tax comes in the midst of rising inflation, higher interest rates and a cost of living crisis.

The CBA said in a statement that it had funded $149 billion of new lending as Australia’s largest home lender, helping 150,000 Australians to buy a home. It also noted that CBA has provided Australian businesses with $35 billion of new lending, with one in four small and medium size businesses now CBA customers. 

It’s good news for shareholders, with return on equity up 14 percent resulting in a dividend per share of $4.50.

Acknowledging that some borrowers were facing financial challenges following a 4 percent interest rate rise in just over a year and increasing cost of living pressures, Commonwealth Bank CEO Matt Comyn said the results demonstrated a resilient banking system and provided stability for the wider Australian economy.

“It has been an increasingly challenging period for our customers, dealing with rising cost of living pressures,” said Mr Comyn. “Our balance sheet resilience allows us to support our customers and deliver sustainable returns for shareholders.”

He said the CBA would continue to monitor the impact of a slowing economy and reduced discretionary spend, particularly on small business.

“The Australian economy has been resilient with the tailwinds of a recovery in population growth, relatively high commodity prices and low unemployment,” Mr Comyn said. “However, there are signs of downside risks building as rising interest rates have a lagged impact on mortgage customers and other cost of living pressure become a financial strain for more Australians.

“The Australian banking system remains strong and has navigated rapidly changing and uncertain global financial conditions through sound liquidity risk management and strong capital regulation.”

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Credit Card, PayPal or Cash App? How You Pay Matters

Buyers have more ways to pay for things than ever before: Apple Pay, Venmo, credit cards and dozens of other options. What you choose might matter as much as the purchase itself.

Each of the different payment methods provides various conveniences, perks and protections from fraud. Credit cards have long been the default option of choice. But higher interest rates have now raised the cost of carrying a credit-card balance.

Money-transfer apps such as Venmo and Zelle processed nearly $900 billion last year, and the Consumer Financial Protection Bureau expects that number to reach $1.6 trillion by 2027.

These apps and services provide easy instant payments, usually for free. The downside is that these options offer fewer protections from scams and unfulfilled orders.

“The U.S. consumer is very driven by convenience. They may not be directly driven by security,” said James Anderson, managing director at Paze, a bank-owned digital wallet.

Payment apps are among the fastest-growing sources of fraud reports and losses, according to Federal Trade Commission data. Overall fraud losses have increased more than fivefold to $1.2 trillion since 2019. Losses tied to payment apps jumped from $5 million to $47 million over the same period, according to the FTC data.

As new payment options gain acceptance, consumers should try to educate themselves how to use these methods safely, said Seth Ruden, director of global advisory at BioCatch, a fraud-detection software company.

“The channel itself is not the villain. The bad actors are the scammers, the social engineers and exploit artists,” he said.

Here’s how to weigh the security, convenience and benefits of each payment option:

Credit and debit cards

When you swipe or tap your card or authorise a card transaction online, the merchant’s bank communicates with your bank through a card network such as Mastercard or Visa to ask permission to withdraw a certain amount. Your bank then decides whether to approve the transaction based on your available funds or credit and the likelihood the transaction is fraudulent. If approved, your bank puts a hold on the funds until they are sent to the merchant’s account, usually within a business day.

Credit cards can be the most rewarding way to pay online. Card issuers use the revenue from transaction fees to fund perks for customers such as cash-back deals, travel points, access to airport lounges and fraud protection.

A credit card can be expensive if you don’t pay your balance in full, and higher interest rates have now raised the cost of carrying a credit-card balance. Paying off a $1,000 balance in 12 months at the current average annual percentage rate of 22.16% means $103 in interest, compared with $77 roughly a year ago when the average was 16.65%, according to estimates from the Federal Reserve.

Debit cards don’t offer the same rewards as credit cards since their issuers make less money from each transaction. They do come with similar fraud and payment protections as credit cards.

Federal regulations require issuers to reimburse customers for unauthorised transactions of more than $50 and allow customers to dispute charges within 30 days. Many credit cards also provide purchase protection, meaning you can ask for reimbursements directly from your issuer if something you buy is lost, damaged or inconsistent with what was advertised.

Few people make the most of their credit-card benefits, payments experts said. After finding most people don’t bother to read the fine print when they sign up for a new card, Mastercard is now notifying customers of benefits in real-time.

“If I have to read a big booklet or call a number to understand what my benefits are, I’m not doing it,” said Chiro Aikat, executive vice president of U.S. market development at Mastercard.

Digital wallets

Digital wallets such as PayPal or Apple Pay are among the safest and easiest ways to pay online. Checking out with a wallet is typically faster than paying with a credit card directly since one doesn’t have to re-enter billing information and shipping address.

All of the protections and benefits associated with the underlying card are still in effect for wallet transactions, so it is best to connect these wallets to a credit card directly to maximise your protection, said Corie Wagner, an analyst at Security.org, a safety-product review site.

If a digital wallet gives you the option to link a bank account directly, you should read the policy agreement to make sure you understand what is protected. For example, PayPal offers an extra level of purchase protection, but Apple Pay and Google Pay don’t.

Wallets also offer additional layers of security through encryption and biometric verification and many don’t share sensitive financial data such as your 16-card number with individual merchants. “Use as many authentication factors as possible” such as Face ID or personal identification numbers, Wagner said.

Peer-to-peer payment apps

Apps such as Venmo, Cash App and Zelle were designed to help people send money to friends and family, but they are now used in more settings. They move money more quickly than card payments because, instead of waiting on banks to approve the transaction, the payment is authorised once the sender hits submit. It is almost impossible to get money back once it has been sent.

These payment methods aren’t regulated as heavily as cards, so users might still be on the hook for unauthorised payments if a swindler gets control of their accounts.

“Use it to pay people you know, and trust,” said Meghan Fintland, a Zelle spokeswoman. “They’re not meant to have the credit-card security.”

Bank transfers

Businesses are increasingly offering ways to pay with your bank account directly since Automated Clearing House, or ACH, transfers are much cheaper to process than cards. This option should only be considered in exchange for a discount, payments executives said.

Consumers should be selective in sharing their bank information with merchants since wire transfers don’t have the same protection guarantees as cards.

If a business requests a direct bank transfer instead of a card payment, choosing a slower option over the newer instant methods such as Zelle might be best. ACH transfers typically take a few days to settle, giving you a few more days to try to stop the transaction before the money leaves your account.

“The slower it is, the greater likelihood is that you’ll be able to get recourse,” Ruden, at BioCatch, said.

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From Handbags to Classic Cars—the Value of Collectibles Is up 7% Annually

Novice collectors should focus their investing efforts on what brings them happiness amid wider economic uncertainty and unpredictable returns, according to Knight Frank’s Luxury Investment Index, released Tuesday.

The index—which tracks 10 luxury collectibles: art, watches, jewellery, coins, wine, classic cars, coloured diamonds, handbags, furniture, and rare whisky—found that as a whole, the value of these collectibles rose 7% in the 12 months to the end of June.

While that outpaces the returns on some other assets, including prime property in central London (down 1% over the same time), the FTSE 100 Index (up by 5%), and gold (up 1%), it was the weakest annual performance for collectibles since the second quarter of 2021, Knight Frank said.

“Economic uncertainty and higher interest rates will cast a long shadow on luxury collectibles,” said Knight Frank’s Andrew Shirley, editor of the index. “Novice collectors should focus on what brings them joy, perhaps that’s more important now that value appreciation is far from guaranteed in these asset classes.”

Art topped the index by a long shot, growing in value by 30% in the year through the end of June, according to Art Market Research’s (AMR) All Art index, which uses data from auction sales worldwide.

However, those gains may have already peaked.

“The auction season’s spring sales are the first measure of market confidence and recent results suggest growth is already starting to slow,” AMR’s Sebastien Duthy said.

Following art, watches (10%), and jewellery (10%) rounded out the top-three best-performing collectibles of the past year.

Rare bottles of whisky were the only asset in the index to see values drop in the short term—down 4%—but collectible tipples ranked as the strongest 10-year performer, with prices rising 322% over the last decade.

“Bottles of rare whisky have had a far more sedate time from a performance perspective over the past three years,” industry consultant Andy Simpson, of Rare Whisky 101, said in the report. “Higher value (more than £5,000 (US$6,370)) bottles have re-traced recently due to a myriad of geo-political, social, and economic reasons.”

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Drought Forces Spain to Source Drinking Water From the Sea

BARCELONA—Fill a glass with tap water in Barcelona these days and one-fifth of it will be processed seawater. Another fifth will be treated wastewater derived from toilets, showers and other urban uses.

This mix is emerging as the drinking water of the future in Mediterranean countries. The region is becoming warmer and drier more quickly than most places on Earth, forcing people and governments to act faster here than elsewhere to find new freshwater supplies.

A prolonged drought in Spain’s region of Catalonia is prompting rapid change. For many years after Barcelona’s Llobregat desalination plant opened in 2009, it was little used, contributing less than 5% of the city’s drinking water, which is mostly supplied by reservoirs and groundwater. Since last summer, the plant has worked at full throttle, producing over 500 gallons of fresh water per second.

“The population is increasing, business activities are increasing but water is somewhat decreasing,” said Samuel Reyes, director of the Catalan Water Agency. “We need to change the way we think about water.”

In countries around the Mediterranean Sea, recurrent droughts and dwindling flows of water from mountains into rivers are leading to a re-engineering of the water infrastructure. Farmers are digging more and deeper wells, and often switching to crops that need less water. Governments from Spain to Israel to Algeria are investing massively in desalination plants and looking for supplies of fresh water farther afield.

In the Italian region of Puglia, local authorities want to build a €1 billion, 100-kilometer underwater pipeline—not to carry oil or natural gas but drinking water. The planned project would bring river water across the Adriatic Sea from Albania to Puglia, the parched heel of Italy’s boot.

Puglia has no major rivers or snow-capped mountains. For now, the region is making the most of the little water it has. Local authorities are spending some €1.7 billion, equivalent to $1.9 billion, to repair and replace leaky water pipes, through which some 48% of drinking water there is lost.

“We need new infrastructure, but we also need to rethink our approach to the water we have,” said Francesca Portincasa, the head of Acquedotto Pugliese, the operator that oversees water management in Puglia.

Puglia’s infrastructure plans include building several new wastewater treatment plants and Italy’s first major desalination plant for drinking water, one of three that Puglia aims to operate by the end of the decade.

The changing climate is affecting the Mediterranean in ways beyond droughts. In a region where roughly 150 million people live close to the coast, rising sea levels are threatening homes, businesses and cultural heritage sites.

From sand barriers of Egypt’s Nile Delta to floodgates that protect Venice, projects to keep the sea from swallowing the land are multiplying. Some scientists are beginning to consider ideas once dismissed as crackpot, such as damming the Strait of Gibraltar to keep sea levels in check.

Much of the Mediterranean region has been in the grip of a fearsome heat wave in recent weeks, raising mortality rates and putting pressure on overstretched healthcare systems, with the elderly especially at risk. Cities such as Barcelona and Nicosia in Cyprus have set up public shelters to protect people from prolonged exposure to high temperatures.

Declining access to fresh water poses one of the region’s biggest long-term threats.

Desalinated seawater has long been a prime source of drinking water in hot, dry countries such as Saudi Arabia, Israel and the United Arab Emirates. Now, desalination is booming in countries whose landscapes provided plenty of fresh water for thousands of years.

There are downsides to desalination. Turning seawater into drinking water is an energy-intensive process, which makes desalination both costly and bad for the environment. The super-salty brine that is left over is harmful to the ocean’s ecosystem.

Spain is betting heavily on the technology. Building new desalination plants is the centrepiece of the Spanish government’s plan to deal with the growing problem of droughts.

In Catalonia, authorities plan to double desalination capacity over the next three years. Last year, the region’s two desalination plants produced 16.7 billion gallons of drinking water, six times as much as in 2009. That water has helped the region to cope with this summer’s extreme heat and drought. In the past, Catalonia has had to resort to extreme measures such as importing drinking water on tanker ships.

The Llobregat desalination plant is one of Europe’s largest. Seawater reaches the plant from a pipeline that stretches some 1.3 miles into the sea. Then, it is pumped into tanks where coagulants are used to remove grease, seaweed and other substances. The water then goes through two filters to remove smaller impurities.

Finally, it reaches the heart of the plant: a maze of green, blue, yellow and pink pipes where the salt is separated from the water through reverse osmosis. The whole process takes about 5½ hours.

“There are people here 24 hours a day,” explained Laia Hernández, a representative of the Barcelona plant, during a recent tour of the facility. “Now that we are working at full capacity, maintenance work has to be done quickly.”

The desalinated water flows to a drinking-water treatment centre, where it is mixed with other water supplies, such as water from reservoirs and treated wastewater.

European Union rules say treated wastewater shouldn’t be used in drinking water. To get around that, Barcelona’s treated wastewater is discharged into a river before being extracted again downstream.

Rainfall has been so sparse that the Sau Reservoir, one of Catalonia’s biggest, was only 6% full earlier this year. A medieval church, submerged when the reservoir was created in the 1960s, resurfaced. Fishermen were deployed to remove and euthanise the fish left stranded.

The economic effects of drought are felt most strongly in agriculture. This spring was the hottest Spain has ever recorded, and one of the driest. Farmers were hit especially hard. Insurance payouts to Spanish farmers totalled €772 million in the first half of 2023, exceeding the overall payments for last year as a whole, according to Agroseguro, which handles crop insurance payouts. The overwhelming majority of farmers in Spain are covered by crop insurance, which is subsidised by the state and gives payouts to farmers if their harvests are damaged by events such as extreme weather or disease outbreaks.

Scientists at Catalonia’s Institute of Agrifood Research and Technology are trying to help farmers adapt, including how to optimise the use of a declining water supply.

“Our goal is to produce more food with less water. If we can’t manage that, we will have a problem feeding our population in the future,” said Joan Girona, a water expert at the institute. In one research project, the soil humidity of apple orchards in Catalonia is regularly monitored to determine exactly how much water they need. During the recent drought, Girona advised some farmers to pick unripe fruit, reducing the amount of water the trees need to survive.

In the Catalan countryside, some 70,000 hectares of farmland used to grow cereals and fruit rely on a 200-mile irrigation network known as the Canal D’Urgell.

In April, for the first time in its 160-year history, the canal stopped supplying irrigation water. “I couldn’t believe it,” said Sergi Balué, 45, a farmer who relies on water from the canal for most of his fruit production. “From that point on, there was a lot of uncertainty and fear.”

Worried that his pear orchard wouldn’t survive the spring, Balué did what generations of farmers have done before him: He asked a water diviner for help.

Armed with a Y-shape rod, the dowser surveyed the land and indicated a spot on the cracked earth beneath which he said he sensed water. After digging for 100 meters but finding no water, Balué gave up.

Balué is trying to adapt to water scarcity by collecting more rainwater in small reservoirs. He is also rethinking what crops to grow.

“I used to have only peaches here,” Balué said on a sweltering afternoon as he stood in the middle of an almond grove. Almonds, he explained, are more drought-resistant than flat peaches.

“The thinking is: Even with less water, here I can have something to harvest,” he said. “But it makes me feel sad because in this land we have always only grown peaches, pears and apples. Almond trees just aren’t the same.”

—José Bautista contributed to this article.