INTERNATIONAL

 

Mar 10 -16, 2003 

 

1.INTERNATIONAL

2. INDUSTRY

3. FINANCE

4. POLICY

5. TRADE

6. GULF

 

CHINESE BUDGET SETS RECORD DEFICIT

China has announced a 2003 budget that will include another record deficit.

In his annual address to China's parliament, Finance Minister Xiang Huaicheng said government spending this year will exceed revenues by an estimated $38bn. 

 

 

 

China says the extra money is desperately needed to boost spending on rural development and on social security.

But many economists are now starting to question whether China can afford such heavy deficit spending.

This is the third year in a row that China has announced another leap in its budget deficit $1bn more than last year.

At their root, China's budget problems stem from massive increases in spending on social welfare and unemployment, combined with a stubborn failure by the government to significantly increase its revenues from taxation.

It is a situation Xiang Huaicheng is vowing to change.

In his speech he lashed out at widespread falsification of accounts, tax fraud and waste.

He said cracking down on tax evasion will be a major focus for the government this coming year, but he has said such things many times before and still China's budget deficit continues to grow.

Mr Huaicheng also announced an increase in China's defence spending.

It is a significant increase of about $9bn but much lower than in 2001 or in 2002 when China set off alarm bells around the region by increasing military spending by nearly 20% each year.

Mr Xiang said the military budget had been set "with a view to adapting to changes in the international situation, safeguarding national security... and raising the combat effectiveness of the armed forces".

EUROZONE INTEREST RATES CUT

The European Central Bank has taken modest action to shore up the slowing eurozone economy.

The bank which sets interest rates for the 12 member countries of the euro cut rates by a quarter-point to 2.5% last week.

Some analysts had been forecasting a more aggressive cut of a half percentage point, and traders immediately showed their disappointment by selling shares.

"It really smacks of a compromise... the markets won't be happy because it shows a lack of courage and the ECB council in an indecisive mood," said Adolf Rosenstock from Nomura International.

The announcement came on the same day that European finance and monetary affairs commissioner Pedro Solbes said Europe's 1.8% growth target for 2003 was "no longer realistic".

The decision marks a change of strategy for ECB president Wim Duisenberg, who had previously argued that the ongoing uncertainties over a war with Iraq meant it was not a good time to cut rates.

Mr Duisenberg said that the modest cut had seemed the most "appropriate" but also stressed the bank would be ready to act "decisively" again if needs be.

"We can only expect a very modest rate of economic growth this year given the geopolitical tensions and the associated rise in oil prices," Mr Duisenberg said at a press conference.

The eurozone grew by a mere 0.8% last year, compared to more robust growth of 1.4% the previous year.

"The first quarter started sluggishly and the second quarter was no better," Mr Duisenberg said, predicting average growth of 1% during 2003.

Recent figures have painted an increasingly bleak picture of the eurozone's economy as the threat of a war with Iraq undermines recovery hopes.

Unemployment across the 12 countries using the euro is at its highest level in almost two years while consumer confidence is at a five-year low.

WAR FEARS BURDEN US ECONOMY

Fears over war against Iraq, coupled with poor weather and rising energy costs, saw the US economy struggle at the start of 2003, an influential report has said.

The Federal Reserve has, in its latest round-up of reports from regional offices, warned of "subdued" growth in economic activity in the first two months of the year.

"Many reports indicated that geopolitical and economic uncertainties were constraining consumer and business spending and tempering near-term expectations," the Fed, the US central bank, said.

But concerns over global instability had at least stimulated one sector suppliers of home protection goods, survey added.

 

 

FRANCE CUTS ECONOMIC GROWTH TARGET

The French finance minister has admitted the country's economy will not grow this year by the 2.5% that the government has forecast.

"In the past six months ... the environment has changed, and of course that figure is no longer attainable," Finance Minister Francis Mer said in a television interview last week.

The admission came as the French government's statistics bureau INSEE reported that the economy grew by only 0.2% in the last three months of last year, and by only 1.2% in the whole of 2002.

The figure was the lowest since 1996.

French consumer confidence fell in January to its worst level in five years, as unemployment increased and talk of war added to the uncertainty.

The European Commission said earlier this week that its growth forecast of 1.8% for the euro zone for 2003 was overoptimistic.

Mr Mer said the French government would at the end of next month release a new estimate for 2003 economic growth.

HONG KONG BUDGET RAISES TAXES

Hong Kong's corporate and personal taxes will rise for the first time in 20 years to tackle its ballooning budget deficit and reassure investors.

"Though the economy has shown signs of improvement in real terms, the government's huge fiscal deficit, if not resolved early, will dampen investors' confidence and stifle economic recovery,"

Financial Secretary Antony Leung said in his 2003/04 budget speech last week.

The deficit is expected to reach a record HK$70bn (5.7bn; $9bn) at the end of this financial year in March and only fall to HK$69.8bn in 2003/04 despite the tax rises.

There could also be more new taxes in the future, including a goods and services tax that Mr Leung said the economy was too weak to absorb right now.

SCHROEDER'S ECONOMIC HEADACHE

Aside from sparring with the US over Iraq policy, Chancellor Schroeder has to occupy himself with just one big issue, the economy.

Annual growth weighed in at a mere 0.2% the slowest in Europe last year. And, with zero growth in the October-to-December period, there is little sign of any recovery.

For two years, until 2001, German exporters experienced a brief boom, driven by the weakness of the euro.

But since the US economy is in recession, demand for goods made in Germany is falling sharply, and euro interest rates are too high for the liking of the country's industry.

RECORD LOSS FOR FRANCE TELECOM

Heavily indebted France Telecom has reported a record full-year loss of 20.7bn euros (14.3bn; $22.5bn) in 2002 after write downs wiped out revenues.

The state-owned company reported a net loss of 8.3bn euros in 2001.

AFRICA'S AID PLAN SEEKS HEALTHY GROWTH

Africa's ambitious new development plan, Nepad, must confront the huge tasks of improving health and education.

"Good health is an essential pre-requisite for equitable development and fair globalisation," says Tanzanian President Benjamin Mkapa.

Africa remains by far the world's poorest continent, with millions of its people living on less than $1 a day.

LAST-MINUTE TIMOR GAS DEAL CLINCHED

Australia has finally ratified the Timor Sea Treaty, a crucial revenue-sharing agreement with East Timor, which may allow the fledgling nation to prosper from local reserves of gas.

The deal will finally permit the multi-billion-dollar development of the promising Bayu-Undan gasfield.

GALLAHER PROFITS RISE

The cigarette firm Gallaher has credited a raft of acquisitions and partnerships for a 16% rise in profits last year.

Gallaher reported profits of 455m in the year to December 2002, 15.7% higher than the 392m reported a year earlier.

AUSSIE DOLLAR HITS THREE-YEAR HIGH

The Australian dollar has hit a three-year high last week, after a prediction that the country's economy should shrug off the current global downturn.

Describing Australia as one of the industrialised world's top performers, the Organisation for Economic Cooperation and Development (OECD) predicted that the country's economy would grow by 3.25% this year and 3.75% in 2004.

GREENSPAN WARNS OF HOUSING SLOWDOWN

The US housing boom is likely to slow in 2003, but will avoid a hard landing, Alan Greenspan, head of the US Federal Reserve has said.

For five years the housing market in the US has thrived, with prices increasing by 7% during the past year.

However, the second half of 2002 saw a sharp slowdown in value of property, relative to previous years.

POUND'S FALL

A key obstacle in the way of the UK joining the euro has been eased after a fall in the value of the pound, Bank of England governor Sir Edward George has conceded.

TINY GERMAN FIRM FEELS US ANGER

A tiny eastern German leather goods maker has become the first company to be boycotted because of Germany's opposition to war against Iraq.

US company Enefco International said it would no longer buy leather products from German firm Lederett, apparently because of political differences.

 

 

NO CHANGE FOR UK INTEREST RATES

The Bank of England's Monetary Policy Committee has left interest rates on hold at 3.75% last week.

The decision was expected after economists warned that any further cuts could send borrowing levels dangerously high and leave many Britons with excessive debt.

The Bank surprised economists last month when it cut interest rates to their lowest level since 1955.

LOAN LINKS RUSSIAN EAST WITH WEST

Russia's dream of a highway linking its Pacific coast with Western Europe has taken another step forward.

The Transport Ministry says it has been granted $290m by the European Bank for Reconstruction & Development (EBRD) for the completion of a stretch of road in the far east of the country.

When finished, possibly by the beginning of next year, the route will allow drivers to travel the 5,000 miles from Vladivostok to Warsaw, Berlin and beyond on the same highway.

US DIVIDED OVER REGIME CHANGE

A colossal battle is being waged within the Bush administration over plans for rebuilding and governing Iraq after Saddam Hussain is overthrown.

Having lost its fight to prevent a war to force a "regime change", the State Department is leading the attempt to stop the Pentagon installing Ahmad Chalabi, leader of the Iraqi National Congress, as interim leader of Iraq.

DEBACLES PROVE RELEVANCE OF ISLAMIC INVESTMENT NORMS

Rushdi Siddiqui works for the Dow Jones Islamic Index Group based in New York, where he is responsible for creating new Islamic market indexes.

Thanks to some pioneering work by him, the Group last month announced the launch of the Global Dow Jones Islamic Market Titans 100 and three subset blue chip indexes called the US Islamic Titans 50, Europe Islamic Titans 25 and the Asia Pacific Titans 25.

Rushdi, who was in Dubai for the recent International Islamic Financial Forum, explained how the Dow Jones Islamic screens filtered out companies such as Enron, WorldCom and Global Crossing much before these companies turned themselves into scarecrows of misdemeanours in the global corporate museum.