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
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
Mr Brown suggested in November that
the economy would grow by 2.5% to 3% this year and by 3% to 3.5% in
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
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.
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
Just a few years ago, the budget
office was projecting a surplus over the next ten years of several
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.
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
"Economic conditions for the
coming months are rather difficult," said Economy Minister Wolfgang
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.
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.
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
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
OIL PRICES LIFT
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
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
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
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.
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
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
DOUBLE LOSS HITS AOL
AOL reported a loss of nearly
$100bn for 2002, after a loss of $44.9bn for the final three months of
SONY SCORES RECORD
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
The US Federal Reserve Bank has
left the key federal funds interest rate unchanged, at the 41-year low
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
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
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
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
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
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
WAR TALK SENDS EURO NEAR
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.