INTERNATIONAL

 

Sep 26 - Oct 02, 2005

 

1.INTERNATIONAL

2. PAKISTAN

 

UK 'BROKE BUDGET DEFICIT RULES'

The UK is to be reprimanded after breaching the European Union's (EU) stability pact, under which budget deficits should not exceed 3% of GDP.
Economics Commissioner Joaquin Almunia said provisional estimates put the UK budget deficit at 3.1% of GDP for the financial year 2004/2005.
This is the second year running the UK has breached the limit.
Meanwhile, the International Monetary Fund has warned of slower economic growth that could widen the budget gap.

The UK said it believes in a "prudent interpretation" of the pact and insists that public investment is important.

Such an interpretation should "take into account the economic cycle [and] the long-term sustainability of public finances," a government statement said.

Under the UK's own fiscal rules, the budget must balance, but only over the whole economic cycle, and public investment is excluded from the calculation.

As the UK is not in the eurozone, it cannot be fined by Brussels.

But the European Commission is to launch an "excessive deficit procedure", which will be a slap on the wrist for Chancellor Gordon Brown, current president of the EU's Council of Finance Ministers.

Other nations that have breached the pact in recent years include Germany, France, and Italy.

The trio have ignored calls from the European Commission to rein in spending and rejected complaints from smaller euro nations, while continuing to run budget deficits in excess of 3% of GDP.

There have been complaints that the limit is too inflexible, and that to fine offenders merely makes their economic position worse.

A report from the Commission says analysis suggests the UK has not been successful in meeting the "deficit criterion".

IMF CUTS GLOBAL GROWTH FORECASTS

The International Monetary Fund has cut its global growth estimates blaming the effect of record oil prices and warning that there may be a further slowdown.

World growth is expected at 4.3% this year, down from an earlier estimate of 4.4% and 5.1% in 2004, the IMF said.

US forecasts have been trimmed after Hurricane Katrina and in the UK the IMF sees growth below government targets.

Any dip should be short-lived, however, and there are bright spots with China and India tipped to power ahead.

"The world economy has proved tremendously resilient over the last few years," the IMF's chief economist Raghuram Rajan said.

"Disease, natural disasters and soaring oil prices have only caused minor blips in an overall picture of healthy growth," he added.

But "higher oil prices are a clear and present danger," Mr Rajan told reporters.

The biggest concern for the IMF is that record oil and petrol prices deter consumers from spending.

Should that happen then the slowdown in the world growth may be more pronounced.

The IMF said its forecasts were based on an average oil price of $54.23 a barrel in 2005 but "persistently high oil prices will adversely affect activity".

On Wednesday, oil prices rebounded to close to $67 as Hurricane Rita threatened to disrupt US supplies.

"The expansion remains broadly on track," the IMF said in its twice yearly World Economic Outlook report. "Although the risks are still slanted to the downside."

BANKERS 'TO SEE JUMP IN BONUSES'

Investment bankers in the City of London are set to enjoy their biggest annual bonuses in four years, a study by a recruitment consultancy has found.

With the FTSE 100 reaching a four-year high this week, and an upsurge in takeovers and mergers, one in four bankers expect their bonuses to double.

Almost three-quarters expect their bonus will at least be higher than last year, Morgan McKinley found.

A separate Reuters poll also predicts that City bonuses are to rise strongly.

Most City bonus packages are awarded for the financial year starting on 1 April.

Bonuses for bankers working in the heart of the UK's financial district for the current 2005/06 year will typically be paid between January and April next year.

EU AND US TRY TO SPUR TRADE TALKS

EU and US officials have made new efforts to resolve their differences and break the deadlock that is delaying a worldwide free trade agreement.

EU Trade Commissioner Peter Mandelson and US Trade Representative Rob Portman met in Paris on Thursday to discuss their subsidies to farmers.

But in the run-up to the three days of talks, both men said they would make no concessions until others do the same.

The stalemate on agriculture may wreck World Trade Organization (WTO) plans.

The WTO's Doha round of talks resumes in Hong Kong in December with the aim of delivering an agreement on free trade by 2006.

SAUDI STOCKS HIT NEW HIGH

Saudi stocks closed the trading week on Thursday last at a lifetime high in heavy trade fuelled by hopes of strong third quarter results and the rise in crude oil prices, traders said.

The all-share index closed at 15,050 points, 0.6 per cent above the previous week. It has gained 83 per cent since the start of the year and more than 465 per cent over the past three years.

Fouzan al-Misfer, team leader at Samba Financial Group's brokerage unit, said the gains this week were due to abundant liquidity, high demand and prospects of higher dividends, mainly for banking and petrochemicals stocks.

This trend should continue in the coming few weeks, he said. The value of shares traded was almost unchanged from last week at 112 billion riyals ($30 billion).

EU DROPS HARDLINE STANCE ON IRAN

The EU's "big three" are said to have backed down from a demand that the UN nuclear watchdog should immediately report Iran to the Security Council.

Diplomats from France, the UK and Germany said the shift came amid opposition from Russia and China.

They are now reportedly proposing that the International Atomic Energy Agency (IAEA) in Vienna should only implicitly threaten Tehran with such action. Iran is accused of developing atomic weapons, an allegation it denies.

OIL FIRMS BRACED FOR RITA'S RAGE

More US oil refineries in the path of Hurricane Rita have closed, but crude prices have eased on hopes that much oil production may be spared the worst.

US light crude fell 34 cents to $66.16 a barrel in Asian trading, while London Brent crude slipped 59 cents to $64.01.

Rita is due to hit Texas on Saturday and oil firms are taking precautions.

The shutdowns in the state, which processes a quarter of US oil, come as the industry is struggling to recover from Hurricane Katrina's devastation.

At least 16 of the state's 26 refineries are potentially in the hurricane's path, stretching along the Gulf of Mexico coastline.

WORLD BANK HOPES ON DEBT RELIEF

World Bank President Paul Wolfowitz has said he is hopeful that "real progress" can be made to implement a debt relief deal for the world's poorest countries.

But he warned winning endorsement for a deal struck by leading rich nations earlier this year remained challenging.

The deal aims to cancel $40bn (22bn) in debt owed to international lenders by poorer nations, mostly in Africa.

Mr Wolfowitz was speaking ahead of the World Bank and International Monetary Fund's annual meeting this weekend.

Campaigners and aid agencies are pressing for ministers and officials representing the 184 member states of the World Bank and IMF to back the debt relief deal at the gathering in Washington.

DELTA TO SHED UP TO 9,000 WORKERS

Troubled US carrier Delta Air Lines has announced plans to cut up to 9,000 jobs and reduce the pay of those still left.

The move, aimed at saving $3bn (1.7bn) by the end of 2007, comes just over a week after the airline filed for Chapter 11 bankruptcy protection.

Delta, the third-largest airline in the US, has lost $10bn since 2001 and is saddled with $14bn in debt.

ITALY ECONOMY MINISTER RESIGNS

Italy's Economy Minister Domenico Siniscalco has resigned in protest at the handling of a banking scandal.

He was an outspoken critic of central bank governor Antonio Fazio whose resignation he had sought.

Mr Fazio was at the centre of controversy over his role in blocking the takeover of Banca Antonveneta by rival Dutch bank ABN Amro.

SONY-BMG MERGER IN EU CHALLENGE

A European Commission decision to allow the merger of record giants Sony and Bertelsmann (BMG) is being challenged by independent music companies.

The case, before a one-day hearing at the European Court of First Instance, contests the merger of two of the world's five biggest record companies.

The commission made legal errors by allowing the move, says the Independent Music Companies Association (Impala). But the EU reportedly backed the merger as there was no case against it.

OTTAKAR'S SUFFERS NEW SALES SLUMP

Bookstore chain Ottakar's, which backed a takeover bid from HMV last week, says trading conditions have deteriorated in recent weeks.

Like-for-like sales fell 3.8% in the first seven weeks of the second half of its financial year, after a 0.2% increase in the six months to 30 June.

Ottakar's reported a pre-tax loss of 4.7m, after a 2.9m deficit last year.

HMV is offering 440p-per-share for Ottakar's bookstores, valuing the firm at 96.4m ($177m).

MAJOR UK MOBILE TV TRIAL STARTS

A full-scale UK trial of the technology that will let people watch TV directly on their mobiles has been launched.

The Arqiva and O2 trial with 400 people in Oxford will test the technology that lets mobiles receive direct TV signals, and people's desire to watch mobile TV.

Sixteen channels will be available to the triallists, including BBC One and Two, ITV 1 and 2, and Channel 4.

TV is touted as the next phase of mobile entertainment. Orange already offers some shows on its 3G network.

UK FACTORY ORDERS 'REMAIN WEAK'

Manufacturing orders improved slightly in September, but remain near two-year lows, business group the CBI has said.

Its latest monthly industrial trends survey showed that 39% of firms said order books were below normal, while only 12% said they were above.

This created a balance figure of minus 27% for September, a slight improvement on August's minus 29% showing.

The survey also indicated a marked drop in exports, with the export balance at its lowest point since January.

September's exports figure was minus 25 compared to August's minus 17.

"A combination of weak consumer spending and challenging world markets is weighing on UK manufacturing," CBI chief economic adviser Ian McCafferty said.

This report offers further evidence that the manufacturing sector's performance remains very disappointing and will no doubt lead to further calls for [interest] rate cuts

BANK UNANIMOUS IN HOLDING RATES

The Bank of England's decision to keep interest rates on hold this month was unanimous, minutes of its September meeting show.

All nine members of the Monetary Policy Committee (MPC) voted to keep rates at 4.5% during the two-day meeting.

Analysts had expected a unanimous decision, and now predict rates will remain unchanged for the rest of 2005.

FED LIFTS INTEREST RATE TO 3.75%

The US Federal Reserve has raised interest rates for an 11th consecutive month, despite concerns the economy will slow after Hurricane Katrina.

Borrowing costs rose a quarter of a percentage point to 3.75% from 3.5%.

Even though there are fears Katrina will hit consumer spending, the biggest driver of the economy, analysts see rates rising to between 4% and 4.5%.

OPEC TO INCREASE OIL PRODUCTION

Oil cartel Opec will release an extra two million barrels a day, some of the last spare oil production it has, in an effort to ease crude price pressures.

The extra supplies will be available for three months from 1 October and follow calls for Opec, which represents 11 producer nations, to lift output.

Oil prices hit record levels in the wake of Hurricane Katrina and there are worries it may slow the global economy.

INDIAN STOCK MARKET AT NEW PEAK

India's benchmark Bombay Stock Exchange (BSE) index has breached the 8,500 point level to reach another new high.

The BSE sensitive index (Sensex) closed up 55.44 points at 8,500.28.

The Sensex has gained more than 25% this year, spurred on by foreign investors who are pumping money into Mumbai's stock market.

Banks were the biggest winners, with the government-owned State Bank of India and private sector ICICI Bank both rising strongly.

India's economy, one of the fastest-growing in the world, is forecast to grow by 7% this year, despite concern over rising oil prices.