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US stocks fall on renewed jitters
US shares have fallen again, with problems in the mortgage sector continuing to have an adverse effect on market sentiment.
The Dow Jones closed down 208 points or 1.6% at 13,029. The more technology- based Nasdaq index fell 43 points or 1.7% at 2,499.

Shares were hit by warnings of tough times to come from two big retailers: Wal-Mart and Home Depot.

There was also news that a big fund manager was struggling.

The falls came despite the Federal Reserve saying it would inject more funds into financial markets if needed.

Central bank action

To ease fears over available credit, sparked by the downturn in the mortgage sector, the Fed has already pumped billions of dollars of emergency funds into the banking system in recent days - twice on Friday and again on Monday.

The European Central Bank (ECB) and the Bank of Japan have made similar moves.

On Tuesday the ECB injected another 7.7bn euros ($10.4bn; £5.2bn) into the markets but said that conditions were returning to normal.

Wall Street's falls knocked European stocks, with London's FTSE 100 closing 1.2% lower and Frankfurt's Dax falling 0.7%.

Nervous investors

The news that Sentinel Management Group, which manages $1.6bn in funds, wanted to stop investors being able to withdraw their money did nothing to improve the mood.

The day's biggest faller was Wal-Mart, the world's biggest retailer, which fell 5.1% after lowering its profit forecast because its customers are straining under economic pressures such as high oil prices.

Also down sharply was another retailer, Home Depot, which fell 4.9% after warning that its profits would fall this year as a result of the sluggish housing market.

Story from BBC NEWS:
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Published: 2007/08/14 21:09:22 GMT

© BBC MMVII
 
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Liquidity woes hit more lenders
Several mortgage lenders have seen their shares slump amid fresh concerns over the impact of global credit market turmoil on liquidity.
Firms have seen the credit squeeze - prompted by woes in the US sub-prime mortgage market - hit their ability to refinance debt.

Australian lender RAMS closed down 37%, while US firm Countrywide dropped 13%, warning it may face bankruptcy.

Northern Rock was among the losers in the UK, falling 5% in early trade.


It is like a shipwreck at sea and we have got to wait and see how many bodies wash up on the shore
James Holt
Analyst, Zurich Investment


Banks and investment funds have also been hit, as investors watch and wait to see who will be next to reveal their exposure to the US sub-prime or high-risk home loan sector.

Invesco and Icap joined Northern Rock among the biggest fallers on London's FTSE 100, while shares in International Personal Finance fell 9.2%.

"Given how tense the market is, anyone even remotely suffering from problems relating to credit or widening spreads is getting absolutely hammered in the market place," said Zurich Financial Services fund manager James Holt.

"It is like a shipwreck at sea and we have got to wait and see how many bodies wash up on the shore."

'Volatility to continue'

The US sub-prime mortgage sector offers higher-risk loans to people with a poor credit history.

As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans.

Because the lenders have often sold on the debt, this has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector - prompting fears of a wider financial crisis.

Analysts say that the biggest worries for investors is not knowing the eventual scale of the problem.

"Market volatility is going to continue until the extent of the problem is properly known," said Richard Hunter, equities analyst at Hargreaves Lansdown.

"It may take a few weeks for positions to unwind and for banks to hold their hands up and reveal how much they are exposed to."

RAM's share fall came after it said it had failed to refinance 6.17bn Australian dollars ($5bn; $2.5bn) of debt - meaning it will have to pay more to borrow funds that it uses to offer mortgages, hitting its earnings.

On Wednesday, Merrill Lynch advised its clients to sell shares in Countrywide, the biggest US lender, a day after the firm announced that foreclosures and mortgage delinquencies had risen in July to their highest levels since early 2002.

Story from BBC NEWS:
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Published: 2007/08/16 10:13:07 GMT

© BBC MMVII
 
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Shaky trading for Europe's shares
European markets had a shaky start to trading on Friday, following heavy falls on Asian stock markets.
Indexes have been up and down all day. By 1300 BST the FTSE 100 was up 0.13%, Frankfurt's Dax was down 0.51% and Paris' Cac 40 was up 0.10%.

On Thursday Wall Street saw the Dow Jones claw back more than 300 points of its losses in the last hour of trading.

In Asia, Japan's Nikkei fell 5.42%, its biggest points fall since April 2000, while Hong Kong's Hang Seng fell 1.38%.

It comes the day after London's FTSE 100 fell 4.1%, cutting almost £60bn off the value of Britain's top companies.

Tokyo's Nikkei 225 closed down 874.8 points at 15,273.7, taking the index to its lowest level for a year.

Central banks intervene

The Bank of Japan injected 1.2 trillion yen ($10.7 billion; £5.4bn) into money markets, which was its third intervention of the week.

Japanese investors are worried that a slowdown in the US economy will hit exports from Asia.

There is also speculation that the Bank of Japan could raise interest rates next week, despite the problems on the market.

Elsewhere, the Australian central bank intervened to support its currency for the first time for six years.

The Australian dollar was facing its biggest one day fall against the US dollar since it was allowed to trade freely in 1983.

US Recovery

US shares were helped by rumours that Bear Stearns, which is heavily exposed to the mortgage sector, could get funding from a Chinese bank.

There was talk that the Federal Reserve could cut interest rates to help support the troubled housing market.

Also, there were suggestions that the government-sponsored lender Fannie Mae might be allowed to pump extra funds into the mortgage market.

Fannie Mae said its talks with regulators about increasing the amount it is allowed to invest in home loans are continuing.

Story from BBC NEWS:
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Published: 2007/08/17 12:05:20 GMT

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UK pension funds hit by share dip
UK pension funds have lost billions of pounds after stock markets tumbled amid credit crunch fears, reports suggest.
According to actuaries Aon Consulting, the UK's 200 biggest final salary pension schemes had a deficit of £26bn at the end of trading on Thursday.

And consultants Lane, Clark & Peacock (LCP) estimate that companies listed on the FTSE 100 stock index in London have a pensions shortfall of about £15bn.

That compares with surpluses of between £9bn and £12bn in July, the firms said.

Longer term

The worry for many analysts is that stock market declines will continue, wiping even more money off the value of pension funds and global stock markets.

However, Aon said that investors should not over-react to the decline in pension fund values.

Marcus Hurd, a senior consultant and actuary at Aon, urged investors to take a longer-term view, pointing out that at the start of 2007 the pension funds had a deficit of £40bn, while a year earlier it was more than £80bn.

"People shouldn't get too concerned about one week of falls," he said.

Even so, people who are close to retirement and not on a guaranteed benefit pension could feel the pinch as they do not have time to ride out the market volatility and make back losses, he explained.

Bob Scott, a partner at LCP, said that while the shift from surplus to deficit was significant, it was not "a case of the world ending".

And if anything, the current problems could act as a reminder for pension fund managers and trustees about the dangers that are inherent in investing too heavily in equities, he said.

Market wobbles

The recent slump in share prices was triggered by problems in the US mortgage market.

On Thursday, the UK's FTSE 100 index fell 4.1%, its worst session in more than four years.

Asian markets had heavy losses on Friday, and European markets had a shaky morning in trading.

At midday market indexes in London, Paris and Frankfurt were all in negative territory.

Story from BBC NEWS:
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Published: 2007/08/17 11:21:40 GMT

© BBC MMVII
 
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South Africa ​

South Africa is the economic powerhouse of Africa, with a gross domestic product (GDP) four times that of its southern African neighbours and comprising around 25 per cent of the entire continent’s GDP. The country leads the continent in industrial output (40 per cent of total output) and mineral production (45 per cent) and generates most of Africa’s electricity (over 50 per cent). Its major strengths include its physical and economic infrastructure, natural mineral and metal resources, a growing manufacturing sector, and strong growth potential in the tourism, higher value-added manufacturing and service industries.

South African banking regulations rank with the best in the world. The sector has long been rated among the top 10 globally. There are 55 locally controlled banks, 12 foreign-controlled banks and five mutual banks. Some of the world’s leading institutions have announced their intention to enter the local banking sector through mergers and acquisitions. The financial and industrial sectors are concentrated in Gauteng province, which on its own accounts for over 30 per cent of the country’s GDP.

South Africa’s economic outlook has improved despite rising inflation and a spate of strikes, the Bureau for Economic Research (BER) has raised its growth forecasts for 2007. Growth is now seen at 5.0 per cent in 2007, unchanged from last year and above the 4.5 and 4.8 per cent predicted in January and April respectively. Employment growth is expected to remain robust and will help shield the disposable income of households against the negative impact of higher food costs and interest rates.

South African growth has been mainly propelled by high consumer demand, but this has strained domestic supply, boosting imports. A resultant widening of the deficit on the current account has put pressure on the rand, which shed 10 per cent against the dollar last year and has lost another 3.5 per cent to date in 2007. The central bank is also concerned that consumer demand has been largely credit-driven, with household debt shooting up to 76 per cent of disposable income, despite 250 basis points worth of interest rate increases during the 12 months to June.

Growth should slow to 4.8 per cent in 2008 as consumers start to feel the pinch from higher interest rates. Inflation was expected to stay above 6 per cent year-on-year until the first quarter of 2008. The 2007 average was projected at 6.2 per cent, compared to previous forecasts of 5.6 per cent. In light of the higher inflation forecast another 50bps interest rate hike is expected in coming weeks.The Bureau of Economic Research’s (BER) latest analysis of South Africa’s economy indicates the growth outlook has improved over the past few months, with a smaller current account deficit and lesser inflationary pressures, but risks still remain. Improved exports and reduced demand for imports should lead to the current account deficit narrowing to 5.6 per cent of GDP in 2007 against an estimated 5.1 per cent in 2006. However, the deficit is predicted to widen again in 2008 to 5.5 per cent of GDP as imports rebound.

Despite South African consumers proving resilient against recent interest rate hikes so far, the BER expects consumer spending to ease this year as the higher interest rates take effect. Beyond the first half of 2008 the inflation outlook looked more promising, which may result in a moderate interest rate decline during the latter stages of next year. Though a stronger rand improves the inflation and interest rate outlook, the major concern is that a strong rand will lead to an increased current account deficit. Risks that could affect economic growth include higher oil prices and softer world economic growth. However, the biggest risk is if the rand does not weaken this year as expected, but rather moves back towards the R6.50/$ due to dollar weakness, higher commodity prices and strong capital inflows. Under such conditions SA will continue on the consumer driven growth path, which we feel is unsustainable in the long run. Production capacity needs to be fostered otherwise there will not be much industry left to benefit from the infrastructure investment surge.

Tunisia

Over the past decade, market-oriented reforms and prudent macroeconomic policies have contributed to placing Tunisia’s economic performance among the best in the region. Gradual structural reforms combined with a flexible exchange rate policy since 2000 have supported competitiveness and export growth. According to the IMF staff, the Tunisian economy continues to show strength and the outlook is favorable.

Real GDP growth remained relatively strong in 2006 and the external current account deficit narrowed significantly, notwithstanding unfavorable agricultural conditions, the expiration of the Agreement on Textiles and Clothing, and continued tepid demand in Europe. Growth is expected to accelerate, as agricultural production recovers and the service and industry sectors remain strong. While increased financial inflows present a challenge for monetary policy, the current macroeconomic stance remains appropriate and inflation subdued.

Despite drought conditions in the first half of the year that damaged agricultural output, real GDP expanded by 5.2 per cent in 2006. Growth in industry and continued expansion of services will boost real GDP growth to 6 per cent in 2007, easing to 5.6 per cent in 2008 (assuming an average harvest). Export volumes will rise in 2007-08 because of continued growth in domestic demand in the euro area, helped by the Tunisian dinar’s expected depreciation against the euro, and the implementation of several FTAs, despite increased competition in EU markets from Asian textile producers.

The inflation rate picked up sharply in 2006 as the government passed on some of the costs of continued high international oil prices to consumers in a bid to limit expenditure on subsidies and encourage energy saving. Food prices remained high as a result of the below-average harvest and high soft-commodity prices on the world market. Consequently, inflation averaged 4.5 per cent in 2006 (well above the government target of 2.7 per cent). Price growth has been weaker in early 2007.

Robust economic growth, will support continued demand. This will put some upward pressure on prices in 2007-08, as will reductions in fuel subsidies. Oil prices will also stay high. However, non-oil commodity prices should decline slowly in the latter part of the forecast period in particular, helping to contain imported inflation, and interest rates are expected to increase moderately. As a result, domestic price pressures should ease marginally, and we expect inflation to average just over 3 per cent in both years of the outlook period.

Tunisia’s solid track record in growth, expected to come in at 5 per cent this year, and political stability, alongside the government’s Robust export volume growth and the weakening of the dollar against the euro will clear commitment to economic reform, will mean ongoing investor interest in the country, with FDI climbing above the US$3.3bn seen in 2006. Rising crude prices present a worry in terms of inflationary pressures and pose a major risk to the external and fiscal positions.

In 2006 the Tunisian dinar weakened against both the dollar and the euro, which boosted Tunisian exports. In 2007 the dinar will appreciate against the dollar, to an average of TD1.29:US$1, and depreciate further against the euro, to TD1.74:1. In 2008 the dinar should strengthen only slightly against the US currency and be fairly stable against the euro, helping to maintain export competitiveness. Moves towards a floating exchange-rate regime will not occur within the outlook period.
Robust export volume growth and the weakening of the dollar against the euro will push export earnings up from US$11.5bn in 2006 to US$15.8bn in 2008. The import bill, which rose strongly in 2006, to US$14bn, is expected to continue to increase, to US$18.3bn in 2008, as world oil prices remain high and the industrial modernisation programme boosts demand for imports of capital goods. Falling tariffs on manufactured imports from the EU will also raise demand. With export earnings growing at a slightly faster rate than import costs the trade deficit should be fairly stable at around US$2.5bn in 2007-08.

Gabon

Robust economic activity in the non-oil sector suggests that Gabons efforts to diversify economic activity are starting to pay off. However, the economy is still highly vulnerable to a negative oil shock as economic activity in the non-oil sector will continue to be partly supported by significant public spending, facilitated by high oil prices. Following a sharp decline in 2006, oil production is forecast to grow moderately from an estimated 245,000 barrels/day (b/d) in 2007 to 251,000 b/d in 2008 and 257,000 b/d in 2009, as a result of new investment in mature oilfields and as new small oilfields come on stream.

The non-oil sector is expected to grow more robustly, by around 5 per cent, in 2007-08, as the country is attracting foreign direct investment (FDI) in the mining and forestry sectors and enhanced financial intermediation is facilitating access to credit by small businesses. Non-oil real GDP growth is forecast to accelerate in 2009 to 6 per cent as new infrastructure investments connected with the Belinga iron-ore project are expected to have a positive impact on gross capital formation and private consumption. Overall, we forecast that real GDP will grow by 4.5 per cent in 2007, 4.1 per cent in 2008, and 4.8 per cent in 2009, much higher growth than the annual rates achieved in the past decade. Click to learn the importance of data management in creating availability solutions including clarification of availability terminology.

World economies -DAWN - Business; October 1, 2007
 
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World economies

The global economy continued to expand at a brisk pace in the first half of 2007. Although growth in the United States slowed in the first quarter, recent indicators suggest that the economy regained momentum in the second quarter. Activity in most other countries continued to expand strongly. In the euro area and Japan, growth has remained above trend with some welcome signs that domestic demand is taking a more central role in the expansions. Emerging market countries have continued to expand robustly, led by rapid growth in China, India, and Russia.

Inflation remains generally well contained despite strong global growth, although some emerging market and developing countries have faced rising inflation pressures, especially from energy and food prices. Oil prices have risen back toward record highs against the backdrop of limited spare production capacity, while food prices have been boosted by supply shortages and increased use of bio-fuels. Against this background, global growth is now projected at 5.2 per cent in 2007 and 2008—0.3 percentage point higher for both years.

The major upward revisions have been for emerging market and developing countries, with growth projections substantially marked up for China, India, and Russia. Among the advanced economies, growth in the United States is now expected at 2 percent this year—0.2 percentage point lower than projected—although activity should regain momentum through the year and return to potential by mid-2008. Growth projections for the euro area, particularly Germany, and Japan have also been raised.

The overall balance of risks to the global growth outlook remains tilted modestly to the downside. Nevertheless, there have been some changes in the IMF staff’s assessment of individual risk factors. With sustained strong growth, supply constraints are tightening and inflation risks have edged up, increasing the likelihood that central banks will need to further tighten monetary policy. The risk of an oil price spike remains a concern. Financial market risks have also increased as credit quality has deteriorated in some sectors and market volatility has increased. A number of other risks, however, look more balanced. Upside risks to growth in the euro area and emerging market countries have partially materialized and have been built into the baseline projections.

Further, some progress has been made toward reducing risks of a disorderly unwinding of global imbalances, although protectionist pressures are a continuing concern. The world economy is poised to maintain a healthy rate of expansion in 2007, with an unprecedented fourth consecutive year of more than 4% growth likely, in large part because of China, India, and the US. Of course, any prolonged deceleration in the U.S., which accounts for more than one-fifth of global GDP and is the world’s biggest importer, would naturally curb growth globally.

Europe’s economic growth in 2006 turned out to be even stronger with GDP growth reaching an estimated 2.7 per cent in the Eurozone, and the UK. economy growing at a similar rate. Although no final data is available for the fourth quarter of 2006 as yet, estimates suggest that the Eurozone economy finished the year on a high, with GDP expanding 3% in real terms (3.4 per cent in the UK.)

The economic outlook for Latin America in 2007 and 2008 is extremely favorable. Despite some deceleration in the US sound growth prospects elsewhere and robust growth in emerging Asia should support strong global trade flows and commodity prices. Favorable global liquidity conditions not only bolster growth in the region, but also the appetite for local-currency-denominated paper among emerging-market investors.

Developing Asian economies

According to the newly released report by the Asian Development Bank, developing economies from Asia will register solid economic growth in 2007, driven by fast growth China and India, which together account for 55.3 per cent of the total gross domestic product (GDP) in developing Asia. China and India recorded their fastest growth in 13 years during the first half of 2007 and 18 years in fiscal year 2006. The growth in Asia is currently more broad-based as other regions like South Asia and Central Asia have continued to post robust growth, and growth accelerates in other economies, such as Indonesia and the Philippines. However, the economic outlook for 2008 is hazy as uncertainty reigns in global financial markets and the health of the U.S. economy does not seem too good.

Growth in Asia and the Pacific to be of 8.3% in 2007, up from an earlier estimate of 7.6 per cent, provided the global economy steadies. A growth of 8.2 per cent is anticipated in 2008. The developing Asia would surely suffer if the US economy slows abruptly, though the impact may be modest and short lived, provided they manage the external shocks and the internal challenges properly. The Asia Bank report also lists avian flu, geopolitical and security risks in some parts of the region and political uncertainty in a few countries as downside risks obscuring the outlook for a number of economies.

East Asia is currently expected to see growth rate of 8.9 per cent in 2007. The Bank lifts growth forecast for China to 11.2 per cent this year. It expects brisk exports, strong investment and buoyant consumption to drive economic growth to 10.8% in 2008, an upward revision from the 9.8 per cent projection in March. South Asia is expected to grow at 8.1% in 2007. Potential growth rates in Bangladesh, India and Pakistan now appear to be on a more stable trajectory. Indian economy is anticipated to grow by 8.5

Per cent in 2007 and 2008. Southeast Asia as a whole is now expected to grow at 6.1% in 2007. Central Asia’s growth estimates for 2007 has been raised to 11.1 per cent as high oil prices and mineral exports continue to support economic expansion in the region

China

Brisk exports, strong investment and buoyant consumption will lift economic growth in China to 11.2 per cent this year, up from an earlier estimate of 10 per cent. The faster than expected growth momentum built up this year is expected to carry into 2008. The Chinese economy grew at a faster-than-expected 11.5 per cent in the first half of 2007. It expanded at 11.1 per cent in 2006. The report forecasts growth of 10.8 per cent for 2008, also an upward revision from the 9.8 per cent projection in. Further steps to cool the rapid investment expansion are likely and the Government will put more emphasis on improving energy efficiency and on cutting pollution.

The 11.5 per cent Gross Domestic Product (GDP) growth in the first half, its fastest rate since 1994, was led by industry, especially in such sectors as steel, electricity, chemicals, and oil processing. Strong profitability, buoyant sales and still-low lending rates drove investment during the period. Investment administered by local governments grew by 28.1% in the first six months, nearly double the equivalent central government rate, suggesting that efforts by the center to tighten local investment have not had lasting effects. Supported by policies to boost the rural economy, investment in agriculture surged by 37.5 per cent in the first half, faster than that in industry (29 per cent) and services (24.6 per cent).

The bank in the ADO report says that domestic agriculture should be boosted by policies to lift rural incomes and improve rural infrastructure. Growth in the services sector will be supported by the summer Olympics next year. Rising incomes bolstered by enterprise profits, salary increases for civil servants and higher minimum wages for some employees and policies to spur the rural economy will drive consumption. Higher incomes and improvements in the social security system will continue to underpin consumption growth. Top priorities remain the creation of jobs for nearly 8 million rural surplus workers migrating to cities each year and on lifting income growth in lagging regions and areas.

China’s inflation is estimated to be 4.2 this year and 3.8 per cent in 2008 against the previous forecasts of 1.8 and 2.2 per cent, respectively. Rising global grain prices and a pig disease outbreak led to sharply higher food prices, but this is expected to ease next year, paving the way for the implementation of planned reforms in the pricing of state-controlled sectors such as water, power and natural gas. Significantly higher than expected inflation, however, poses a risk to the outlook. Adverse weather would lower domestic grain production at a time when imported grain prices are high.

Exports rose by 27.6 per cent in the first half, exceeding import growth of 18.2 per cent. Exports are forecast to grow by 20 per cent and imports by 16 per cent in the second half, resulting in a record full-year trade surplus of around $300 billion, up more than 60 per cent from 2006. The current account surplus is now expected to swell to 10.9 per cent and 10.5 per cent of GDP in 2007 and 2008, respectively, revised up from the 8.8 per cent and 8.9 per cent projected earlier this year. The gap between export and import growth will probably narrow slightly as the changes to export tariffs and export tax rebates take effect. However, the report also reveals that China faces the key challenge of reducing the country’s reliance on exports and investment for growth in favor of private consumption. Such a switch could lessen vulnerability to external shocks and ease environmental strains caused by the emphasis on export- and investment-led heavy industry.

World economies -DAWN - Business; October 17, 2007
 
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Brazil

Growth is picking up in Brazil in 2007, responding to monetary policy easing after inflation was brought on track with central bank objectives, but is also expected to slow in 2008. Brazil has done a very good job over the last few years in moving ahead its reform agenda. Its growth has reached historic highs. The country would need to grow at a relatively high rate over the medium term. For this, it needs higher investment. Early this year, the government announced its new Growth Acceleration Program that puts the emphasis on public infrastructure investment that is needed to meet the bottlenecks.

A much greater emphasis by the government is on public investment. However, economists also see capital inflows and private investment, moving ahead rapidly. So in both public and private investment, the emphasis is high. Net inflows of US dollars to Brazil surged last month on a jump in exports and as foreign investors poured cash into domestic bonds and stocks. Inflows reached $6.72 billion in October, compared with outflows of $3 million from the country in September. Inflows from trade-related transactions jumped to $5.89 billion last month, compared with $1.98 billion September.

Brazil had net dollar inflows of $828 million from financial transactions, compared with outflows of $1.98 billion in September. Dollar inflows to Brazil in 2007 through October reached $76.78 billion. At the same time, the currency has gained about 23pc so far in 2007. Banks had long dollar positions of $2.97 billion in October, compared with $1.77 billion at the end of September. A long position on the dollar is a bet that the currency will strengthen against the real.

In Brazil, foreign exchange inflows in the first half of 2007 were double their level in the same period of 2006, driving an appreciation of the real to its strongest level against the dollar in seven years, notwithstanding heavy intervention. The exchange rate appreciation has contributed to containing inflation, giving room to the central bank to continue to lower interest rates, thus reducing the wide interest differential with other countries.

According to some private sector economists, the Brazilian economy is expected to grow by 4.0pc in 2007 after 3.7pc growth in 2006. Lower inflation and interest rates will help fuel consumer spending (including housing for lower middle income families). However, demand for imports will likely increase. Infrastructure bottlenecks and high taxes continue to limit growth and job creation in Brazil. The Brazilian Minister of Finance, on the other hand, projects a growth of 4.8pc in 2007 and close to 5.0pc in FY08. The figures of growth of the IMF for Brazil are 4.4pc for the economy in 2007 and 4.0pc in 2008.

Besides that, the IMF seems to believe that Brazil should let the dollar lose its value against the real until the markets find a point of balance. So the Finance Minister expects a more active action of the Brazilian government in dampening this lowering of the dollar. The fact is that Brazil’s growth has touched 5pc. It shows that Brazil can grow at 5pc. At the same time, Brazil’s central bank has established a well-tested inflation-targeting framework, which has delivered very good results.

The Brazilian central bank has brought interest rates down to historic lows and inflation down to around 4pc, well within or even below the central bank’s target. Consumer prices climbed 0.38pc in November from the previous month, according to the government’s statistics agency. Consumer prices, as measured by the government’s benchmark IPCA index, rose more than the 0.30pc pace in October. The increase was also more than the median 0.30pc increase forecast in a Bloomberg survey of 43 economists. Brazil’s inflation rate in the 12 months through November was 4.19pc, the agency said.

Higher economic growth forecast has prompted the economists to cut their 2007 and 2008 net debt to GDP estimates. For 2007, they forecast net debt of 46.6pc of GDP, compared with an earlier estimate of 48.4pc, the survey showed. The economists expect net debt to drop to 44pc of GDP in 2008, compared with a forecast of 45.4pc a week earlier Brazil’s main stock index rose to a record on the expectation that US measures to contain mortgage losses will maintain economic growth and spur demand for emerging market assets.

The Bovespa index of most-traded shares on the Sao Paulo exchange rose for an eighth day, the longest winning streak since January 2004 The Bovespa gained 0.7pc to 65,367.45, eclipsing the Oct. 31 high of 65,317.70. Petrobras, Brazil’s state-controlled oil company, rose 1.3pc, to 79.50 reais. Vale, the world’s largest iron-ore miner, gained 20 centavos, or 0.4pc, to 53.60 reais. The two companies make up about 35pc of the Bovespa index.

Mexico

Mexico’s government forecast economic growth of 3.5pc next year in its 2008 budget plan. It expects that the expansion would be even stronger if lawmakers agree to tax reforms. The budget plan did not include additional revenue from a pending tax reform that the government is seeking in order to generate extra cash for education and roads. The reforms would boost the government’s tax coffers by $10 billion. The tax changes would have an even bigger impact on growth in future years. The Finance Ministry wants to boost tax revenues to make the economy more competitive. Approval of the proposed tax would lead to extra funding into 2008 budget proposal.

At the same time, Mexico cut its 2007 economic growth outlook to 3pc on the back of economic concerns in the United States, its top trade partner. Previously, Mexico forecast growth of 3.3pc. The Ministry is proposing that 76pc of all the funds from the reforms are to be allocated to infrastructure works, above all roads, companies and energy projects. Mexico hopes the state oil monopoly, Pemex, will produce an average of 3.14 million barrels of crude per day next year, down slightly from current levels, and export 1.678 million barrels of oil a day on average in 2008, slightly above current export levels.

Crude oil output has averaged 3.162 million bpd so far this year. Mexico’s Congress has approved the 2008 budget revenue bill, injecting more cash into government coffers than initially projected because of more income from new taxes and higher oil price estimates. The upper house Senate approved the revenue bill for next year at about 2.56 trillion pesos ($239 billion). Mexico depends heavily on oil exports to fund more than one-third of the federal budget. Mexico is boosting its forecast for economic growth to at least 3.7pc in 2008, fueled by a newly passed tax package that can spur investment.A key plank in the tax package would allow corporations to deduct investments from their tax bills, and this would help growth. The tax overhaul marks Mexico’s most far-reaching economic reform in a decade and has boosted investor confidence. The government would now turn their attention to energy reform. The government is now going to push other less significant reforms, but important ones, in the financial sector. Mexico needs to increase tax revenues so it can make the economy more competitive with better schools and roads.

Economists say Mexico also needs to reduce its dependence on oil-related taxes that fund over a third of government revenue and starve Pemex of investment funds needed to keep oil production from declining. Without the tax package, the government had forecast slower economic growth in 2008 of 3.5pc. The tax reform should increase the country’s growth potential by 0.5pcage points of gross domestic product beginning in 2009. The bank expects economic growth of between 3.25pc and 3.75pc in 2008.

In Mexico the new government has already made significant changes in fiscal policy, and has announced an initiative, a kind of long-term framework, that shows Mexico’s per capita income rising very rapidly over the next 20 years. And through various pronouncements, the new government has indicated the areas where it intends its reforms to touch. The fiscal overhaul should increase Mexico’s tax revenues by 2.1pcage points of gross domestic product by 2012. Government revenues in 2008 will jump by about 115 billion pesos ($10.34 billion).

The cornerstone of the plan is a minimum income tax rate for companies at 16.5pc in 2008, rising to 17.5pc by 2010. Meanwhile, an increase in gasoline prices within the new law should have a “minimal” inflationary effect. Inflation is forecast to have an upward trajectory in the first quarter of 2008, reaching a peak in the second quarter. In the medium and long-term inflation expectations are above the bank’s 3pc target. The Mexico’s central bank projects inflation to be between 3.5pc and 4.0pc in the last quarter of this year and will tick upward to between 3.75pc and 4.25pc in the first three months of 2008 and then hold above 4pc over the following six months.

Colombia

Colombia has been doing very well. It has been experiencing very strong inflows of FDI and exports have been growing very strongly. The trend suggests that Colombia is coming off a period where growth has been above 6pc. Now, economists see Colombia’s growth rate remaining strong over the medium term. Its medium-term growth rate is expected to be around 5pc, which is much better than in the past. But there is likely to be some cooling off in coming months, partly reflecting the rapid growth. But this is still a very strong growth rate expected next year.

The economy grew 6.8pc in 2006, a 29-year high as investor confidence is bolstered by President Alvaro Uribe’s US-funded security crackdown on the country’s long-running left-wing insurgency and violence. The economy is expected to grow as much as 7.8pc this year, as security improves and foreign investment increases. As Colombia’s economy grows and foreign investment flows in, the peso has surged over the last year and investors fret over inflation. Consumer prices have already risen 4.11pc since the start of the year.

Colombia’s trade deficit widened to $316 million in August from $91.7 million in the same month a year earlier. The country reported a trade deficit of $1.46 billion for the first eight months of the year. Exports climbed 16.6pc in August to $2.48 billion compared with the same month a year earlier and rose 15.5pc in the first eight months to $18.24 billion, driven up by car sales. Exporters of products such as flowers and bananas, however, have also warned about the negative impact the strong peso and inflation are having on their industries.

Meanwhile, Colombia’s central bank is likely to impose a reserve requirement as it seeks to keep inflation within the 3.5 to 4.5pc target range for this year and slow the appreciation of the peso, which has strengthened more than 12pc over the last year. This seeks to moderate growth of credit to reduce growth of spending with the purpose of contributing to help inflation toward targets set by the central bank.

The bank has instituted requirements for banks to hold reserves of 27pc on current accounts, 12.5pc for savings and 5pc on fixed income with maturities below 18 months to trim funds available for lending. According to the Finance Minister, the measures were moderate and would not affect direct foreign investment. The increase in reserve requirements to lead to an increase in domestic interest rates, which should dampen the fast growth of domestic credit and help ease inflationary pressures.

World economies -DAWN - Business; December 10, 2007
 
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World economies​

Vietnam

Vietnam has emerged on to the world stage as one of the most attractive investment destinations. However, growing exposure to global markets has complicated macroeconomic management and heightened the urgency of reform in state-controlled industries. It is experiencing strong economic growth in 2007, mainly fuelled by strong non-oil exports, investment and private consumption. GDP grew 8.3pc year on year in the first nine months of 2007, with industry and manufacturing expanding by 10.2 and 12.5pc respectively.

Agricultural growth stood at 3pc, with a record growth of aquaculture (9pc) compensating for a slowdown in the poultry and livestock sub-sector. The last few months have witnessed new avian influenza outbreaks. While these have been marginal, this is an area that will require vigilance by the authorities. The service sector has also recorded high growth in the first nine months of the year (8.5pc) thanks to strong performance of retail trade, tourism, transportation and financial services. Domestic consumption and investment have also been strong.

Gross and retail sales grew by nearly 23pc in the year to September 2007. The share of the state sector continues to decrease and represents only about 11pc of the total by now. Total investment rose by 16.3pc in the first nine months of 2007. In current prices, it now represents 42.5pc of GDP. Investment by the domestic private sector increased by nearly 28pc and now accounts for about 17pc of GDP.

Inflation has accelerated in recent months, generating considerable debate among policy makers on the appropriate response. The Consumer Price Index (CPI) increased by 8.8pc in the year to September (7.3pc from beginning of the year). The annual figure for 2007 is likely to remain in the single digits, but barely. Given Vietnam’s very open economy and an exchange rate policy amounting to a peg to the dollar, part of the acceleration in inflation is related to the increase in the price of internationally tradable goods. There are also concerns that an excessive loose monetary policy might have fuelled increases in the prices of non-tradable goods.

Foreign Direct Investment commitments surged to 10.2 billion dollars in 2006 and US $9.6 billion in the first 9 months of 2007, a 38pc increase on a year ago. FDI commitments have clearly received a boost from Vietnam’s accession to the World Trade Organization. FDI disbursement rose by 20pc on the year to September 2007, representing about 6.8pc of GDP. While investment by foreign companies and by the domestic private sector has increased strongly, disbursements from the capital state budget are still low, reflecting the slow preparation and implementation of public investment projects.

Export earnings continue to grow rapidly (19.4pc year-on-year), despite a 10pc decline in crude oil exports due to production capacity constraints. On the other hand, there has been a strong pick-up in exports of agricultural products, seafood, garments, and footwear. Exports now account for roughly 72pc of GDP. The garments sector, one of the main drivers of export growth in recent years, saw its sales abroad increase by nearly 32pc in the first nine months. Vietnam is by now one of the top ten garment exporters in the world, with the United States its largest market, accounting for almost 60pc.

Imports grew by 30pc in the year to September 2007, driven by a strong investment demand and the input needs associated with industrial expansion. The rapid growth of imports has resulted in a widening trade deficit, estimated to reach 7pc of GDP in 2007.

The current account deficit is expected to reach 3pc of GDP this year, compared to 0.3pc in 2006. However, the balance of payments situation remains sound, with the current account deficit largely financed by non-debt creating FDI inflows, official development assistance (ODA) and private remittances Vietnam has eyed GDP growth of 8.0-8.5pc and CPI of lower than the targeted economic growth.

The Asian Development Bank forecast Vietnam will gain gross domestic product (GDP) growth of 8.3pc this year and 8.5pc next year. It predicted consumer price index (CPI) of 7.8pc this year and 6.8pc next year.

World economies -DAWN - Business; December 31, 2007
 
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World economies​

United States

The US economic growth is expected to remain steady in 2008, inflation is predicted to decline next year, and the unemployment rate is forecasted to rise through 2008, according to the participants at the Federal Reserve Bank of Chicago’s Economic Outlook Symposium. The consensus outlook shows that real gross domestic product (GDP) is forecasted to increase 2.5 per cent in 2008. Inflation, as measured by the Consumer Price Index, is expected to moderate to 2.6 in 2008 after rising 3.6 percent last year. The unemployment rate is forecasted to rise to five per cent by the end of next year from 4.7 per cent last year, suggesting that overall growth in the economy is somewhat below potential.

All major components of real GDP are expected to contribute to the softening expected in economic growth. Most major real GDP components are anticipated to continue expanding in 2008, albeit at a slower pace than in 2007. The drag from the housing sector is forecasted to moderate. In particular, the consensus outlook shows residential investment is expected to decrease by four per cent in 2008. Light vehicle sales will decline to 16 million units in 2008. Oil prices are expected to decline by the end of 2008, after jumping just above $90 in the final quarter of 2007.

Additionally, real personal consumption expenditures are projected to stay constant at 2.5 per cent in the coming year. Housing starts are expected to drop from 1.35 million units in 2007 to 1.21 million units in 2008. Industrial production growth is forecasted to ease from a 2.6 per cent increase in 2007 to a 2.5 per cent increase next year. Short-term interest rates are expected to rise 17 basis points in 2008, while long-term rates are predicted to increase 30 basis points over the same time period. The trade-weighted dollar is expected to edge lower in 2008.

Many economists predict that America will move closest to a downturn since the current expansion began seven years ago. If the economy does contract, economic seers expect a shallow retrenchment, most likely in the first six months of the year. Most see only limited improvement in the latter half. A lagging economy is likely to have wide ramifications. In the heat of a presidential election year, unemployment would start to rise, making the economy a major issue for the candidates. An anemic economy would also present a challenge to the Federal Reserve Board, which might opt to keep cutting interest rates.

Soft economic numbers, moreover, could have a detrimental effect on corporate profits – depressing financial markets and lowering tax receipts, straining government budgets. Behind the dim forecasts for this year are some of the same factors that beset the US economy this year: stress in the housing market and relatively high oil prices. These twin problems will, in 2008, finally get to the consumer according to some other economists. Consumer spending in 2008 will slow to a 1.8 per cent pace, but it could be below one per cent. The first half will feel like a recession for consumers.

Unlike some previous years, the economy will have little momentum leading into 2008. Retail analysts believe holiday sales rose by no more than 4 percent, one of the slowest rate increases since 2002. As was the case this year, one of the strongest head winds buffeting the economy will be problems in the housing market, economists say. Sales of new homes are expected to continue to fall as builders try to shed inventory. Few forecasters expect to see home prices rise, or even stabilize, next year. Instead, estimates of a further decline in value range from 3-6 per cent.

If the national trends showed housing prices falling 8-10 per cent, that would be enough to send US into a recession. The manufacturing segment of the economy is already in a recession. Manufacturing production is estimated to have fallen two per cent in the last quarter of 2007. Auto sales are poor. Wood products, furniture, glass, hardware is all declining. There is now a snowballing on the downside that is dragging down other markets.

Losses in the banking system will stifle the economy. With an estimated $200 billion in losses in the housing arena, the banks need to increase their reserves. This could reduce the availability of money for new loans. The banking system is very fragile right now. Economists expect that the Federal Reserve will continue to cut interest rates because of recession concerns. The Fed's next meeting is Jan. 29 and 30. The computer models at Standard & Poor's indicate that the price of a barrel of oil should fall by about $20 to the neighborhood of $75.

China

China might see a "significant dent" in its economic growth rate, if the US economy slides into a recession, according to the recently released United Nations report. The country is expected to grow at a robust pace of 10 per cent in 2008, moderating from the 11.4 per cent growth estimated for 2007.The report also considered a more pessimistic scenario under which housing prices in the United States make a more significant dive and push the US economy into a recession in 2008. Should this happen, economic growth in China would drop below 8 percent in 2008.

However, the UN's prospects for the Chinese economy in 2008 remain positive overall. Fixed investment continues to be a key growth driver. Private consumption, which was relatively weak in the past compared with other components of GDP, will strengthen due to a strong growth in wages and the positive wealth effects from the significant rise in stock prices over the past two years. The weight of the Chinese economy in the world has been steadily increasing. China contributed about 17 percent to global growth in 2007, about the same as the United States.

China's trade with the rest of the world has been growing three times as fast as the world average since its accession to the WTO in 2001. If it keeps up the momentum, China will become the largest exporting economy in 2009. Rapid industrialization has generated strong spill-over effects on the economic development of other developing countries, contributing directly to their exceptionally strong growth performance in recent years.

China's increased demand for raw materials has sustained the upward trend in primary commodity prices, which determine an important part of export revenues of many developing countries. Import demand for iron ore increased by more than 40 per cent, copper by more than 100 per cent and edible vegetable oils by about 80 percent during 2007. China has also stepped up its efforts to strengthen South-South economic cooperation through trade agreements, increased direct foreign investment, and development assistance and debt relief, in particular with the least developed countries.

China has disbursed multi-billion dollars in preferential loans to encourage Chinese enterprises to invest in ASEAN countries, and created a multi-billion dollars China-Africa Development Fund to stimulate Chinese investment. It has also promised to double its assistance to Africa in 2009. The aid is targeted mainly at energy, telecommunications and transportation, which have by and large been neglected by the traditional, OECD country donors. The financial support is highly concentrated in a small number of oil-and-mineral-exporting countries, and most of the aid is provided in kind by Chinese companies, using inputs of Chinese origin, including labor.

China's RMB appreciated by more than six per cent against dollar during 2007, but China's surplus in its current account surged further, to about 300 billion dollars. With a surplus in both its current account and capital account, China has accumulated more than $1.4 trillion in official foreign reserves. The UN report said China's large current account surplus should be seen in the broader context of the problem of the global macroeconomic imbalances involving the huge external deficit of the US counterbalanced by surpluses elsewhere, including China. These imbalances can not be resolved unilaterally or bilaterally.

China's inflation rate hit a new 11-year high of 6.9 per cent last November, prompting the government to take a series of measures, including subsidizing pig breeders and oil makers, to fight price hikes. PRC’s inflation is estimated to be 3.8 per cent in 2008 against the previous forecast of 2.2 per cent. Rising global grain prices and a pig disease outbreak led to sharply higher food prices, but this is expected to ease paving the way for the implementation of planned reforms in the pricing of state-controlled sectors such as water, power and natural gas. Significantly higher than expected inflation, however, poses a risk to the outlook. The Chinese government, however, has decided to take measures to stabilise market prices and increase the severity of punishments for those guilty of driving up prices through hoarding or cheating.

World economies -DAWN - Business; January 14, 2008
 
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World economies​

India

The Indian economy, Asia’s third-largest, has grown at an average 8.6 per cent in the past four years but reforms such as further opening the economy to foreign investment and the privatisation of state firms have stalled due to opposition from supporters of the ruling coalition. The economy is expected to grow by 8.5 per cent in the financial year ending in March 2008, according to the central bank, slowing from 9.4 per cent in the previous fiscal year.

While the Indian economy has moved to a higher growth trajectory, a major challenge for policymakers is to find ways to expand the market-based reforms so that the benefits flow to all sections of the population. Accelerating growth and the capacity bottlenecks have piled pressure on prices that are also feeling the heat from fast rising prices for imported foodstuffs. Indian consumers are still being shielded from the costs of oil in the international market.

The Reserve Bank of India, while ensuring that the credit and interest rate environment supports exports and investment demand, is successfully containing inflation pressures. Higher interest rates have not dampened business investment as a very buoyant long-term economic outlook has outstripped a cyclical rise in borrowing costs. Interest rate rises, however, will encourage consumers to put off spending, leading to moderation of demand for consumer durables and a slowdown in the pace of construction activities.

India’s economy could achieve growth of 10 percent in 2011 if the government persists with reforms, including privatisation of state firms. According to the OECD, India needed to relax its labour laws, remove a cap on foreign investment in the insurance sector and undertake wide-ranging reforms to boost growth and reduce poverty. The impressive response of the Indian economy to past reforms should give policymakers confidence that further liberalisation will deliver additional growth dividends.

The OECD said India was on track to meet its fiscal deficit target of 3 percent of GDP by 2008/09, but there was a need to raise the savings rate further and improve the quality of spending. It called for the insurance and retail sectors to be opened up further. The government has expressed its intention to raise the cap on foreign direct investment (FDI) in the insurance sector to 49 percent from 26 percent but this has also been blocked by the left. Lifting the ban on FDI in retail trading would help to improve productivity, supply chain management, reduce the exceptionally high rate of waste of agriculture produce and so lower retail prices and raise producer prices.

While India remains relatively immune to US credit woes, the oil prices, if sustain the current high levels, may impact the ability of Indian economy to grow under its own steam. A record surge in foreign investment has resulted in a sharp appreciation of the rupee, which is already hurting exports, especially earnings of the highly profitable outsourcing industry. The Reserve Bank of India estimates the economy to grow at 8.5 per cent in the financial year ending March 2008. This is lower than the 9.2 per cent expected for financial year ending March 2008.

After several decades of sluggish growth the Indian economy is now amongst the fastest growing economy in the world. Economic growth is currently second only to China. India will become the 3rd largest economy by 2035, despite having a GDP of $1.09 trillion (2007). This works out as an average GDP per capita of $964. Despite the rapid growth, poverty remains a real problem, especially in rural India. In 2008 and beyond India faces the real challenge of making sure that all sections of the population continue to benefit. Current estimates suggest that 27 per cent of the Indian population live below the poverty line.

Bangladesh

According to the Asian Development Bank’s latest economic update, GDP growth remained robust at an estimated 6.5 per cent in FY2007, propelled by rising domestic and external demand. A strong expansion in industry and continued buoyancy in services largely offset agriculture’s moderation following its post flood bounce back of the preceding year. Industry was sustained by strength in manufacturing, driven by continued growth in external demand for garments. The manufacturing and trade performance sustained steady expansion in services.

Inflation continued to creep up, to 9.2 per cent on a year-on-year basis, with increases in both food and nonfood prices. Rising domestic demand pressures, stemming from a steady expansion of income, a large increase in workers’ remittances from abroad, and high monetary growth heightened inflationary pressures, as did a further rise in international food and commodity prices. Imported fuel has only a limited impact given its small weight (four per cent) in the index and low energy intensity of production.

The 12-month average CPI inflation stood 7.20 percent in June 2007, which is slightly higher than 7.16 percent in June 2006. The June 2007 inflation was a little below the upper of the ceiling of 6.80-7.30 per cent forecasted in the Monetary Policy Review (MPR) of April 2007. Both the external pressure on prices and demand side inflationary expectations in the domestic economy appear to persist. In a rapidly globalizing world, it would be important for the policy makers to monitor future development of food prices in major trading partners, particularly neighboring India.

The government’s recent administrative measures to counter inflation, such as investigations of certain businesses suspected of hoarding supplies; measures to regulate stock levels and prices; as well as its encouragement to new importers to enter the market and so induce greater competition, appear to have had no discernible impact on inflation. They have, rather, created uncertainty in the business environment, contributing to price pressures.

Exports grew by 15.8 per cent in FY2007, essentially reflecting robust performance in the garments industry. Concurrently, imports rose by 16.6 per cent. The rise in the trade deficit was more than offset by a 25 per cent surge in officially recorded overseas workers’ remittances, owing to an increased number of workers abroad. The current account surplus rose to an estimated $952 million, or 1.4 per cent of GDP, for the year. The capital account, including a large errors and omissions item, shifted to a $541 million surplus from a $486 million deficit a year earlier, mainly reflecting a swing in the short-term borrowing item from large net repayments to large borrowing.

Bangladesh’s economic growth will slow to 6.5 per cent in the current fiscal year to June 2008 from 6.7 per cent a year earlier due to floods and inflation remains a challenge. Despite the floods, agriculture is expected to show growth of 2.8 per cent, slightly less than last year, the ADB said in its latest economic outlook for Asia. The ADB raised its inflation projection for the fiscal year to seven from six per cent. The floods helped drive inflation to 10.10 per cent in July, the highest in 13 years. The floods have killed 916 people since late July and damaged rice and other crops on millions of hectares.

Monetary policy: Maintaining a cautious monetary policy stance would be a challenge since the flooding came at a time of fast monetary growth and rising inflation. The strength of the external sector is likely to be sustained in fiscal 2008, with growth in overseas workers’ remittances offsetting the rising trade deficit. Although the ending of quota arrangements in garments and textiles has so far had a positive impact on Bangladesh, the country will face tough competition in its two largest markets, the European Union and the United States, when “safeguard quota” provisions on China expire at end-2008

The thrust of the FY2008 budget is to create a stable environment for accelerated economic growth. Although revenue is projected to rise to 10.8 per cent of GDP, higher expenditure, caused by a rise in development spending, is forecast to widen the fiscal deficit to 4.2 per cent of GDP. Strong efforts to meet the revenue target will be needed because any greater bank borrowing to finance planned expenditure would push reliance on banking system finance to a level that would undermine monetary control and accelerate inflation.

Between the introduction of a flexible exchange rate regime at end- May 2003 and end-June 2006, the taka depreciated: by 17 per cent against the dollar and by 11.5 per cent in terms of the real effective exchange rate. This has supported growth in exports and remittances. But in FY2007, because of higher foreign exchange inflows from a notable improvement in the current and capital accounts, the taka appreciated slightly against the dollar and by 2.5 per cent in real effective terms. Given comfortable reserves, the central bank is in a position to allow some greater flexibility in the exchange rate in line with market trends, intervening only to correct disorderly movements. Bangladesh faces various risks that could derail these projections.

The strength of the external sector in FY2008 is likely to be sustained, with strong growth in overseas workers’ remittances offsetting the rising trade deficit. Although the ending of the quota arrangements in garments and textiles has so far had a positive impact on Bangladesh, the country still runs the risk of facing tough competition in its two largest markets— the European Union and the United States as the “safeguard quota” provisions on the People’s Republic of China expire at end-2008. To retain competitiveness, Bangladesh needs to cut lead-times for delivering garments, upgrade labor skills, and improve its infrastructure.

World economies -DAWN - Business; January 28, 2008
 
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World economies​

Japan

Japan’s economy continued to grow slowly in 2007. GDP is expected to grow two per cent for the year, compared to 2.2 per cent in 2006.Unemployment also stayed relatively steady, at 3.8 per cent in November 2007 .Japanese growth has been dampened by a tightening in building standards, while consumer and business sentiment have weakened. Japan’s growth is forecast on an annual basis at 1.5 in 2008, down from 1.9 per cent last year, although on a Q4-Q4 basis growth is forecast to improve somewhat to 1.6 from 1.2 per cent in the fourth quarter of 2007.

The International Monetary Fund on trimmed its projection for Japan’s economic growth for 2008 to 1.5 down 0.2 percentage point from its forecast three months ago, as global growth slows amid lingering financial market strains. The IMF now expects global growth and US growth for 2008 to moderate to 4.1 percent and 1.5 percent, down 0.3 point and 0.4 point respectively from its previous forecasts. In Japan, growth has been dampened by a tightening in building standards, while consumer and business sentiment has weakened. However, competition for skilled employees and graduates of top colleges has intensified significantly.

The Bank of Japan Governor said recent sharp gains in oil and food prices could push up Japan’s consumer inflation in the coming months. Year-on-year growth in the core consumer price index, which already reached 0.8 percent (in December), is expected to accelerate significantly at one point and possibly reach 1 percent given recent surges in crude oil and food prices. Unless crude oil prices continue to rise at the current pace, consumer price growth will start to slow but will not return to zero as long as Japan’s economy achieves stable growth around two per cent. The core consumer price growth will likely move in line with the BOJ’s forecast of 0.4 per cent for fiscal 2008/09.

Job seekers outnumbered positions available last month for a second consecutive month, with the ratio falling to the lowest level since October 2005, the Labor Ministry’s report showed. The ratio of jobs to applicants slipped to 1.04 in whole year 2007 from 1.06 in 2006. In fact the number of unemployed persons in December 2007 was 2.31 million, which was a decrease of 130 thousand or 5.3 per cent from December 2006, while the number of employed persons stood at in December 2007 63.96 million, an increase of 420 thousand or 0.7 per cent on the previous year. The average unemployment rate for whole year 2007 was 3.9 per cent which was down from the 2006 average of 4.1

Meanwhile, Japan’s merchandise trade surplus fell for the second straight month in December as higher crude oil prices inflated imports and exports to the US dropped for the fourth month in a row.The trade surplus dropped 20.9 per cent to 877.87 billion yen from a year earlier, smaller than the market’s consensus forecast for a surplus of 926.9 billion yen. The fall followed a 12.2 per cent decline in November.Higher oil prices largely pushed up imports while Japan’s domestic demand itself remained stagnant, and this trend is likely to continue as oil prices are expected to stay in a high range. crude oil: Imports increased 12.1 per cent to a record 6.559 trillion yen as the average price of crude oil rose 54.6 per cent to a record $90.60 per barrel. The previous record was $81.10 per barrel, which was only reached in November.The value of crude imports rose 49.2 per cent, pushing up overall imports by 8.4 percentage points. Purchases of liquefied natural gas rose 28.6 per cent, pushing up overall imports by another 1.2 percentage points. Imports of other petroleum products surged 37.4 per cent in December, adding a further 1.0 percentage point to overall growth in imports.

Exports rose by a moderate 6.9 per cent to 7.437 trillion yen, rising for the 49th straight month, on higher shipments of cars and telecommunications equipment. The December data showed that Japan’s exports continued to be upbeat, propped up by strong demand from the Middle East, especially vehicles, and shipments to Asia, although exports to the US declined. Japan’s exports are expected to contribute to raising Japan’s gross domestic product for the October-December period by 0.3 percentage points. Overall exports, however, maintained their rising trend as brisk exports to China, the EU and oil producing nations more than offset the decline in exports to the US.

The faster-than-expected inflation rate is causing a dilemma for the Bank of Japan, which is coming under pressure to lower rates at a time when some board members are increasingly concerned at the public’s inflationary expectations. However, the Bank of Japan has left interest rates unchanged, despite market turmoil. The central bank’s board’s unanimous vote to hold rates at 0.5 per cent came as Japanese stocks fell 5.7 per cent to two-year lows with investors following others around the world in dumping stocks. The yen hit a two-and-half-year high against the dollar.

A rate hike to 0.75 per cent, once considered a near certainty by the end of last year, has been stalled by mounting threats to Japan’s economic outlook and slowing US growth. The Bank of Japan has maintained it will raise rates gradually in line with improvements in the economy to keep it from overheating. But tame price growth and market turmoil ensuing from the US subprime problem have kept it from raising rates since February last year.

Russia

Russia’s economy expanded last year at the fastest pace since 2000 as a record flow of money into the country spurred capital investment and a consumer boom. Growth, at an annual 8.1 per cent, beat government forecasts and compared with a revised 7.4 per cent rate in 2006.The pace is faster than the government and economists expected, with Finance Minister saying 2007 growth reached 7.8 per cent. The world’s biggest exporter of crude oil and natural gas has entered its 10th consecutive year of growth, boosted by rising incomes and consumer spending. Net capital inflow almost doubled in 2007 to $82.3 billion. At the same time end of year inflation was running at 11.9 per cent in Decemeber 2007.

This figure gives grounds to expect the Russian economy to grow at least 6.5-7 per cent annually within the next three years. Investment growth in December was up 24 per cent on the previous year, and industrial production rose 6.5 per cent at the end of last year, while construction grew by 20 per cent. These figures suggest that the fundamentals of Russia’s economy are strong enough to support growth and that the Russian markets will be able to resist the global financial turmoil.

Russia’s inflation rose in 2007 to the highest in four years in December as the government proved unable to put a brake on food prices and wages even while investment soars. The rate for the year rose to 11.9 per cent from 9 percent in 2006, the first time that the rate has surpassed the previous year since 1998.Consumer prices rose 1.1percent in December, compared with a 1.2 per cent advance in November. Inflation further accelerated in January to its fastest pace in 30 months as oil and gas prices surged, fueling consumer demand. economic growth: Russia’s economic growth in 2007 has proved to be the highest in recent years and this trend will persist in 2008. In the past five years, the Russian economy has grown at an annual rate of above seven per cent, except for 2005, when GDP expanded 6.4 per cent. The global economic crisis is unlikely to affect Russia considerably as Russia’s economic growth is increasingly based on domestic demand. According to some private economists, Russian economy is revealing a signs of overheating and in 2008 is expected to slow down. Economists claim that Ruble may continue to reinforce because of the high inflation rise. Growth of the gross domestic product (GDP) in Russia slows in 2008 at 6.7 per cent

Import demand growth is expected to ease because the upward pressure on the ruble will presumably weaken somewhat once the strong rise of oil prices experienced in recent years levels off, as expected and because the economic expansion will lose some momentum. Rapidly rising imports are not yet considered to pose a threat to Russia’s external balances. Given the persisting dependence of the Russian economy on the extraction and export of raw materials, the oil price remains a key risk factor for Russian growth. If the oil price were to drop sharply, Russia’s current account balance could run into the red in one or two years from now and economic growth could suffer.

There is pressure to loosen fiscal policy in Russia. Thus, government consumption is expected to speed up somewhat in 2007 and in 2008. GFCF is predicted to continue growing at a robust pace in 2007 and 2008, driven by huge projects in the energy sector and increased public investment. Rapid economic growth and the further real appreciation of the ruble will sustain high import growth which, however, is expected to decline somewhat. Furthermore, the stability of the capital inflows is not guaranteed. Another risk factor consists of a possible excessively quick appreciation of the real exchange rate, triggered by accelerating inflows of energy proceeds and/or capital inflows.

The rapid expansion of domestic lending, which has been going on for some years now, will also trigger risks if the number of problem loans swells further.

World economies -DAWN - Business; February 11, 2008
 
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World economies​

Canada

The Canadian economy continues to operate above its production capacity, despite some slowing in growth in the fourth quarter of 2007. Both total and core inflation have been lower than projected in the October, largely reflecting a price-level adjustment related to increased competitive pressures in the retail sector stemming from the level of the Canadian dollar. Financial conditions have deteriorated, leading to tighter credit conditions in industrialized countries. Given this, and a deeper and more prolonged decline in the US housing sector, the US economic outlook for 2008 has been revised downwards significantly.

According to the monetary policy update released by the Bank of Canada in January, the weaker US economy will put additional downward pressure on Canada’s export growth. Despite tighter credit conditions, domestic demand in Canada is expected to remain strong, supported by continued income growth associated with high commodity prices. The Bank now projects that economic growth in 2008 will be weaker than was expected, averaging a little over one per cent in the first half of the year and a little over 2 per cent in the second half. On an average annual basis, the economy is projected to expand by 1.8 per cent in 2008 and by 2.8 per cent in 2009.

The economy grew broadly inline with the bank’s expectations in the second half of 2007. Despite some slowing in growth in the fourth quarter, the economy continues to operate above its production capacity. The effects of the slowing US economy will lead to additional downward pressure on export growth. However, despite tighter credit conditions, domestic demand in Canada is expected to remain strong, supported by continued income growth associated with the increase in commodity prices seen since October, which has led to further gains in Canada’s terms of trade.

Inflation: Both core and total CPI inflation are projected to fall below 1 1/2 per cent by the middle of 2008 before returning to two per cent by the end of 2009. This primarily reflects the price-level adjustment noted above and, for total inflation, the recent reduction in the GST. Excluding the impact of the GST reduction, total inflation is projected to average close to the two per cent target throughout 2008 and 2009. The risks to the Bank’s inflation projection are judged to be roughly balanced. There is continued strong momentum in domestic demand growth, and capacity pressures could be stronger than judged, especially if weak productivity growth were to persist.

Final domestic demand is expected to remain the key driver of economic growth over the projection period, supported by high commodity prices, further robust growth in real incomes, and lower policy rates. But the major change is much weaker net exports. While import growth is expected to stay robust over the projection period, the outlook for Canadian exports has been marked down, reflecting the weaker US economic outlook. With the pickup in US GDP growth in 2009, the drag on Canadian economic activity coming from net exports diminishes.

The foremost task for the Canadian government is to control its spending to avoid fueling inflation. High inflation would make difficult for the Bank of Canada to ease interest rates to offset the currency appreciation. The final projection could change between now and its official release in the federal budget by early March. In addition to currency appreciation and the US subprime mortgage meltdown, the official cited labor shortages, an aging population and productivity as key challenges to Canada’s economy in the future.

The government should not adopt programs that would impede the necessary restructuring of the manufacturing sector, which is a global trend and not unique to Canada. Inflation has been easing in Canada in the past couple of months, taking some pressure off the Bank of Canada as it seeks to keep the economy as productive as possible in the face of the growing risk of a US recession.

Australia

Overall, the outlook for the domestic economy remains strong with higher than average growth despite global growth in 2008 likely to moderate. Since peaking in November 2007, the Australian share market has fallen more than 20 per cent. This year so far the market is down 15.2 per cent wiping away most of the gains achieved during 2007.The primary cause of the market’s weakness and its volatility is the health of the US economy. There are concerns that the US will slip into recession during 2008.

Denting US economic growth has been its sub-prime mortgage problem. Loans were made to people who simply couldn’t afford it. Eventually the borrowers defaulted and some US banks and other financial institutions reported very large losses. At the same time, the US home building sector has been shrinking and acting as a drag on the economy. Even though the US Federal Reserve has reduced its official cash rate, borrowing costs for businesses in the US have risen. This is also hurting the economy and business profits. Lenders are simply charging higher interest rates to customers with lower credit ratings. When large US banks reported actual losses and when economic indicators pointed to a slowing economy, US investors decided it was time to sell and Australians followed suit. Despite the fact that the Australian economy is strong and growing, investors became nervous. There were too many uncertainties for investors to cope with and January saw 12 consecutive days in which the Australian share market fell. Australia is not alone in experiencing market weakness. Since the start of the year, the US Dow Jones Industrial share price index has fallen 7.5 per cent. In the United Kingdom the FTSE 100 index is down 13.1% while in Japan the Nikkei is down 16.2 per cent.

Outlook: However the Australian economy and the outlook for the Australian economy is positive. In fact, at present the Australian economy is growing rapidly. The weakness of the share market, in light of the strength of the Australian economy, can be frustrating. But markets are affected by sentiment in the short-term and so far in 2008, sentiment has been negative. The economy as it stands still enjoys low unemployment (close to multi-decade lows), reasonable consumer confidence and strong domestic growth – despite recent reports to the contrary.

Australia’s 33-year low unemployment rate could add to inflationary pressures in the economy. Australia’s unemployment hit a low of 4.1 per cent in January, while official data showed inflation rose at its strongest pace in 16 years at 3.6 per cent in the last quarter. Australia’s central bank this month cited the tight labour market as one reason for raising interest rates to an 11-year high of 7.00 percent in February, with economists expecting a further rate hike in March to curb inflationary pressures.

Wages data showed annual increases running at 4.2 percent in the fourth-quarter, still below the 4.5 per cent pace analysts have typically seen as a threat to inflation. However, the central bank, in its quarterly policy outlook this week, highlighted that the average earnings measure of wages from the national accounts was growing at a much greater 5.9 per cent annual rate, the fastest pace since 1996. The government has announced plans to deliver a budget surplus of at least 1.5 per cent of gross domestic product in May as part of a package designed to help cool price pressures.

But the government has also promised to go ahead with A$31 billion ($28.44 billion) in tax cuts over the coming three years, saying they would be an incentive to encourage greater workforce participation and would therefore not fuel inflation. The planned surplus would be “a material tightening of fiscal policy” compared to the surplus projections released last October, and would help cool demand in the economy. That would make some contribution to reducing aggregate demand.

According to the Reserve Bank of Australia (RBA), Australia continues to face inflationary pressures as domestic demand and activity have remained strong and capacity usage is high after a long period of economic expansion. The risk of inflation remains uncomfortably high even in the absence of a further shift in economic risks to the downside. Therefore, monetary policy is likely to need to be tighter in the period ahead. Inflation is forecast to decline gradually from late this year, but will still be around three per cent in two years’ time, even taking into account recent interest rate rises. The RBA is aiming to keep annual inflation within a 2-3 per cent range.

The central bank said there have been persistent signs that productive capacity is stretched with demand still growing strongly after a long period of expansion. The RBA said the high levels of business investment now underway will undoubtedly assist in alleviating bottlenecks over time and add to the growth of the economy’s productive potential. Financial conditions facing household and business borrowers in Australia have become more restrictive since the middle of last year, reflecting the combination of higher interest rates, reduced access to capital markets and, for some borrowers, tighter credit standards.

Funding cost: In addition, lenders have raised the interest rates on their loan products in response to higher wholesale funding costs. But it remains to be seen how far funding difficulties in wholesale markets will curtail the ability of lenders to provide credit to households and businesses. Tighter financial conditions since the middle of last year seem to have had a modest restraining influence on household borrowing, though the effect on businesses has been less clear. Lending to businesses has remained strong, expanding by 24 per cent in 2007, the fastest pace since the late 1980s. Even allowing for the sharply reduced borrowing by businesses on capital markets in recent months, the growth of total business debt has remained very rapid, rising 19 percent in 2007, faster than before.

World economies -DAWN - Business; February 25, 2008
 
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World economies​

AFRICA

The Sub-Saharan African economy has been growing steadily. This is unprecedented in view of the stagnancy that characterised the region in the last few decades as a result of political instability and income volatility. Economic growth in the region hovered in the region of 6per cent per annum while inflation is 7.5per cent. The IMF and World Bank argue in separate reports that the region is witnessing its strongest growth in 30 years. This steady economic performance in the region is driven by revenues from oil which has been on unprecedented rise in the last few years. The three major benefiting countries Nigeria, Angola, and Gabon are presently awash with oil revenues. While Angola is witnessing its fastest growth ever (17per cent) projected to be 20per cent in 2008, Nigeria is presently growing at 6per cent.

Forecast growth for African economies will be an average 6,2 per cent in 2008, according to ‘Economic Report on Africa’ published by the United Nations Economic Commission for Africa (ECA) and the African Union (AU). According to the report, African economies continued their growth momentum and achieved an overall real GDP growth rate of 5,8 per cent in 2007. Some 30 countries recorded higher economic growth rates in 2007 than 2006, but growth performance varied substantially across countries and regions.

Africa’s economic growth performance was driven mainly by robust global demand and high commodity prices. Other growth factors on the continent include: consolidation of macroeconomic stability, improving macroeconomic management and greater commitment to economic reforms, increased private capital flows and debt relief, increasing non-fuel exports. Africa has also witnessed a decline in political conflicts and wars, especially in West and Central Africa, though peace remains fragile in some parts of the continent. Key challenges to growth in 2008 include a fall in global commodity demand and prices and the risk of sharper slowdown in the US economy.

High oil prices hurt the many countries that import oil by weakening the current account and adding inflationary pressure, at the same time as continuing to benefit oil exporters including Angola and Nigeria. Other constraints to Africa’s growth are political instability in some countries, inefficient public infrastructure and unreliable energy supply at the national level, as well as poor integration of transportation and energy networks at the sub-regional level. The report says that substantial progress has been made in the area of external debt relief. However, very limited progress has been made in the other core areas of the Consensus such as mobilising domestic financial resources for development; mobilising international resources for development; promoting international trade as an engine of development; increasing international financial and technical cooperation for development; and addressing systemic issues.

IRAQ

Although the very high level of violence abated in 2007, Iraq continues to experience a difficult security situation in parts of the country. Yet the country made significant progress according to the International Monetary Fund. The Fund’s decision to continue supporting Iraq’s economy recognizes the significant progress the country has made under the IMF program. Still much remains to be done to put Iraq on a path to sustainable growth. The main objectives of the new program, which will run through March 2009, are to maintain macroeconomic stability, facilitate higher investment and output in the oil sector, and advance structural reforms and institution building.

Because of the security conditions, however, the implementation of the public investment program fell short of budget plans, and oil output and economic activity in general did not expand as much as was hoped. Before oil exports through the northern pipeline to Turkey resumed in the last quarter of 2007, oil production hovered around 2 million barrels per day (mbpd). Maintaining macroeconomic stability remains a key objective of the authorities’ program for 2008.

Real GDP growth is expected to increase steadily, rising to over 6per cent in 2008-09, as oil production rises and the services sector recovers slowly. The IMF has released new real GDP projections for Iraq, which forecast that growth will pick up strongly from 1.3per cent in 2007 to 7.1per cent and 7.5per cent in 2008 and 2009 respectively. The Fund has estimated that Iraq returned a small fiscal surplus in 2007, as oil revenue was supported by high oil prices and the government failed to fully disburse its capital and current expenditure budgets.

The Central Bank of Iraq will gear its monetary and exchange rate policies toward achieving this objective. Fiscal policy will help contain inflation by keeping current spending, notably the wage and pension bill, in check to limit pressure on Iraq’s small non-oil economy. The envisaged increase in government investment, in view of its high import content, should have only a limited impact on inflation.

Inflation, which spiked at 65 percent at end-2006, was sharply reduced with a policy package that included exchange rate appreciation, monetary tightening, and fiscal discipline. These policies, together with measures to reduce fuel shortages that resulted in declining black market fuel prices, limited the increase in consumer prices to less than 5 percent during 2007. Core inflation, which excludes fuel and transportation prices, fell to about 12 percent from 32 percent in 2006. The Economic Intelligence Unit (EIU) has lowered its inflation forecasts, after the Central Bank of Iraq released new data revealing that consumer price growth fell to just 4.7per cent, year on year, at end-2007.

Although much remains to be done, Iraq has registered a number of successes. Significant progress was made in stabilizing the macroeconomic environment and in advancing the structural reform agenda. The 2008 program will focus on similar objectives to capitalize on the momentum achieved by the first program and, in particular, to help the economy begin growing again. Continued progress, however, will depend on the success of efforts to stabilize the security situation and strengthen the political consensus.

In light of Iraq’s large reconstruction needs, the government has prepared an ambitious investment program for 2008. It is taking steps to speed up projects that could not be undertaken in previous years, in particular to rebuild infrastructure and improve the provision of electricity, water and sanitation, education, and health care. Provided that further security improvements allow execution of the public investment program and a return to a more normal functioning of the economy, economic activity outside the oil sector should pick up.

The authorities’ program will also focus on the oil sector and the need for higher investment to raise output and for greater transparency. Raising oil production will be crucial to provide the resources needed for reconstruction over the medium term. Projects to increase production and export capacity in the south and better protect the northern export pipeline are either under way or planned. With continued exports through the north, oil production is projected to increase to 2.2 mbpd in 2008, helping to boost economic growth overall to about seven per cent.

NIGERIA

The Nigerian economy is largely dependent on revenues from oil. The 2008 budget recently presented to the National Assembly reveals that oil sector is expected to contribute 80per cent or N3.63trillion, while non-oil sector comprising of agriculture, manufacturing, solid minerals, services and other invisibles combined will fill the 20per cent funding gap which comes to a paltry sum of N910billion. The implication of this is that oil revenues as it is presently will either make or mar Nigeria’s developmental dream sequel to the transient nature of oil prices. This also negates the over emphasised government commitment towards diversifying the Nigerian economy from a mono product to a multi product economy.

The manufacturing sector was projected to contribute at least 45per cent to GDP effectively overtaking oil while agriculture was envisioned to play a key role in employment generation. Perhaps the most outstanding contribution towards the realisation of the Nigerian dream came from the banking sub-sector during the year under review; the industry has suddenly become the toast of international venture capital/Investors. By the end of 2007, total foreign investments in the banking sector would have reached an all high value of $1bn ((N127bn) this is a sign of continuous growing investor’s confidence in the Nigerian economy, this is coming despite the global economic crunch which has seen the dollars crashing against other major global currencies. Credit to the domestic economy and private sector has grown tremendously in the last 12 months.

Basically, the Nigerian economy continued on its steady growth part for most part of 2007. However, politics of policy reversals threatened the expected accelerated growth for most part of the year after the transition in May. The growth of the Nigerian economy is hinged largely on the stability or otherwise of the political leadership. The election petition tribunals are still sitting and if recent judgments are anything to go by, the economic fortunes of Nigeria in 2008 may be hanging precariously in unstable waters. However with the commitment of the Federal government to the enthronement of the principles of rule of law, due process, transparency and accountability, the confidence of investors in the Nigerian enterprise will be on the upward swing.

The government believes the economy will expand by 7 – 8 percent this year. The contributions to this growth will come, broadly, from the oil and the non oil sectors. The government expects double digits growth rates this year in the agricultural, telecommunications, real estate and business services sectors of the economy.

World economies -DAWN - Business; April 07, 2008
 
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World economies​

Middle East

The IMF has increased its growth forecast for the Middle East in 2008 by 0.2 basis points to 6.1 per cent, despite predicting that world growth would slow due to the financial crisis. In its latest World Economic Outlook report the IMF said that global financial turmoil was having little direct effect on the Middle East, although the weakness of the dollar was making life harder for policymakers in the region. In contrast to the IMF’s report,

Standard Chartered has lowered its growth forecast for Middle East countries in the wake of the turmoil in credit markets. According to the Fund, the short-term outlook for the region is positive.

Growth is projected to be more than six per cent in 2008 and 2009 and the current account surplus is expected to remain large. However, inflation is likely to remain uncomfortably high in the short-term. Region-wide inflation rose from 3.4 per cent in 2006 to 10.1 per cent in 2007. It is running at close to 20 per cent in Iran, 14 per cent in Qatar, and above nine per cent in the UAE. Inflation is unlikely to decrease soon while money supply is high and the dollar pegs continue. The IMF report warns that any large cut in US interest rates could stimulate domestic demand further in the region, leading to higher inflation.

Another independent economists report reveals that a wider global slowdown leading to a drop in oil prices as well as regional geopolitical uncertainties are the main short-term risks for the region. In order to boost their longer-term economic health, regional governments should reduce barriers to trade, simplify tax systems, and enhance the transparency of legal and administrative systems. The sensitive nature of the current global crisis initiated by the US subprime mortgage disaster, the depreciation of the dollar against other currencies, the more recent collapse of several major American banks, and the anticipation that the worse is yet to come.

Considering the recent and current regional developments, risks to the Arab region seem to be relatively lower than those in other world regions. The region’s economy, which has benefited from sustained high oil prices, has continued to perform remarkably well.

However, with the weakening of the US economy and the slowing of global growth, the balance of risks to the Arab energy investment outlook has tilted further to the downside. The Arab region has posted a growth rate of 6.4% over the past five years. This rate will decline to 5.9 per cent in 2008. Oil-exporting countries are likely to record higher growth rates than the rest of the region, primarily as a result of high oil prices.

Inflation in the Arab region has risen to 8.5 per cent in 2007, although it remained lower in oil-exporting nations. The report also mentioned that the impact of the depreciating dollar and inflation on consumers varied from one country to another, ultimately depending on each country’s economy and the resilience of its economic sectors. It also focused on a serious and chronic phenomenon in the Arab world, namely the rising unemployment rate.. Unemployment rate in the Arab world ranges between 12 and 15 per cent, with variations noted across countries. The report further warned that “average unemployment, points to a major structural problem, which is the degree of economic diversification.”

Investments dedicated to the energy sector between 2008 and 2012 have reached almost $420 billion for the entire Arab world, representing an increase of 22 per cent for the period from 2007 and 2011 in which allocated energy sector investments had reached $345 billion. It is noticeable that 44 per cent of these investments are allocated for the oil sector, including oil extraction and marketing in addition to constructing petrochemical plants. The figures also indicate that over half the Arab energy investments are concentrated in three countries, namely Saudi Arabia ($105 billion), Qatar ($65 billion) and the UAE.

Saudi Arabia

Saudi Arabia’s economic expansion and diversification will continue for the next two years at least with real economic growth of six per cent or more annually according to Samba report. Samba expects real GDP growth to reach 6.7 per cent in 2008, up from an estimated 3.7 per cent in 2007. Real non-hydrocarbon growth is also set to show strong growth of around 6.5 per cent. Global oil prices are expected to remain high, investment in domestic oil and gas production capacity is increasing, and the potential of the private sector is being encouraged by fundamental improvements to the business environment. The hydrocarbons sector will remain the cornerstone of the economy and is projected to grow by one third in nominal terms in 2008.

Oil production is expected to average around 9.25 million b/d in 2008, some 6.3 per cent up on 2007. The surge in Saudi oil revenue will support increased government spending (around 15 per cent both in 2008 and 2009), mainly directed towards basic infrastructure but also towards salaries and other benefits in order to offset the social costs of rising inflation. Since oil prices will remain high, the budget will remain in surplus by around 20 per cent for both years. Samba expects a record fiscal surplus of 23 per cent of GDP in 2008, and a current account surplus of around $128 billion, or 28 per cent of GDP.

Despite the economic stimulus coming from rising government spending, the expanding private non-oil sector is increasingly becoming the driver of growth. With economic reform momentum likely to be maintained, the prospects for sustained private investment growth are excellent. Economic policy challenges have been heightened by the pickup in inflation, which reached 8.7 per cent (year on year) in February. With the authorities firmly committed to maintaining the fixed peg to the dollar, and in a context of free capital flows, monetary policy options to stem robust liquidity growth are limited.

The adherence to the fixed dollar peg has been a complicating factor in at least two ways: the weakness of the dollar has contributed directly to imported inflation; and the peg has precluded the use of monetary policy as a counter-inflationary tool. The picture is further complicated by the continuing pickup in government spending which is projected at 16 per cent in 2008. While Saudi Arabia’s economic prospects for the medium term are excellent, inflationary pressures remain a concern, and are likely to continue increasing in 1H 08, before easing somewhat in 2H08 and into 2009. Consumer price growth is likely to average eight per cent in 2008.

Barring any change of policy, the outlook for prices depends largely on the pace of housing delivery, the course of global commodity prices (especially food), and the value of the dollar.

These conditions may gradually improve in 2H08 and into 2009, helping to dampen some import prices and subdue wage pressures, Samba adds. However, keeping in lockstep with the dollar could lead to a situation where higher rates of inflation are inevitable and inflationary expectations become entrenched. On the positive side, the government has been measured in its spending, and has thus created room to pay down domestic debt and build up foreign assets. This has given the government greater fiscal flexibility and a substantial resource base to maintain spending in the face of potential future shocks, including a decline in oil prices

The Kingdom is gradually opening up sectors for investors including telecommunications, airlines and insurance and is continuing to support the main engines of economic growth by encouraging local and foreign private sectors to contribute to development of Saudi Arabia’s new economic cities.

Last year, the World Bank in its annual global Doing Business report recognised the Kingdom as one of the world’s top reformers, with Saudi Arabia being advanced fifteen places to rank 23rd out of 178 countries as one of the easiest countries to conduct business.

According to the World Bank, the Kingdom rates the best of any Middle East state even ahead of mature economies such as France and Austria. The Kingdom is now aiming to be among the top ten most competitive countries globally by 2010 increasingly focusing on building a knowledge-based economy.

However, reform also means difficult decisions to ensure that in the long term Saudi Arabia sheds uneconomic activities and develops in areas where it has global comparative advantage. The foreign direct investment flow is expected to increase yet further as the Kingdom’s new economic cities and special industrial zones are completed. However, there are many challenges ahead.

World economies -DAWN - Business; April 21, 2008
 
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World economies​

Iran

The economic situation in Iran remains bleak. The state-dominated Iranian economy is also struggling with double-digit inflation, which critics blame on the government’s profligate spending of petrodollars. Inflation is currently at 19 per cent, general unemployment is in double figures, with joblessness for youth estimated at 21 per cent. Although Iran is the fourth largest oil producing country in the world, the Iranian people are facing gasoline shortages and rationing. With revenue from oil sales, the Iranian President has supported massive government subsidies for certain goods, such as sugar, wheat, gas and cooking oils. Many economists agree that the subsidies have led to increasing inflation, and have not helped to create jobs.

Iranian economists say that inflation is the killer of poor people. Hundreds of thousands of people will go under the poverty line because of the inflation rate. At the same time, Iran is facing difficulties because of its refusal to comply with United Nations Security Council mandates to suspend its uranium enrichment programme. The Security Council has imposed three rounds of sanctions against Iran. The sanctions include restrictions on trade, freezing of some Iranian foreign assets, and the call to all countries to exercise vigilance in dealing with Iranian financial institutions.

Iran’s unemployment rate dropped to 10.3 per cent in the 2007-2008 from 11.3 per cent the previous year. Minister of labour and social affairs said improvements in the housing, industry and mining sectors helped cut the jobless rate in the world’s fourth-largest oil producer. The Minister claims that unemployment rate in the country has dropped to around 10 percent. It had been as high as 14-15 per cent in previous years. Some economists have said that unemployment rate is higher than the official figure, estimating it at 25 per cent in some parts of the country.

Meanwhile, the United States has taken measures to restrict Iran’s access to the international financial system in order to prevent Iran from using that system to finance its nuclear program and support terrorism. The UN Security Council is also considering a fresh round of sanctions on the Islamic republic over its refusal to halt atomic work. The draft UN resolution calls for asset freezes and mandatory travel bans for specific Iranian officials and vigilance on all banks in Iran. The US, leading efforts to isolate Tehran over its nuclear work, has imposed its own sanctions targeting four of Iran’s major banks and is also encouraging banks and firms from other countries to stop doing business with the country.

However, the economic minister claims that sanctions have had no impact on Iran’s economic condition and the economy, despite unilateral economic pressure from America, has achieved stable growth. Iran has reaped windfall gains in recent years from the high oil price on world markets. Its economy has grown by about six percent annually, despite tightening international sanctions over its disputed nuclear plans. Analysts say western companies are becoming more wary of investing in Iran, the world’s fourth-largest oil exporter, due to perceived political risk and increasing difficulties in securing trade finance as a result of US pressure.

The minister has painted an upbeat picture of Iran’s economy, saying foreign investment hit $10.27 billion last year. Iran’s foreign debt ratio has declined and its economic growth is expected to increase, shrugging off the impact of international sanctions over Tehran’s nuclear programme. Iran’s foreign debt has declined to 13.5 of gross domestic product from 17.4 per cent. As oil prices are higher than $100 per barrel, state treasury is flush with oil revenues.

According to NIC’s February report, total foreign debts of the country were $20.1 billion (nine percent of gross domestic product (GDP) last year. The figure is estimated to reach $20.7 billion (8.1 percent of GDP) this year. The figure would be $20 billion and $19.1 billion during the years to March 2009 and 2010 respectively. Iran would have foreign debts of 5 percent of its GDP by end March 2011 and 4.1 per cent of GDP in 2012.

Foreign exchange reserves are estimated to reach $80 billion by March. The deputy governor of the Central Bank of Iran for foreign exchange affairs put the current hard currency reserves at $70 billion. Most foreign exchange reserves are in euros and a small part of them are in yen or dollar. Oil transactions by Opec’s second largest producer are no longer conducted in dollars since ’the greenback is unreliable’. For nearly two years, world’s fourth biggest exporter has been reducing its reliance on the dollar, saying the weak US currency is eroding its purchasing power.

The Central Bank Governor believes that Washington’s “hostile actions” will cause some difficulties but no major problems for Iran. Earnings from oil and gas exports have been a windfall for the government. At the same time the government has been extremely aggressive in diversifying its customers and attracting foreign investment, despite US opposition Iran’s president says that the government will enact major projects to eradicate existing economic problems.

Kuwait

Kuwait’s economy grew about 12 per cent for the second year in a row in 2007. The growth is among the highest in the Arabian Gulf region and is a continuation of the past five years’ trend. Kuwait’s gross domestic product (GDP) increased to KD30mn and public spending rose to about KD12bn, 27 per cent rise in the financial year 2007/2008. The Central Bank of Kuwait (CBK) plans to tighten commercial lending rules after restricting consumer lending in an effort to tame the growing inflation.

The country’s GDP has grown at over 5 per cent a year for five consecutive years to 2006. The combination of high oil revenues, which reached 14.8 billion dinars (US$54 billion) in 2006 (95 per cent of government revenues), massive budget surpluses and the highest national savings rate in the world has led to the emergence of a vision of Kuwait as a oasis of stability. In its Global Competitiveness Report for 2007-2008, the World Economic Forum rated Kuwait the most competitive economy in the GCC, largely by virtue of these firm moorings.

The main event in the country’s economy during 2007 was the surprise de-pegging of the Kuwaiti dinar from the dollar. The Central Bank of Kuwait’s move from a dollar peg to a heavily dollar-weighted basket of currencies took place in May, as the declining US currency threatened monetary stability throughout the Gulf. Nevertheless, a number of challenges to Kuwait’s stability are now appearing on the horizon. Inflationary pressures are building up, although they remain much lower than in other regional economies. The annual inflation rate reached a record high in September at over six per cent. Despite the dollar de-peg, high global food prices will continue to contribute to price-escalation.

Kuwait posted a record actual revenue of KD18.93 billion in the last fiscal year that ended in March 31. The figure is a mammoth 127 percent higher than budget projections of KD8.32bn. Figures issued by the ministry showed revenues are also up 22 per cent from that in 2006/2007 of KD15.5 billion. Actual oil revenue also reached a record KD17.72bn, up 138 percent on budget projections of KD7.45bn. Kuwait, which has been pumping 2.5 million barrels per day, calculated last year’s budget at a conservative price of $36 a barrel, when the actual average price topped $75.

Preliminary figures for spending reached KD7.49 billion, sharply lower than the budget projections of KD11.3 billion. The figure is likely to increase after the government completes its year-end accounts adjustments. The price of Kuwaiti crude oil has topped $100 a barrel for the first time after world crude prices raced to a record above $115 a barrel. The interim figures for Kuwait’s budget released by the ministry of finance covering the first 11 months of the fiscal year 2007/08 showed a substantial increase in the preliminary surplus over the same period last year. The budget surplus rose to KD 10.5 billion. Total revenues rose 18 per cent to KD 17 billion, largely driven by higher oil prices. The expenditures dropped 5.7 per cent to KD 6.6 billion, which largely reflects the presence of extraordinary transfers in the previous fiscal year of KD 2.0 billion to the public institution for social security and a KD 203 million cash grant to Kuwaiti nationals.

It is worth noting that growth in government spending should be taken as indicative only of the fiscal stance since expenditure figures will be adjusted upward significantly after the close of the fiscal year. NBK expects the spending rate (actual to budget) to rise from a reported 64 per cent at the end of February to somewhere between 90 and 95 per cent. Even with this upward revision, Kuwait is still likely realize a record budget surplus possibly exceeding KD 8 billion, in contrast to a projected deficit of KD 2.9 billion before allocation to the RFFG.

Oil revenue surge as oil prices break new records. It reached a record high of KD 16 billion, fuelled by the recent surge in the price of crude. Oil revenue growth was 18 compared to 15 per cent during the same period last year. With KEC prices averaging $90 per barrel in February, actual oil revenues exceeded the government’s projections by more than two-fold. The price of Kuwait export crude (KEC) during the period averaged $72.1 per barrel, 26 per cent higher than the same period a year ago. Growth in non-oil revenue tops that from oil.

Non-oil revenues saw even stronger growth of 30 per cent to top KD 1 billion, which improved their contribution to total revenues to roughly six per cent. Indeed, non oil revenues exceeded budget projections by 28 per cent.

World economies -DAWN - Business; May 05, 2008
 
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