Feb-04 - Feb-10, 2002

Britain to escape recession

The UK should avoid a major economic slowdown this year, according to a leading think tank.

The National Institute for Social and Economic Research (NIESR) has forecast that the UK economy will grow by 2.1% in 2002, compared to just 1.4% in the eurozone and 1.2% in the United States.

But it predicts a more widespread economic recovery by 2003, when the US economy will grow by 3.7% and the eurozone by 2.6% — the same rate as the UK.

The Japanese economy remains weak, with output expected to fall by 0.8% this year — the second year in a row of negative growth.

The reason for the better performance of the UK economy is higher government spending, as well as strong consumer spending boosted by lower interest rates, according to the NIESR.

Nearly half of the increased output in 2002 is expected to be accounted for by increased government consumption — in contrast to most other industrial countries, which are cutting back on public spending due to budget constraints.

The think tank argues the government has scope to increase spending in the next few years.

They say that under the government's fiscal rules, it has accumulated a surplus of £50bn over the past five years which could be set against any future spending increases, even if it meant a temporary deficit.

Martin Weale, NIESR's director, told the BBC that he was worried that the Chancellor would choose to disregard this surplus.

The Treasury rules say that the budget, or current spending, should balance over the economic cycle.

But if the Treasury chose to count the current slowdown as the end of an economic cycle, then that surplus could no longer be used.

US economy shows unexpected strength

The US economy grew 0.2% in the last three months of 2001, official data has shown. The figure defied most economists' expectation that the world's largest economy would contract by up to 1%.

Wall Street analysts attributed the unexpected strength of the economy's performance to higher government spending and enthusiastic consumer take-up of zero percent financing deals offered by carmakers.

They also pointed to the rapid depletion of stocks in factories and warehouses while companies tightened their belts to weather the downturn. Firms had now reached the point where they needed to buy new goods and produce more, thus fuelling the recovery.

The data for the last quarter of 2001 contrasted with the slump suffered between July and September, when the US economy shrank 1.3%.

A second consecutive quarter of contraction would have satisfied the common technical definition of a recession.

However, the figures are just the "first cut" of the raw data for October to December, and are based mainly on reports from manufacturing industries.

The previous set of GDP figures was revised downwards several times, and the US economy still faces the threat of a technical fall into recession.

Looking at a wider set of economic measures an official panel of senior economists, the National Bureau of Economic Research, declared last November that the US entered a recession in March 2001. On Wall Street the figures were greeted with relief.

US keeps interest rates unchanged

The US central bank, the Federal Reserve, has left interest rates unchanged at 1.75%, saying signs for an economic recovery were "promising".

The decision — widely anticipated by Wall Street — was prompted by a slew of positive economic data suggesting that the US economy was recovering quickly from a slump in the second half of 2002.

The Federal Reserve said "signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent".

Any expectations of a further rate cut had been quashed by Federal Reserve chairman Alan Greenspan in an upbeat speech last Friday, in which he pointed to signs that the economy was improving.

EU raps Berlin and Lisbon on budgets

The European Commission has voted to issue a formal warning to Germany and Portugal over the size of their budget deficits.

The European Union's executive body voted to uphold rules that EU nations must not overstep a maximum allowable deficit of three per cent.

The Commission has never before voted in favour of formal warnings. Its recommendation must now be considered by a meeting of EU finance ministers on 12 February.

Neither Germany nor Portugal has yet breached the 3% deficit limit but both are at risk of doing so this year, prompting the commissioner for monetary affairs, Pedro Solbes, to ask for the warning.

East Europe rate cuts promise boost

Poland, the region's biggest economy, cut its rates on 30 January, by a whopping point-and-a-half to 10%.

Last week, neighbouring Hungary and the Czech Republic did the same thing, taking rates in every major economy to post-communist record lows.

While most people see cutting rates as a way of giving the economy a temporary jolt, for Eastern Europe, it is changing their whole way of life.

The higher they were, the faster they have fallen.

Poland, the region's keenest cutter, has seen interest rates halve in the past 12 months, to just 10% this week.

That takes Polish rates just a point above Hungary's, but still way over those in the Czech Republic, where earlier, deeper cuts have taken them down to 3.5%.

Lithuania economy posts strong growth

Lithuania enjoyed healthy economic growth last year, its strongest performance since 1997.

According to the preliminary calculations of the National Statistics department, the economy grew 5.7% in 2001, boosted by industry, construction and trade in the last three months of the year.

The fourth quarter growth was 7.9% on an annualised basis, compared to 3.9% a year ago.

"We see a gradual improvement of domestic demand (and) the export sector despite cooling European markets. These are the main factors why we saw very good development through 2001," said Veikko Maripuu, head of research at Suprema.

The government predicts a slower growth of 4.0% in 2002, caused by an economic downturn in European Union, the main Lithuanian trade partner and investor.

Donors' team in talks

A team of the World Bank and International Monetary Fund experts began talks with Afghan officials on Monday on ways to help revive the country's shattered economy.

Buoyed by pledges of $4.5 billion in aid made at a donor's conference in Tokyo last week, Afghanistan's interim government is hoping a massive cash injection will kick-start the economy and provide an alternative to the years of conflict the country has endured. But the World Bank and IMF officials say it is important that money spent on reconstruction is not squandered, and they want to closely manage development projects and infrastructure rebuilding.

Crossair launches new airline

The Swiss Government and private investors have pumped in 2.7 billion Swiss franks to launch a new brand airline, Swiss, to be operational from April 1, 2002, officials of Crossair, Swiss Air's European arm, announced.

Argentines queue for dollars

Thousands of Argentines have been queuing outside banks and money changers trying to buy US dollars ahead of what they expect will be plans to devalue the national currency.

The government is due to release its new emergency economic strategy on Saturday, and many people believe that devaluation is inevitable.

Results

Alcatel: The French telecoms equipment maker Alcatel posted a record loss of 4.96bn euros ($4.2bn; £3bn) for 2001, thought by analysts to be the biggest ever reported in France.

AngloGold: Although gold production was almost 4% less, headline earnings rose 13% to $286m (£202m) during 2001 compared to the previous year.

AOL Time Warner: AOL Time Warner, the US media giant, has reported a $1.8bn net loss for the fourth quarter of 2001. It compared with a $1.1bn net loss in the same period a year earlier.

H&M: Hennes & Mauritz has reported a 43% surge in pretax profits for the 12 months to the end of November 2001. Pretax profits were 5.7bn Swedish kronor ($538m), beating analysts' expectations of 5.4bn kronor.

Northern Rock: The company said on Wednesday that full year pre-tax profits for 2001 rose by 18% to £295.2m, while total lending soared by 39% to £8.9bn.

Share prices continue slide

The UK's main share index fell back further towards the 5,000 level on Wednesday, after a big drop in US shares the previous day hit confidence.

By the close the FTSE 100 index of leading shares was down 42.1 points at 5089.3.

On Tuesday the FTSE fell 92.2 points — its biggest drop since early December — while in the US the main Dow Jones index slumped 2.5% to 9,618.24.

On Wall Street on Wednesday the Dow made a cautious start, and by early afternoon it was down 9.55 points at 9608.69.

Infineon looks at Hynix tie-up

The long saga of consolidation in the chip industry has been further muddied by news that German chipmaker Infineon is talking to South Korea's Hynix about a possible tie-up.

Hynix, badly hobbled by $6bn in debt, has for months been in on-again, off-again discussions with Micron, the US company and world number two in the memory chip market.

Reprots suggest the two are deadlocked over a price, with Micron offering around $3bn and Hynix' creditors hoping for something closer to $5bn.

IMF tells Argentina to cut spending

The International Monetary Fund (IMF) has returned to Argentina to discuss the framework of a new financial aid package for cash-starved government in Buenos Aires.

The IMF officials are expected to urge the government to make spending cuts a cornerstone of its economic recovery plan.

Bush promises to defeat recession

George W Bush has laid out an economic agenda in his State of the Union speech that promotes economic security.

Invoking American determination to surmount its national security worries as well as its economic pains, Mr Bush said: "We have clear priorities and we must act at home with the same purpose and resolve we have shown overseas."

"The way out of this recession, the way to create jobs, is to grow the economy by encouraging investment in factories and equipment and by speeding up tax relief so people have more money to spend," Mr Bush said in calling on Congress to pass an economic stimulus package.

"We will prevail in the war, and we will defeat this recession."

Africa infrastructure fund grows

A new fund to sponsor African development projects has raised $305m, according to the main bank responsible for seeking pledges.

The Emerging Africa Infrastructure Fund (EAIF) is targeting commitments of $405m altogether, said Jacko Maree, chief executive of Johannesburg-based Standard Bank.

EAIF forms one tranche of attempts to raise $64bn annually for African development which has been dubbed a new Marshall Plan for Africa.

African leaders will be vigorously promoting the wider plan at the World Economic Forum of government leaders, central bankers and other international figureheads in New York over the next six days.

Oldest mine is set to close

Britain's oldest coal mine is to close with the loss of 500 jobs, it has been announced.

Mining operations at the Prince of Wales colliery in Pontefract, West Yorkshire, will be phased out over the next eight months.

A fleet of fighters is sold for a euro

Polish air forces have got a real bargain - they have purchased 23 Soviet-made light tactical fighters MiG29 Fulcrum for just one euro.