Nov 18 - 24, 2002










The head of the US central bank has warned that the US economy is still facing serious problems.
Alan Greenspan, the respected chairman of the Federal Reserve, told Congress that the prospect of a war against Iraq, and the falling stock market, had weakened confidence.


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 of 1.25%.

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 downside.

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 returned.

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 is facing the humiliating prospect of a formal reprimand from the European Commission for breaching rules on budget limits.

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 point.

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 Commission said.

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.


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 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 statement.

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 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 down.

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 "fragile" state.

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.


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 inflation.


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 corporate investment.

"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.


The United States has secured backing of European and Asian allies to stop deliveries of oil to North Korea with immediate effect.

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.


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.


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 Javier Solana.

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 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 UK.


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.


Flooding, falling stock markets and compensation claims over asbestos have caused huge losses at giant German insurer Allianz.

Allianz reported a net loss of 2.5bn euros (1.5bn; $2.5bn) for the July to September period roughly double analysts' expectations.

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.


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.


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).


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.


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 the world.

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.