And he said that fallout from corporate scandals and
the continued reluctance of business to make further investments were
also contributing to the slowdown.
The Fed cut US interest rates sharply to a record low
Mr Greenspan said he was hopeful that this action
would help the economy overcome its current "soft spot" and
return to strong growth.
Mr Greenspan said that although the economy was
stagnant, there was no evidence that it was accelerating on the
He said that he was therefore unsure whether Congress
should increase spending in order to stimulate the economy.
The Bush administration is considering accelerating
its programme of tax cuts in order to provide more stimulus to help get
the economy moving.
But Mr Greenspan warned that in contrast to monetary
policy, it was not so easy to reverse tax cuts if inflationary pressures
Mr Greenspan said that in the long term, he was
optimistic that the US economy was still strong.
This was partly based on the fact that productivity
has continued to grow strongly, even during the downturn.
Productivity measures how much output each worker
produces, and many economists believe that the increasing use of
computers in the office has boosted US growth prospects considerably.
But there is debate on how the underlying growth rate
of the economy has shifted upwards, from 2.5% to (as some argue) 4%.
GERMANY FACES EU BUDGET PENALTY
Germany is facing the humiliating prospect of a
formal reprimand from the European Commission for breaching rules on
The Commission is to launch an excessive deficit
procedure against Germany, said Monetary Affairs Commissioner Pedro
Solbes, announcing the first step in a process that could lead
eventually to big fines.
The news came as the Commission unveiled forecasts
for feeble economic growth — just 0.8% — across the European Union
in 2002, slashing its last forecast by more than half a percentage
In a grim assessment of the EU's economic health, it
cut its forecast for growth in 2003 to 1.8%, sharply down on a
prediction of 2.9% made in April.
Sluggish growth in the United States and the
uncertainty surrounding the world's largest economy has sapped trade and
hurt Europe, the Commission said.
Only from mid-2003 is EU growth expected to gain
momentum, "if confidence returns, oil prices ease and stock markets
remain stable," it said.
If all those conditions are met, the region's economy
should grow by 2.6% in 2004.
The Commission said Germany will breach a maximum 3%
ceiling on budget deficits for member states both this year and next,
clocking up deficits of 3.8% of gross domestic product (GDP) in 2002 and
3.1% in 2003.
France will also come within a whisker of
overstepping the limit, with budget shortfalls of 2.7% this year and
2.9% in 2003.
The French government's "safety margin for
dealing with negative surprises is virtually absent," the
Mr Solbes said France will receive an early warning
notice, putting it too on the road to punishment if it fails to bring
its deficit in line.
Portugal became the first country to receive a formal
reprimand earlier this year after its budget deficit reached 4.1% in
2001 and faces fines that could amount to 5% of its GDP.
CHINA UNVEILS NEW LEADERSHIP
Vice-President Hu Jintao has been named as the new
head of China's ruling Communist Party, with the Politburo Standing
Committee China's key decision-making body — expanded to nine members.
But outgoing President Jiang Zemin looks set to
retain considerable power and influence despite his retirement.
At least five of his allies have been appointed to
the standing committee, and Mr Jiang has also been re-elected to head
China's powerful military commission, the body which controls the
country's armed forces.
The new line-up was unveiled to reporters in
Beijing's Great Hall of the People.
"This is a meeting which has carried on the past
and opened a new chapter for the future," Mr Hu said.
After weeks of speculation that the party was about
to undergo a sweeping overhaul, the final outcome still held elements of
surprise, says a BBC Beijing correspondent, Francis Markus.
ARGENTINA DEFAULTS ON WORLD BANK LOAN
Argentina has defaulted on a debt repayment to the
World Bank of more than $800m that was due.
"The World Bank confirmed that it has received a
partial payment of $79.2m from the government of Argentina against a
scheduled payment of $805 million," the World Bank said in a
The Bank said the move meant it would not consider
any new loans for the country, and access to current loans would be
removed unless it was paid within the next 30 days.
Argentina had been hoping to strike a deal with the
International Monetary Fund — another international lender — before
the debt payment fell due, and an Argentine delegation headed by Economy
Minister Roberto Lavagna had been in talks with the Fund in Washington.
JAPAN'S BANKS SLIDE ON FAILURE WARNING
Japan's hard-pressed banks have seen their shares
slide once more, a business leader reportedly warned that plans to clear
bad debts would leave the sector in turmoil.
In late October, the government unveiled its
programme for sorting out the multi-trillion yen loan burden which is
blocking fresh lending and exacerbating persistent deflation.
At the time, its architect, financial services and
economy minister Heizo Takenaka, was criticised for watering the plan
But according to the Financial Times, Hiroshi Okuda,
head of business lobby group Keidanren, has said that even in its
present state the plan will leave the top four banks in a
The banks may have to be renationalised before the
year is out, the Times reported.
In response, investors sold banking shares, forcing
stock in UFJ, the smallest of Japan's "big four" banks, down
12.88% — the maximum allowed under Tokyo Stock Exchange rules — to a
new all-time low of 112,000 yen.
UK ECONOMY 'STILL AT RISK'
The Bank of England's monetary policy committee (MPC)
has warned that a possible slowdown in house prices and weak growth
overseas pose significant threats to the UK economy.
The MPC said that while it expects a recent upturn in
UK economic growth to continue over the next six months, further
economic weakness in the US and the eurozone, or a dip in property
prices, could derail the recovery.
It said that while house prices should slow
gradually, the risk of " a more abrupt slowdown" was greater
the longer current house price inflation of up to 30% a year continued.
"The crystallisation of any of these risks could
have material implications for the prospects for growth and inflation,
and thus policy," the MPC said in its quarterly report on
JAPAN'S ECONOMIC RECOVERY SLOWS
Japan has reported continuing economic recovery in
the three months to September, but a fall in exports due to weak global
demand have raised fears it could fall back into recession.
Gross domestic product (GDP) rose 0.7%, which was
just above analysts expectations, after 1% growth in the quarter to
June, as consumer spending offset sluggish exports and a drop in
"If the current pace continues it will exceed
the government's forecast for this fiscal year," Prime Minister
Junichiro Koizumi said.
"It means not everything is bad."
On an annualised basis, the world's second-biggest
economy grew by 3% in the July to September period, the third straight
quarter of expansion.
The government downgraded its economic outlook for
the first time in a year and set a zero per cent growth target for the
year to March.
NO MORE OIL AID FOR N KOREA
The United States has secured backing of European and
Asian allies to stop deliveries of oil to North Korea with immediate
The US had called for the aid to be stopped, unless
the Communist regime dismantled its nuclear weapons programme.
Diplomats from the European Union, South Korea and
Japan agreed with the US that a 42,000 tonne shipment of fuel, currently
on its way to North Korea, should be the last.
CHINA SEEKS DIALOGUE WITH NATO
According to Nato officials, China has approached the
Atlantic alliance with the aim of opening up a continuing strategic
dialogue between Nato and Beijing.
Chinese diplomats recently held talks in Brussels
with the alliance's Secretary General, Lord Robertson.
At a meeting on 10 October, they proposed the idea of
regular contacts to discuss strategic concepts, common threats and
Nato's activities in Central Asia.
TURKEY PARLIAMENT HOLDS FIRST SESSION
The Turkish parliament has met for the first time
since the landslide election victory of the Islamist-rooted AK Party,
amid behind-the-scenes moves to form a government.
Party leader Recep Tayyip Erdogan is banned from
parliament and spent part of the day meeting EU foreign affairs chief
He is to meet President Ahme Necdet Sezer for talks
expected to pave the way for the naming of a prime minister.
Deutsche Telekom has racked up a net loss of 24.5bn
euros (£15.5bn; $24.6bn) in the first nine months of this year, the
biggest loss in German corporate history.
HSBC PAYS £9BN FOR CREDIT CARD GROUP
HSBC has agreed to buy consumer credit group
Household International in an all-share deal worth £9bn ($14.3bn).
Household provides loans, credit cards, car financing
and credit insurance to 50 million customers in North America and the
US AND AUSTRALIA PLAN FREE TRADE PACT
Australia and the US are to kick off talks on a
long-stalled free trade agreement, as Washington starts to corral allies
into backing action against Iraq.
The discussions on a bilateral agreement are separate
from the World Trade Organisation talks currently under way in Sydney
and beset by angry protesters.
For years efforts to get a trade deal have foundered
on resistance from the US's powerful farm lobby.
But the need to get key allies on board has been seen
as adding urgency to the talks.
GERMAN INSURER HITS 'ROCK BOTTOM'
Flooding, falling stock markets and compensation
claims over asbestos have caused huge losses at giant German insurer
Allianz reported a net loss of 2.5bn euros (£1.5bn;
$2.5bn) for the July to September period — roughly double analysts'
Allianz made a net loss of 46m euros in the same
period of last year.
The insurer said it was unable to forecast its full
year results because of uncertainty about how much it would have to
write off the value of its stock market holdings.
PRE-BUDGET REPORT DATE SET
Chancellor Gordon Brown is to deliever his pre-Budget
report on 27 November.
Mr Brown will outline his latest predictions for the
UK economy and also a range of measures he is thinking of including in
next year's Budget.
These may include further tax or national insurance
changes — with pressure as well for action to halt runaway house
prices and continuing pension problems.
Mr Brown is believed to be considering an increase in
stamp duty to stop housing speculation, and a cut in the tax relief
given to higher rate taxpayers for their pensions.
UK JOBLESS TOTAL RISES
The number of Britons claiming jobless benefits fell
again last month, but the total number of people out of work began to
rise, official figures have shown.
The claimant count fell by 4,500 in October from
September to 940,500, cutting the jobless rate to a 27-year low of 3.1%,
according to the Office for National Statistics (ONS).
ATTACKS COST NEW YORK UP TO $36BN
New data have suggested the attacks on the World
Trade Center cost the New York economy far less than the nearly $100bn
city officials pegged in September.
The New York Federal Reserve Bank said the 11
September attacks cost the city $33bn-$36bn (£20.7bn-£22.6bn) up to
June 2002, when the official clean-up effort ceased.
AFRICA'S OIL STAR STRIVES TO SHINE
The tiny West African nation of Equatorial Guinea,
home to just 500,000 people, is Africa's economic star.
With a staggering growth rate of about 65% last year,
it boasts the fastest expanding economy in Africa — and probably in
Previously almost unheard of by corporate America, it
has become the fourth largest destination for US investments in
sub-Saharan Africa, trailing only South Africa, Nigeria and Angola.