10 - 16, 2002
FOREIGN INVESTMENT IN US DROPS 60PC
Foreign investment in the United States suffered a
precipitous 60-per cent drop in 2001, as the US market lost some of
its lustre due to an economic recession and terrorist attacks ,
according to the latest government figures.
Foreigners plunked down $132.9 billion last year to
acquire or establish businesses in the United States, down from a
record $335.6 billion invested here in 2000, said the Commerce
Department's Bureau of Economic Analysis.
"The decrease reflected weakness in the US and
world economies and a sharp drop in overall merger and acquisition
activity worldwide," the bureau said in a report made public on
The figure marks the steepest drop in foreign
investment in a decade and, according to some analysts, could make
financing the fledgling US economic recovery more difficult because US
domestic savings are traditionally low.
Foreign-owned assets in the United States currently
total $9.4 trillion while US claims on the rest of the world amount to
$7.2 trillion, according the White House Council of Economic Advisers.
But US officials noted that despite the decrease, the current level of
foreign investment in the United States was still higher than in any
year prior to 1998.
Surprisingly, the most dramatic vote of
no-confidence came from Britain, one of the closest US allies, whose
capital outlays plunged from $110.2 billion in 2000 to $16.6 billion
one year later. Other Europeans shunned the US market almost as much.
If French entrepreneurs plowed into the US economy
$23.7 billion in 1999 and another $26.1 billion in 2000, their
investments plummeted last year to just under five billion dollars.
Germany, the European economic powerhouse, followed
the general trend, although at a slower pace.
Its direct investments into the US economy were
down to $12.8 billion in 2001 from the $18.4 billion registered the
JAPAN OUT OF RECESSION
The Japanese economy has emerged from recession,
with its highest growth figures for two years.
Gross Domestic Product grew at a rapid 1.4% from
January to March, an annualised rate of 5.7%.
That is a better performance than even the United
But analysts say a sustained recovery remains
The strong performance in the first quarter was
largely due to renewed demand for Japanese exports from the US.
Cars and electronic goods have done particularly
well, made more competitive by a cheaper yen.
There was also growth in domestic demand, although
that was helped by unseasonably warm weather.
And analysts also question the reliability of the
figures. Few expect sustained growth in consumer spending.
The markets have shrugged off the new data, partly
because it was widely expected, but also because they have seen it all
Previous growth spurts during Japan's 12 years of
stagnation have quickly petered out.
"The economy hit a floor faster than many
people had anticipated," said Taro Saito, senior economist at NLI
"But I don't expect such strong growth in
April to June. It will be much lower, probably closer to zero."
The economy remains heavily dependent on foreign
markets, particularly the US, and deeply routed structural problems
have yet to be addressed.
Promising new businesses are still being starved of
capital, while unproductive, and heavily indebted construction
companies and retailers are kept afloat.
Even the strong export performance is now under
threat from a weakening dollar.
ECB LIKELY TO POSTPONE RATE RISE
The European Central Bank (ECB) is unlikely to join
the global charge towards higher interest rates, when it reveals its
latest decision later on Thursday.
Most pundits tip the ECB to begin raising rates at
some point this year, following the lead of a swathe of central banks
around the world, from Sweden to Australia.
But its two closest counterparts, the US Federal
Reserve and the Bank of England, have postponed rate rises so far.
And the patchy nature of Europe's economic recovery
indicates that lower interest rates may be beneficial for some time to
Since November last year, the ECB's key refinancing
rate has stood at 3.25%, its lowest level since February 2000.
EU MINISTERS SEEK CURB ON LOANS TO BIG CORPORATES
European Union finance ministers on Tuesday
approved a capital increase at the European Investment Bank but told
it to curb lending to creditworthy corporates as a condition.
In what amounted to a mild slap on the wrist for
the triple-A rated financing arm of the EU, ministers also said the
bank should make its new money last "at least" five years.
The decision to increase the EIB's capital to 150
billion euros from 100 billion euros removed a risk the bank could
have run against its lending ceiling — set at 2.5 times its capital.
But ministers expressed frustration they were being
asked to approve another capital increase only four years after the
"This capital increase should do for at least
five years. That's what we agreed," acting Dutch Finance Minister
Gerrit Zalm said.
Austrian Finance Minister Karl-Heinz Grasser also
said ministers emphasised the money should last five years.
UK INTEREST RATES LEFT ON HOLD
The Bank of England has kept interest rates
unchanged at 4.0% for the seventh successive month.
The decision, which had been expected by most City
analysts, follows concerns over the robustness of the UK manufacturing
And it leaves interest rates at their lowest rate
for about 40 years.
But, with retail and housing markets buoyant,
observers believe a rate rise is imminent, with some forecasters
putting rates above 5.0% by the end of the year.
Ross Walker, economist at Royal Bank of Scotland
said: "The decision is very much as expected but it starts to get
quite interesting from here on."
MORE SIGNS OF US RECOVERY
There is more evidence that the US economy is
The services sector has grown at its fastest pace
for nearly two years, according to the latest figures.
The Institute for Supply Management (ISM), said its
monthly non-manufacturing index of activity rose to 60.1 in May from
55.3 in April.
That was higher than analysts had been expecting.
An index figure over 50 shows expansion while a
figure below 50 indicates contraction.
Services make up two-thirds of the US economy and
the index covers everything from entertainment to financial services.
Economists said that the headline index overstated
some of the strength in the survey's other components.
But Stephen Stanley, senior market economist at
Greenwich Capital Markets said: "It's consistent with a decent
growth rate in the economy."
IMF PRAISES ARGENTINA REFORMS
The International Monetary Fund (IMF) has said it
will resume talks about fresh loans for the troubled Argentine
Argentine President Eduardo Duhalde's aim is to
secure initial loans of $9bn (£6.2bn) which would be used to
stabilise the country's economy.
Earlier this week, the Fund's Managing Director
Horst Koehler said that an agreement could be reached within 45 days.
DEUTSCHE GRANTS KIRCH LOAN EXTENSION
Deutsche Bank has given the failed Kirch media
group three months to sell its stake in the Axel Springer Verlag
newspaper publisher and repay its 720m euros debts.
The loan is secured against the 40% stake in the
publisher of the top-selling Bild newspaper.
If Kirch fails to pay the debt on 30 August, the
bank is expected to demand that the Axel Springer shares are handed
Deutsche Bank would then be expected to sell the
shares via the stock market.
SCOTS 'MORE SUPPORTIVE' OF EURO
People in Scotland are keener to see the pound
scrapped and the euro introduced than anywhere else in the UK, new
The UK-wide survey of 2,000 people shows 57%
against Britain joining the European single currency, with just 21% in
Another 14% are undecided, according to the poll,
while 8% do not care either way.
But when those figures are broken down on a
regional basis, 28% of people in Scotland are in favour of the euro,
closely followed by 25% in London.
CANADIAN OFFICIAL'S OUSTING STIRS CONCERN
Canada's pristine political reputation going into
the next round of Group of Seven (G7) talks has been tarnished by the
recent forced ousting of its much-respected finance minister.
The political turmoil caused by Prime Minister Jean
Chretien's firing of Paul Martin has caused stirrings of doubt about
what image the country will present at the upcoming meeting of G7
finance ministers, to be held later this month in Halifax, Nova
SOUTH AFRICA CLEARS WAY TO SELL TELKOM
The way has been cleared for South Africa's biggest
privatisation to date — the $1bn sell -off of the country's mainly
state-owned telephone operator Telkom.
Recently Telkom and the industry regulator ICASA
(Independent Communications Authority of South Africa) have been
arguing over Telkom's increased charges to its customers.
They have now reached an agreement, thereby
clearing an obstacle to the government's move.
BANGLADESH BUDGET TARGETS EDUCATION
Bangladeshi Finance Minister Saifur Rahman has
announced big increases in spending on education and information
Presenting the 2002-03 budget to MPs, Mr Rahman
estimated total outlay at 450bn taka ($8.15bn), a 13% increase in
expenditure on the current financial year.
He said his budget was aimed at achieving faster
economic growth and at reducing poverty.
Top priority was given to education and the IT
sector, which will receive 15% of the total budget.
Spending on defence went up too, and will account
for 39bn taka, or 8.8% of revenue income.
CHINA MOVES TO BLOCK INTERNET PORTALS
Some of China's leading internet sites have been
punished for failing to control what the government terms
Beijing carried out one of its largest
law-enforcement check-ups of the internet ahead of the 16th Chinese
Communist Party National Congress, which meets in the autumn.
Ten major domestic web portals were targeted, with
Tom.com, Sina and FM365 due to undergo regular inspections over the
next three months.
AIRPORT HOME FOR ROLLS-ROYCE FACTORY
Rolls-Royce has confirmed it plans to build an
£85m manufacturing centre close to Glasgow Airport in a move which
will safeguard 1,000 jobs.
Inchinnan has been identified as the favoured
location as the replacement for its existing Hillington factory.
The company confirmed its plans to build a new
plant in Scotland in April, but said it was considering a number of
US AGENCY MAY REVOKE ENERGY LICENCES
A regulatory agency of the US government has
threatened to revoke the electricity-trading rights of four energy
firms for improperly providing information concerning its probe into
The Federal Energy Regulatory Commission (FERC)
says four firms failed to hand over to the agency documents that would
help in its investigation into the power crisis that gripped
California in 2000 and 2001.
The four firms, Avista Corp, Williams Companies,
Portland General Electric Co and El Paso Electric have 10 days to
respond to the agency's charge or be prevented from participating in
SECURICOR PROFITS UP
UK security firm Securicor has seen profits rise
13% in the six months to March, despite problems at its US aviation
arm following 11 September.
Argenbright, its stand-alone US airport security
firm, reported a net loss of £13.1m, compared to a £10m profit for
the same period last year.
BRITISH GAS ACCUSED OF SCARE TACTICS
British Gas has been accused of threatening to
force its way into customers' homes to read their meters, even when
the company itself has failed to keep an appointment.
The Consumer's Association magazine Which? says it
has evidence from several upset customers who were threatened with
TOYOTA 'CLOSE TO CHINA DEAL'
Japan's top car maker, Toyota Motor, is close to an
alliance with China's FAW Group to build luxury cars for the local
market, according to media reports.
The Nihon Keizai Shimbun, a respected Japanese
newspaper, reported that the two firms planned to set up a car plant
in Tianjin, by 2005.
RETAIL GIANT BEATS TARGETS
Dutch supermarkets group Ahold, the world's
third-biggest retailer, has posted profits above market expectations
for the first three months of the year.
The firm earned 328m euros (£211m; $308m) in the
quarter, up 4% year on year, and said that it was on course to enjoy
15% profit growth in 2002.
50-YEAR MORTGAGES 'ON THE WAY'
Mortgages in the UK might have to double in length
to 50 years if repayments are to remain within the reach of normal
homebuyers, a leading mortgage broker has warned.
Days after the Halifax bank reported a 4.2% rise in
house prices in a single month — making an annual rise of nearly 20%
— Charcol said that the current 25-year mortgage is rapidly becoming
impossible to repay.
Whether or not house price inflation moderates,
Charcol said it is still overwhelmingly likely to stay ahead of wage
inflation, which at the moment is below 5% a year.
As a result, the only way mortgages will remain
affordable is by increasing the term to 30, 40 or even 50 years.