INTERNATIONAL

 

Nov 03 -  09 , 2003

 

1.INTERNATIONAL

2. INDUSTRY

3. FINANCE

4. POLICY

5. TRADE

6. GULF


US ECONOMIC GROWTH SOARS

The US economy rocketed ahead in the three months to September, fuelled by a consumer spending spree and the long-awaited return of business investment. During the third quarter the economy expanded at a rate which if it lasted for a year would equate to 7.2%, more than twice the rate in the previous three months and far ahead of what most observers had expected. The engine for the expansion the biggest quarterly figure since 1984 was a 6.6% rise in consumer spending, the Commerce Department said, boosted by tax cuts and credits. But despite the massive boost to the economy, some economists are warning that growth forecast at about 4% for the final quarter and into next year could stumble if the US's jobs drought continues.

 

 

 

Almost 3 million jobs have gone since 2001 despite a surge in productivity, reflecting companies' decision to work staff harder rather than expand payrolls. Future expansion could depend on whether or not the growth translates to hiring at long last, economists predict. It was not just consumers splashing out on big-ticket items such as cars who were egging the economy on at such a blistering speed. Businesses, too, found themselves spending with an enthusiasm last seen before the US recession began in 2001.

Business investment was up 11.1% in the quarter, driven by growth of more than 15% over the previous year in spending on equipment and computer software although companies still seemed wary of building up stocks, demonstrating some caution about future prospects. Another element in the breakneck pace of growth was an expansion in the amount of US-sourced, rather than foreign, goods being sold, as the gap between imports and exports narrowed. Government spending also helped, albeit without the massive boost in defence spending which supplied much of the 3.3% growth in the second quarter of this year.

DEFICIT WARNING FOR FRANCE AND GERMANY

France and Germany risk breaking EU budget deficit rules for four years in a row unless they change policies, the European Commission has said. Under the rules of the EU's Stability Pact, eurozone countries are not supposed to run budget deficits above 3% of GDP (gross domestic product). But the Commission said it expected both France and Germany still to be running deficits above this level in 2005. The Commission also cut this year's growth forecast for the eurozone to 0.4%, from its previous estimate of 1%.

Growth is expected to rise to 1.8% in 2004 and 2.3% in 2005, but, despite the pick-up, the Commission said unemployment is set to rise next year. Last week, France escaped EU sanctions for breaking the 3% deficit rule. French officials admitted the eurozone's second biggest economy would break the rules for three years in a row but said the deficit would be back within limits by 2005. The Commission gave France a further year to get its finances in order, recommending that it make cuts in government spending. Paris has insisted that boosting economic growth should take precedence over cutting the deficit.

 

 

While Germany is also set to break the 3% level next year, it has taken a less confrontational approach with the EU. The Commission also said that Italy and Portugal are set to break the 3% deficit limit unless they make changes. "Public finances are not in a good shape," said Pedro Solbes, European monetary affairs commissioner. The meagre growth seen this year in the eurozone was put down by the Commission to the uncertainty surrounding the Iraq war, the "prolonged stock market decline", and poor confidence among consumers and business.

UK TRANSPORT 'HITS ECONOMY'

The poor state of the Britain's transport system is damaging the economy and scaring off foreign investors, according to a report. The system is "at breaking point", says the survey by one of Britain's biggest business consortiums, the Confederation of British Industry. And standards of transport well below those in the rest of Europe are making business leaders invest elsewhere.The report compared costs, congestion levels, safety and reliability. The cost of transporting freight by road in Britain is far higher than elsewhere in Europe and twice as much as in the Netherlands. And the Netherlands is the only place in Europe where the railways are rated less reliable. The UK's reliability rating, 83%, compares less favourably with that of France and Germany, 91%, and the United States, 93%.

CHINA SIGNS EU TRADE DEALS

European Union leaders have signed two major trade agreements in Beijing last week. The Chinese President, Hu Jintao, attended the one-day summit with current EU president Silvio Berlusconi, the head of the Commission, Romano Prodi, and the EU's foreign policy chief, Javier Solana. European and Chinese officials signed an agreement on the Galileo Satellite global positioning system that is opposed by the United States, and a memorandum of understanding that paves the way for Chinese tour groups to visit EU countries.Beijing has promised to invest almost $230m in the Galileo system, which was set up as an alternative to the US global positioning system. The tourism agreement will aid China's newly affluent, who are now travelling overseas in increasing numbers, with 16 million of them visiting the EU last year.

POUND HITS 5-YEAR HIGH AGAINST DOLLAR

Sterling has reached a five-year high against the US dollar on speculation that UK interest rates are set to rise. The pound climbed against the dollar after strong lending figures released last week were seen as raising the prospect of an early rate increase. Sterling reached a five year high of $1.7082 before falling back to $1.699 in later trade. The US dollar weakened against a number of currencies following latest statement by the Federal Reserve that US rates are set to remain low for some time. The dollar hit a three-year low against the yen of 107.9 yen.

WORLD BANK URGES AID NOT ARMS

World Bank Chief James Wolfensohn has urged United Nations (UN) members to close the yawning gap between defence and development spending. Addressing a UN General Assembly meeting, Wolfensohn said the world spent $800bn on arms last year, compared with just $56bn on development aid.

He added that total development spending by governments was outstripped even by the annual remittances sent home by migrant workers, estimated at $80bn last year. Wolfensohn said the imbalance between arms and aid spending must be rectified if the UN is to achieve its goal of alleviating world poverty.

 

 

ERICSSON RETURNS TO PROFIT

Swedish telecoms firm Ericsson reported underlying profits of 1bn kronor ($129.5m; 76.2m) for the three months, compared with a loss of 3.6bn kronor the year before.

GERMAN FIRMS UPBEAT ON GROWTH

German business confidence improved more strongly than expected in October, according to the leading Ifo index. Confidence rose for the sixth month in a row, hitting 94.2 and trouncing forecasts of a wafer thin improvement to 92.1 from 92 in September. The survey of 7,000 West German executives also found them more optimistic about current conditions as well as the future outlook. The findings have bolstered hopes of an economic recovery in Germany, Europe's biggest economy.

SLUGGISH SCOTLAND AVOIDS RECESSION

The Scottish economy has narrowly avoided recession, with new statistics showing modest but measurable growth in the second quarter of the year. Scotland's gross domestic product (GDP) rose by 0.4% in the three months to end-June, after having shrunk slightly in the previous quarter.

Two successive quarters of contraction is the technical definition of a recession, a situation that would have been embarrassing for the five-year-old devolved government. Over the past few years, its economy has sharply underperformed the UK average, leading to accusations of mismanagement and complaints from the business community.

SHELL TARGETS CHINA CAR MARKET

Anglo-Dutch oil giant Shell has signed an agreement with one of China's top car firms to move into the country's fledgling car maintenance market. Private car ownership is growing fast in China, fuelled by lower import tariffs and easier access to consumer credit. The trend has also prompted foreign car makers to step up investment in manufacturing there. Shell said it signed a letter of intent for its Jiffy Lube International chain to inject nearly $30m (17.6m) into a 50-50 joint venture Shanghai Automotive Industry Corp (SAIC).

DEFENCE SALES LIFT BOEING

Shares in the US air giant Boeing have jumped nearly 7% after strong defence sales helped the firm to report better-than-expected results. Boeing said earnings for the three months to 30 September fell to $256m, down from $372m in the same period a year ago. Profits were hit by a $184m charge that Boeing took to cover costs relating to the ending of production of its 757 plane.

 

 

BRITONS TAKE ON RECORD DEBT

Britons borrowed a record 10.7bn last month, increasing the likelihood that the Bank of England will raise interest rates to counter the debt boom. Official figures showed that the credit surge was driven mainly by mortgage lending. It is the highest total since the Bank of England began releasing the figures 10 years ago. And economists say it makes an interest rate rise next month all but inevitable. Bank of England policymakers hope that raising rates will slow down galloping debt levels and house prices.

CALIFORNIA COUNTS COST OF FLAMES

Governor-elect Arnold Schwarzenegger is in Washington DC to beg for help with the massive cost of the forest fires devastating California. The governor-elect's trip was booked a week ago as a press-the-flesh tour to promise support in upcoming elections, but the blaze has changed the agenda overnight. The US Congress appears to be ready to set aside $500m to fight the fires, after President George W Bush earlier this week declared a state of emergency in four California counties. California is already groaning under the weight of a huge budget deficit, put at $8bn this year even after a deal imposing heavy spending cutbacks and new car taxes.

AFRICAN GOLDMINE MERGER APPROVED

The government of Ghana has given a $1.48bn (870m) merger between two gold mining firms, Ghana's Ashanti Goldfields and South Africa's AngloGold its seal of approval.

CHINA DAM SETS DATE TO FLOAT

China's Three Gorges Dam, the world's largest water control project, is looking to raise more than a billion dollars by floating on the stock market. The shares available only to Chinese buyers should go on sale next week, with the proceeds used to pay for the massive generators which began generating electricity earlier this year. The flotation, which aims to raise 9.83bn yuan ($1.2bn; 700m), was meant to start in September but was delayed because regulators felt there were already too many share sales stacked up that month. Even so, news of the date for the public offering impacted markets in China, with the Shanghai composite index edging down 0.33%. There is little doubt that the shares will sell out several times over. But the project remains controversial.

US RATES KEPT ON HOLD

The US Federal Reserve has left interest rates on hold at 1% the lowest level for 45 years following its latest meeting. The Fed added that there remained a small risk that inflation could fall to an "undesirably low" level and so it expected to keep rates low for a "considerable period".

UNILEVER SLIMS DOWN GROWTH TARGET

Anglo-Dutch consumer food group Unilever has posted an 11% increase in third-quarter net profits to 0.86bn ($1.46 bn, 1.25bn euros).

SRI LANKA TRADE DEFICIT RISES

Sri Lanka's trade deficit for the first eight months of the year has edged higher, but the country's overseas trade has maintain its recent strong growth. Official figures showed exports rose 11% in the eight months to August over the previous year to $3.34bn, while imports grew 9% to $4.22bn.The trade deficit climbed slightly to $876m compared with $866m in the same period last year. The jump in trade is seen as a reflection of the effects of the 20-month ceasefire following a two-decade civil war.