Dec 17 - 30, 2001

Eurozone faces subdued growth

The European Central Bank (ECB) has slashed its forecast for eurozone economic growth this year and next.

But the bank stresses that even though estimates have been revised downwards, a gradual recovery is expected during 2002 and 2003.

It blames the growing gloom on the sharp deterioration in global economic growth. Japan and the US have both now officially entered a recession.

The bank also defended its often criticised policy over interest rates, but gave no indication as to its future course of action.

Economic growth forecasts for the year 2001 were reduced to a range of 1.3% to 1.7%, sharply down from previous estimates of between 2.2% and 2.8%.

The latest EU data suggests that growth was at a virtual standstill during July, August and September.

The revised estimates for the year 2002 suggest that growth could be even more sluggish next year.

But the ECB says the full year figures hide the gradual improvement that is expected to materialise as the year goes on.

"This projected annual average growth rate must not be misinterpreted since they mask the expected recovery in the course of 2002," the bank said.

And ECB economists are betting on eurozone growth picking up to between 2% and 3% in 2003.

Some critics of the ECB - including the international financier George Soros - say the eurozone economy would be in better shape if the bank had cut interest rates more sharply in order to stimulate growth.

The ECB has cut interest rates just four times this year, while the US Federal Reserve has aggressively implemented 11 cuts and the Bank of England seven.

The bank's latest forecasts show inflation at between 2.6% and 2.8% for 2001. This is above the bank's target of a 2% ceiling.

Japan's investment earnings soar

The value of Japan's overseas earnings far outweighed the value of its payments to other countries in October — even though the value of its exports fell.

The country's current account surplus rose 14% during the month from the previous year, despite yet another fall in exports, official figures revealed.

The sales of Japanese goods to other countries have fallen every month since April, despite the country's historically weak currency which makes its exports cheaper abroad.

Economists blame the weaker world economy for a 26% fall in the trade surplus, with imports falling 4.6% and exports falling 9% during the month.

But a rise in the financial returns from investments in non-Japanese businesses, shares and bonds boosted the current account surplus, the Finance Ministry said.

"The net receipt in income has become a big factor recently, particularly income from portfolio investment," said Nikko Salomon Smith Barney economist Tomoko Fujii.

Earnings from overseas earnings is rising because Japan's investors are moving their money out of the country.

This is because the domestic stock market is in a dire state and because zero per cent interest rates means the return on bond investment is negligible.

In October, Japan's investors reversed a trend seen in September when they were selling foreign bonds and shares.

"For now, the net income from these foreign investments is making up, just barely, for the fall in the trade surplus," Mr Fujii said.

The current account is the broadest measure of trade in goods, services and other transactions, whereas the trade surplus only includes goods.

Japan's economy shrunk both during the April to June and the July to September quarters, government figures revealed last week.

US trade deficit shrinks

The global economic slowdown has led to a sharp drop in the US trade deficit and a fall in import prices, new figures have shown.

The US current account deficit — the broadest measure of foreign trade — fell to $95bn (£66bn) in the July to September period, from $107.6bn in the previous quarter.

This was the smallest gap since the final quarter of 1999.

Other figures also showed that US import prices fell once again last month, helped by a fall in petroleum prices.

Import prices dropped 1.6% in November, after a 2.4% decline the previous month.

The decline in the current account deficit reflects the turnaround in the fortunes of the US economy.

For the whole of 2000, the current account deficit hit a record $444.7bn, and some analysts began to worry that the gap could become unsustainable.

China grants insurance licences

China has granted five new licences to foreign insurers including, for the first time, a Japanese life insurer.

The new licences are part of the wider market access China has accepted in exchange for membership of the World Trade Organisation, (WTO), which it joined this week after 15 years of tough negotiations.

"We're glad to be the first Japan life insurer to be given a licence in China," said Nippon Life Insurance spokesman Wu Mengfei.

Insurance licences proved one of the most controversial issues in China's WTO accession talks, sparking a row between the United States and European Union which threatened to derail the drafting of final accords.

The euro hits home in the UK

Three years ago UK companies were complaining about the combined strain of preparing for both the euro and the year 2000.

New Year celebrations were a no-no for beleaguered IT staff, as they first prepared for the introduction of the euro in January 1999 and then Y2K a year later.

Now all those hours of overtime may have paid off.

Many of the systems adjustments in 1999 appear to have put UK companies in a strong position for the launch of euro cash in January.

IMF praises Russian reforms

An International Monetary Fund mission in Moscow has praised Russia's economic progress.

During its regular visit to Moscow, the IMF mission discussed the possible Russian response to the deteriorating world's economic situation.

The mission was impressed with the way Russia has pushed ahead with institutional reforms and said this would boost its ability to handle potential economic problems in the future.

IMF says in a statement that Russia's "large external current account and relatively comfortable level of foreign reserves" would enable Russia to survive "the less favourable [global economic] environment".

US retail sales plunge

US retail sales in November recorded their steepest ever fall, the Commerce Department has said.

The 3.7% fall in retail sales, the largest since records began in 1992, followed a record 6.4% rise in October.

It was a much larger decline than most economists had predicted, with slumping car sales the key factor.

Central bank warns on telecoms debt

The Bank of England has cautioned commercial banks against advancing more money to debt-laden telecommunications companies.

In its latest Financial Stability Review, a six-monthly health check of the UK economy, the BoE casts doubt on the ability of some telecoms firms to take on the extra debt needed to finance their new generation mobile networks.

"Several of the larger firms need substantial funds to roll out 3 networks and products, and it may become more difficult to syndicate the required borrowing widely," the review states.

According to BoE Executive Director Alastair Clark, European telecoms firms need another $150m-$200m to finish developing their new generation networks.

Sales growth jumps to 13-year high

High Street sales staged a comeback in the November pre-Christmas shopping period, taking growth to its highest level for 13 years.

UK retail sales were 7.1% higher last month than in November 2000, the Office for National Statistics said.

The figure, the highest since May 1988, followed stagnation in sales growth in October, when the affects of the terror attacks in the US were blamed for keeping shoppers at home.

Australia unemployment falls

Australia's jobless rate fell sharply in November after a large rise during the previous month.

The fall took analysts by surprise as the country's unemployment rate fell back below 7%.

In October, the rate had risen to 7.1%. In November, 4,100 new jobs brought it down to 6.7%.

Enron to start $6bn sell-off

The bankrupt energy giant Enron has said it plans to raise $6bn (£4.18bn) from selling some of the remnants of its business, an amount equal to almost half its bank debts.

UK unemployment rises

The UK unemployment rate rose again in November, official figures have shown. It was the first time since 1992 it increased in two successive months. The number of Britons claiming unemployment benefit rose by 4,800 to 959,100 in November, the Office for National Statistics said.

Italian banks to return tax breaks

Italian banks have to pay back billions of dollars received in tax breaks, following a European Commission ruling on Tuesday that the tax breaks they received were illegal.

European Competition Commissioner Mario Monti found that the tax breaks — introduced to encourage consolidation in the Italian banking sector — violated rules on state aid.

It is unclear how much the banks will have to pay back — some estimates are that it could be as much as $2.5bn.

According to others, the sum will be lower than that as Italy suspended the tax breaks once the European Commission started its investigation.

Oil giants to sell petrol in China

China's state-owned oil companies will retain control BP is spearheading a massive push by international oil giants into petrol retailing in China.

The UK energy group has entered into a joint venture with China's second biggest state-owned oil firm, Sinopec, to set up a chain of 500 petrol stations in the New Year.

Bamako lit up by dam start

The enormous Manantali dam in southwestern Mali has finally produced its very first megawatt of hydro-electricity, 13 years after it was completed.

So far, only one of the five turbines has been installed, and when that is turning, it lights up the capital, Bamako, some 300 kilometres to the east.

Gloom increases at Japanese firms

A key survey of business confidence in Japan has found that companies remain extremely pessimistic about their future prospects.

The latest Bank of Japan quarterly 'Tankan' survey, which questions almost 9,000 firms of all sizes, found that business confidence dropped again over the last three months and is trailing close to a 3-year low.

"The severe conditions continue but I cannot ease my grip on reform," said Prime Minister Junichiro Koizumi, who is pledged to austerity measures to limit state spending and force banks to foreclose on ailing firms.

Mitsubishi asks Australia for more cash

The Japanese car firm Mitsubishi has asked the Australian government for a 140m Australian dollars (£50; $72m) grant to upgrade production lines at its Adelaide plant, a company official said.

The Australian government had already promised Mitsubishi cash aid worth 200m Australian dollars for the factory, which employs 3,000 people and supports many thousands more at local suppliers.

Without the additional grant, the plant could face closure.