Jan-28 - Feb-03, 2002

US budget surplus gone

The huge US government budget surplus — which one year ago was estimated at $5.6 trillion over 10 years — is set to disappear as the effects of the economic slowdown and the Bush administration tax cuts take effect.

New estimates by the Congressional Budget Office (CBO) show that most of the projected surplus will not now materialise.

The new estimate suggests that the total surplus will only be $1.6 trillion — and nearly all of that will be a surplus that the social security trust funds are obliged to build up to meet future obligations.

The CBO says that slower growth will shave $1 trillion off its estimates of a budget surplus in the next decade, while increased spending commitments will add more than $500bn.

And debt interest payments are forecast to increase by $500bn.

But the biggest contribution to the declining surplus are the tax cuts, which amount to $1.3 trillion.

In all, the CBO says that Congressional actions have made up 60% ($2.6 trillion) of the revisions.

And it points out that in the next two years, the overall Federal budget is now expected to go into deficit for the first time in four years a dramatic turnaround from projected surpluses of more than $300bn made earlier in the year.

As budget hearings opened, Democrats attacked the Bush administration's handling of the economy.

"The president told us and told the American people that we could have it all," said the budget panel chairman, Senator Kent Conrad.

"He was wrong by a country mile."

Meanwhile, the Bush administration is expected to propose next month a Federal budget that runs an even bigger deficit of nearly $100bn to cover the costs of the war against terrorism.

UK braced for gloomy numbers

The latest set of UK economic data on Friday morning is expected to shatter the perception that the UK is immune to the global economic slowdown.

The gross domestic product (GDP) figures for the last three months of 2001 will reveal a sharply slowing economy as UK manufacturing reels from the loss of export markets in the US and elsewhere.

Leading economists, including the National Institute for Economic and Social Research, a think tank, say that the UK economy probably stagnated in the aftermath of 11 September.

The news will be a further headache for the government, and will pile pressure on the Bank of England to cut the cost of borrowing yet again.

Economists at City firm Capital Economics said: "There is even a chance they will show the economy shrinking for the first time in a decade."

Even if the figures from the Office for National Statistics show the UK has avoided this, there will be widespread dismay at the dramatic turnaround in the economy's fortunes.

GDP figures for the previous quarter, covering July to September, showed the economy growing at an annual rate of 2.2%.

This was only marginally below what the Treasury considers the to be UK's long-term trend rate.

Manufacturing has been in the doldrums for over a year.

This week the Confederation of British Industry warned that a further 50,000 metal-bashing jobs could go in the first few months of this year.

And there are signs that the service sector, which now accounts for nearly 80% of the economy, is also slowing fast.

Only the construction industry continues to power ahead.

Fed chief: US is on the mend

The US economy seems finally to be climbing out of recession, Federal Reserve chairman Alan Greenspan has said.

Mr Greenspan's comments, made in testimony to the US Senate's Budget Committee, were more upbeat than those in a speech in San Francisco on 11 January.

Then, Mr Greenspan had warned that "significant risks" continued to threaten recovery in the short term.

There was no reference to the risk this time, a decision which some observers are taking as a hint that the Fed's next meeting — taking place next week — could leave interest rates where they are after 11 cuts in 13 months.

Mr Greenspan again said there had been a "significant cyclical adjustment" last year, and noted the added pressure placed on the economy in the aftermath of 11 September.

Scots economy 'at a standstill'

The Scottish economy is growing much more slowly than the rest of the UK, according to an official study.

The Scottish Economic Report, issued by the Scottish Executive, says that the economy is at a virtual standstill.

And a separate government study has suggested that Scotland has been more dramatically affected by the events of 11 September than the rest of Britain.

The Scottish Economic Report says the country's economy is growing at just 0.3% year-on-year.

This compares to a figure of 2.5% for the UK as a whole.

Manufacturing, which accounted for 23% of Scottish national output, fell by 4.8% — compared to a UK-wide rise increase of 0.6%.

One of the few bright spots is the financial services industry, which is still growing at nearly 10%.

Japan suffers export slump

Demand for imports has soared as exports plunged Japan's trade surplus, a key indicator of its economic health, shrank by more than one-third in 2001 to its lowest level in 18 years.

The news, which represents the 18th consecutive monthly fall in the surplus, underlines the weakness of Japan's key export industries.

Concern over falling Japanese exports recently persuaded the government to move towards a weak-yen policy, which has seen the currency fall to three-year lows against the US dollar.

If the current weak yen persists, as many economists predict, the trade surplus should start to widen again this year.

By the end of last year, the total trade surplus stood at 6.6 trillion yen (£34.5bn; $49bn), with exports down 5.1% to 49 trillion yen and imports up 3.6% to a record high of 42.4 trillion yen.

Bank chiefs unanimous on rate freeze

Bank of England gurus in charge of setting interest rates voted unanimously in favour of a rate freeze this month.

All nine members of the Bank's monetary policy committee (MPC) voted in favour of keeping the base rate at 4.0%, minutes of their January meeting have revealed.

Speculation had grown in the run up to the meeting that some committee members might urge a rate rise to stop consumer spending getting out of control.

But on Wednesday the CBI called for another quarter-point cut in rates after its latest survey of manufacturing firms showed both orders and prices falling.

Last year, the Bank cut UK interest rates seven times, the last reduction coming in November, as it tried to prevent the economy from falling into recession.

RESULTS

Ericsson: Ericsson, the world's second-biggest mobile phone maker, has reported a heavy annual loss, but said that strong sales of new technologies promised to drag it back into profit soon. The firm made a net loss of 21bn kronor (£1.4bn; $2bn) in 2001.

Kodak: Kodak reported a net loss of $206m for the October-December quarter, compared with a net profit of $194m in the same period a year before.

McDonald: McDonald's reported net earnings of $271.9m for the fourth quarter, down from $452m in the same period the previous year.

ExxonMobil: The company said profits from October to December 2001 fell to $2.88bn, from $5.12bn a year earlier.

Boeing: The Chicago-based company said it earned $722m in the fourth quarter of last year but was taking a charge of $622m "primarily related to September 11 impacts on commercial airplanes".

Merrill Lynch: The firm reported a loss of $1.26bn, or $1.51 per share, for the October to December quarter and a restructuring charge of $1.7bn.

Johnson & Johnson: Worldwide sales climbed 15% to $8.4bn during the last three months of the year, bringing the full year sales growth to 11%. Net income excluding special charges jumped 23% to $1.2bn during the last three months of the year.

Blair on attack over public sector

Prime Minister Tony Blair is to give a keynote speech defending public service workers, amid a bitter running row over the state of the NHS.

Mr Blair will accuse his opponents in the Conservative Party of trying to denigrate everything about public services, and will champion workers' rights to be defended from attacks they regard as unjustified.

Uganda begins power project

Uganda has started construction of a $550m (£386m) dam on the river Nile, which it hopes will boost the country's electricity generation capacity.

Uganda's President Yoweri Museveni launched the construction of the Bujagali hydroelectric power project, which is 80 kilometres east of the country's capital Kampala.

Donors pledge $4bn for Afghans

World leaders on Monday pledged nearly four billion dollars at an international conference to help pull Afghanistan out of its dark years of rubble, famine and misery.

Interim Afghan leader Hamid Karzai, seeking to rebuild his country from scratch after two decades of war, issued an emotional appeal for help to delegates from 60 other countries.

"I'm here as the citizen of a country that has had nothing but disasters, war, brutality and deprivation for so many years," he said at the start of the two-day gathering, attended also by US Secretary of State Colin Powell and UN Secretary General Kofi Annan.

Pakistan pledged 100 million dollars over five years and Saudi Arabia, one of the co-chairs of the meeting alongside Japan, the US and EU, pledged 220 million dollars over three years. Iran promised 560 million dollars over five years

Taiwan names new money ministers

Taiwanese President Chen Shui-bian has appointed a new economics minister and finance minister as part of a cabinet reshuffle aimed at rescuing it from its worst economic slump ever.

Airline executive Christine Tsung, 53, has been named economics minister, and Lee Yung-san, the chairman of the International Commercial Bank of China — one of Taiwan's top 10 banks was appointed finance minister.

South Africa loan row rumbles on

The development of the microlending industry in South Africa, where 60% of the population is without a bank account, remains under the spotlight a week after a profit warning from one of the country's largest banks.

Microlending refers to small unsecured loans made at high interest rates to people who don't have assets to guarantee repayment.

Former EU chief urges UK euro drive

Tim Sebastian Former European Commission vice president Sir Leon Brittan has warned that a refusal to join the euro could damage the UK's long term economic position.

Speaking in an interview Sir Leon said he believed the UK should conquer its cold feet and adopt the euro for the sake of the country's future.

Turkmenistan hopes for oil bonanza

Very few people from the West have ever visited Turkmenistan, fewer still will know much about it. Yet this small country, situated between Iran, Afghanistan and Russia, is actually very significant, at least potentially. It has huge reserves of gas and oil.

Turkmenistan, a former Soviet republic, became independent in October 1991. The capital is Ashgabad, which nestles in semi desert just north of the Kopet Dag mountains which form the border with Iran.

Turkmenistan though is its natural resources — especially oil and gas. Indeed it is thought that it has the fourth largest gas reserves in the world.