Jan-07- 13, 2002
Euro soars against major currencies
The euro has rallied strongly on the foreign exchange markets
after investors took heart from its mostly trouble-free introduction as a cash
In early Asian trade the currency soared to 119.7 yen — its
highest level since August 1999 — before settling back to around 119.45 yen.
On Wednesday the single European currency had posted its
biggest ever one-day gains against the pound in early trade, climbing 2.7% to
62.80p before slipping back to 62.40p.
The new currency also reached a two-week high of 90.66 US
cents, but then dropped back to 90.40 in Asian trade.
Analysts attributed the single currency's strong performance
to the smoother than expected introduction of euro notes and coins, which began
on 1 January before the foreign exchange markets opened for the new year.
"So far everything is working relatively smoothly, and
so we are seeing a relief rally in the euro," said Michael Klawitter,
senior currency strategist at WestLB.
A survey on Wednesday showing that the pace of output decline
among eurozone companies slowed during December gave the single currency an
But analysts stressed that the euro was unlikely to hold onto
its gains against the pound and dollar until there was firmer evidence of a
sustained economic recovery in mainland Europe.
"The fact is there is more confidence in the UK and in
our economic management than there is in euroland and its economic
management," Richard Jeffrey, economist at ING Barings told the BBC.
The introduction of euro notes and coins proceeded with few
disruptions on 2 January, the first full working day of the year.
The most serious glitch came when Austria's entire cash
machine network went down for two hours due to excessive customer demand for the
new euro notes.
UK euro entry decision 'political'
The decision on whether or not Britain joins the euro will be
a political not economic one, a Treasury official has reportedly said.
Gus O'Donnell told a private seminar of economics students
that the Treasury would be "unable to deliver a clear and unambiguous"
verdict on the five economic tests for entry, according to The Times.
The comments by the economics expert, appear at odds with the
government's claim that the five tests are pre-conditions for a referendum on
the single currency.
And they come the day after Prime Minister Tony Blair gave
fresh backing to the euro.
The paper says that, despite calls for an early referendum
following the introduction of the euro in 12 countries this week, senior
government sources have indicated Chancellor Gordon Brown may deliver a
"not proven" verdict.
UK growth 'to slow to 1.5%'
Britain's economic growth will slow in 2002 as fears of
rising unemployment cause consumers to spend less, hurting the vital retail
sector, leading economists have said.
The UK economy will grow by about 1.5% this year, well below
the target set out by Chancellor Gordon Brown in November, research firm
Cambridge Econometrics said.
Meanwhile the manufacturing sector finished 2001 mired in
recession, a separate report showed.
Britain's manufacturing output fell for the 10th straight
month in December and at the sharpest rate for three years, according to the
Chartered Institute of Purchasing and Supply (CIPS).
Mr Brown has predicted the UK economy would grow at between
2.0-2.5% this year.
Consumer spending is critical for the health of the British
economy, accounting for about two thirds of economic activity.
But although widely expected, the contraction in
manufacturing paints "a dismal picture," said CIPS spokeswoman Melinda
The CIPS Purchasing Managers' Index fell to 45.2 compared
with 45.6 in November. Any number below 50 indicates contraction.
Many UK manufacturers are fulfilling new orders from existing
stocks, Ms Johnson said.
Falling manufacturing sales reflected the weakness of global
demand, CIPS said.
More than a quarter of manufacturers questioned by CIPS shed
staff in December - a finding that lends support to warnings that households may
tighten their purse-strings.
Cambridge Econometrics cautioned that "During 2002
households are expected to cut back spending as unemployment edges up."
The boom in credit card spending could also lead to slower
growth as consumers face up to debt.
UK consumers 'over-spending'
The Governor of the Bank of England has warned that interest
rates may have to go up this year to put the brakes on a credit card fuelled
spending boom in the UK.
Sir Edward George, speaking in an interview with the BBC
television's World Business Report broadcast on Friday morning, said consumer
demand in the medium term was unsustainable.
"Consumer demand will have to moderate," Sir Edward
"I think there's a good possibility that it will begin
to moderate of its own accord, " he continued, adding that when "I say
I don't mean it falls off a cliff, but it slows down".
If market forces were to make shoppers less keen to spend,
that would be the "most desirable outcome", Sir Edward said.
Argentina braced for crisis measures
Argentines expect to find out on Friday how the new
government will tackle the country's economic crisis, amid widespread talk it is
planning a major devaluation of the currency.
Newly-appointed interim President Eduardo Duhalde is expected
to announce a package of emergency economic measures to try to end the country's
four-year recession, blamed for causing the social unrest which has seen
Argentina go through five presidents in two weeks.
A member of Mr Duhalde's economic team told the BBC that
Argentina was on the edge of a precipice, but that the crisis was also a chance
But for millions of ordinary Argentines, the emergency
measures are likely to mean the economic situation gets worse before it gets
"Argentina will suffer major changes that are necessary
in this time of crisis," said Cordoba provincial Governor Jose de la Sota.
Many observers are fearful of the reaction to the measures
expected to be announced on Friday.
Mr Duhalde's newly-appointed economy minister, Jorge Remes
Lenicov, is reported to be preparing to end Argentina's policy of pegging its
national currency, the peso, at one-to-one to the US dollar.
The peso would then be allowed to fall in value to a target
range of 1.30 to 1.40 to the dollar, a devaluation of about 30%. It would then
be pegged to a basket of currencies including the Brazilian real, the Japanese
yen and the euro.
Devaluation would help Argentina's exporters and, in time,
But people with mortgages and debts — most of which are
denominated in dollars — will have to find more pesos to keep up the payments.
Argentina debts soar
Argentina's public debt rose to $141bn (£97bn) during the
January to September months of 2001, official figures have revealed.
The 9.3% rise compared to a year earlier was revealed as the
new President Eduardo Duhalde said Argentina cannot afford to pay its debts —
though technically it still has until the end of the month before it defaults.
Ahead of the news, Argentina's stock market ended Wednesday
trading sharply higher, having rebounded after a sharp fall following the
resignation of president Fernando de la Rua on 20 December.
The rise came after Mr Duhalde indicated that he intends to
make a dramatic break from the economic policies of the past.
Micron-Hynix deal inches closer
Amid prices rises, stock market gains and signs of optimism
in the semiconductor market, the world's second and third biggest memory
chipmakers are inching closer to their long-mooted merger.
US firm Micron is expected to offer about $5bn to take over
the core memory chip operations of South Korea's Hynix.
US factory output picks up
Hopes of an end to the US manufacturing slump have risen with
an unexpectedly large rise in an influential sector index.
Factory activity as measured by the Institute for Supply
Management, formerly the National Association of Purchasing Management, rose to
an index level of 48.2 in December.
While the figure was below the 50 'breakeven' level, and
meant that US manufacturing had suffered its 17th successive month of
contraction, it was higher than Wall Street had expected.
Analysts had been expecting the index to hit only 46.
US economy turning up?
The rolls of the unemployed may be still on the rise in the
US, but other economic indicators are showing encouraging signs of economic
recovery, analysts say.
An upswing in manufacturing orders, a rise in consumer
confidence as well as stocks, and a stable and robust housing market all have
economists upbeat at the beginning of the new year.
Adding to that enthusiasm were Monday's figures showing
December's manufacturing activity, known as the Purchasing Managers Index (PMI),
moving closer to expansion than any time since October 2000, after 17 months of
The index of manufacturing activity, as calculated by the
Institute for Supply Management (ISM), also revealed that new orders rose into
expansion territory for the first time since the 11 September attacks.
French bank unions call off strike
French bank workers have decided to call off their strike
after it managed to achieve only a very limited support.
The strike, which had threatened to disrupt the launch of the
euro on its first working day, appeared to have little impact on business, as
majority of bank branches remained open throughout the day.
France's finance minister, Laurent Fabius, said the strike
was "not at all being followed", and that the protest did not cause
"People have a big responsibility," he said.
"Everyone has problems but one can not take the euro
Europe loses Senegal fishing rights
The European Commission has failed to secure an extension to
a fishing rights accord which has allowed European vessels to fish Senegalese
waters since 1997.
As a consequence, trawlers from Spain, Portugal, France,
Italy and Greece have pulled in their nets and ceased operations, awaiting a
resolution to the deadlock — if and when talks resume next month.
The European Union (EU) had paid Senegal 48m euros for the
right to fish its waters from 1997 to March 2001.
The fishing rights accord has since been extended twice. But
agreement on a third extension could not be reached as the EC clashed with the
Senegalese authorities over which area should be fished, and the length of rest
periods to enable the fish stock to recover, a commission adviser said.
Economic challenge for Zambia
Levy Mwanawasa, newly sworn in as Zambian president, faces
huge challenges in reviving the country's ailing economy.
At the time of independence in 1964, Zambia was one of
Africa's richest countries, with deep copper deposits and a healthy agricultural
But the economy has been ravaged by years of mismanagement
and corruption, with many Zambians living on less than $1 a day.
"Zambia enjoyed the peak of its prosperity in the early
1970s," metals analyst Tony Warwick Ching told the BBC's World Business
Report, crediting buoyant copper prices and high production levels.
Mr Mwanawasa, candidate for the ruling party, also faces
legal challenge to his presidency, with opposition leaders planning to contest
the election results in the courts, amid allegations of irregularity.
Balkans slip quietly into eurozone
The euro is now the official currency in Kosovo and
Montenegro but banks report only a slow trickle of people changing old notes for
This could be more a reflection of the sanctity of the New
Year public holiday than of any lack of faith in the new currency — many
people here earnestly believe will improve their chances for membership of the
At the very least, there are hopes that the euro will become
a symbol of stability in Yugoslavia less than a decade after bank swindles,
pyramid saving schemes and hyper-inflation wiped out people's savings.
Asia in line for telecoms boom
The telecoms services market and the information technology
market is set for rapid growth in the Asia Pacific region, excluding Japan, this
The telecoms services market is forecast to grow 21% to
$161bn (£110.6bn; 180.2 euros) during 2002, researchers at International Data
And the telecoms sector will get a further boost in the
following two years, thanks to the roll out of broadband internet services and
third generation mobile phone networks.
"By 2005, this market will be worth around $269bn,
growing at a compound annual growth rate of 19% between 2001 and 2005," the
UK water cooler maker buys rival
PHS Group, the country's leading supplier of plumbed-in water
coolers, has bought out its main rival UK Water in a £6.4m cash-only deal.
The move marks a radical consolidation in the UK market for
plumbed-in coolers, which is now shared by just three companies.
ECB set to keep rates on hold
The European Central Bank (ECB) is expected to leave eurozone
interest rates unchanged when it meets later on Thursday, with the launch of
euro cash continuing to be the focus of attention.
The ECB last cut interest rates in early November, when it
trimmed the cost of borrowing by half a percentage point to 3.25%.
But with the changeover to euro notes and coins only just
underway, analysts reckon the Bank is unlikely to make a move.
"They don't want to surprise markets in a situation
where they want to create a calm environment for the introduction of euro notes
and coins," said Michael Schubert, an economist at Commerzbank in
Argentine cabinet takes shape
Argentina's new President Eduardo Duhalde has been putting
together the government team he hopes will lead the country out of economic
Mr Duhalde was sworn in at a brief ceremony on Wednesday,
before immediately entering into talks on forming a cross-party cabinet which he
says will deliver a "programme of national salvation".