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Oct 01 - 07, 2001

US economy seen bouncing back in 2002

The US economy is all set to go into recession, but both the economy, and the now almost crashed stock market may bounce back next year only if no other terrorist attack and natural calamity hit the country, said a latest Wall Street Journal survey interviewing 26 leading economists.

The consensus estimate of the economists, who responded to the survey, is that the economy will contract 0.6 per cent in the third quarter, which ends September 30, and will contract 0.6 per cent in the fourth quarter. But starting next year, the forecasters believe, the economy will work its way out of recession, gaining momentum throughout the year.

The group also is bullish on stocks, with many economists predicting that the Dow Jones Industrial Average will come roaring back and close above 10,000 by the one-year anniversary of the terrorist attacks on the World Trade Center and the Pentagon.

However, one should keep in mind that economic surveys aren't perfect predictors, of course. Even during the best of circumstances, economic forecasts are educated guesses that frequently miss. During times of intense uncertainty such as now — forecasting is especially difficult.

Seven of the 26 economists said the biggest risk to their predictions was something that nobody could foretell at this point: whether there will be more terrorist attacks in the US. Such attacks, these economists say, could put US consumers and businesses into a longer-term retreat.

Most economists, who responded to the survey, are optimistic about the long-term and have similar forecasts for the short-term: of the 26 respondents, 20 expect the economy to contract in the current quarter (July-Sept), 19 expect another contraction in the fourth quarter (Oct-Dec) and four expect a contraction in the first three months of 2002 (Jan-Mar).

Feds pay airlines $2.5b

Airlines started getting about half of the $5 billion in federal assistance Thursday as President Bush announced a new series of security measures at a rally at Chicago's O'Hare Airport.

While the security measures, including federalization of airport security, greater use of armed sky marshals, and use of national guard at major airports, are seen as a way of getting passengers to return to planes, the cash infusion approved this past weekend is seen as key to the industry weathering its current cash crunch.

The payment has already taken the airline facing the greatest immediate threat of insolvency, America West Airlines, away from the brink. Last week in testimony before a congressional committee considering the bailout, Douglas Parker, CEO of the airline's holding company, America West Holdings Inc. (AWA: down $0.23 to $2.02, Research, Estimates), said the airline would consider filing for bankruptcy protection without help. One week and $60 million of assistance later, that's no longer the case.

Japan to keep bond cap at $250b

Japan has reaffirmed its commitment to keep new government bond issues under $250 billion this year.

As Japanese share prices rose Friday and the government released data showing unemployment was still at 5 per cent, Economics Minister Heizo Takenaka said there was no need to change the limit set by Prime Minister Junichiro Koizumi.

As part of his aggressive reform agenda, Koizumi has said Japan will keep the issue of new government bonds below 30 trillion yen ($250 billion) in the financial year ending next March.

There has been speculation Koizumi might drop this limit, following his visit to the United States earlier this week.

In a meeting with President George Bush, Koizumi pledged "appropriate action" after Bush urged him to try to get the Japanese economy moving.

Japan is headed for its fourth recession in 10 years, with the International Monetary Fund predicting this week that Japan's economy will shrink by 0.5 per cent this year.

Other analysts are more pessimistic, suggesting that the slump in U.S. consumer demand, combined with Japan's entrenched structural problems, could see the economy contract by up to 1.5 per cent.

Takenaka ruled out a policy change at this stage, saying that attempting to boost the economy through manipulation posed other risks.

Takenaka said output and price data released earlier on Friday underscored the economy's severe state even before the September 11 air attacks in the United States.

Industrial output up 0.8 per cent Government data showed industrial output in August posting a modest 0.8 per cent rise from the previous month, sharply below economists' forecast of a 2.9 per cent gain.

The nationwide core consumer price index fell 0.9 per cent in August from a year earlier, dropping for the 23rd straight month.

Koizumi vows to push for reform

Japanese Prime Minister Junichiro Koizumi said Thursday he would press ahead with structural reforms but was also prepared to take drastic measures if necessary to support the flagging economy.

"The Japanese economy is on a wild sea of worldwide difficulties. We need to heed future economic developments to weather the storm," Koizumi said in a policy speech to the lower house of parliament as it opened for a new 72-day session.

Japan is expected to have sunk into recession in the current quarter for the fourth time in a decade and unemployment is at a record high.

Koizumi's trumpeted structural reforms, including speeding up the write off of bad loans — which is expected to lead to more business failures — and cutting some public spending, are expected to put even more pressure on the battered economy in the short term.

China opens door to foreign insurers

China has given nine European insurance firms permission to enter its market as the country prepares for greater opening after accession to the World Trade Organisation (WTO), industry officials said.

Regulators told the companies this week to start preparations for new operations, including submitting the necessary documents, although the formal issue of licences could take up to six more months, they said. "This is a move to show that we will stick to our WTO commitments and we are now doing something to achieve this," said a source at the China Insurance Regulatory Commission.

Approval for the long-awaited licences, some of which were part of a Sino-European Union agreement on China's WTO entry, had been held up by a disagreement over the status of US insurer AIG, industry officials said.

The firms to receive life insurance licences are Italy's Assicurazioni Generali, Britain's CGNU, France's CNP and two from the Netherlands ING Group and Aegon Group. Aegon said in a statement approval had been granted to a subsidiary of its Transamerica company for a 50/50 life insurance joint venture.

Aegon was now in negotiations with a number of possible partners and would reach a deal next year, it said.

"This an important step in our Asia strategy and we can now enthusiastically proceed with our preparatory arrangements," the chairman of Aegon's executive board, Kees Storm, was quoted in the statement as saying. French insurer Axa received approval for a new sub-branch in China, which would be in addition to its existing branch in the eastern city of Shanghai.

For property insurance, the approved companies were Germany's Allianz and Gerling Group and Britain's Royal & Sun Alliance, which already has a branch in Shanghai.

An Allianz spokesman said the company wanted to open its branch in the next six to eight months.

Central China's Hunan Reports Export Rise

Central China's Hunan Province did US$1.78 billion worth of import and export in the first eight months of the year, up 12.5 per cent from the same period last year.

Local customs statistics show that from January to August, this central Chinese province exported US$1.17 billion worth of commodities, a rise of 8.5 per cent. During the same period, the province also imported US$612 million worth of commodities, up 21 per cent.

Garments, textiles, manganese, fireworks, motorcycles are prime items on the province's exporting list. The local customs sources said that the province's export to Mexico, Russia Guatemala and Sweden went up, but export to the Republic of Korea, ASEAN member states dropped in the past eight months.

Indonesia's Pertamina eyes U.S. for LNG

Indonesia's state oil company Pertamina said on Friday it was talking with El Paso Corp on possible liquefied natural gas (LNG) exports to the United States.

"The officials from El Paso have talked with Pertamina and they have presented the amount of their LNG needs in 2002, 2004, 2005 and 2007,'' a Pertamina official, who declined to be identified, told Reuters. "El Paso has also expressed their serious intention to buy LNG from Indonesia.''

Bush presses for Islamic support

President Bush is courting Islamic support for a war on terrorism as a Pakistani delegation tries to persuade Afghanistan's Taliban rulers to hand over top suspect Osama bin Laden.

Tourism in Europe hurt

The attacks on the United States are depressing expectations of growth in European tourism, as Japanese and U.S. tourists are fearful to fly, European Union officials said Thursday.

While tourism in the 15 EU nations was to expand by a much as 5 per cent this year before the Sept. 11 attacks, "the first estimates have fallen back to 1.25 per cent," said Belgian minister Renaat Landuyt. Landuyt, who chaired a meeting of tourism ministers from the 15 EU nations, cited "increased insecurity."

Britain, a major destination for U.S. tourists, could lose some US$1.7 billion because of a fallout of the attacks combined with the foot-and-mouth disease which has hit the countryside, the British Tourism authority has warned.

Recession looming for Asian five

At least five Asian economies are likely to shrink into recession this year as the expected collapse in U.S. consumer demand hits the region, analysts are warning.

In Japan, where about 30 per cent of its exports go to the U.S., the outlook is for a 1.5 per cent contraction in 2001.

Taiwan, Singapore, Hong Kong and Malaysia likely will shrink anywhere from 0.3 per cent to 2 per cent, with analysts stressing that volatility is the new watchword and resilience the key requirement.

Singapore's prime minister Goh Chok Tong acknowledged the tough situation that faces his country, when he warned Singaporeans at the weekend to expect more retrenchments this year and to prepare for recession.

Elsewhere in East Asia, analysts say Thailand and Korea will be lucky to stay much above 1 per cent, while the Philippines and Indonesia will grow at 2.7 and 2.9 per cent — hardly enough to solve their intrinsic economic problems.

Mergers & Acquisitions

Ericsson—Sony: European Union regulators gave antitrust clearance to a joint venture between Sweden's LM Ericsson and Japan's Sony Corp. to develop and distribute mobile phones.

Reliant—Orion Power: Reliant Resources Inc. said Thursday it agreed to acquire Orion Power Holdings Inc. for $2.9 billion cash, giving the combined energy provider a stronger foothold in the Northeast.

SunTrust: SunTrust Banks Inc. said Wednesday it agreed to buy the Florida business of Huntington Banchares Inc. for $705 million in cash to expand its business in the state.

Deutsche—Scudder: Deutsche Bank agreed on Monday to buy Zurich Financial Services' investment-management business for $2.5 billion.

Japan's jobless rate remains at 5.0%

Japan's jobless rate stood at a record high of 5.0% in August, unchanged from July, the government said Friday.

The number of unemployed grew by 260,000 in August from a year ago to 3.36-million people, said the Ministry of Public Management, Home Affairs, Posts and Telecommunications. The jobless rate for men fell to 5.1% in August, from 5.2% registered in July. The female jobless rate stood at 4.8%, a record high, from 4.7% in July, the ministry said.

IMF sees grim global growth

The global economy was already on the brink of recession before the Sept. 11 attacks on the United States and now faces an even worse prognosis, a new International Monetary Fund report revealed Wednesday.

The IMF's World Economic Outlook, which takes the economic pulse of the world twice a year, forecast 2001 growth of 2.6 per centthe weakest since 1993. Economists view growth of 2.5 per cent as a level indicative of a global recession.

Malaysia aims to find new export markets

Malaysia will try to find new export markets in the United States and Southeast Asia to offset the worsening economic downturn following the terrorist attacks in the United States, a top trade official said.

The Malaysian government this week slashed its growth forecast for 2001 to around 2 per cent in anticipation of a global slowdown made worse by the attacks. Electrical goods and components are Malaysia's main export and the United States its biggest customer.

International Trade and Industry Minister Rafidah Aziz said Malaysia would try to develop new US markets away from the east and west coasts, and aimed to double its exports to Southeast Asian countries. She did not give a timeframe.

Tokyo, other Asian markets head higher

Tokyo shares held onto gains by midday Friday as investors continued to choose selected exporters on the last trading day of Japan's business year first half.

The benchmark Nikkei 225 share average put on 185.10 points or 1.91 per cent to 9,881.63. At one point in morning trade it rose as high as 9933.69.

The broader, capital-weighted TOPIX index rose 22.29 points or 2.22 per cent to 1,026.07.

Australia's S&P/ASX200 was up 44.8 points or 1.5 per cent to 3045.5, while in New Zealand the Top 40 put on about 0.9 per cent and Seoul's Kospi was up 1.85 per cent or 8.76 points to 481.08.

Bonds continue to gain

U.S. Treasurys rose for a third straight session Thursday, pushing two-year note yields to new historic lows, as weak jobless data cemented expectations for another Federal Reserve rate cut next week.

The newly issued two-year notes — auctioned onWednesday — were up 3/32 at 99-31/32, yielding 2.77 per cent. Five-year notes rose 5/32 to 103-23/32, yielding 3.74 per cent. Ten-year notes were up 16/32 to 103-14/32, yielding 4.56 per cent, and 30-year bonds were up 27/32 to 99-00/32 to yield 5.44 per cent.

Mortgage rates remain low

Continued uncertainty in the financial markets has helped hold down long-term mortgage rates, according to mortgage lender Freddie Mac. The 30-year fixed-rate mortgage averaged 6.72 per cent, with an average 0.9 point, for the week ending Sept. 28. The 15-year fixed-rate mortgage this week averaged 6.23 per cent, with an average 0.8 point. One-year adjustable-rate mortgages (ARMs) indexed to the Treasury averaged 5.45 per cent this week, with an average 0.9 point.

European markets end higher

Europe's major bourses ended higher on Thursday, bolstered by energy, drug and insurance stocks.

London's FTSE 100 closed 1.2 per cent higher at 4,750.9, while the CAC 40 blue chip index in Paris ended up by nearly 1 per cent at 4,013.23. Frankfurt's Xetra Dax climbed 1.8 per cent at 4,168.30.

In Amsterdam the AEX index fell 0.1 per cent while the SMI in Zurich was 1.8 per cent higher. Milan's MIB30 index was up 2.5 per cent.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, rose 1.2 per cent, pushed higher by the oil and gas, drug and insurance sectors.

Jobless claims jump

New jobless claims in the United States surged last week to their highest level since 1992, the government said Thursday, an early sign of the economic aftershocks of the Sept. 11 terrorist attacks on New York and Washington.

Initial claims for state unemployment benefits jumped to 450,000 in the week ended Sept. 22 from a revised 392,000 the prior week, the Labor Department reported. According to Briefing.com, private economists had forecast an increase to 420,000 new claims.

ECB leaves rates on hold

The European Central Bank has left interest rates at 3.75 per cent after recently trimming rates in response to the terror attacks on the U.S.

But market watchers said on Thursday they expect another rate cut as early as next month, as inflation eases towards its 2 per cent target amid concerns the U.S. economy could tip into recession.

The ECB, which sets interest rates for the 12-nations of the euro zone, joined the U.S. Federal Reserve and other central banks in reducing rates 10 days ago to restore confidence after the September 11 terrorist attacks in the U.S.

Boeing gets 20-jet order

Boeing said Tuesday it is preparing to provide 20 new jets to an unspecified customer, worth more than $1 billion at list prices.

The company said it received orders for 11 737 jets and nine 767 jets, but did not release the identity of the buyer or buyers. Four of the 737s replace a previous order for four 767s.

G7 delays fall meeting

The finance ministers of the major industrialized nations said on Tuesday the Sept. 11 attacks would delay any anticipated U.S. economic recovery.

"For the U.S. economy, we reported that the events of September 11 will delay the recovery that was underway. However, our economic policies and fundamentals remain strong and we expect a near-term return to sustained economic growth and stable financial markets," representatives of the Group of 7 (G7) said in a statement issued following a morning conference call.

Fair trade

Online retailers are turning to an old concept these days to get rid of excess inventory — they're rediscovering the art of bartering.

Although bartering itself isn't new, its popularity is. According to the most recent statistics from the International Reciprocal Trade Association (IRTA), $16 billion worth of products and services were bartered in the United States last year. Experts predict that figure will reach $26 billion this decade.

$8b pulled from funds

Investors pulled money out of U.S. stock mutual funds in August for the second month in a row, and September also looks poised for withdrawals as stocks have tumbled further, fund tracker Lipper Inc. said on Monday.

Investors drained about $8 billion from stock mutual funds last month amid broad declines in major U.S. stock market gauges, Lipper said. The August outflow was the biggest withdrawal since March, when investors pulled about $20.6 billion from stock funds.

Bond funds and money market funds, though, saw net deposits in August, as investors sought safety.

The August outflows from stock funds still represent only about 0.25 per cent of total equity fund assets, Lipper said.

Bush goes after terrorists' assets

President Bush signed an executive order Monday aimed at cutting the financial lifeblood of Osama bin Laden and organizations linked to his alleged terrorist network.

The order froze the U.S. assets of 27 groups, corporations and individuals identified as supporters of terrorism.

"They include terrorist organizations, individual terrorist leaders, a corporation that serves as a front for terrorism and several nonprofit organizations," Bush said.

Gas prices shed 2 cents

Gas prices fell about 2 cents in the United States over the past two weeks, the first drop in a month.

The average price of gasoline Friday, including all grades and taxes, was $1.54 a gallon, down 2.29 cents since Sept. 7, according to the Lundberg Survey of 8,000 stations nationwide.

$100b stimulus possible

A closed-door meeting between Federal Reserve Chairman Alan Greenspan, former Treasury Secretary Robert Rubin and the Senate Finance Committee to discuss the health of the U.S. economy Tuesday included talk about an economic stimulus package of about $100 billion.

But it's too soon to tell if such a large boost is needed, Senate Finance Committee Chairman Max Baucus, D-Mont., and the Committee's ranking Republican, Charles Grassley, R-Iowa, said after emerging from the meeting.