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World growth ‘worst for 60 years’

Posted by hamadnizamani on January 28, 2009

World growth ‘worst for 60 years’

Japanese stock market trader

Developed economies such as Japan, the US and UK are in recession

World economic growth is set to fall to just 0.5% this year, its lowest rate since World War II, warns the International Monetary Fund (IMF).

In October, the IMF had predicted world output would increase by 2.2% in 2009.

It now projects the UK, which recently entered recession, will see its economy shrink by 2.8% next year, the worst contraction among advanced nations.

The IMF says financial markets remain under stress and the global economy has taken a “sharp turn for the worse”.

In another gloomy view of the UK economy, the Institute for Fiscal Studies (IFS) said Britain would be saddled with government debt for more than 20 years.

IFS director Robert Chote warned that spending would have to be cut or taxes raised by more than planned to allow public finances to recover.

The predictions came as Pascal Lamy, the director general of the World Trade Organization, urged countries not to react to the global economic crisis by resorting to protectionism.

Speaking from the World Economic Forum in Davos, Mr Lamy said such a move would be “a big mistake”.

‘Virtual halt’

According to the IMF, the outcome of the economic slowdown has been to send global output and trade plummeting.

“We now expect the global economy to come to a virtual halt,” said IMF chief economist Olivier Blanchard in a statement.

The IMF says that despite a number of policy moves, which have been carried out by many states, financial strains remain.

International co-operation is needed now to draw up new policy initiatives, and for capital injections to support “viable financial institutions”.

Meanwhile, it predicts that the eurozone economy is poised to shrink by 2.0% in 2009 and the US economy by 1.6%.

Banking crisis

The report comes on the same day the International Labour Organization said that as many as 51 million jobs worldwide could be lost this year because of the global economic crisis.

It had been hoped that growth in developing nations would continue at a steady pace and help offset the recession in developed nations such as the US and UK.

But the seemingly endless crisis in the banking system has put paid to that notion.

Countries such as China are now struggling with a collapse in demand from their primary export markets.

Meanwhile, developed economies such as Japan, Spain, the US and UK are in recession, with new job losses being announced on a daily basis.

‘Uncertainty’

The IMF says that growth in emerging and developing economies is expected to slow sharply, from 6.25% in 2008 to 3.25% in 2009.

It cites the main reasons for the drop as being falling export demand, lower commodity prices and much tighter external financing constraints.

The IMF points out that policy efforts to tackle the downturn so far – such as liquidity support, deposit insurance and recapitalisation – have been drawn up to address the immediate threats to financial stability.

However, it says that these emergency measures “have done little to resolve the uncertainty about the long-term solvency of financial institutions”.

“The process of loss recognition and restructuring of bad loans is still incomplete,” says the IMF’s World Economic Outlook Update.

‘Bad bank’

The IMF says future co-ordinated financial policies should concentrate on recognising the scale of financial institutions’ losses and on providing public support to those institutions that are viable.

“Such policies should be supported by measures to resolve insolvent banks and set up public agencies to dispose of the bad debts, including possibly through a ‘bad bank’ approach, while safeguarding public resources.”

The IMF says the global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3%.

“However, the outlook is highly uncertain, and the timing and pace of the recovery depend critically on strong policy actions,” it warns.

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Bank of America Receives $138 Billion of Rescue Funds

Posted by hamadnizamani on January 16, 2009

Bank of America Receives $138 Billion of Rescue Funds

Bank of America Corp., the largest U.S. bank by assets, received a $138 billion emergency lifeline from the government to support its acquisition of Merrill Lynch & Co. and prevent the global financial crisis from deepening.

The U.S. will invest $20 billion in Bank of America and guarantee $118 billion of assets “as part of its commitment to support financial-market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement shortly after midnight in Washington.

The bailout raises doubts about the future of Chief Executive Officer Kenneth D. Lewis, who engineered the takeovers of New York-based brokerage Merrill Lynch and mortgage lender Countrywide Financial Corp. during the worst market slump since the Great Depression. Bank of America has plummeted 75 percent in New York trading since the Merrill acquisition was announced in September, falling to the lowest level in almost two decades.

“This thing is unraveling so fast Lewis may know his job is lost,” said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc. in Arlington, Virginia, who has an “underperform” rating on Bank of America. The management team has “lost credibility” after spending more than $20 billion in the past year to buy unprofitable Merrill and ailing mortgage lender Countrywide Financial Corp. of Calabasas, California, he said.

Robert Stickler, a spokesman at Charlotte, North Carolina- based Bank of America, said the company doesn’t comment on “uninformed gossip.”

Possible Dividend Cut

Bank of America plunged 18 percent yesterday to $8.32 in New York Stock Exchange composite trading after hitting $7.35, its lowest level since February 1991. The stock was up $1.12 at $9.46 in German trading today.

The bank plans to announce fourth-quarter results at 7 a.m. New York time, about an hour after Citigroup Inc. publishes its latest figures. Bank of America may post a $3.6 billion loss and reduce its quarterly dividend, Citigroup analyst Keith Horowitz estimated on Jan. 12.

“The motivation is to try and basically get information to the market sooner rather than later because of all the anxiety that’s out there,” said Bert Ely, chief executive officer of Ely & Co., a bank consulting firm in Alexandria, Virginia. It’s a “very tense situation now,” he said.

Talks between the government and Bank of America have been under way for the past couple of weeks, a government official said. The bank told regulators in December it might abandon the Merrill takeover because of worse-than-expected results, three people familiar with the matter said on Jan. 14.

Emergency Steps

The government insisted the Merrill deal proceed because its collapse would renew turmoil in the financial system, said the people, who declined to be identified as the talks were private.

Today’s emergency action shows how government officials, led by U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, have failed to quell concerns about the viability of the nation’s biggest banks, even after deploying $350 billion of financial-rescue funds. Financial companies have disclosed more than $1 trillion of writedowns and credit market losses since 2007 linked to the collapse in subprime mortgages, according to data compiled by Bloomberg.

The Bank of America plan mirrors the emergency actions taken in November for New York-based Citigroup, when the government explicitly insured the bank against losses on toxic assets with taxpayers footing the bill. The U.S. backed up $306 billion of Citigroup real-estate loans and securities, sharing losses beyond $29 billion for what may be some of the company’s worst holdings.

TARP Funds

In the latest Bank of America deal, the government will protect a $118 billion pool of assets that a U.S. official said includes residential and commercial real-estate holdings and credit-default swaps. The official spoke to reporters on a conference call on condition of anonymity.

The $20 billion purchase of preferred shares, which carry an 8 percent dividend, will be made later today. The funds come from the first half of the Treasury’s Troubled Asset Relief Program. The U.S. Senate voted yesterday to allow the release of the next $350 billion of the program.

The U.S. had already injected $15 billion into Bank of America and $10 billion into Merrill to bolster the combined company against the credit crunch.

“This is more short-term fire-fighting tactics,” said Ed Rogers, chief executive officer of Tokyo-based hedge-fund adviser Rogers Investment Advisors Y.K.

Thain Negotiations

Lewis, 61, has spent $129 billion on acquisitions, including regional lenders FleetBoston Financial Corp. and LaSalle Bank, credit-card issuer MBNA and investment manager U.S. Trust Co.

Bank of America agreed Sept. 15 to buy Merrill, the world’s largest brokerage firm, after a weekend of negotiations between Lewis and Merrill CEO John Thain. The $19.4 billion transaction occurred at the same time as Lehman Brothers Holdings Inc. went bankrupt, crippled by the frozen credit markets.

“Bank of America has all kinds of problems with its acquisitions,” said Gary Townsend, a former bank analyst and president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “They’ve been so acquisitive, they find themselves with very little in tangible equity.”

Bank of America became aware of Merrill’s fourth-quarter losses after shareholders approved the takeover on Dec. 5, the Wall Street Journal reported earlier today, quoting a statement from the company. After the vote, Paulson and Bernanke warned Lewis about the risks to the financial system if the deal was scrapped, the Journal said, citing unidentified people familiar with the matter.

Eliminating Jobs

Bank of America shares have dropped 42 percent since Jan. 6 when Lewis told employees he expected the company’s performance to fall short of earlier estimates. The company is cutting as many as 35,000 jobs to reduce annual costs by about $7 billion. Bank of America also has taken steps to counter loan losses by selling a $2.8 billion share of its China Construction Bank stake.

The agreement with the Treasury, the Fed and FDIC calls on Bank of America to absorb the first $10 billion of losses from its pool of assets, the “large majority” of which were assumed with the Merrill purchase, according to the government’s statement. The company will absorb 10 percent of any additional losses, with the government on the hook for the remainder.

The Fed will backstop assets with a loan, after the government’s first $10 billion in losses, shared by the Treasury and the FDIC. The asset pool includes cash assets with a current book value of as much as $37 billion and derivatives with maximum potential future losses of as much as $81 billion, according to the term sheet provided by the government.

FDIC Guarantee

Separately, the FDIC said today it plans to propose changing its bond-guarantee program for banks to cover debt as long as 10 years, up from the current three-year maturity. The FDIC also plans to propose rule changes to the Temporary Liquidity Guarantee Program.

The U.S. government will use all of its resources “to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks,” the joint statement said.

Bernanke said earlier this week that troubled assets remain a “continuing barrier to private investment” in financial institutions and recommended that they be extracted with government help. He urged a “comprehensive plan,” with one possibility being to erect a so-called bad bank to purchase and administer the troubled loans and securities.

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Treasuries Fall as U.S. Invests $20 Billion in Bank of America

Posted by hamadnizamani on January 16, 2009

Treasuries Fall as U.S. Invests $20 Billion in Bank of America

Treasuries dropped, with 10-year notes ending a six-day rally, after the U.S. agreed to invest $20 billion in Bank of America Corp. and lawmakers unveiled an $825 billion plan to snap the recession.

Benchmark securities fell the most in almost two weeks, pushing yields to about a quarter percentage point more than the record low set last month, on speculation President-elect Barack Obama will increase borrowing to record levels to pay for the stimulus packages. The latest proposal would add to a budget deficit the Congressional Budget Office says will more than double this year to $1.18 trillion.

“We’re not in Treasuries,” said Hans Goetti, who oversees $10 billion in Asia as chief investment officer at LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein’s royal family. “If you have $2 trillion deficits, and it might be even more, there will be a lot of supply.”

The 10-year yield rose 11 basis points to 2.31 percent as of 9:10 a.m. in London, according to BGCantor Market Data. The price of the 3.75 percent security maturing in November 2018 fell 1 2/32, or $10.63 per $1,000 face amount, to 112 18/32. A basis point is 0.01 percentage point.

Two-year yields increased seven basis points to 0.77 percent.

Treasury notes still headed for a weekly gain after the Commerce Department on Jan. 14 said U.S. retail sales fell for a sixth straight month in December, feeding demand for the relative safety of government debt as the economy shrinks. Ten- year yields declined eight basis points since Jan. 9.

Credit Markets

As part of efforts to support Bank of America, the U.S. also agreed to backstop a $118 billion asset pool to help the lender absorb Merrill Lynch & Co. The U.S. already invested $15 billion in Bank of America, the country’s biggest lender, and another $10 billion in Merrill.

Yields suggest efforts to revive credit markets that froze last year are working.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 0.98 percentage points from 2008’s high of 4.64 percentage points in October.

The three-month London interbank offered rate for loans in dollars was 1.09 percent as of yesterday. It slid to 1.08 percent the day before, a level not seen since 2003.

Higher Borrowing

McDonald’s Corp., the world’s largest restaurant company, and Wal-Mart Stores Inc., the biggest discount chain, both sold bonds this week. Bond markets in the Asia-Pacific region are having their busiest January for at least a decade, with $32.3 billion in sales.

The decline in Treasuries will increase in the second half of 2009 as efforts to end the U.S. recession take hold and the demand for safety abates, LGT’s Goetti said.

Mitsubishi UFJ Asset Management Co., part of Japan’s largest bank, is taking the same view for 2009, saying yields will rise in the second half because of increased government borrowing, according to Chief Fund Manager Hideo Shimomura.

Net purchases of U.S. long-term bonds, notes and stocks by investors from outside the nation probably rose to $15 billion in November from $1.5 billion the month before, based on a Bloomberg survey of economists. The Treasury Department report is scheduled for 9 a.m. in Washington. The monthly average since the start of 2007 is $61.1 billion.

Government Plan

The $825 billion economic plan unveiled yesterday by House Democrats and being assembled with Obama’s transition team comes after the U.S. budget deficit soared to a record $485.2 billion in the first three months of the fiscal year that started Oct. 1.

Obama’s advisers see an increasingly grave banking crisis and are considering proposals far more sweeping than any steps that have been taken so far, according to people who’ve discussed the outlook with them.

The U.S. Senate voted yesterday to release $350 billion in financial-rescue funds, the second half of the $700 billion in the Troubled Asset Relief Program enacted last year.

Government borrowing pushed U.S. marketable debt to a record $5.82 trillion in November, from $4.54 trillion at the end of 2007.

Bond Bulls

Bond bulls say the deepening recession means Treasuries will gain.

“U.S. consumer spending is slowing. The risk of deflation is rising,” said Hiromasa Nakamura, senior investor in Tokyo at Mizuho Asset Management Co., which has $44.4 billion in assets. “Yields will decline.”

Ten-year yields may fall below 2 percent this month, he said, surpassing the record of 2.04 percent set Dec. 18.

The worst holiday shopping season in at least four decades is forcing retailers such as J.Crew Group Inc. to cut prices. Toyota Motor Corp., which posted its biggest decline in U.S. sales in more than three decades last year, plans to cut North American vehicle production further in 2009.

The cost of living dropped 0.2 percent for all of 2008, the first annual decline since 1954, according to the median estimate in a Bloomberg News survey of economists before the Labor Department issues the figure today.

Consumer Prices

Consumer prices probably dropped 0.9 percent in December, a third straight monthly slide, the survey showed. The report is scheduled for 8:30 a.m. in Washington.

Treasuries surged after the last consumer-price report on Dec. 16 showed the index fell by 1.7 percent in November, the most ever. The Federal Reserve cut its target for overnight loans between banks the same day to a range of zero percent to 0.25 percent, from 1 percent, to battle the recession.

Ten-year yields fell to 2.26 percent, a record at the time.

The difference between rates on 10-year Treasury Inflation Protected Securities and conventional notes, which reflects the outlook among traders for consumer prices, narrowed to 50 basis points from 2.45 percentage points six months ago.

The bulls are in the minority. A Bloomberg survey of banks and securities companies projects the 10-year yield will rise to 3.07 percent and two-year rates will increase to 1.44 percent by the end of the year, with the most recent forecasts given the heaviest weightings.

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Weather, Discounts Collide as Holiday Shoppers Dither

Posted by hamadnizamani on December 21, 2008

Shoppers’ search for bargains during a recession may be disrupted by wintry weather in parts of the U.S. as the holiday-shopping season enters what may be a make-or- break weekend for some retailers.

Today may be the busiest shopping day of the holidays, said Michael Niemira, chief economist at the International Council of Shopping Centers. Shoppers who have waited for deeper discounts probably will be rewarded as retailers seek to clear inventory and salvage what may be the worst season in 40 years, even though their fourth-quarter profits may suffer as a result.

Snowstorms and freezing temperatures might put a crimp in those plans, said Scott Bernhardt, operating chief of Planalytics Inc., a Wayne, Pennsylvania-based weather consulting firm.

“Saturday has become more important from a weather perspective because a lot of major markets lost Friday, and Sunday we have another storm coming in,” Bernhardt said. “It’s so close to Christmas, shoppers are running out of time.”

Macy’s Inc., the second-largest U.S. department-store chain, is offering $800 sapphire or ruby and diamond rings for$249 during part of the day. Gap Inc.’s Banana Republic chain is advertising clothing for as much as 60 percent off. A $2,100 Marc Jacobs dress was listed at $629.95 on Saks Inc.’s Web site.

“This year, you have many retailers just trying to clear inventory to raise cash rather than to achieve highest profit,” said Linda Tsai, a retail analyst at MKM Partners LLC. “It has the potential to create havoc for retail and considerable bargains for consumers over the next few weeks.”

‘Largest Weekends’

The Standard & Poor’s 500 Retailing Index has shed 31 percent this year, with only two of its 27 companies gaining. The index doesn’t include Wal-Mart Stores Inc., the world’s largest retailer, which rose 33 cents to $55.74 yesterday in New York Stock Exchange composite trading. The stock has gained 17 percent this year.

“I do believe this is going to be one of the largest weekends in retail history,” Toys “R” Us Chief Executive Officer Gerald Storch said yesterday in an interview. “There’s a lot of pent-up demand, and there’s going to be fantastic deals.”

Cash-strapped shoppers grappling with shrinking housing prices and rising unemployment have cut back on non-necessities, pushing the U.S. economy into a recession. Consumer spending accounts for more than two-thirds of gross domestic product.

“We’re buying less stuff for each other and just overall,” Dennis Decker, a 47-year-old landscape architect, said today outside a Kohl’s in Douglasville, Georgia. “Usually I buy stuff for my sisters. This year I’m just going to make them some Christmas ornaments.”

Las Vegas Snow

At least a dozen retail chains, including Circuit City Stores Inc., have sought bankruptcy protection this year. A credit squeeze may result in thousands of locations being closed in 2009, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said Dec. 17.

A storm dropped snow on Las Vegas before sweeping across the country to hit Chicago, Milwaukee and Detroit. New York City and its suburbs got several inches, while Boston and Connecticut were expecting to see a foot or more of snow, with more on the way. Temperatures may fall below zero Fahrenheit (-18 Celsius) in the Midwest later this weekend.

The average American has finished almost two-thirds of his or her holiday shopping, according to a National Retail Federation survey conducted Dec. 16 to 18 by BIGresearch and released yesterday.

Black Friday

For the last few years, Black Friday, the day after Thanksgiving and the unofficial start to the holiday-shopping season, has been the biggest shopping day in sales, said Ellen Davis, an NRF spokeswoman. This year, with people waiting until the last minute to make many purchases, today is “incredibly important,” she said.

Alex Galvez, 28, an automotive technician who works in Long Beach, California, said he lost half his income this year. He was shopping for his nephews today at the Westfield Santa Anita Mall, in Arcadia, California.

“In past years, we’d probably get 10 gifts for each of our nephews,” he said. “This year it’s probably one.”

The ICSC has estimated that in November and December, sales at stores open at least a year may decline as much as 1 percent. That would be largest drop since at least 1969, when the New York-based trade group starting tracking data.

“It’s sad for the kids,” said Galvez. “They’re used to getting a ton of gifts.”

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Chrysler, GM Get $3.3 Billion Canada Loan, Could Receive More

Posted by hamadnizamani on December 21, 2008

General Motors Corp. and Chrysler LLC will get C$4 billion ($3.3 billion) in government loans from Canada and the province of Ontario, Canadian Prime Minister Stephen Harper said yesterday, refusing to rule out further aid.

A day after the U.S. agreed to lend the two automakers $13.4 billion in emergency loans to keep them operating, Canada and Ontario said they will advance General Motors’ Canadian unit C$3 billion while Chrysler will receive C$1 billion. GM had asked for a total of C$2.4 billion in aid from Canada through the second quarter and Chrysler LLC had not disclosed a sum.

“It’s pretty striking that they’re lending more money than was asked for,” Dmitry Anastakis, a professor of history and Canadian auto policy at Trent University in Peterborough, Ontario, said in an interview yesterday. “This totally conflicts with the rhetoric we’ve heard from Ottawa about the need to protect the interest of the taxpayers.”

“I cannot rule it out,” the prime minister told reporters at a briefing yesterday in Toronto when asked whether he may offer the automakers additional aid. “We have a social responsibility that goes beyond the marketplace.”

The automakers must accept limits on executive compensation and report “material” transactions of more than C$125 million, the governments said in a joint statement. Harper declined to say what penalties Chrysler and GM would face if they had to file for bankruptcy and could not repay the loans.

“We will not allow a catastrophic failure” of the Canadian auto industry, Harper said. “They will not fail in my judgment” but “the auto companies have to change the way they do their business in a very serious way.”

‘Proportional’ Loan

Canadian Industry Minister Tony Clement on Dec. 12 pledged to offer GM, Chrysler and Ford Motor Co.’s Canadian units federal and provincial aid “proportional” to their contribution to North American production, which is about 20 percent. Ontario, the country’s automaking hub, last year built more cars than Michigan.

The aid package is “not a blank check” and Canadian taxpayers expect the money to be used to renew the industry and involve all stakeholders in that process, Harper said.

Ontario will contribute C$1.3 billion to the package and the Canadian government C$2.7 billion, Ontario Premier Dalton McGuinty said at the same news conference.

“This is about 400,000 jobs and 400,000 families,” said McGuinty. “There’s a lot at risk,” he said, adding that there is a “real possibility” that Chrysler and GM will ask for more money, which, he said, will have to be considered if and when that happens.

Announcement Praised

The Canadian units of both GM and Chrysler praised the announcement.

This support is a “welcome financial bridge,” Arturo Elias, president of GM’s Canadian business said in a Marketwire statement. “GM Canada intends to earn the trust being placed in us.”

“Chrysler is very pleased with the decision by the Canadian government to provide this loan, which will ensure Chrysler has sufficient funds to continue our restructuring activities during this unprecedented downturn,” the automaker’s Canadian unit said in an e-mailed statement.

The Canadian Auto Workers union, which represents about 27,800 active GM, Chrysler and Ford Motor Co. workers in Canada, lauded the package and pledged to continue working with the companies and governments to ensure the industry’s survival in Canada, Ken Lewenza, president of the union said.

The pledge “was important for our industry, our workers and for all citizens of Canada,” Lewenza said yesterday in a press briefing.

Declined to Speculate

He declined to speculate on whether his membership will have to take wage-and-benefit cuts as part of the package.

The U.S. package requires companies to have pay-and-work rules in place by the end of 2009 that make them competitive with those of overseas automakers with plants in the U.S.

The C$600 million in loans beyond what GM had asked for may be a sweetener to keep more jobs or assembly projects in Canada, Trent’s Anastakis said.

“Canada is in a position here that it can’t make too many demands and may be making a generous offer so Ontario doesn’t get left behind when the real restructuring begins,” he said.

GM will receive C$800 million Dec. 29, C$1.2 billion on Jan. 30 and a further C$1 billion on Feb. 27. Chrysler gets C$400 million immediately with another C$400 million at the end of January and the balance in February. The loans are for three years and are charged at 3 percentage points above the London Interbank Offered Rate, or Libor. Libor is currently 1.5 percent for 3-month loans in dollars.

Auto Suppliers Insurance

The Canadian government said it will extend insurance to auto suppliers for their accounts receivable to ensure that they can continue to secure credit. The government said it will also improve access to credit for consumers and businesses to stimulate car purchases and help car dealers without giving details.

The industry will have to restructure and will probably end up being smaller, said Harper. “This will be a difficult restructuring,” said McGuinty.

Ford’s Canadian unit had asked for access to as much as C$2 billion in “standby” credit, to be used if the current economic crisis worsens. Today’s statement did not address the status of that request.

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Eurozone retail sales slump 2.1%

Posted by hamadnizamani on December 3, 2008

Eurozone retail sales slump 2.1%

Italian shoppers

Shoppers look at a pre-Christmas sale at a leather goods shop in Milan

Retail sales across the 15 nations that share the euro fell more than expected in October, increasing the likelihood of a cut in interest rates this week.

Sales across the eurozone declined 0.8% on a month-by-month basis in October, and by 2.1% from a year earlier, more severe than analysts had expected.

A separate business activity survey said output levels had worsened.

The European Central Bank (ECB) is widely expected to cut rates from the current 3.25% level on Thursday.

Last month it reduced rates by half a percentage point, and ECB president Jean-Claude Trichet said further cuts could not be ruled out as Europe aims to limit the economic downturn.

‘Renewed deterioration’

Figures from Eurostat showed inflation in the eurozone fell to 2.1% in November, from 3.2% the month before, furthering the chance of a rate cut.

The eurozone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets
IHS Global Insight economist Howard Archer

“Worries about the outlook for the economy and the labour market are probably prompting households to save relatively more,” said Nick Kounis, chief European economist at Fortis Bank.

“This leaves High Street activity heading for a renewed deterioration in the fourth quarter following the improvement seen in the third.”

Retail sales in September had been flat compared with August, and down 1.4% on an annual basis.

‘Horrible survey’

The separate business activity data came from research group Markit.

It has revised its purchasing managers’ index down to 38.9 points in November from its first estimate of 39.7.

Any figure less than 50 representing a contraction, and the latest number compares unfavorably with the 43.6 figure in October.

Fortis’ parallel service sector activity index also fell further than first estimated in November, down to 42.5 points from the initial 43.2 points figure.

“This is a horrible survey across the board, showing that the eurozone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets,” said IHS Global Insight economist Howard Archer.

European shares were down in Wednesday trading, with Germany’s main Dax index 1.8% lower, and France’s Cac falling 1.6%.

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EU bans imports of Chinese soya

Posted by hamadnizamani on December 3, 2008

EU bans imports of Chinese soya

Soya beans

EU nations imported about 68,000 tonnes of soya products in 2007

The European Commission has banned imports of Chinese soya-based food products intended to be eaten by infants and young children.

The decision was taken after a chemical called melamine, used in pesticides, was found in Chinese soya bean meal.

All other soya products will have to be tested when they are imported.

Last year, EU nations imported about 68,000 tonnes of products containing soya with a total value of 34m euros ($43m; £29m), the commission said.

Melamine was the chemical at the centre of the milk scandal in China in September in which tens of thousands of babies became ill, and at least four died.

Eggs later became contaminated because melamine had been in feed given to hens.

Melamine is rich in nitrogen and may be used in sub-standard milk, which is often tested for nitrogen levels to assess its quality.

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Latvia’s economic boom turns sour

Posted by hamadnizamani on December 3, 2008

Latvia’s economic boom turns sour

Vansu bridge, Riga

Latvia has experienced years of boom, but is now in recession

Over the last two years the small Baltic state of Latvia has collected a string of European records.

But unfortunately for the population of the country, they are not the sort of records that prompt lavish street celebrations and ticker-tape parades.

Up until a year ago the country, at various points, held the record for the fastest rate of wage growth, the steepest rise in house prices and the highest rate of inflation.

But just a few months on, things could not look more different.

Having seen its economy grow at a rate 11% in 2007, Latvia’s GDP is now shrinking by more than 4%.

After a property boom, house prices are now falling at a faster rate than any other country in the world – down 24% in the last 3 months.

After years living in a world boom, Latvians are having to get used to a world of bust.

The once rampant economic ‘Baltic Tiger’ has been reduced to begging the international community for a loan of $6.5bn (£4.3bn).

Property bubble bursts

Crunching through the snow at a new apartment block on the outskirts of Riga is property developer, Viktors Savins, of ARCO Real Estate.

Viktors Savins

Viktors Savins outside his new apartments outside Riga

“From the top of the market, we’ve had to cut the price of these apartments by around 35%,” says Savins surveying the half-finished development.

Savins’ company began work on the four-storey flats in 2004 while prices were still rising, since then the property market has fallen by over 60%.

The housing bubble was fuelled by ordinary citizens who were encouraged to borrow up to 10 times their salary by foreign banks who in turn were feeding off the global supply of cheap credit.

“During the boom investors were in the market trying to fulfil their own ‘American Dream’ of getting rich quickly by doing nothing,” says Savins.

But with unemployment set to double to over 10% next year, many Latvians are for the first time beginning to understand the true meaning of the words ‘negative equity’ and ‘repossession’.

Killing the stag

Riga’s old town is populated by buildings from various episodes of foreign occupation – from the Germans in the 12th century through to Latvia’s time as part of Soviet Union during the last century.

But since independence in 1991, a different type of foreign invader has occupied the city’s cobbled streets.

Large groups of young men on stag parties began coming to the capital in the early part of the decade as the country was pulling away from the Soviet Union’s shadow.

We used to be on the cheaper side, but if you’re a British tourist or a Spanish tourist Riga has got expensive
Ivo Grubanov, Baltic Holidays

Riga provided the three essentials for the original Eastern European stag: cheap beer, inexpensive flights and a wide selection of strip clubs.

The local currency, the lat, is pegged to the euro and so during the early part of the decade it offered visitors from the UK a very attractive rate.

But as the pound has fallen against the euro over the past year, bars in Riga have seen takings slump as tourists opt to holiday at home.

Raimonds Tomsons is the sommelier at Vincents, one of Riga’s most expensive restaurants and has seen the economy boom over the past few years.

“These times are very tough – many restaurants are closing as they simply don’t have any customers – some only have three people coming in a day. It is very difficult to survive,” he said.

Expensive beer

Leaning on the bar at Paddy Whelan’s Irish bar in centre of Old Riga is Ivo Grubanov who organises tours for a British firm, Baltic Holidays

“We used to be on the cheaper side, but if you’re a British tourist or a Spanish tourist Riga has got expensive,” he said.

Irish bar in Riga

Paddy Whelan’s bar in Riga has seen fewer stag parties

Grubanov caters for everyone from retired couples to rowdy stag parties, dispensing wisdom on everything from 12th century architecture to the cheapest city drinking holes.

And he’s well aware of the cost that the Latvian government’s insistence on staying pegged to the euro is having on his customers.

“It breaks my heart to bring young lads to a bar and tell them that a pint of beer costs five or six pounds,” he says

“There’s no good reason to have the lat to be so artificially high, and it would be much more sensible if we could float our own currency.”

But with the Latvian government determined to meet the criteria to allow them to officially adopt the euro in 2012, it seems that it will be businesses like Ivo’s that will continue to suffer.

‘Orgy of credit’

The skyline of Riga is dominated by several glass-clad towers rising high above the more traditional pitched roofs of Riga’s old town.

These shiny constructions house the headquarters of banks from across the Baltic Sea – mainly from Sweden and Denmark.

It’s these institutions that are blamed for fuelling the recent credit boom. But it was a run on a domestic bank, Parex, that first pushed the government into the arms of the IMF.

LATVIA’S RECORDS
Highest inflation rate – 17.9% in May
Highest growth rate – 10.3% in 2007
Biggest fall in growth in Q3 2008 – minus 4.2%
Fastest falling house prices in the world in 2008

Depositors in the bank withdrew their money after rumours circulated that the bank was close to collapse, forcing the government to bail it out.

For Alf Vanags, from the Baltic International Centre for Economic and Policy Studies, the origins of Latvia’s latest economic palpitations are increasingly obvious.

“Over the last few years there has been an orgy of credit,” says Vanags.

“People have been borrowing on the assumption that the boom years would go on forever – but now they’ve stopped and they’re having to deal with it.”

Snowstorms and arrests

After years of mild winters, Latvia is currently experiencing its coldest periods in years, with the latest snow storm leaving three people dead

Along with the miserable weather has come a new crackdown by the government on people they see as deliberately destabilising the economy.

Over the past few weeks, a university lecturer and a musician have been arrested after publicly casting doubt on the country’s economic future.

And so, nearly twenty years after escaping the clutches of Soviet domination, it seems that Latvia’s biggest challenge may yet be to come.

“I believe that it’s like the turbulence you get in an aeroplane, we just need to hold tight and get through it,” says Viktors Savins.

While he may well be right, it would seems that there are plenty of bumps ahead for Latvia in what is increasingly looking like a very hard landing.

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EU calls for aid to poor nations

Posted by hamadnizamani on November 29, 2008

EU calls for aid to poor nations

AFrica

Poor countries are also being hit by the financial crisis.

The European Commission President Jose Manuel Barroso has called for a ‘human rescue’ package to help poor countries.

Speaking at the opening of a high-level UN conference on aid, Mr Barroso said it would be ‘obscene’ to neglect the human cost of the global slowdown.

The UN Conference on Financing for Development is meeting in Doha, Qatar to track progress on development aid.

There are fears that rich countries will cut back on development aid as a result of the looming recession.

Mr Barroso said that climate change, energy security and trade would add to the potential problems facing poor countries as result of the financial crisis.

The World Bank has said that developing countries are facing a ‘perfect storm’, with the convergence of slowing growth, a withdrawal of private capital, and higher interest rates on their debt.

The Bank says that growth in developing countries will fall by two percentage points to 4.5% next year, as the volume of global trade contracts for the first time since 1982.

But aid agencies have criticized the fact that neither the head of the World Bank or the IMF, or many other world leaders from rich countries, have come to the talks.

“The fact that so few world leaders have chosen to travel to Doha is a real cause for concern,” said Ariane Arpa of Oxfam.

Promises, promises

Six years ago, rich countries pledged to double their aid efforts to ensure that the poor countries reach their millennium development goals of halving poverty by 2015.

But UN figures show that the developed countries have only committed $20bn of the $50bn they promised at the G8 summit in 2005, leaving them far short of the $130bn that will be needed if the millennium development goals are to be met.

World Bank president Robert Zoellick said he would accelerate the disbursement of $42bn it has available to support low-income (IDA) countries over the next three years.

But Christian Aid and ActionAid are concerned that the present financial crisis will be used by rich countries as an excuse to renege on aid commitments.

The mood of the meeting is likely to be in sharp contrast to the first Financing for Development summit in Monterrey, Mexico, in 2002, when President George W Bush unexpectedly promised to double US development aid.

Developing countries are also looking to play a bigger role in discussions designed to restructure the world financial system.

The G20, which met in Washington earlier in November, includes some major emerging market countries, but does not represent the very poorest nations.

Some developing countries and aid agencies would also like the meeting to tackle the issues of tax evasion by multinationals and capital flight.

Meanwhile, discussions will be taking place in Geneva about plans to re-launch the world trade talks, which stalled in the summer because of a dispute over farming tariff protection for poor countries.

WTO boss Pascal Lamy has said it is essential that world leaders show their commitment to developing country growth through aid and trade.

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Economy boost for Spain and Italy

Posted by hamadnizamani on November 29, 2008

Economy boost for Spain and Italy

Women look at a shop window in Milan

Italy and Spain have both been hit hard by the global economic slowdown.

Spain and Italy have announced plans worth billions of euros to kick-start their economies.

Italy approved an 80bn euro ($102bn;£66bn) emergency package that included tax breaks for poorer families, public works projects and mortgage relief.

Spain unveiled an 11bn euro plan aimed at creating 300,000 jobs.

The announcements are the latest in a series of attempts by EU governments to shore up their economies as the financial crisis bites.

Italian Prime Minister Silvio Berlusconi called on to Italians to keep on spending.

“We have helped citizens, the less well off, so that they can continue to consume,” he said.

“The intensity and duration of the crisis depends on all of us.”

Spain’s Prime Minister, Jose Luis Rodriguez Zapatero, said the money will be mainly invested in infrastructure and public works.

Spain’s unemployment reached 12.8% in October – the highest in the eurozone.

Construction crisis

The Spanish government said it would invest 0.8bn euros in the ailing car industry, which has been through a severe downturn and seen sales plummet 54.6% since the beginning of the year.

The construction industry has also been severely hit by the financial crisis, with property prices falling and companies slashing thousands of jobs.

The Spanish economy shrank by 0.2% in the third quarter, putting an end to 15 years of continuous growth.

The European Commission has demanded that each EU member must spend about 1.2% of Gross Domestic Product (GDP), or economic output, to fight the economic slowdown.

Spain’s plan is worth 1.1% of its GDP.

Germany launched a similar 50bn euro package, while next week France is expected to unveil economic measures worth 20bn euros.

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