INTERNATIONAL

 

Nov 04 - 10, 2002

 

1.INTERNATIONAL

2. INDUSTRY

3. FINANCE

4. POLICY

5. TRADE

6. GULF

 

US ECONOMY SURGES AHEAD

The US economy posted its strongest growth since the last quarter of 2001, allaying fears of a "double-dip" recession.Pushed higher by strong car sales, the US economy expanded at an annual rate of 3.1% in the three months of July, August and September. This was double the rate of the previous three months.

 

But US Commerce Secretary Don Evans said that was "not good enough" and that the US recovery was still "uneven.

And he implicitly called for a rate cut by the US central bank, arguing that low inflation created an opportunity for stimulative fiscal and monetary policies.

Some of the growth was due to declining imports, according to the US commerce department.

"The largest contributors to the step-up were an acceleration in consumer spending — especially for motor vehicles — and a slowdown in imports," it said.

This could spell trouble for other countries who have been hoping to overcome their own economic troubles by exporting to the United States.

The US runs a $400bn trade deficit with the rest of the world, and Asian countries in particular have been keen to boost exports.

The news will help President George W. Bush, who is hoping to regain control of both Houses of Congress in the mid-term elections which take place on Tuesday, 5 November.

The news will also pose a dilemma for the US central bank, the Federal Reserve, which had widely been expected to cut interest rates for the 12th time to help revive the economy.

Now they will closely watch the unemployment figures, for signs that job fears might weaken further consumer spending plans.

GERMANY CUTS GROWTH OUTLOOK

The German government has cut its official growth forecast, confirming the sluggish state of its economy.

The government now expects the economy to grow by just 0.5% this year, down from the previous estimate of 0.75%.

And it says the economy will expand by 1.5% in 2003 instead of 2.5%.

The revision had been widely expected and came on the same day that the International Monetary Fund (IMF) cut its growth forecast for Germany.

The IMF also warned that the German government should not try to cut its budget deficit too quickly as this could damage any economic recovery.

In its annual review of the German economy, the IMF held its growth prediction for this year at 0.5%, but trimmed its 2003 forecast to 1.75% from 2%.

"In 2003, GDP growth is expected to pick up, but is likely to remain weaker than previously projected and subject to considerable risks," the IMF said.

"These include global uncertainties and a complex set of domestic factors."

One of the factors is the German Government's budget deficit.

Germany has already admitted that its deficit for this year will be above the 3% of GDP level ceiling set by EU's Stability and Growth Pact.

The IMF said it expected a German budget deficit of 3.5% of GDP this year, but that the government would try to cut it to 2.75% in 2003.

However, the IMF said a smaller cut might be more suitable given the economy's weakness.

DISDAIN GREETS JAPAN REFORM PLAN

Japan's plans to revive its stuttering economy and rescue its banks from mountainous bad debts have been met with a chorus of disapproval.

Newspapers, investors and credit ratings agencies have all given the proposals the thumb's down.

The plan was announced after several delays by the man installed by Prime Minister Junichiro Koizumi specifically to take radical action.

But the consensus of opinion is that the plan has been watered down by political infighting to the point where it may fail to make any serious impact.

The most immediate reaction to the unveiling, which happened after Tokyo's markets closed, was a 1.3% fall on the benchmark Nikkei 225 index.

IMF TRIMS EURO GROWTH FORECAST

The International Monetary Fund has trimmed its forecast for eurozone growth, and suggested that the bloc's central bank should consider cutting rates to kick-start the economy.

The IMF lowered the region's 2002 growth forecast to just 0.75% from 0.9% last month, and revised its growth prediction for 2003 down to 2% from 2.3% last time.

It added that the recovery would remain "tepid", warning that the area still faces "considerable downside risks".

"The economy is fairly weak and we don't see a very robust recovery in prospect," said Michael Deppler, the head of the IMF's European department.

He added that in view of persistently sluggish growth in the region, a "clear bias towards further monetary easing would be appropriate".

DROUGHT WIDENS AUSTRALIA'S TRADE DEFICIT

Australia has blamed a damaging drought for sending its trade deficit ballooning to almost 1bn Australian dollars (£360m; $560m).

The worst drought in a generation will cut this winter's grain harvest by more than half and hit the country's earnings from exports of agricultural products, the government has warned.

Production of the country's four major winter crops — wheat, barley, canola and lupins — is set to fall to 14.8 million tonnes in the year to June 2003, down from a record 34.1 million tonnes a year earlier, according to the Australian bureau of agriculture and resource economics (Abareconomics).

"You're seeing that already and I expect that it will affect exports in future months," said the country's treasurer, Peter Costello.

So far, the drought has cost more than 40,000 jobs. Rural exports have slipped 6% and the trade deficit widened to A$948m in September, the worst figure for more than two years.

MEXICO AND JAPAN PLAN FREE TRADE DEAL

Mexico and Japan plan to seal a free trade agreement (FTA) within a year to reinvigorate their declining economic ties.

Japanese Prime Minister Junichiro Koizumi and Mexican President Vicente Fox announced the move in a joint statement at the Asia Pacific Economic Cooperation (APEC) summit in Los Cabos, Mexico.

"In order that Japan and Mexico will benefit, without delay, from the strengthening of the bilateral economic partnership, the two leaders shared the view that the two governments should start official negotiations for the agreement in November 2002 in Tokyo," they said.

Mexico exports goods — mostly crude oil, pork and machines — worth about $2bn to Japan each year, while it imports Japanese machinery, auto and electronic parts worth $4bn.

MIZUHO MOVES ON BAD DEBTS

The world's biggest bank, Japan's Mizuho, has unveiled a plan to tackle four fifths of its mountain of loans gone sour by March 2004.

The plan is the first response from the banking sector to the government's package of measures to address deflation and the bad debts crippling the country's economy, announced to some scepticism earlier.

The bank has lent 3 trillion yen to 150 companies which are "near to failure" or have already collapsed, according to the Asahi Shimbun newspaper, and will aim to clean up 2.4 trillion yen of them in the year from next April. The government's own deadline is 2005.

CHINA TELECOM US FLOTATION 'DELAYED'

With the world's stock markets still deeply mired in gloom, China looks almost certain to have to put off the massive flotation of its biggest telecoms company.

China Telecom, for years the state-owned monopoly and still the biggest player, was due to release shares worth as much as $4bn to the New York market on 6 November.

'LAUNDERING' CHARGE FOR TOBACCO GIANT

The maker of Camel cigarettes, RJ Reynolds, is being taken to court in the US, accused of money laundering.

The action, which is being brought by the European Commission and 10 European Union member states, has been dismissed by the tobacco firm.

AUSTRALIAN HOUSING BOOM SLACKENS

The housing boom in Australia has slipped slightly in September after soaring in August but not by enough to remove fears that the leap is unsustainable.

The September figures for buidling approvals, an index of how many new homes are being planned, showed a 19.4% fall from the month before.

The slide produced a sigh of relief among market-watchers, for whom August's breakneck 22.9% rise had been a startling wake-up call.

An interest rate increase from the current 4.75% now looks less likely when the Reserve Bank of Australia meets, but the evidence of over-heating is still there as investors, rather than prospective inhabitants, are driving the housing boom.

IBM ADOPTS NEW $10BN TACTIC

IBM has launched a new business strategy backed by $10bn in new investment.

IBM chief Sam Palmisano said that his company planned to adopt a new focus on 'on-demand' computing — a flexible business model under which corporate clients pay only for the computing power that they actually use.

RESULTS

Qwest: Telephone firm Qwest Communications International said that losses for the three months to September widened to $214m (£137m), from $142m during the same period last year.

TXU: US energy giant TXU, the Dallas-based firm said profits for the three months to September came in at $206m (£131m), 38% down on the same period last year.

Exxon Mobil—ChevronTexaco: The world's largest oil company, Exxon Mobil, has said it suffered a $540m fall in net profits to $2.64bn (£1.69bn) for the July to September quarter while its competitor ChevronTexaco has said it was hit by a $900m loss.

Volkswagen: Europe's largest car maker, Volkswagen's net profits fell to 439m euros (£277m; $439m) during the quarter from 903m euros during the same period last year.

Toyota: A cost-cutting drive and favourable exchange rates helped net profits to surge to a record 553.7bn yen ($4.53bn, £2.9bn), while operating profit rose 44% to 730.8bn yen.

Unilever: Unilever, the world's third largest food group, reported profits of 1.3bn euros (£800m; $1.28bn) for the three months to the end of September, against expectations of 1.1bn euros.

VIVENDI REJECTS VODAFONE OFFER

Franco-American media giant Vivendi Universal has rejected an offer for its 44% stake in French mobile operator Cegetel from the UK's Vodafone.

BANGLADESH WINS PRAISE FOR REFORMS

The Asian Development Bank (ADB) has praised Bangladesh's programme of economic reforms, and promised to continue its $330m-a-year (£212m) development programme.

The country's central bank, meanwhile, has launched a programme to persuade Bangladeshis living abroad to invest their hard currency earnings at home.

INDIA CUTS RATES AND GROWTH TARGET

India's central bank has cut its key interest rate and lowered its economic growth target for the financial year to March 2003.

After its mid-year review, the Reserve Bank of India (RBI) cut its bank rate to 6.25% from 6.5% and said it expected it to remain at that level until the end of the year. The forecast for economic growth has been cut by a point to 5-5.5%.

TREASURY DENIES BORROWING CLAIM

The Treasury has denied reports that it could borrow up to £70bn in the next few years and still not breach its fiscal rules.

According to the Financial Times, Chancellor Gordon Brown could borrow up to £70bn ($109bn) more than originally planned and still meet his spending rules, which say that current spending must balance over the economic cycle.

Treasury officials told that the government's finances were "prudent" and well able to cope with the ups and downs of the financial cycle after the Chancellor has accumulated a £50bn surplus since 1999, which could be offset against future deficits.

SCHROEDER TELLS GERMANS TO SACRIFICE

Germany's Chancellor Gerhard Schroeder has told the country that taxes must rise, the welfare state be cut back and the labour market be liberalised.

The dire warnings came in the Chancellor's first policy speech since the re-election of his governing coalition of Social Democrats and Greens a month ago.

His speech was dominated by economic issues, and the threat of war with Iraq.

NEW PLANS TO BOOST NEPAL'S ECONOMY

The Nepalese Government has announced economic reforms to boost the country's ailing economy.

The authorities say the move is mainly aimed at reducing government expenditure, increasing revenue, and improving administrative efficiency.

'NO CLEAR CASE' FOR EARLY TAX RISES

There is no imminent need for tax rises or spending cuts in the UK even though the government's budget deficit is rising, a report has concluded.

The study by economists at PricewaterhouseCoopers (PwC) trimmed its growth forecast for the UK, but said tax rises in the short-term were not needed and could even be counter-productive.

But PwC said taxes might have to rise in the long run to fund higher spending on public services and pensions.