INTERNATIONAL

 

Nov 11 - 17, 2002

 

1.INTERNATIONAL

2. INDUSTRY

3. FINANCE

4. POLICY

5. TRADE

6. GULF

 

CHINA, ASEAN SIGN FTA AGREEMENT

Chinese Prime Minister Zhu Rongi and Southeast Asian leaders signed an historic agreement to create the world's biggest free trade area embracing 1.7 billion people and two-way trade worth $1.2 trillion. Zhu hailed the deal, saying it would benefit the global economy and lift his nation's relations with the 10 members of the Association of Southeast Asian Nations (ASEAN) to "unprecedented heights".

 

The free trade area should be completed in 2010 between China and the six original ASEAN members Brunei, Malaysia, Indonesia, the Philippines, Singapore and Thailand and eventually create a trade area with an economy worth almost two trillion dollars.

The deadline for the less developed ASEAN nations Cambodia, Laos, Myanmar and Vietnam was pushed back until 2015.

Zhu said the agreement gave a "forceful impetus" to his nation's relations with ASEAN and "exerted a positive impact in the region and the world". "This will also contribute to faster progress of East Asia cooperation," he said. "The China-ASEAN relationship has reached unprecedented heights in history."

Tariff cuts on selected farm products under an "early harvest package" will start as early as next year, officials said.

Products covered under the early harvest package include live animals, meat, fish, dairy produce, other animal products, live trees, vegetables, fruit and nuts.

Zhu said China would faithfully deliver its commitments and implement the early harvest and other arrangements on schedule. "We stand ready to make joint efforts with all ASEAN countries to move forward our all-round economic cooperation through the establishment of the Free Trade Area," he said.

LOW US PRICES WORRIED FED

US Federal Reserve policymakers were concerned at a meeting in September that falling prices would limit their ammunition to boost the US economy.

This insight into the Fed's monetary policy was revealed in the minutes of meeting held on 24 September to decide on US interest rates.

As a result of that meeting, interest rates were left on hold at 1.75% although the Fed has since cut rates at its most recent meeting by half a percentage point to 1.25%.

The minutes, which were released, provide vital clues as to why the Fed left interest rates unchanged at the September meeting, following a 10-2 vote.

The minutes showed that Fed policymakers were conscious of a slow labour market and various forecasts pointing to a further decline in prices.

"Some observed that a significant decline in inflation... could imply an unwelcome tightening of monetary policy in real terms," added the minutes of the Federal Open Market Committee (FOMC) meeting.

In other words, the Fed was concerned that a decline in the price of goods would counteract the benefits of any further cuts in interest rates.

Falling inflation or deflation was one ingredient in Japan's decade of stagnation, as it was in the Great Depression of the 1930s.

Businesses that are forced to lower prices to remain competitive generally, as a result, have less money to repay debts.

In turn, this means they are less inclined to borrow money to invest in expanding, which has a knock-on effect on the economy.

The only two members of the FOMC who voted for a cut in September were Fed Board Governor Edward Gramlich and Dallas Fed Bank President Robert McTeer.

TURKISH LEADERS HOLD FIRST MEETING

The leader of Turkey's Justice and Development (AK) Party has met the country's president for the first time since winning a landslide election victory on Sunday but the two men did not discuss who will become prime minister.

Recep Tayyip Erdogan cannot occupy the post himself because a conviction for inciting religious hatred excludes him from parliament although the BBC Ankara correspondent says Mr Erdogan already acts as if he is the prime minister.

He said after meeting that his party a successor to the Islamist Virtue Party would nominate a candidate at the earliest.

"We did not go into that issue at all, that comes after the establishment of the parliament speaker and his office," Mr Erdogan said.

President Ahmet Necdet Sezer has insisted that the choice of prime minister is his prerogative, and has hinted he does not want a puppet who would be controlled by Mr Erdogan behind the scenes.

EUROPE LEAVES RATES UNCHANGED

The European Central Bank (ECB) has left its main interest rate steady at 3.25%, despite intense pressure for a cut that could spark an economic recovery.

The ECB has resolutely left rates unchanged for a year, mainly because it remains concerned that European inflation could reignite.

Hefty rate cut by the US Federal Reserve did not persuade the ECB governing committee to budge.

But many analysts predict that the ECB will reduce its rates eventually, although possibly not until early in the New Year.

The European economy has performed sluggishly, and the Fed cut has now opened up a yawning two-percentage-point gap between US and ECB rates.

UK INTEREST RATES LEFT ON HOLD

The Bank of England's monetary policy committee (MPC) has left UK interest rates on hold at 4%, despite growing pressure for a cut.

The decision is likely to have been one of the MPC's most finely balanced ever.

Sluggish economic growth overseas and a weak UK manufacturing sector have supported the case for a rate cut.

The US Federal Reserve's decision to slash borrowing costs by half a percentage point is likely to have put the MPC under pressure to follow suit.

But persistently strong growth in house prices and consumer borrowing has raised fears that a cut in interest rates could fuel inflationary pressures.

UK interest rates have now been left on hold for a full year, the longest period of interest rate stability since 1966.

BUSH TRIUMPHS IN CONGRESS ELECTIONS

Republicans have scored a dramatic victory in mid-term elections to the US Congress, winning control of the Senate and increasing their majority in the House of Representatives.

The sweep means President George W Bush should find it easier to push through his agenda of tax cuts and enhanced homeland security, as well as giving him stronger backing in the "war on terror".

Republicans hold at least 51 seats in the 100-member Senate, with just Louisiana to declare, where Democratic Senator Mary Landrieu faces a 7 December runoff.

DISNEY

Walt Disney, the entertainment behemoth still managed to meet analyst forecasts with a profit of $222m for its quarter ending in September. This compares with $188m during the same period a year ago.

CHINA OPENS WATERSHED CONGRESS

China's ruling Communists have begun their most important Congress in a decade with an invitation to capitalists to join the Party.

President Jiang Zemin said it was time to welcome "progressive elements of social strata" other than the traditional workers and peasants.

KOREAN TRADE UNDER NUCLEAR SHADOW

South Korean officials are reported to have told their North Korean counterparts joint economic projects could suffer if North Korea does not address international concerns over its nuclear weapons programme.

Economic delegates from the two Koreas are currently meeting in the North Korean capital, Pyongyang.

YET MORE GERMANS OUT OF WORK

German unemployment one of the country's main economic headaches has increased further, piling the pressure on Chancellor Gerhard Schroeder to take action.

Seasonally adjusted joblessness rose 22,000 in October, far more than average market forecasts, and taking the overall figure to 4.119 million.

US ECONOMY HINTS AT GROWTH

US productivity grew by a healthy 4% over the summer, but this was still below market expectations.

Productivity data records the amount of output per hour of work, and is largely seen as a key part of the economy's health.

In the three months from July to September, productivity was 4% higher than in the previous three months and 5.3% higher than in the same period a year earlier, according to figures from the US Labor Department.

While these are the strongest figures for the year so far, analysts had hoped for a lift of nearer 4.3%.

AUSTRALIA'S RESOURCES 'RUNNING OUT'

Australia must manage its resources better if its economy is to remain healthy until 2050, an official report on population growth warns.

The report by the Commonwealth Scientific and Industrial Research Organisation (CSIRO), which was commissioned by the government, predicts fuel shortages even if Australia's population of 20 million remains unchanged.

The report focuses attention once again on the government's controversial tough asylum policy, highlighting the debate about whether Australia can afford to let in more immigrants, which some analysts say is necessary to spur economic growth.

WILDFIRES BLAMED FOR GREENHOUSE GAS RISE

New research has shown that the forest fires which ravaged South East Asia five years ago caused a massive increase in levels of the greenhouse gases which cause global warming.

Scientists from Indonesia and Europe believe that 2.6 million tons of carbon entered the atmosphere after the fires in Indonesia contributing to the biggest annual increase in carbon emissions since records began.

MODEST SHARE LAUNCH FOR CHINA TELECOM

China Telecom is raising about US$1.4bn (895m) from its long-awaited share flotation, confirming reports that poor investor would force it to slash the size of the offering.

The state-owned phone company, which operates in Shanghai and three of China's richest provinces, has priced its shares at HK$1.48 (0.12; US$0.19) each, the bottom of the predicted range.

BMW

The German car maker BMW's pre-tax profits rose 1.5% on the back of a 19% rise in sales during the three months to September.

BMW has been going from strength to strength since achieving record profits in 2001 of 2.720bn euros (1,741bn; $2,721bn).

SRI LANKA TACKLES DEBT CRISIS

The Sri Lankan government has raised taxes in its new budget in a desperate attempt to stave-off a debt crisis.

Sri Lanka's debt servicing costs the cost of paying off debt were greater than the government's revenues last year.

And Prime Minister Ranil Wickremesinghe has previously warned the country is on the edge of bankruptcy.

Now, finance minister K.N. Choksy is hoping the peace process, together with economic reforms, will boost the economy by 5.5% next year.

MEXICO PREDICTS MODEST GROWTH

Mexico's economy is to grow at a 3% rate next year, the government has said in a budget proposal to Congress.

Earlier this year, Mexico officially entered recession after its economy shrank during the last six months of 2001, though it has since enjoyed a mild recovery.

But some observers said even such a moderate growth estimate may be too optimistic.

"The 3% figure is a reasonable one, but it is in no way certain because it depends on the United States," said Raul Feliz, an analyst with the Mexican think tank CIDE.

About 85% of Mexico's exports go to the US, so a downturn there would quickly spread south.

GERMANY BRACES FOR BUDGET CRITICISM

Germany is facing the humiliation of a formal reprimand from the European Commission for its growing budget deficit.

German finance minister Hans Eichel has admitted that Europe's biggest economy will this year exceed the 3% budget deficit allowed under the EU rules.

And next week it will be formally warned by the European Commission to mend its ways or face economic sanctions.

The news is ironic, given that Germany was the main architect of the Stability and Growth Pact, a set of rules designed to prevent countries like Italy from overspending after the euro was introduced.

German finance minister Hans Eichel may lose his smile. The Commission says that Germany's deficit could be as high as 3.7%, and it has already warned Portugal, with a 4.7% deficit, that it faces fines that could ultimately amount to 5% of its GDP.

UK SERVICES BUOY ECONOMY

The UK economy showed further signs of growth in October, although confidence remains weak, according to new figures.

A survey of the private service sector, which makes up about two thirds of the UK economy, from the Chartered Institute of Purchasing and Supply (CIPS) showed higher levels of activity than expected.

And the CBI said high street shop sales had rallied to their highest level since May.

But the relatively robust figures contrasted strongly with official figures for manufacturing industry, which showed continued falls in output.

Manufacturing output was down 0.4% in September according to figures from the Office for National Statistics (ONS) and is now 2.6% lower than at the same time last year.

Car output saw the biggest fall, down 12.2% in September. Warm weather meant a 5.7% drop in electricity and gas output.