Mar 25 - 31, 2002

US falls into the red in February

The US government has recorded its largest budget shortfall in six months as tax cuts and refunds combined with war expenditures expanded Washington's indebtedness.

For the month of February, the US recorded a deficit of $76.1bn (£53.3bn), up nearly 60% from year-ago levels. It is the largest shortfall since last summer.

The independent Congressional Budget Office's (CBO), meanwhile, had called for the deficit to grow to $75bn, in line with analyst estimates of about $74bn.

The further deepening deficit threatens to give the US its first full year of deficits since 1997. The White House has predicted this year's budget deficit to reach $106bn.

The US government typically runs a deficit in February due to the initial wave of tax refunds submitted by taxpayers.

This year, however, increased spending for the war in Afghanistan, last summer's tax cuts and rebates and the economic recession all helped to push the nation further into debt.

Some economists say, however, that the recent reduction in tax rates along with last summer's rebate cheques from the Treasury may stimulate the economy enough to moderate the size of the shortfall.

The US government derives about half of its revenue from income tax receipts from individuals, increasing the importance of limiting joblessness caused by a souring economy.

Rising unemployment reduces tax rolls and increases government expenditures associated with unemployment benefits.

While some economists, including Federal Reserve Chairman Alan Greenspan, have said the nation's economy is already on the mend, most still expect the unemployment rate to increase in the coming months from February's 5.5% to at least 6%.

Korea's central bank upbeat on growth

South Korea's central bank has raised its forecast for economic growth in 2002 after a robust performance in the October to December period last year.

Unlike many of its East Asian neighbours, South Korea managed to avoid recession in 2001.

A mix of strong spending by South Korean shoppers and government-supported construction projects boosted the economy in the final months of last year.

In the three months from October to December 2001, growth was up 3.7% on the same period of the previous year, and 1.6% higher than in July to September, figures from the Bank of Korea showed.

Overall, South Korea's economy grew by 3% in 2001, less than a third of the 9.3% achieved in 2000.

"Last year, growth was driven largely by consumption while exports remained sluggish," said Chung Jung-ho, director general of the Bank's statistics department.

Mr Chung said growth was "not bad in an export dependent economy, considering stagnant global demand".

He said the Bank was increasing its forecast for Gross Domestic Product in 2002 to 3.9%. GDP is the broadest indicator of economic growth.

"GDP growth could possibly go up considerably higher than our latest forecast of 3.9%," he said hinting at the possibility of further forecast revisions.

Whether it does so will depend largely on the pace of recovery in the United States, a major market for South Korea's hi-tech exports, analysts say.

Congress approves campaign cash curbs

The US Senate has given final congressional approval to a bill limiting the funding of political campaigns.

The landmark vote ends a seven-year campaign to ban the large, unregulated donations which political parties use to fund television advertising.

A jubilant Senator John McCain, who was the bill's chief sponsor, said: "At the end of this seven-year odyssey, I am somewhat speechless."

"What we've really done here is to allow for a couple of million Americans to be heard again in Washington. They (had) been rendered silent by the influence of big money."

The bill is designed to end contributions of so-called "soft money" in election campaigns unlimited amounts of cash given to political parties by corporations, unions and wealthy individuals.

Russia tightens central bank control

Russia's lower house of parliament, the Duma, has accepted the resignation of central bank chief Viktor Gerashchenko, clearing the way for a successor nominated by President Vladimir Putin.

Mr Gerashchenko resigned last Friday under pressure from Mr Putin, who has asked the Duma to replace him with First Deputy Finance Minister Sergei Ignatiev.

The Duma, where Mr Putin holds a firm majority, voted 276 to 60 to accept the resignation and unanimously accepted Mr Ignatiev's nomination.

Eurozone inflation slows

Inflation in the 12-nation eurozone fell to 2.4% in February, down from 2.7% in the previous month.

The figures were better than expected and analysts now predict the European Central Bank (ECB) will see inflation hit its target of 2.0% in the first half of this year, possibly in April.

But experts do not expect the ECB to lower the interest rates in response to falling prices, as falling inflation had been widely expected.

Inflation in the eurozone jumped to 2.7% in January, but this was put down to bad weather hitting many European countries.

For the whole of 15 nation of the European Union inflation fell to 2.3% from 2.5% in January.

The highest annual inflation in the EU in February was in Ireland (4.9%) and in the Netherlands (4.5%). Austria (1.7%) and Germany (1.8%) showed the slowest annual price increases.

Brown to give euro evidence

Chancellor Gordon Brown is to appear before a key committee of MPs to answer detailed questions about the government's economic tests for entering the euro.

The hearing is expected to take place later this year as part of a wider inquiry by the Treasury Committee into Europe's financial institutions.

Mr Brown has said the five tests, which the government insists must be met before a referendum on adopting the single currency, will be judged by June next year.

But the Treasury has resisted pressure to give more details about test criteria or about when the assessment process will begin.

Bush tax-cut plan challenges Democrats

In what some are calling an election-year volley, US President George W Bush has called for additional tax cuts as a way to ensure an economic recovery.

Saying the "economy is not out of the woods yet", Mr Bush challenged Congress to pass a $117bn (£82bn), 10-year plan that would repeal estate taxes and promote small business.

The call comes less than a year after Mr Bush signed a controversial $1.35 trillion tax cut in June.

Results

France Telecom: France Telecom posted the second-largest loss in French corporate history. The phone operator revealed a 10.2bn euro (£6.3bn; £9bn) write-down to cover the slump in value of stakes in cable group NTL and German mobile operator MobilCom.

Next : UK clothes retailer Next said that pre-tax profits for the year to January 2002 came in at £266m, 22% up on the previous year.

International Power: UK-based electricity group International Power said profits before one-off costs for 2001 jumped by 48% on the year to £326m ($456m), in line with analysts' expectations.

End of an era for Vauxhall

The last Vauxhall Vectra will roll off the car manufacturer's production line in Luton this week.

The factory will stop building cars from Thursday, almost 100 years after it opened when Vauxhall moved to the town from a small plant in south London.

About 1,900 jobs will be lost by Vauxhall's decision to stop building cars in the Bedfordshire town because of an expected fall in demand for vehicles in the Vectra market.

Argentina props up ailing peso

Argentina's Central Bank is thought to have intervened in the currency markets to support the ailing peso.

The Argentine currency — which was floated freely for the first time last month — fell sharply against the dollar on Wednesday.

The struggling peso weakened by over 3% to an all-time low of 2.6 to a dollar.

Traders said that the Central Bank had come into the market selling dollars to try and prevent a further collapse.

Sudan's war forces oil company pull-out

The Swedish oil company Lundin Petroleum has said it will not return to Sudan until there is a "sustainable" period of peace in the area where it is exploring for oil.

Lundin suspended its Sudanese operations in January because of the civil war, which has seen fighting in the strategic oil regions.

"We need some type of sustainable and peaceful environment for us to look at long-term investment," Lundin's president Ian Lundin told.

Lehman Brothers cheers investors

The US brokerage saw its profits between December and February slump 23% to $298m compared to the same period the previous year.

Steel war tension as US imposes tariffs

A bitter trade battle between the United States and its commercial rivals intensified on Wednesday as controversial US tariffs on imported steel came into effect.

Japanese and South Korean officials said take their objections to the World Trade Organisation (WTO) in Geneva this week.

European Union Trade Commissioner Pascal Lamy said late on Tuesday that it was "a question of days" before the EU imposed quotas of its own on imported steel to prevent its own industry being damaged by steel redirected from US markets.

The US has unilaterally imposed tariffs of up to 30% on imported steel for three years, claiming that other countries are "dumping" steel at below the cost of production and damaging its domestic industry.

Britain avoids jobs cull

Unemployment in the UK has ticked marginally downwards, defying expectations of a recessionary surge.

New figures from the Office for National Statistics showed that 947,200 people were out of work and claiming benefit in February, a decrease of 5,000 claimants on the previous month.

Britain's unemployment rate remains unchanged, at 3.1%.

Fed hints at rises to come

The US central bank, the Federal Reserve, has signalled that interest rates are likely to rise but not quite yet.

It has announced that, due to the growing signs of economic recovery in the United States, it no longer believes that the risk of a recession outweighs concerns about inflation.

But it has left current interest rates unchanged at 1.75%.

In a statement, the Fed said that "the US economy, bolstered by a marked swing in inventory investment, is expanding at a significant pace."

US trade gap widens 15%

The US trade deficit jumped 15% to $3.81bn (£2.7bn; 4.3 euros) in January, according to the latest figures from the Department of Commerce.

The widening gap was due to US consumers buying more foreign goods while demand for US products overseas slipped.

And a surge in the cost of buying foreign oil added to the import bill.

While the growing deficit may worry economists, the strength of consumer spending continues to be an encouraging factor in the recovery of the US economy.

Africa 'passes' Zimbabwe test

The Commonwealth decision to suspend Zimbabwe for a year means Africa has overcome one of the first tests for its economic recovery plan, Nepad.

Despite strong pressure Western donors US and UK, Zimbabwe's neighbours, most notably South Africa and Nigeria, had been reluctant to condemn the re-election of President Robert Mugabe.

But in Washington, power brokers in Congress had been linking the success of the New Partnership for African Development (Nepad) to South Africa's attitude to the elections in Zimbabwe.

Empire State Building to be sold

The property mogul who owns New York's Empire State Building has agreed to sell the 102-story skyscraper for $57.5m.

A spokeswoman for Donald Trump confirmed on Tuesday that he and his partner, Japanese billionaire Hideki Yokoi, had clinched the deal to sell the building — New York's tallest after the 11 September attacks razed the twin towers of the World Trade Center.

Kenyan farmers condemn food aid

Kenyan farmers have blamed food bought in by aid agencies for depressing prices, hitting agriculture incomes already depressed by a government liberalisation programme.

Farmers say oversupply is behind a slide in the price of many foodstuffs, with maize prices slumping two-thirds over the past year.

The UN's World Food Programme (WFP) has been blamed over its policy of distributing maize to Somali refugees in Kenya.

Many of the 150,000 refugees, who are typically brought up on a diet based on wheat flour or rice, allegedly sell the maize on the local market so they can buy the type of food they want.

Fight against world poverty

Reducing global poverty, and improving health and education in poor countries, are the goals of a summit of world leaders that has opened in Monterrey, Mexico.

The five-day meeting hopes to identify the resources needed to achieve these aims — and to meet the Millennium development goals agreed by the United Nations two years ago.