Most of the US ’sees weak growth’
June 12, 2008
Much of the US saw weak economic growth in April and May while living costs increased, the Federal Reserve says in its closely monitored “Beige Book”.
The US central bank’s regular snapshot of business activity across the country describes weak consumer spending and job cuts linked to falling home sales.
The report knocked US shares, with the Dow Jones index of biggest shares down 206 points. The S&P 500 fell too.
Fed boss Ben Bernanke said earlier this week that risks to growth had faded.
The remarks were a strong signal that there would be no more US interest rate cuts.
Many analysts predict that US rates will remain at 2%, a four-year low, when policy makers next meet, and some believe they could even rise later in the year.
The Dow Jones index of largest shares ended 1.7% lower at 12,083.8, while the S&P 500 index dropped 1.7% and the technology-dominated Nasdaq fell more than 2%.
Price rises
The report appears to back Mr Bernanke’s view that inflation risks will remain a problem due to higher energy and food costs.
“Business contacts in most districts reported increases in input prices since the last report, especially prices for energy, petroleum derivatives, metals, plastics, chemicals, and food,” the report says.
But there are concerns that the price rises will derail the already fragile economy, which has been battered by problems in the banking sector and a housing slump.
Firms have been cutting jobs for months and the unemployment rate shot up to 5.5% from 5% in May - its fastest pace in more than two decades.
But on Monday, Mr Bernanke played down the unemployment figures, insisting that a series of reductions in interest rates in the last nine months, combined with tax rebates and other measures worth $168bn (£85.6bn), would help to offset the risks threatening the economy.
Oil eases but price unrest grows
June 9, 2008
The cost of oil has eased slightly after Friday’s record-breaking price surge but analysts have warned that prices could soon start to rise again.
US light, sweet crude slid 74 cents to $137.8 after Friday’s unparalleled $11 jump to $139.12. Brent fell $1.41 to 136.28, down from a record of $137.69.
Some G8 nations have called for output to increase to curb price inflation.
But Nigeria’s oil minister said Opec would only fuel panic by calling an emergency meeting to discuss quotas.
‘Market dysfunction’
Most Opec members are reluctant to increase production, arguing that the market is already adequately supplied with oil.
But critics argue that supplies are failing to keep pace with the growth in demand and that prices are set to head towards $200 a barrel in the next 18 months.
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 It is anybody’s guess where the oil prices will go 
Gul Tekchandani, investment adviser
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Stock markets across Asia fell sharply on Monday amid concerns about the impact of escalating oil prices on the region’s economic prospects.
Japan’s benchmark Nikkei index fell 2% while in India, where the government is under pressure over fuel subsides, the main Sensex index fell more than 4%.
“It is anybody’s guess where the oil prices will go,” said Gul Tekchandani, an investment adviser in Mumbai.
“Clearly nobody will venture close to the market.”
Speaking at an industry conference in Malaysia, BP chief executive Tony Hayward said it was clear the oil market was not “functioning” as it should.
“Where prices are high, they show that supply is not responding adequately to rising demand,” he said.
G8 pressure
Friday’s 8%, or $11, rise in prices - the largest daily increase in history - was triggered by weak US employment figures and comments that a military strike on Iran’s nuclear facilities was “inevitable” in the future.
Meeting in Japan over the weekend, ministers from the G8 group of industrialised nations expressed concern about price rises and called for increased investment in new technology and alternative power sources.
The US, UK, China, Japan, India and South Korea have all called on oil producers to increase output to try to control the soaring prices.
Opec has said no new decision will be made until its meeting in Vienna on 9 September.
US unemployment rate reaches 5.5%
June 8, 2008
The US unemployment rate rose at its fastest pace in more than two decades in May, stoking fears of recession in the world’s biggest economy.
The surprise jump in May’s jobless rate to 5.5% from 5% is the most recent signal yet that US growth is stalling.
It shows US companies are more reluctant to hire as profits are squeezed by a consumer slowdown and soaring oil and raw material costs.
The US Labor Department said the economy lost 49,000 non-farm jobs.
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If you want to avoid a protracted recession, you have to make sure inflation doesn’t get out of control
Gilles Moec
Analyst, Bank of America |
It follows a 28,000 decline in April, and will fuel fears the US economy is sliding towards recession, analysts said.
The worry is that a weak labour market will see consumers rein in their spending, hurting corporate profits.
The poor data rattled the stock market, with the blue-chip Dow Jones index sliding 1.79%, or 225.70 points, to 12378.75 in afternoon trade in New York.
Cost of living
In recent months, the US Federal Reserve has been slashing interest rates in an attempt to stoke growth.
But analysts believe the rising cost of living, rather than interest rates, should be the US central bank’s chief concern now.
“If you want to avoid a protracted recession, you have to make sure inflation doesn’t get out of control,” said Gilles Moec, an analyst at Bank of America.
“Otherwise, you’re going to have a loss of purchasing power meaning consumer spending is going to slow down even more.”
Consumer spending is the engine of the US economy, and the latest jobless data is another set-back for Americans who are struggling with falling house prices, a credit squeeze and rising fuel bills.
Analysts said the figures came as a surprise:
“The unemployment rate is the shocker,” said Bert Macintosh, chief economist at Eaton Vance Management.
“The unemployment rate gives you a much weaker economic outlook than the payrolls number,” he added.
Analysts had expected between 30,000 and 58,000 jobs to go.
In April, 28,000 non-farm jobs were lost, fewer than than expected.
Interest rates kept on hold at 5%
June 5, 2008
UK interest rates have been left unchanged at 5% following the latest meeting of the Bank of England’s Monetary Policy Committee (MPC).
The decision to hold rates had been widely expected amid concerns about the pace of inflation.
Rising food and fuel prices pushed inflation to 3% in April, well above the government target of 2%.
The MPC has already cut interest rates three times since December 2007 in an attempt to help the slowing economy.
However, the economic slowdown and falling house prices had led some to call for another cut in rates to boost spending.
Businesses squeezed
Many economists feel that the MPC needs to wait and see whether higher food and fuel prices lead to higher wages or lower spending in other areas before changing rates.
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The necessity to write a letter to the chancellor should not be the overriding consideration for the MPC
David Kern, British Chambers of Commerce
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If inflation rises above 3% then Bank of England governor Mervyn King must write to the chancellor to explain why.
At the MPC’s last meeting in May, only one of its nine members voted to cut rates.
“The Bank had little option this month other than to leave interest rates on hold,” said Ian McCafferty, chief economic adviser to the employers’ group, the CBI.
“Oil and commodity prices are still of great concern and businesses are having to raise prices as profit margins get squeezed further.”
Slowdown predicted
House prices are falling as the credit crunch makes lenders reluctant to provide mortgages.
The latest figures from the biggest mortgage lender, the Halifax, showed a 2.4% fall in house prices during May.
This week, the Organisation for Economic Co-operation and Development predicted that UK growth would slow to 1.8% this year and to 1.4% in 2009. It said the global credit crisis, the high costs of commodities such as oil and slowing property markets were all hurting the UK economy.
On Wednesday, the Home Builders Federation called for a half-point cut in interest rates 4.5%, saying a cut was “imperative” to avoid a severe housing market slowdown.
Also on Wednesday, figures from the Chartered Institute for Purchasing and Supply indicated that the UK service sector shrank in May for the first time in five years, as costs rose and confidence in business prospects fell.
Threats to growth
The British Chambers of Commerce (BCC) said that the MPC should be considering the whole economic outlook and not just inflation.
“We understand the critical need for the MPC to maintain credibility, but the MPC cannot disregard the worsening threats to growth,” said BCC economic adviser David Kern.
“The necessity to write a letter to the chancellor should not be the overriding consideration for the MPC.”
But the British Retail Consortium supported the decision to keep rates unchanged.
“Struggling customers and retailers certainly need a boost but, with rising oil and commodity prices stoking inflation to well above the 2% target, leaving rates unchanged was the wise option,” said its director general Stephen Robertson.
Fed hints at no more US rate cuts
June 4, 2008
The head of the US Federal Reserve, Ben Bernanke, has signalled that concerns about inflation and a recovery of the economy make more rate cuts unlikely.
A series of significant rate cuts and the government’s stimulus package should mean “somewhat better economic conditions”, Mr Bernanke said.
His comments sent light, sweet crude $3 lower while the dollar rose to close to a three-month high.
Analysts suggest low US interest rates have contributed to rising oil prices.
‘Inflation expectations’
Mr Bernanke also said that the Fed would be monitoring the weakening dollar, which could have an inflationary effect.
The weakening of the US currency against other currencies can increase demand from foreign investors for goods such as oil, as they are priced in dollars.
“We are attentive to the implications of the changes in the value of the dollar for inflation and inflation expectations,” said Mr Bernanke, speaking via satellite to a monetary conference in Barcelona.
Analysts suggest these comments could signal a shift in Fed policy, as it is unusual for the central bank to speak on currency matters.
“By emphasising the dollar, a role previously assigned to the Treasury secretary, [Mr Bernanke] seems to have injected a new policy constraint that may increase in importance as a determinant of future interest rate changes,” said Bill Gross, chief investment officer at Pacific Investment Management.
US light, sweet crude slipped to $124.76, its lowest level for two weeks.
World Bank offers $1.2bn food aid
June 2, 2008
The World Bank is to offer immediate financial help to countries worst hit by sharp rises in food prices as part of a $1.2bn (£608m) assistance package.
Grants worth a total of $200m are being set aside for “high priority” countries most at risk from acute hunger.
Haiti and Liberia will get $10m each to feed their most vulnerable people while Djibouti will receive $5m.
The World Bank says 100 million people could be impoverished by the rising cost and scarcer availability of food.
It has also identified Togo, Yemen and Tajikistan as being in need of immediate assistance following recent needs assessments.
‘Immediate danger’
“It is crucial that we focus on specific action,” said World Bank president Robert Zoellick.
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 We just have to make sure we get the resources and coordinate the operations around the world
Robert Zoellick
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“These initiatives will help address the immediate danger of hunger and malnutrition for the two billion people struggling to survive in the face of rising food prices.”
Countries will be able to access money to provide food for schools and other core services as well as to buy essential items such as seeds and fertilizer.
The BBC’s Kim Ghattas in Washington says the money is part of a fast track programme to address immediate requirements in the global food crisis.
Some of it will be used to handle immediate humanitarian needs, for example for pregnant woman and young children.
The World Bank will also devote an additional $2bn next year to funding agricultural projects, including crop insurance schemes.
Mr Zoellick said: “This is not an issue like HIV/Aids where you need some research breakthrough. People know what to do.
“We just have to make sure we get the resources and coordinate the operations around the world.”
A United Nations report published on Thursday warned that prices for key staples such as wheat and beef could remain inflated for many years.
A world food summit is scheduled to be held in Rome from 3-5 June.
On Friday, representatives from 26 Latin American and Caribbean countries will also meet in Caracas, Venezuela, to discuss concerns over the rising cost of food.
Indonesia reluctantly quits OPEC
May 31, 2008
The Indonesian government plans to quit membership in the Organization of Petroleum Exporting Countries (OPEC) because of years of declining in production and investment and the fact of becoming a net oil importer.
Minister of Energy and Mineral Resources Purnomo Yusgiantoro on Wednesday said that the government would sign a declaration confirming the departure very soon. He also expressed dissatisfaction on surging oil prices these years.
Oil production in Indonesia in 2008 was revised down from 1,034,000 barrels to 926,000 barrels per day, far below the quota of 1.3million barrels set by OPEC, which forced Indonesia to quit.
Although quitting OPEC can save Indonesia 3.1 million U.S. dollars every year in membership fee, the quit means that Indonesia will lose its vote at OPEC to influence global oil prices when in crucial times.
So, Yusgiantoro also said that if one day Indonesia come back as a net oil exporter again, it will rejoin OPEC. But Indonesia has to boost its oil production at first.
Indonesian government raised oil prices by 28.7 percent on May 24 with the pressure of soaring international oil price, which has triggered demonstrations from university students and invited critics from political and religious elites.
If the problem of energy could not be solved in time, it will be difficult to keep political stability in Indonesia.
As domestic consumption rises and international prices are kept at high level, Indonesia has no choice but to re-discover its abundant oil and gas riches.
To quit OPEC may be a wake-up call for Indonesia to improve investment, upgrade poor infrastructure and reform its weak legal system and red tape to absorb more foreign investors.
Vice President Jusuf Kalla said here Thursday that his country is determined to become a major oil exporter again in five years by means of properly explore in oil fields and save domestic fuel consumption.
On the same day, the Ministry of Energy and Mineral Resources kicked off the tender for 25 onshore and offshore oil and gas production areas dispersed from the western island of Sumatra to easternmost Papua in its efforts to lure more private investment.
It can be seen as the first stage of a series of tenders in the energy sector by Indonesia. The remaining question is, will the only member of OPEC in Asia-Pacific region turn back in just 5 years?
US slowdown spooks SMEs in Asia
May 31, 2008
A possible economic recession in the United States is creating anxiety among small and medium-sized enterprises (SMEs) in Asia, a survey by UPS showed Wednesday.
While 38 percent of the SMEs surveyed on the mainland are worried about the negative impact of an economic slowdown in the US, more than half of SMEs in Hong Kong, Taiwan, Singapore and Indonesia are concerned their businesses will be hampered, the survey found.
US courier UPS yesterday released its Asia Business Monitor 2008, an annual survey conducted on competitiveness of and issues facing SMEs in Asia. UPS surveyed 1,201 decision-makers of SMEs between Dec 18, 2007 and Jan 24, 2008.
Since its launch in 2005, the survey has been conducted annually to deliver the latest insight into the changing business needs of SMEs, defined as companies with fewer than 250 employees.
SMEs make up 60 percent of China’s GDP and generate more than half of the country’s tax revenues. They also provide 75 percent of the employment in urban areas.
The survey found most SMEs expect trade with North America to decrease significantly in the current economic climate. Only 39 percent expect trade with the US to grow, compared with 51 percent in 2007. But 71 percent of the SMEs believe intra-Asia trade will remain robust.
“SMEs would be increasingly aware of the importance of lowering risk by diversifying trade partners. They should look at trade within Asia and with the Middle East,” said Sebastian Chan, UPS China’s vice-president for supply chain operations.
The survey found a sentiment of caution pervading Asian SME leaders. Fewer SMEs are projecting regional economic growth compared with last year. But they expect China and India will still see robust economic growth.
Chinese SMEs said inflation and overheating are the biggest threats to the country’s sustainable growth.
Many SMEs are anxious about their own business outlook, competitiveness and workforce growth. More than half of the SMEs polled do not plan to hire or are considering reducing their headcount, indicating they may be bracing for a tougher business environment.
While last year’s survey indicated product and service quality was what SMEs in Asia cared most about, this year they are most concerned about retaining qualified staff.
Lack of qualified employees and innovation are the biggest challenges for Chinese SMEs to improve their competitiveness, the survey said.
SMEs in China were regarded as the most competitive in Asia for the fourth consecutive year, as recognized by the majority, or 62 percent, of the SMEs polled.
Almost two-thirds of Taiwan SMEs believe the island’s companies should maximize opportunities on the mainland, and 74 percent of SMEs in Hong Kong feel the special administrative region should continue to integrate economically with the mainland, the survey showed.
World Bank offers $1.2bn food aid
May 31, 2008
The World Bank is to offer immediate financial help to countries worst hit by sharp rises in food prices as part of a $1.2bn (£608m) assistance package.
Grants worth a total of $200m are being set aside for “high priority” countries most at risk from acute hunger.
Haiti and Liberia will get $10m each to feed their most vulnerable people while Djibouti will receive $5m.
The World Bank says 100 million people could be impoverished by the rising cost and scarcer availability of food.
It has also identified Togo, Yemen and Tajikistan as being in need of immediate assistance following recent needs assessments.
‘Immediate danger’
“It is crucial that we focus on specific action,” said World Bank president Robert Zoellick.
|
We just have to make sure we get the resources and coordinate the operations around the world
Robert Zoellick
|
“These initiatives will help address the immediate danger of hunger and malnutrition for the two billion people struggling to survive in the face of rising food prices.”
Countries will be able to access money to provide food for schools and other core services as well as to buy essential items such as seeds and fertilizer.
The BBC’s Kim Ghattas in Washington says the money is part of a fast track programme to address immediate requirements in the global food crisis.
Some of it will be used to handle immediate humanitarian needs, for example for pregnant woman and young children.
The World Bank will also devote an additional $2bn next year to funding agricultural projects, including crop insurance schemes.
Mr Zoellick said: “This is not an issue like HIV/Aids where you need some research breakthrough. People know what to do.
“We just have to make sure we get the resources and coordinate the operations around the world.”
A United Nations report published on Thursday warned that prices for key staples such as wheat and beef could remain inflated for many years.
A world food summit is scheduled to be held in Rome from 3-5 June.
On Friday, representatives from 26 Latin American and Caribbean countries will also meet in Caracas, Venezuela, to discuss concerns over the rising cost of food.
House price falls ‘accelerating’
May 29, 2008
House prices have recorded their largest monthly fall since 1991, says the Nationwide building society.
Prices have fallen by 2.5% during May, according to its latest monthly survey.
The lender said prices were now 4.4% lower than a year ago, a fall of £8,000 which has taken the average UK house price down to £173,583.
The Nationwide, the UK’s second-largest lender, said price falls were now accelerating and had continued for seven months in a row.
“The pace of house price falls accelerated in May as more weak economic news added to the gathering momentum of negative sentiment about the housing market,” said Fionnuala Earley, the Nationwide’s chief economist.
“At seven months, this is also the longest consecutive period of monthly falls since 1992,” she added.
Low point
The Nationwide pointed out that its survey chimed closely with much of the other recent evidence about the state of the UK housing market.
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A much smaller proportion of borrowers face the full effect of falls in prices than was the case in the 1990s
Fionnuala Earley, Nationwide
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In March, new mortgage approvals for home buyers were at their lowest since the Bank of England’s records on the topic began back in 1993.
And recently, estate agents have reported that falling prices have been at their most widespread across the UK since 1978.
Despite this, Ms Earley argued that the market was not heading for the same sort of crash as that seen in the early 1990s.
“First, fewer homeowners bought at the top of the market in this cycle,” she said.
“This means a much smaller proportion of borrowers face the full effect of falls in prices than was the case in the 1990s.
“Secondly, today’s borrowers have typically put down a larger deposit than their 1980s counterparts,” she added.
Further falls?
After a boom lasting for more than a decade, house price inflation took a decisive turn downwards last autumn.
The market has collapsed under the twin impact of two pressures.
Prices became so high that most first-time buyers were priced out of the market, and the effects of the credit crunch has dried up the supply of money for new mortgages.
Lenders are now expecting that fresh mortgage lending will shrink by about 40% this year, despite the efforts of the Bank of England to inject more money into the banking system.
Ms Earley said that Nationwide was continuing to forecast single-digit house price falls during 2008.
But Howard Archer, chief UK economist at Global Insight, painted a gloomier picture for homeowners.
“It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009,” he said.
He said this was a result of serious buyer affordability constraints, limited and often more expensive mortgages available because of the continuing tight lending conditions, a deteriorating economic outlook, and reduced prospects for further interest rate cuts in the near term.