The war in Iraq also provided a huge lift with defence
spending posting the biggest rise seen since the Korean war in 1951.
Meanwhile, the report hinted that businesses, whose reluctance to spend in
previous quarters was a main factor in the economy's listlessness, may be
Spending on equipment and software rose at a rate of
8.2%, up from 7.5% in the January to March period. The rise in GDP
surprised economists who had forecast a revision to just 2.9%.
The rebound came after two straight quarters of meagre
economic growth. GDP - which measures the value of all goods and services
produced within the US — increased at a rate of just 1.4% in the final
quarter of 2002 and the first three months of this year. Jim Glassman,
senior economist at JP Morgan in New York said the economy had probably
been strengthening before the Federal Reserve Bank cut rates in a bid to
stimulate the economy.
MIXED SIGNALS FOR JAPANESE ECONOMY
Japan's factories boosted their output in July by a
greater margin than expected, delivering a shot in the arm to Japanese
shares. But the figures contrasted sharply with evidence that much of
Japan's economy remains in trouble, with unemployment still stubbornly
high and household spending failing to show any signs of an upturn.
The industrial output gain, of 0.5% in July, was put
down to the apparent improvement in the US economy by observers.
Production of electronic goods including mobile phones and digital cameras
was sharply higher, and vendors such as Sony are speaking of continuing
their push for bigger market share in areas such as flat-screen TVs. The
gain in output reflects recent figures showing the economy has now
expanded for six straight quarters, and a IMF report leaked this week
which boosted predictions of growth to above 1% for 2003.
But the worry remains that domestic spending —
Japan's Achilles heel throughout the past decade of unerperformance —
has yet to break out of the doldrums.Unemployment in July was stuck at
5.3%, unchanged from the previous month and not far off the all-time high
of 5.5%. And household spending sank 6% over the year to July, reflecting
worries about job security and undermining the chances of a domestic
upturn. Retail sales figures accentuated the situation, showing a 3%
year-on-year fall and a 28th straight month of decline. Economists noted
that an unusually cool and wet summer may have been largely to blame.
PRESSURE MOUNTS ON CHINA'S YUAN
Concern is mounting that the Chinese currency, the yuan,
may be misaligned, threatening the stability of the global economy. US
Treasury Secretary John Snow is to travel to Beijing next week to express
his government's concern that the yuan may be dangerously undervalued. The
US National Association of Manufacturers (NAM) argued that the dollar was
15% overvalued, and particularly blamed the cheap yuan for causing job
losses in American factories. The yuan is pegged at about 8.3 in the
dollar, a rate the NAM said was up to 40% undervalued, giving China's
exporters an unfair advantage and making its imports expensive.
JAPAN'S TRADE SURPLUS GROWS
Japan's annual trade surplus grew by 7.3% in July,
official figures showed, as brisk exports to Asia offset sluggish demand
in the United States. Overall, exports recovered enough to slightly
outstrip the growth in imports, boosting hopes of a recovery in the
world's second largest economy.
But the 799.2bn yen (£4.32bn; $6.8bn) surplus figure
was smaller than expected by many economists. And the markets gave a muted
reaction to the news, with the recent strength of the yen against the
dollar continuing to take its toll on exporters.
IRAQ WAR ADDS TO US BUDGET TROUBLE
The US will be in the red by almost half a trillion
dollars next year thanks largely to the spiralling cost of involvement in
Iraq, a non-partisan government report says. In its twice-yearly Budget
Outlook, the Congressional Budget Office says the US will run up a deficit
of $480bn in 2004, following a $401bn deficit this year.
The figures — a new record in dollar terms — are
markedly worse than the CBO predicted in March this year, when the 2003
number was seen at $246bn. They suggest a near-$1.4 trillion deficit in
the 10 years to 2013 where they had previously foreseen a surplus of
BLAIR'S 'SHAMEFUL' TREATMENT OF KELLY
Tony Blair's evidence at the Hutton inquiry has failed
to defuse criticism of the government's treatment of arms expert Dr David
Kelly. Conservative leader Iain Duncan Smith accused the prime minister of
"underhand" and "shameful" treatment of Dr Kelly, who
killed himself days after giving evidence to a government committee.
Liberal Democrat leader Charles Kennedy said he was not
sure if "knowing what we know now" MPs would back war with Iraq.
The prime minister was giving evidence to the inquiry into the death of
government scientist Dr David Kelly, the source for the BBC report about
intelligence in last September's dossier being exaggerated to make the
case for war.
SWISS RE PROFITS SOAR
Profits at Swiss Re, the world's second biggest
reinsurer, have surged more than five-fold on the back of the stock market
recovery and rising premiums. The company said it made 691m Swiss francs
($489m; £310m) in the first six months of this year, up from 118m in the
same period of 2002.
FRENCH UNEMPLOYMENT RISES
The French economy has been dealt some more bad news
after official figures showed the unemployment rate rose last month. The
Labour Ministry said the jobless rate had risen to 9.6% last month, from
June's figure of 9.5%.
BRAZIL FALLS INTO RECESSION
Brazil's economy has fallen into recession according to
the latest set of official figures.During April to June period the
country's gross domestic product (GDP) contracted by 1.6% from the first
quarter of the year. The figure was worse than analysts' expectations and
followed a contraction of 0.6% during the January to March quarter.
Industrial output in the country has been hit by high interest rates,
which have been used to keep inflation under control.
BHP BILLITON PROFITS SURGE
Profits at BHP Billiton, the world's largest mining
firm, surged 74% in the last three months, the firm has said. The group,
one of the firm's bidding for the Drax power station near Selby in
Yorkshire, said stronger prices for oil, iron ore and metals helped
profits jump to $545m (£340.6m) up from $313m in the same period last
IMF WARNS US ON DEFICIT
The International Monetary Fund has warned the United
States that while speedy economic recovery there would benefit the whole
world economy, the Bush administration should pay more attention to the
instability threatened by its huge budget deficit.
SRI LANKA'S $180M SPENDING PLAN
The Sri Lankan government has announced a $180m package
to improve transport and power as a result of the ceasefire with Tamil
Tiger rebels. Government spokesman GL Peiris said the 18-month programme
would strengthen the rural economy and create thousands of jobs.
HOUSES 'BETTER INVESTMENT THAN GOLD'
Owning your own home has been almost twice as
profitable as investing in gold over the last-three-and-a-half years, the
Nationwide has said. The building society said the cost of property had
risen by 68% to an average of £129,258 — but the price of gold had
risen just 35% to £237 per troy ounce during the same period.
FLEXIBILITY CALL ON EURO BUDGET PACT
French Prime Minister Jean-Pierre Raffarin has called
for greater flexibility in the way the eurozone's budgetary rules are
applied. His comments follow reports that France's budget deficit is set
to exceed the permitted limit of 3% of gross domestic product (GDP) for
the third year in a row in 2004. If the deficit does stay above the 3%
level for a third year France could face fines for breaking the eurozone's
Stability and Growth Pact.
US CONSUMERS FEEL GOOD
There is rising optimism amongst US consumers about the
state of the economy, but analysts are more cautious. The latest consumer
confidence figures from the Conference Board beat analyst expectations by
rising 4.3 points to 81.3 in August.
ZIMBABWE ENDS FUEL CONTROLS
Fuel prices in Zimbabwe have risen by up to 500% after
the government announced that it had ended price controls. Private
companies will now be allowed to import fuel in a bid to end the fuel
shortages which have plagued Zimbabwe for four years. The shortages had
led to a thriving black market, where prices were even higher than the new
TWO KOREAS BOOST CROSSBORDER TRADE
North and South Korea have signed a landmark agreement
to increase direct trade, the latest step in the slow economic thaw
between the two enemies. According to the agreement, made at bilateral
talks unrelated to the simultaneous discussions over nuclear capability,
South Korean firms will be encouraged to set up in the North. The town of
Kaesong, just north of the border, has been selected as the site of an
industrial park, currently being built by South Korea's Hyundai.
AUSTRALIAN BANK MULLS AMP TIE-UP
National Australia Bank (NAB) has bought a stake in
AMP, but ruled out a takeover until the troubled financial services firm
gets rid of its struggling British business. NAB paid 206m Australian
dollars (£84m; $134m) for a 5.4% stake in AMP, confirming long-standing
rumours that the firm was the subject of acquisition interest.
TAIWAN THREAT TO CANCEL BOEING
Taipei has threatened to terminate an order its main
air carrier China Airlines (CAL) made with Boeing after the company
cancelled a visit by the Vice President Annette Lu. Ms Lu said Boeing
cancelled her visit to its headquarters in Seattle scheduled under
pressure from China.
'RECOVERY ON THE WAY' FOR GERMANY
Germany should start to recover its economic health in
the second half of this year, the country's premier economic survey has
suggested. The latest monthly survey by the well-respected Ifo institute
set the business expectations index for West Germany at 102.1, up from
100.2 the previous month. Any figure above 100 in the 7,000-firm survey
indicates expectations of expansion. The business climate index, the most
closely-watched segment, rose to 90.8 from 89.3, in line with
AIR FRANCE PROFIT PLUNGES
Air France has seen profits fall by more than 95% as a
result of the Sars respiratory virus, strikes at home, and the weakness of
the global economy. The company said that it made 4m euros ($4.4m; £2.8m)
after tax in the three months to the end of June, compared with 159m euros
in the same period last year.
ZIMBABWE DOUBLES BUDGET
The Zimbabwean government has unveiled an emergency
supplementary budget aimed at paying state employees' wages and importing
food, seeds and medicines. Finance Minister Herbert Murerwa asked
parliament to approve a supplementary budget of $840m (£533m), almost
doubling the country's existing budget.
UK FIRMS 'GROW COOL ON EURO'
Support for the euro among British businesses has
fallen off, according to a survey. A poll of 200 firms by private equity
house Gresham found that just 40% were in favour of the single currency,
down from 52% three years ago.
UK GROWTH HOLDS STEADY
The British economy grew by 0.3% in the three months to
June, official figures have confirmed. The final growth estimate from the
Office for National Statistics was unchanged from an initial reading last
month, wrong-footing City expectations of a slight upwards revision.
According to the latest figures, the UK economy grew by 1.8% in the year
to June, again unchanged from the initial estimate. The 0.3% figure is
only about half the long-term trend rate for Britain, but compares well
with the recent performance of other major European economies.