INTERNATIONAL

 

Feb 03 -  09, 2003 

 

1.INTERNATIONAL

2. INDUSTRY

3. FINANCE

4. POLICY

5. TRADE

6. GULF

 

US ECONOMY HITS THE BRAKES

The US economy slowed alarmingly in the final quarter of 2002, growing at an annual rate of just 0.7% due to uncertainty caused by talk of war.The preliminary result was below analysts' expectations of 1% growth, after the economy grew by 4% in the third quarter.

 

 

 

It will be unwelcome news for President George W Bush who is threatening a unilateral attack on Iraq after he proposed $674bn in tax cuts to stimulate the economy ahead of his re-election campaign in 2004.

The US Federal Reserve last week left its key interest rate at a 41-year low of 1.25%.

The central bank has cut interest rates 12 times since January 2001, with the last reduction coming in November 2002, to kick-start the troubled economy.

Meanwhile, minutes of the Fed's December meeting, released, show the policymakers believed they were laying the foundations for recovery by deciding to keep rates on hold.

The central bankers put their faith in improved market conditions, the document suggests.

"The members agreed that, given what was now a quite accommodative policy following the relatively aggressive easing move in November, monetary policy was well positioned to support a strengthening economic expansion in line with their expectations for coming quarters," minutes of the Federal Open Markets Committee's (FOMC) December 10 meeting said.

Meanwhile, Wall Street bond dealers polled by Reuters on last week said they expected the Fed to leave interest rates on hold at its next meeting in March.

BROWN'S FORECASTS FACE FURTHER PRESSURE

The UK will see only a weak recovery in 2003, with further falls in public finances and tumbling house prices, according to a leading think tank.

The National Institute of Social and Economic Research (NIESR) has suggested that the Chancellor Gordon Brown's predictions for this year are too optimistic.

It has revised downwards its projections for 2003 and now predicts the economy will grow by just 2.2%, and by 2.4% in 2004.

This is lower than its forecasts made in October and below Mr Brown's predictions made in his Pre-Budget Report.

Mr Brown suggested in November that the economy would grow by 2.5% to 3% this year and by 3% to 3.5% in 2004.

But Martin Weale, the author of NIESR's report, said the Chancellor had been too optimistic.

"The economy will stage only a sluggish recovery this year," said Mr Weale.

The NIESR has also suggested the UK's public finances will slip deeper into the red.

It predicts net borrowing of 28.6bn in 2004-5, more than a third higher than the Treasury's forecast of 19bn.

Earlier this week, the Institute for Fiscal Studies (IFS) said Mr Brown was likely to meet his borrowing targets during the next two financial years.

But the IFS warned that the government may have to increase taxes from 2005 onwards and be forced to borrow up to 28bn a year, well above the Chancellor's current forecast of 19bn.

The housing market is also vulnerable, according to the NIESR's gloomy report.

It foresees the current 'boom' will losing momentum in coming months, with price rises of just 4% in 2003 although it has cautioned against even such modest growth.

US BUDGET DEFICIT SOARS

The Bush administration is heading for a record budget deficit next year, according to new estimates from the Congressional Budget Office.

The federal government's deficit is projected to reach just under $200bn in 2003-4, up from $158bn in the current fiscal year.

That would be higher in dollars than the previous peak in 1992, although lower as a proportion of the total economy.

Just a few years ago, the budget office was projecting a surplus over the next ten years of several trillion dollars.

But the economic slowdown, the costs of President Bush's $1.3 trillion tax cut, and extra spending commitments have eroded that surplus.

Adding to the total government deficit are the woes of the individual states, who collectively have a deficit of over $100bn, with California alone facing a $35bn shortfall.

GERMAN ECONOMIC WOE ESCALATES

The German Government has warned that the country's unemployment is set to continue rising and that a war with Iraq could destabilise its economy further.

The Economic and Labour Ministry also cut its growth forecast for Europe's worst-performing economy to 1.0%.

"Economic conditions for the coming months are rather difficult," said Economy Minister Wolfgang Clement.

Mr Clement attempted a cautiously optimistic note, suggesting there were "glimmers" of a recovery for the year ahead.

But he said a war with Iraq presented "an incalculable factor" which had not been taken into account in his projections.

The government's annual economic report cut projections for Germany's gross domestic product (GDP) from 1.5% to 1%, as expected.

The figure is still marginally better than the 0.2% growth in 2002.

UK COULD FACE 11BN BUDGET HOLE

The UK government may have to raise taxes by up to 11bn a year from 2005 onwards, an independent economic think tank has warned.

Chancellor Gordon Brown can take short-term solace from the fact that the Institute for Fiscal Studies (IFS) believes he will more or less meet his borrowing targets during the next two financial years.

But from 2005 onwards the government may have to borrow up to 28bn a year, well above the Chancellor's current forecast of 19bn.

AFRICAN POWER GIANT SEEKS NUCLEAR FUTURE

Future economic development in Africa will be fuelled increasingly by power provided by nuclear reactors, the head of the continent's largest electricity firm has said.

Reuel Khoza, chairman of South African-based Eskom, said that nuclear power was set to be "progressively important" in meeting customers' electricity needs.

Thanks to research in South Africa, backed by firms including Electricite de France and the UK's BNFL, Eskom was at the "cutting edge of a new [nuclear] technology".

CHINA CAR SALES SOAR

China's population remains car crazy, new figures from major manufacturers show, with sales at the country's biggest auto maker doubling between 2001 and 2002.

 

 

Shanghai Automotive Industry Corp (SAIC) said last week that it sold 610,000 vehicles last year, overtaking the previous holder of the top spot, First Automotive Works.

Admittedly SAIC's sales outstrip the headline figure for domestic car sales growth.

But with almost 3.25 million vehicles (1.09 million cars) sold in the massive country in 2002, 40% more than in the year before, the rate of change is blistering by any standards.

OIL PRICES LIFT EXXONMOBIL

Surging oil and gas prices have boosted profits at ExxonMobil, the world's biggest oil company.

Profits in the fourth quarter soared 50% to $4.09bn (2.5bn), beating analyst expectations.

MIXED SIGNALS ON MARKETS

The world's stock markets gave mixed signals last week, with sentiment remaining shaky amid ongoing uncertainty about Iraq.

In London, the FTSE had a good day, holding on to early gains to close 94.9 points, or 2.7%, higher at 3,579.

It was a similar story over in Paris, with the benchmark CAC 40 index up 2.6% at 2,914, while Germany's DAX closed down 0.47%, at 2,694.

Wall Street shifted into reverse, with the Dow Jones Industrial Average dropping 165 points, to close 2% down at 7,945.

VENEZUELAN BANKS BREAK DEADLOCK

Venezuelan banks are to end their nationwide strike on February 3, following reports that president Hugo Chavez would punish those that didn't resume normal hours.

The banking sector said it would return to working a full seven hours a day instead of the three hours per day they have been working since the strikes began.

IVORY COAST WINS EU AID

The European Union (EU) has promised reconstruction aid to Ivory Coast to help the war-shattered West African country get back on its feet.

However, a senior EU official made clear that it would only pay out the full 400m euros ($435m; 266m) if a peace deal between government and rebel forces holds.

MURDOCH CHINA DEAL COULD CUT PIRACY

Rupert Murdoch's Chinese joint ventures, has signed a deal with a Chinese state broadcaster which could help it crack down on the country's rampant piracy.

Phoenix's deal with the state broadcaster in Guangdong, the affluent southern province abutting Hong Kong, means the two will share the channel's advertising revenues, a Phoenix spokesman said.

2002 'BOOM YEAR' FOR PHILIPPINES

Philippines, with a soaring last three months of the year capping the country's best performance since the Asian financial crisis of 1997.

An expansion of 3% between October and December meant that growth for the whole of 2002 was 4.6%, the government said.

The "astounding headline figure", as one economist put it, followed a fall in GDP of 0.1% in the previous three months, was the result of a surge in agricultural output.

DOUBLE LOSS HITS AOL TIME WARNER

AOL reported a loss of nearly $100bn for 2002, after a loss of $44.9bn for the final three months of the year.

SONY SCORES RECORD PROFIT

Sony said net profit jumped almost 96% to a record 125.43bn yen (644m, $1.1bn) in the third quarter, while revenues increased 1.2% to 2.31 trillion yen.

US INTEREST RATE UNCHANGED

The US Federal Reserve Bank has left the key federal funds interest rate unchanged, at the 41-year low of 1.25%.

The funds rate is the interest banks charge each other on overnight loans and is the Federal Bank's main way of influencing economic activity.

US STEPS UP CATFISH TRADE FIGHT

The first major trade dispute between Vietnam and the United States is set to escalate after the US Commerce Department found Vietnam guilty of dumping catfish on the US market.

If the Commerce Department's preliminary ruling is upheld by the US government, Vietnamese imports will face penalty tariffs.

Last week, Hanoi warned that a negative ruling would damage the bilateral relationship.

The catfish row is the first major trade dispute since the two countries signed a bilateral trade agreement a year ago.

'NO EURO POLL THIS YEAR': KINNOCK

A referendum on UK entry to the euro will not be held this year and could be delayed until 2005, former Labour leader Neil Kinnock has said.

In an interview, Mr Kinnock said he believed time was running out for a poll this year.

"There isn't enough time this year, but next year is a possibility," said the European Commissioner.

IRAQ WAR 'DEVASTATING FOR AFRICAN GROWTH'

South Africa's President Thabo Mbeki fears that rocketing oil prices brought on by a Middle East war could condemn Africa to deep economic crisis, his spokesman has told BBC World Service Radio.

The impact could be severe enough to undo any benefits from a 2002 agreement for leading industrial countries to expand aid to Africa, said presidential spokesman Bheki Khumalo.

Worries about the impact of a conflict on oil supplies have kept prices in sight of $30 a barrel in recent weeks. Most analysts expect the outbreak of war would push prices sharply higher, but differ on for how long.

War with Iraq would bring "devastating economic consequences" for Africa, playing havoc with inflation and causing budget problems for poor countries, said Mr Khumalo.

WAR TALK SENDS EURO NEAR FOUR-YEAR HIGH

The euro last week reached a near four-year high against the US dollar on continuing fears over a war on Iraq and the global economic outlook.

The euro reached $1.0907 at one point, a level not seen since March 1999, before edging back to $1.0836.

Sterling rose as high as $1.6377 in early European trade, its highest since January 2000.