Wealth of Nations: September 09, 2007

Friday, September 14, 2007

Icelandic Economy Expands In The Second Quarter

Sep 14, 2007 - Iceland's gross domestic product or GDP increased seasonally adjusted 2.2% year-over-year in the second quarter after a 0.9% downturn in the first quarter, the statistical office reported Friday.

In real terms, the GDP grew 2.5% from previous year. Total domestic expenditure remained almost unchanged in the first quarter of 2007, compared to the same quarter of 2006.

The statistical office noted that exports decreased by over 3% year-over-year in the first quarter and imports by almost 7%.

Current-Account Deficit in U.S. Narrowed to $190.8 Billion

Sep 14, 2007 - The U.S. current-account deficit narrowed to $190.8 billion in the second quarter, as Americans earned more interest on overseas investments and government payments abroad slowed.

The shortfall followed a revised $197.1 billion in the first quarter that was larger than initially reported, the Commerce Department said today in Washington. The median forecast in a Bloomberg News survey of economists was $190 billion for the second quarter.

Even at current levels, Federal Reserve Chairman Ben S. Bernanke this week said the gap couldn't last 'indefinitely' and called on Americans to save more to reduce the shortfall. A persistently high shortfall risks a jump in interest rates and a slump in the dollar should foreign investors decided to unload U.S. assets. The U.S. must attract about $2.1 billion a day to fund the gap.

"It'll take us some time to make headway in improving the deficit further," Russell Price, senior economist at H&R Block Financial Advisors in Detroit, said before the report. Still, 'stronger growth in the rest of the world and a weak dollar weigh in favor of the trade deficit moderating over time.'

The median estimate reflected 51 forecasts in a Bloomberg News survey. Estimates ranged from deficits of $180 billion to $202 billion. The current-account gap in the first quarter was initially reported at $192.6 billion.

The current account is the broadest measure of trade because it includes transfer payments and investment income. The gap amounted to 5.5 percent of the economy compared with 5.8 percent in the prior quarter.

For all of 2006, the current-account gap grew to $811.5 billion, the biggest ever.

Trade Gap

The deficit in trade, which accounts for about 90 percent of the total, was little changed at $177.7 billion in the second quarter, compared with $177.6 billion in the first three months this year. Overseas demand is fueling sales at companies such as General Electric Co. and Deere & Co.

U.S. investors received more income on their holdings of overseas investments than foreigners received here. Income on overseas assets rose to $190.3 billion from $175.5 billion.

Foreign earnings on U.S. assets, including wages and other compensation, increased to $179.2 billion from $166.4 billion in the previous three months. That left a $9.4 billion surplus on income payments compared with a $7.5 billion surplus the prior quarter.

The U.S. government paid out $22.5 billion more to foreign governments and private entities than Americans received from abroad, compared with $27 billion in the previous quarter.

Foreign Investors

Investors abroad hold half of Treasuries outstanding, financed by savings built up in part from trade surpluses. U.S. liabilities to foreigners 'are not, at this point, putting an exceptionally large burden on the American economy,' Bernanke said in a Sept. 11 speech in Berlin.

Even so, there is a need to increase domestic saving rather than rely on the 'global saving glut' that is helping to fund the U.S. current account shortfall and keeping interest rates low, he said.

U.S. current-account deficits can't last 'indefinitely' at the current level, and there's a risk 'foreign investors would ultimately become satiated with dollar assets, and financing the deficit at a reasonable cost would become difficult,' the Fed chief said.

Bernanke's predecessor, Alan Greenspan, had in 2004 told the European Banking Congress in Frankfurt that a diminished appetite for adding to dollar balances 'must occur at some point.'

China's Reserves

China has a record $1.3 trillion of foreign-exchange reserves and household savings that amount to almost one-fifth of its economy. Some U.S. policy makers and manufacturers say that country has kept its currency, the yuan, artificially low to stimulate overseas demand for its products. Treasury Secretary Henry Paulson has urged China to let the yuan rise more.

A Commerce report on Sept. 11 showed the trade gap with China, the second-largest U.S. trading partner after Canada, widened in July to a level that was second only to the record $24.4 billion reached in October 2006.

The overall U.S. trade deficit narrowed in July to $59.2 billion after an upwardly revised $59.4 billion in June, as exports grew by the most in three years. The imbalance will become less of a risk in coming years, economists said.

"After 5 consecutive years of a widening current account deficit, we expect a stable-to-narrowing gap in 2007-2009," said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York.

The dollar is down 7.9 percent since the beginning of 2006 against a basket of currencies from major trading partners, making American goods cheaper for foreign buyers.

That's helped manufacturers such as Moline, Illinois-based Deere, the world's largest farm-equipment maker. The company increased its full-year profit forecast in August as third-quarter sales of machinery outside the U.S. jumped 30 percent.

Europe's August Inflation Rate Eases, Reaches 10-Month Low

Sep 14, 2007 - Inflation in Europe eased more than initially estimated in August, dropping to a 10-month low because of an annual decline in energy prices.

Consumer prices in the 13-nation euro region increased 1.7 percent from August 2006, down from 1.8 percent in July, the European Union's statistics office in Luxembourg said today. Last month's rate was lower than an estimate of 1.8 percent published Aug. 31. Prices rose 0.1 percent on the month.

The European Central Bank, which has increased its key lending rate eight times since late 2005, shelved a planned increase earlier this month after a U.S. housing crisis pushed up borrowing costs and caused global financial market turbulence. Still, with oil and food prices rising, policy makers say inflation risks remain on the 'upside.'

China Raises Rates for Fifth Time to Cool Economy

Sep 14, 2007 - China raised interest rates for the fifth time since March to curb the fastest inflation since 1996 and damp speculation in stocks and real estate.

The benchmark one-year lending rate will increase to a nine-year high of 7.29 percent from 7.02 percent, starting tomorrow, the central bank said today on its Web site. The rate has risen from 6.12 percent on March 17.

China is flooded with cash from a trade surplus that reached a record $161.8 billion in the first eight months of this year, pushing up consumer prices at twice the central bank's target pace and raising the risk of asset bubbles. Premier Wen Jiabao is trying to cool the world's fastest-growing major economy without triggering a sudden slowdown that may cost jobs and leave factories idle.

"The government's biggest concern is inflation," said San Feng, an economist with the State Information Center in Beijing. "It means that people get negative returns on bank deposits, and that's fueling investment and bubbles in the stock and property markets."

The central bank said it wants to strengthen monetary and credit controls, guide investment growth and stabilize inflation expectations. The one-year deposit rate will rise to 3.87 percent from 3.6 percent.

Rates are likely to rise once more this year, said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd., Glenn Maguire, chief Asia economist at Societe Generale SA, and Jing Ulrich, chairman of China equities at JPMorgan Chase & Co.

The previous increase was less than a month ago.

Credit Squeeze

China's action contrasts with efforts by central banks around the world to boost liquidity because of a credit squeeze linked to soured home loans in the U.S. The European Central Bank and Bank of Japan delayed planned interest-rate increases, and economists expect the Federal Reserve to cut borrowing costs next week.

Contagion from the highest delinquency rate on U.S. mortgages in five years has triggered a slump in demand for asset-backed securities and driven up borrowing costs for banks. Northern Rock Plc said today it is receiving emergency funding from the Bank of England in the biggest bailout of a British lender in 30 years, because it was unable to finance itself in money markets.

'Out of Control'

China wants 'to prevent inflation expectations from getting out of control' and stem inflows into an overheated equity market, said Julian Jessop, an economist at Capital Economics Ltd. in London. Stocks 'might wobble on this announcement, but the wider economic impact should be negligible.'

The benchmark CSI 300 Index has quadrupled in the past 12 months. House prices in 70 major cities rose 8.2 percent in August from a year earlier.

The world's fourth-biggest economy expanded 11.9 percent in the second quarter from a year earlier and is forecast by the International Monetary Fund to be the biggest contributor to global growth this year.

Soaring food costs pushed inflation to 6.5 percent in August, more than double the 3 percent annual target of the People's Bank of China.

Rising consumer prices make it harder for the government to curb asset bubbles. Households invest in shares and property instead of letting inflation erode the value of bank deposits. The government reduced a tax on interest income to 5 percent from 20 percent last month to make savings more attractive.

Quicker Yuan Gains

The pace of yuan appreciation may quicken as the government tackles high inflation and growth in the money supply, said Craig Chan, a Singapore-based currency strategist at Lehman Brothers Asia Ltd. That would make exports more expensive and help to slow the flow of cash into the economy.

"This is an opportunity to trade and go long on the yuan, not just against the dollar, but against other currencies," said Chan. The currency 'could overshoot' Lehman's year-end forecast of 7.45 per dollar. The yuan closed today at 7.5160.

The currency has gained about 10 percent against the dollar since the end of a fixed exchange rate in July 2005, though the central bank limits daily fluctuations.

Money supply grew 18.1 percent in August, exceeding the central bank's annual target of 16 percent for the seventh straight month. Urban fixed-asset investment climbed 26.7 percent in the first eight months of this year.

Government Efforts

Besides raising rates, the People's Bank of China has ordered lenders to set aside larger reserves of money on seven occasions this year. Some economists expect at least one more increase in reserve requirements this year.

The central bank also sells bills to soak up cash. The government sold 600 billion yuan ($80 billion) of bonds last month as part of setting up an investment agency for the nation's foreign-exchange reserves.

China has eased capital controls to let more money flow out of the economy. The central bank raised interest rates twice in 2006 and increased lenders' reserve ratios on three occasions.

Government efforts to rein in the trade surplus may be having an effect. While the surplus last month widened 33 percent from a year earlier to $24.97 billion, overseas shipments had their smallest gain in five months and output growth slowed for a second month after a rise in export taxes.

July retail sales index down 14.7% from June

Sep 14, 2007 - After reporting strong growth in June, overall retail sales fell by 14.7 per cent to S$2,574.1 million in July, reflecting weaker motor vehicle sales, according to the Department of Statistics.

Excluding motor vehicles, the July index declined by 8.2 per cent.

The fall in motor vehicle sales and sales of other large items followed strong growth in the previous month boosted by pre-GST increase spending and the Great Singapore Sale.

Economists had predicted a 3.6% rise in sales from a year earlier based on the thriving economy and consumer confidence.

The July index dropped 1.7% from a year ago, compared to a 9% gain in June.

Sales of motor vehicles, jewellery, furniture and other goods in July declined by 14.2 per cent to 27.8 per cent.

After seasonal adjustment, retail sales fell by 14.6 per cent in July year-on-year

Thursday, September 13, 2007

Turkish Bank Unexpectedly Cuts Key Rate to 17.25%

Sep 13, 2007 - Turkey's central bank unexpectedly lowered its benchmark interest rate by a quarter point, the first cut for more than a year, saying it expected global growth to slow, easing pressure on Turkish inflation.

The Ankara-based bank cut its overnight borrowing rate to 17.25 percent, according to an e-mailed statement today. All 21 economists surveyed by Bloomberg had forecast no change. The bank will release minutes of the meeting within a week.

Central bank governor Durmus Yilmaz had held the rate at the highest in Europe for more than a year, crimping domestic demand and reducing growth in the European Union membership candidate. Today's statement said that high borrowing costs would continue to slow inflation, bolstered by an expected global slowdown triggered by turmoil in credit markets.

"This is a risky move because they're assuming the impact of a slowdown in demand will be greater than any potential inflationary currency weakness," said Inan Demir, economist for Finansbank AS in Istanbul. "It's a signal that they think things are going in the right direction on the inflation front."

The Turkish lira was unchanged at 1.2636 to the dollar after the decision was announced. The lira lost more than 10 percent against the dollar between Aug. 8 and Aug. 16 as investors, worried about the scale of losses in the U.S. subprime mortgage market, reduced holdings of emerging market assets.

`Measured Lowering'

"Developments in the global economy will limit both domestic and external demand," the bank statement said. "Conditions have emerged for the start of a period of measured lowering."

Consumer inflation accelerated to 7.4 percent in August from a 37-year low of 6.9 percent in July, an increase the bank said was due to the 'temporary' impact of drought on grocery prices.

Higher lending costs have bitten into Turkish domestic demand and curbed growth. The economy grew 3.9 percent in the second quarter, the slowest rate since 2002, from 6.9 percent in the previous three months. Private consumption fell in the quarter.

"Domestic demand has slowed significantly and has even turned negative," said Fatma Melek, Istanbul-based economic for lender Akbank TAS, Turkey's biggest company by market value. "Food prices may have pushed inflation up last month, but all the core indicators are pointing downwards."

The forecast for price-growth over the next 12 months fell to 6.27 percent in the bank's latest survey of businessmen and economists released on Sept. 7, from 6.37 percent in the previous survey two weeks earlier.

Demand is slowing after the bank increased its benchmark rate by 4.25 percentage points to 17.5 percent in June and July last year. The bank aims to slow inflation to a 4 percent target set under a $10 billion International Monetary Fund loan accord.

Turkey ended last year with inflation of double the target of 5 percent, the first time since 2001 that it has failed to beat inflation goals agreed with the IMF. The inflation rate has fallen from more than 70 percent at the start of 2002.

Turkish Bank Unexpectedly Cuts Key Rate to 17.25%

Dutch Trade Surplus Widens To EUR 3.0 Bln In July

Sep 13, 2007 - The Dutch trade surplus widened to 3.0 billion euros in July, the statistical office said Thursday. A year ago, the trade surplus amounted to 1.6 billion euros. Export volume of goods grew 11% to 28.1 billion euros. Imports amounted to 25.1 billion euros, up 10% from the previous year.

IMF Raises Australian 2007 Growth Forecast To 4.4%

Sep 13, 2007 - The International Monetary Fund raised its 2007 growth forecast for Australian economy to 4.4% from its earlier prediction of 2.6%, the IMF said Wednesday. The Australian economy expanded 2.7% in 2006.

The IMF report said that Australia's total domestic demand was expected to climb 5.1% in 2007, up from a 3.5% increase in the previous year. Private consumption was projected to expand 4.5%, while total investment would rise 5.7% in 2007, the report said. This compared to the increases of 3.1% and 6.5% respectively in 2006.

Business would grow 9.5% compared to 8.9% in the previous year, the report said. Dwelling was expected to spike 6.2%, rebounding from a 1.5% slump last year.

Exports were projected to gain 6.1% in 2007, up from a 3.4% rise in the previous year. Imports were predicted to rise 9.5% faster than the 7.6% spurt seen a year ago.

IMF forecasted the Australian annual CPI inflation to touch 2.1% and unemployment rate to stay at 4.5% in 2007. In the previous year, the CPI and unemployment rate stood at 3.5% and 4.8% respectively.

Australia's current account deficit would be equivalent to 5.6% of GDP in 2007 and 2008, up from 5.5% in 2006, the Fund said. IMF agreed that the external deficit appeared sustainable, although the resulting debt requires continued careful monitoring.

The world body noted that Australia's trade deficit narrowed, while the investment income balance continued to deteriorate, reflecting large net dividend payments. The Australian dollar has appreciated substantially over the past few years, but IMF did not see any misalignment in light of Australia's strong terms of trade gains. Net foreign liabilities increased to over 60% of GDP, but the Fund noted that there was limited exposure to foreign exchange risk.

IMF noted that the Reserve bank of Australia resorted to tightening monetary policy in August, after retaining the cash rate at 6.25% since November 2006, as signs of renewed inflation pressure began to emerge. The RBA raised its key overnight cash rate target by 25 basis points to an eleven-year high of 6.50% in August.

On the fiscal front, the Fund observed that the current budget projection indicated a decline of cash surplus to 1.0% of GDP from 1.7% in the previous year. IMF recommended that, going forward, the surplus be allowed to exceed budget forecasts if growth and revenues are stronger than expected, given the strength of momentum.

The IMF Executive Directors commended the Australian authorities for their exemplary macroeconomic management.

"Sound fiscal, monetary, and structural policies, against a background of sizable terms of trade gains, have created the conditions for a continued expansion, supported by high employment levels," the Executive body said.

The directors noted that Australian banks' exposure to the U.S. subprime mortgage loans is low, and the direct impact of the recent credit market turbulence on Australia has been modest. However the Fund urged to step up vigilant monitoring of evolving market developments.

Australia's second quarter GDP rose 0.9% sequentially on the back of robust business investment, the Australian Bureau of Statistics said earlier this month. The growth topped the expected 0.6% growth despite trailing the 1.6% pace in the first quarter. Annually, the economy expanded 4.3% in the second quarter after climbing 3.8% in the previous quarter.

French Annual Inflation Accelerates In August

Sep 13, 2007 - French annual inflation accelerated to 1.2% in August, the statistical office INSEE said Thursday. Annual inflation stood at 1.1% in July. The consumer price index for all households rose 0.4% in August from the prior month, while economists expected a 0.3% rise.

The index, adjusted for seasonal variation, rose 0.3% on month, larger than a 0.1% rise seen in July. The underlying inflation indicator rose 0.2% in August from the prior month. The annual underlying inflation increased to 1.5% from 1.4% recorded in July.

The Harmonized Index of Consumer Prices or HICP moved up 0.4% on a monthly basis and rose 1.4% from the previous year. Economists expected 0.3% rise on month and an annual HICP inflation of 1.2%.

Spanish Consumer Price Inflation Holds Steady In August, Yet Below Consensus

Sep 13, 2007 - Spanish consumer price inflation grew at an annual rate of 2.2% in August, the National Statistics Institute said, Thursday. Consumer prices grew at the same rate of 2.2% in the previous month also. The price rise in August was a little less than the 2.3% annual growth predicted by economists. Over the month, consumer prices slipped 0.1%, recovering from a slump of 0.7% in the previous month. Economists had expected a 0.2% growth in monthly consumer prices in August.

In August, prices of spirits and tobacco climbed 6.5% annually, slightly more than the 6.1% increase in prices in the previous month. Prices of food and non-alcoholic beverages advanced 2.8%, while transport prices declined 0.1%. Prices of milk grew 4.9%, while prices of tobacco jumped 8.1%. In contrast, prices of oils slumped 16.6%, while prices of fuels and lubricants eased 4.2%.

On a monthly basis, prices in hotels, cafes and restaurants grew 0.8% in August, while prices in the leisure and culture sector rose 1.3%. Prices of food and non-alcoholic beverages edged up 0.3%, pushed by higher prices for milk, fish and bread. In comparison, transport prices slipped 0.5%, pulled down by the decline in prices of fuels and lubricants. Prices of clothing and footwear eased 0.7%.

The underlying rate of inflation, that is, the general consumer price index stripped of food and energy products prices rose 2.5% annually in August.

The Harmonized Index of Consumer Prices, HICP, which is used to compare Europe wide prices, advanced 2.2% on an annual basis, while the monthly growth rate came in at 0.2%.

SNB Raises Benchmark Rate to Head Off Inflation

Sep 13, 2007 - The Swiss central bank raised its benchmark interest rate for the eighth time since late 2005 to head off inflation even as rising credit costs threaten to weigh on economic growth.

The Swiss National Bank's governing council, led by Jean- Pierre Roth, increased the 3-month Libor target rate by a quarter-point today to 2.75 percent, the highest since September 2001. Eleven of 20 economists in a Bloomberg News survey forecast the increase while nine predicted the Zurich-based central bank would leave the rate unchanged.

The SNB is concerned that inflation will accelerate after the economy expanded at the fastest pace since the turn of the decade last year. Today's decision comes a week after the European Central Bank and Bank of England left rates unchanged amid concern the U.S. housing slump, which has made banks reluctant to lend and pushed up borrowing costs, will harm economic growth.

"Caution is certainly guiding all central banks at the moment, but the SNB is in a different situation," said Janwillem Acket, chief economist at Julius Baer Holding AG in Zurich, who correctly forecast the quarter-point increase. "We have a booming economy."

Inflation will average 0.6 percent this year before accelerating to 2 percent in mid-2008, the SNB said in a statement. The economy will expand 2.5 percent this year after growth of 3.2 percent in 2006.

Franc Gains

The Swiss franc extended gains against the euro, rising to 1.6430 after the decision from 1.6475 yesterday. It rose to 1.1819 from 1.1849 against the dollar.

Switzerland's second-quarter economic growth was driven by the largest investment in equipment and machinery since the three months ending March 1998, suggesting companies are expanding to meet full order books. Increased hiring pushed unemployment to a five-year low in August.

"Looking at Switzerland's economic fundamentals, the SNB has plenty of room to continue hiking rates," said Rajel Khambhaita, an economist at Informa Global Markets in London.

While a decline in the franc has boosted the economy by making Swiss exports more competitive, it also threatens to stoke inflation by making imports more expensive.

Still, inflation slowed to 0.4 percent in August from 0.7 percent in the previous month.

SNB governing council member Thomas Jordan said Aug. 28 the outlook for second-half growth has become less certain because of turmoil in financial markets. Switzerland's growth may be pulled back by a slowdown in the U.S. and Europe.

The Organization for Economic Cooperation and Development lowered its growth forecast for the U.S. to 1.9 percent from 2.1 percent and for the euro region to 2.6 percent from 2.7 percent.

Switzerland's benchmark rate of 2.75 percent is the second- lowest of major economies after Japan's 0.5 percent, encouraging investors to borrow francs to invest in countries with higher interest rates. The franc has fallen about 2.3 percent against the euro this year.

Polish Aug inflation sinks to 1.5 pct yr-on-yr, well below expectations

Sep 13, 2007 - Polish consumer price inflation showed a shock drop to 1.5 pct in August from 2.3 pct a month earlier, compared to market expectations of 1.9 pct, statistics office data showed.

The office said consumer prices fell 0.4 pct month-on-month.

The office's data also showed clothing and shoes prices fell 7.5 pct year-on-year, while recreation costs fell 2.7 pct and telephone costs 2.4 pct. Food and non-alcoholic drinks rose 3.1 pct year-on-year, while fuel prices fell 0.5 pct.

Finnish govt raises 2007 GDP growth forecast to 4.4 pct

Sep 13, 2007 - The Finnish government today raised its forecast for GDP growth for 2007 to 4.4 pct from the 4.3 pct forecast in June, and compared to 3.1 pct forecast in March.

Philippines records net portfolio investment outflow in Aug on subprime concerns

Sep 13, 2007 - The Philippines recorded a net outflow of 246.4 million US dollars in foreign portfolio investments in August, reflecting investor concerns about a fallout from the US housing and credit problems, the central bank said Thursday.

It was the first monthly net outflow recorded this year and a turnaround from a net inflow of 1.1 billion dollars in July.

"Concerns over the extent and impact on the global credit market of the US subprime mortgage problem led foreign investors to stay on the sidelines," the central bank said in a statement.

"Strong domestic economic data as well as strong corporate earnings results for the first semester, however, tempered the size of the net outflow," it said.

On a gross basis, registered foreign portfolio investments in August totaled 1.39 billion dollars. Of this, 85 percent were invested in the stock market and 15 percent in peso-denominated government securities, the central bank said.

Capital repatriated outside the country amounted to 1.64 billion dollars.

For the first eight months of the year, however, a net inflow of 3.36 billion dollars was recorded, 3.3 times bigger than the previous year's level, central bank data showed.

"The nervousness in the market sparked by the US mortgage crisis led to some outflow during August but overall, the country's economic fundamentals appeared to have broadly kept investors' interest in the Philippines for the first eight months of 2007," the central bank said.

"Moreover, the central bank's announcement that local banks have no exposure to subprime assets also helped ease investors' concerns."

New Zealand Leaves Key Rate Unchanged at Record High

Sep 13, 2007 - New Zealand's central bank left the benchmark interest rate at a record-high 8.25 percent, saying a declining currency and higher prices for commodity exports will stoke the economy and fan inflation.

"We continue to expect a significant boost to the economy over the next two years from the sharp rise in world prices for dairy products and some other commodities," Reserve Bank Governor Alan Bollard said in a statement released in Wellington today. Still, global financial market volatility increases the likelihood of a weaker economic outlook for the nation's trading partners such as the U.S., he said.

Bollard has little scope to cut borrowing costs because wages are rising and a 3.5 percent decline in the New Zealand dollar the past month has swelled earnings for exporters. The central bank will wait to see if consumer spending and housing demand slow before contemplating a rate cut, said economist Stephen Toplis.

"If you take the central bank at face value, they're not talking about a cut in rates until the second half of 2009," said Toplis, head of research at Bank of new Zealand Ltd. in Wellington. The currency rose to 71.24 U.S. cents at 10 a.m. in Wellington from 71.18 cents immediately before the statement. It has fallen from a 22-year high of 81.10 cents on July 24.

All 14 economists surveyed by Bloomberg News predicted today's decision. Just four expect a rate cut before June 30 next year.

Inflation Forecast

"Inflation is likely to rise due to the effects of a low exchange rate and higher food prices," Bollard said. "It is important that this temporary increase doesn't affect prices or wage-setting behavior."

Bollard is required by the government to keep inflation between 1 percent and 3 percent. Annual inflation will accelerate to 2.9 percent by March next year and 3 percent by March 2009, the central bank said today. Consumer prices rose 2 percent in the year ended June 30.

"The current level of the official cash rate is consistent with the future inflation outcomes of 1 percent to 3 percent," Bollard said.

The New Zealand dollar's decline against the U.S. currency has increased earnings from the nation's biggest exports, such as milk powder, cheese and yoghurt. Auckland-based Fonterra Cooperative Group Ltd. is the world's biggest exporter of dairy products.

"A sharp decline in the New Zealand dollar since July, if sustained, will act to reinforce the effects of higher world prices" for the nation's commodities, Bollard said.

Jobless Rate

New Zealand's jobless rate fell to a record 3.6 percent in the second quarter as companies added more than twice the number of workers forecast by economists. A skills shortage sparked a record 3.2 percent wage increase for non government workers in the second quarter from a year earlier.

Central banks around the world have kept borrowing costs unchanged as they assess whether the U.S. subprime mortgage rout will derail global economic growth.

The Reserve Bank of Australia last week kept its benchmark rate at 6.5 percent. The European Central Bank left its rate at 4 percent and lowered its forecast for growth in Europe. The U.S. Federal Reserve will probably cut its main rate next week, according to a majority of 117 economists surveyed by Bloomberg News.

"Credit concerns and heightened risk aversion have led to significant turbulence in global financial markets," Bollard said. "The consequences of this turmoil for New Zealand remain unclear at this stage."

Domestic Spending

Bollard raised rates four times between March and July to curb domestic demand and inflation. Recent indicators "suggest that previous rate increases are starting to dampen domestic spending," he said.

House sales fell to an 18-month low in July, according to a Real Estate Institute report released on Aug. 9. Home-building approvals fell to a three-month low in July, the government said last week.

Retail sales unexpectedly declined in June. Sales excluding inflation, a measure of volumes, also fell in the three months ended June 30, the first drop in six quarters.

Consumer confidence slipped to a 15-month low last week, according to a poll of 1,000 voters conducted for TV3 Network Ltd.

"The trading environment was much tighter than for the first half of last year," Rod Duke, chief executive officer of retailer Briscoe Group Ltd., said on Sept. 7. "Low levels of consumer confidence in the economic outlook contributed to tightening trading conditions."

The Auckland-based home ware and sporting goods retailer said first-half profit fell 12 percent.

Economic Growth

Economic growth will accelerate to 2.9 percent in the year ending March 31, 2008, from 1.7 percent a year earlier, the central bank said today. In June, the bank forecast 3.1 percent growth this year.

The central bank expects housing investment will contract in the year to March 2009. Consumer spending and demand for imports will remain strong and growth will be buoyed by rising exports.

Higher global prices for its dairy products prompted Fonterra to raise its 2008 milk payment forecast to a record. That will add NZ$2.6 billion ($1.8 billion) to New Zealand farmers' incomes.

New Zealand's official cash rate, introduced in March 1999, is 7.75 percentage points more than Japan's benchmark.

The currency has gained 10 percent the past year as traders borrow at cheaper rates in Japan and invest in New Zealand's higher yields, in what is known as the carry trade.

Still, the currency dropped the past month as growing concern that defaults on U.S. home loans to people with poor credit histories prompted fund managers to avoid risky investments such as the carry trade.

Wednesday, September 12, 2007

IMF sees no U.S. recession, world weathering storm

Sep 12, 2007 - U.S. slowdown, but not recession, is what the International Monetary Fund expects, and the rest of the world should weather that problem, IMF chief economist Simon Johnson said on Wednesday.

Nobody can say for now, however, to what extent the economy of one or other part of the world will be damaged by a credit crunch in financial markets, which politicians and regulators will now have to address, focusing on banks, he said.

"We don't see any reason to think that this is any more than a mild slowdown in the United States," Johnson, on a brief visit to Europe from the IMF's Washington headquarters, said when asked if he ruled out recession.

"Our position on the U.S. economy is that other fundamentals remain strong," he said, noting resilient consumer spending and investment levels despite a housing downturn that has proven worse than first thought and which would take time to ease off.

Things could pick up in the second half of 2008, he told reporters at a briefing.

While the IMF's recently increased forecast of 5.2 percent economic growth now looked unattainable, the emerging market economies of the world, notably in Asia, were strong and should stay so, and Europe was in relatively good shape, he said.

"The wild card is financial market turmoil," he said, acknowledging that the IMF had failed, like most others, to spot the trouble that snowballed into a markets crisis in August from what was previously a debt defaults crisis in the high-risk, subprime, segment of the U.S. mortgage market.

"This is an important wake-up call for all of us. There's a serious problem with the plumbing. But the house is not on fire."

Johnson said Europe was "a big question now" given second quarter growth figures had come in surprisingly weak, at 0.3 percent quarter-on-quarter, or less than half of the pace registed in the first three months of the year.

The IMF publishes its next series of forecasts in its World Economic Outlook in the days preceding the IMF's October meetings in Washington and Johnson acknowledged that it might be equally difficult then to quantify how much financial market turmoil could cost in lost economic growth.

In July, the IMF raised its growth forecasts for the world, mainly China, India and Russia but also Europe, adding that the risks if anything were that European growth would end up stronger than it was predicting.

"We don't think that now," he said, adding that the IMF was "very comfortable" with the European Central Bank's decision to keep interest rates in the euro zone on hold while the future remains uncertain because of continuing turmoil in markets.

He remained sanguine, however, predicting lower U.S. interest rates would help a rebound there and that the rest of the world was in better shape.

"We think the underlying strength of the real economy around the world will pull it through," he said.

TIME TO RESPOND TO TURMOIL

Johnson said the IMF and political leaders worldwide were now looking for a response after discovering that nobody can identify just where the risks and exposure lies after years of rapid growth in debt derivatives and asset-backed securities markets.

One of the main features of that development in markets was that banks got heavily involved in financing operations which did not have to be booked on their balance sheets and things had perhaps got unwieldy.

"Hedge funds this time round are not the central issue," he said. "Letting regulated banks go off and make money off-balance-sheet -- that's something we should look at now," he said.

European finance ministers are expected to start looking at the issue when they meet in Portugal later this week and U.S. Treasury Secretary Henry Paulson meets french and German leaders on a trip to Europe next week.

Iceland's Consumer Price Inflation Increases In September

Sep 12, 2007 - Consumer prices in Iceland grew 4.2% on an annual basis in September, the statistics office said, Wednesday. This was more than the 3.4% rise in consumer prices in the previous month. Stripped of housing costs, the Consumer Price Index, CPI, gained 1.1%. The constant tax-rate index climbed 6%.

In the quarter to September, consumer prices expanded 6.5%, accelerating from the 3.1% growth in the three months to August.

On a monthly basis, the CPI rose 1.3% in September after remaining unchanged in the last month. Excluding housing costs, the CPI rose 1.14%. Prices of clothing and footwear jumped 13.6% as summer sales ended, while costs of owner occupied houses increased 2.5%.

The price increase in September was the highest since June, when the CPI rose 4.7% on an annual basis. The core inflation, that is the CPI less prices of agricultural products, vegetables, fruits and petrol, climbed 5.2%.

Czech Current Account Deficit Shrinks In July

Sep 12, 2007 - The Czech Republic's current account deficit contracted to CZK8.79 billion in July from CZK12.87 billion in June, the Czech Central Bank said Wednesday. The official data showed that the decrease is mainly due to estimated reinvested direct investment earnings. The current account deficit came in well below the market forecast of CZK19.50 billion for July.

In July, net inflow of direct investment came in at CZK22 billion, of which estimated reinvested earnings were around CZK10.4 billion.

The official data showed that the net outflow of portfolio investment of CZK11.4 billion was mainly affected by a deficit in equity securities transactions. The annual net inflow of foreign direct investment and total annual net portfolio investment outflow continues to grow slightly in recent months.

At the same time, other investment showed a deficit of CZK6.3 billion, owing to changes in international short-term positions of monetary financial institutions.

Japan's August CGPI Grows Slower, Current Account Surplus Narrows In July

Sep 12, 2007 - Japan's domestic corporate goods price index - CGPI rose 1.9% in August from last year, driven by higher raw material prices, the Bank of Japan said Wednesday. This marked the forty-second consecutive monthly increase. Nonetheless, these increases failed to push Japan's core consumer prices, which remained sluggish in the past seven months forcing the BoJ to delay the much awaited interest rate hike.

In the prior month, CGPI climbed a revised 2.2%, the report said. On a monthly basis, corporate good prices remained unchanged in August, following seven consecutive months of increases.

Economist expected the CGPI to gain 1.8% from last year and rise 0.1% from the prior month.

Prices of manufacturing products rose 1.9% in July from the previous year, while that of minerals and scraps& wastes climbed 4.0% and 28.4% respectively. Electrical power, gas & water prices rose 0.9% in contrast to prices of agriculture, forestry & fishery products, which eased 0.9% from a year ago.

Price increase was broad based across almost all manufacturing industry products. Iron & steel prices increased the most, rising 11.6%, while prices for electrical machinery & equipments and precision instruments slipped 2.0% and 0.3% respectively.

The report said that the export price index rose 1.2% in August, down from a revised 5.3% increase in the prior month. The import price index gained 4.2% compared to a revised 8.9% rise in July.

Prices of commodities categorized on the basis of demand and use rose 2.3% in August, down from a revised 3.4% in the previous month. Raw material prices climbed 4.2%, slower than the revised 8.3% jump in July. Prices of intermediate goods rose 3.2%, while finished goods prices inched up 0.3% from a year earlier.

BoJ in its semiannual outlook report released in April, reiterated that the CGPI is likely to continue its upward trend despite fluctuations in crude oil price and exchange rates.

However, the continued growth in the CGPI at slower rate compared to prior month, will unlikely give enough room for the central bank's policy board for a rate hike when it meets on September 18 -19 for its next policy meeting. The recent weak economic data, prominently the revised second quarter GDP number, which showed that the Japanese economy shrank 1.2% from year ago, almost rule out the chances of a rate revision this time, analysts say.

There are also concerns about how the global financial market volatility that was sparked off by the U.S. subprime loan crisis will impact the Japanese external demand and the economy at large in the near term.

Current Account Surplus Narrows

The Ministry of Finance, in a preliminary report said Wednesday, that Japan's current account surplus grew 4.5% to 1855.9 billion yen in July from a year earlier. Analysts were looking for a current account surplus of 1810.0 billion yen for July. In the prior month, the current account surplus widened 48.4% from a year ago.

The growth was due to a solid income account, which showed a 24.6% increase in surplus, partially offsetting the fall in trade surplus.

The overall trade surplus fell 29.6% to 458.8 billion yen in July, impacted by a 17.6% decrease in trade surplus in goods to 784.3 billion yen. Services account showed a net deficit of 325.5 billion yen.

Exports rose 11.1% to 6,688.8 billion yen, while imports advanced 16.6% to 5,904.5 billion yen. This compared to a 16.1% increase in exports and 9.2% growth in imports in the prior month.

Income account showed a surplus of 1517.0 billion yen in July, compared to 456.8 billion yen in June. Income from overseas debt rose to 1173.1 billion yen, while equity income amounted to 202.7 billion yen.

Current transfers showed a net deficit of 119.9 billion yen, compared to the prior month's deficit of 83.8 billion yen.

On a seasonally adjusted basis, current account surplus fell 14.3% to 1753.9 billion yen in July from the prior month, when it slipped 8.1%. The result fell short of the expected target of 1900.0 billion yen for July. Trade surplus of goods and services fell 13.7% to 606.3 billion yen, while income surplus narrowed to 1270.7 billion yen from a surplus of 1439.5 billion yen in the prior month.

Swiss Current Account Surplus Posts Robust Growth For Full Year 2006

Sep 12, 2007 - Swiss current account surplus grew to CHF73.6 billion in 2006, compared to the surplus of CHF62.8 billion in 2005, the Swiss National Bank, SNB, said Wednesday. The current account surplus amounted to 16% of GDP in 2006, up from 14% in the previous year.

The expansion of the current account surplus was underpinned by the 13% nominal surge in exports of goods and services. Favorable overseas market conditions helped the exports of most industries, the SNB said. Service exports were bolstered by high growth rates at banks and insurance companies, increased merchanting income. Receipts from tourism posted a 6% gain to CHF13 billion.

Imports of goods increased 11% in nominal terms, while imports of services rose due to expenses of the tourism sector. The surplus from trade in goods rose to CHF5.1 billion in 2006 from CHF3 billion in the previous year, while the surplus from trade in services advanced to CHF33.2 billion from a surplus of CHF28.3 billion in the earlier year.

Labor income of persons employed by international organizations in Switzerland grew 2%. Portfolio income from Swiss investments abroad swelled to CHF31 billion. Income from equity securities grew CHF2 billion to CHF13 billion in 2006, while income from debt securities also increased CHF2 billion to CHF 18 billion. On the other hand, foreign investors investment income on their holdings in Switzerland climbed by a fifth to CHF17 billion in 2006. Net income gained CHF1 billion to CHF 14 billion in 2006.

Current transfers from abroad advanced CHF2 billion to CHF 17 billion, while current transfers abroad remained stable at CHF30 billion. Private transfers registered a growth of CHF2 billion to CHF13 billion.

The financial account posted a net outflow of CHF91 billion in 2006, compared to the outflow of CHF84 billion in 2005. Net capital outflow was CHF54 billion in 2006, while portfolio investment came in at a net outflow of CHF 54 billion too, compared to the net outflow of CHF66 billion in the last year. Other investment showed a net capital inflow of CHF18 billion.

Direct investments abroad climbed to CHF73 billion in 2006 almost equaling the high of year 2000, the SNB said. This compares with the CHF63 billion worth of direct investments made in the previous year. The main investment destinations were the US, which took CHF22 billion, while Singapore attracted CHF5 billion in investments and countries in Central and South America took CHF14 billion in investments.

Foreign direct investment in Switzerland amounted to CHF19 billion. Derivatives and structured products were reported in the balance of payments for the first time. Domestic investors purchased CHF7 billion worth of structured products issued by foreign issuers, while foreigners invested CHF4 billion in structured Swiss assets.

The reserve assets of the SNB slumped to a negative CHF0.4 billion at the end of 2006, from a positive balance of CHF22.7 billion at the end of 2005.

Brazil Q2 GDP up 5.4 yr-on-yr, up 0.8 pct vs Q1

Sep 12, 2007 - Brazil's economy grew less than expected in the second quarter, held back by a slowdown in the services sector and a fall in government spending, but economists expect surging investments to fuel faster growth.

Gross domestic product, the broadest measure of a country's output of goods and services, grew 0.8 percent from the first quarter and 5.4 percent from a year earlier, national statistics agency IBGE said on Wednesday.

The economy, Latin America's largest, was expected to have grown 1.2 percent from the first quarter and 5.8 percent from the second quarter of 2006, according to median estimates in a Reuters survey.

"I wouldn't take this as an indication the economy is growing too little," said Mauricio Oreng, an economist at Itau Corretora in Sao Paulo. "I'd read this (quarterly) GDP data with some caution because it implies 3.2 percent annualized growth that doesn't reflect the real economy."

Expansion in services slowed to 0.7 percent from 1.7 percent in the previous quarter, while Brazil's industry grew 1.3 percent quarter-on-quarter, accelerating from a 0.4 percent rate of expansion in the first three months of the year.

The agricultural sector, often referred to as the green anchor of the Brazilian economy, grew 0.6 percent, rebounding from a 4 percent decline in the previous quarter.

INVESTMENT GROWTH

Government spending grew 0.2 percent, slowing sharply from 2.7 percent in the first quarter.

Capital investments in things like machinery, factories and infrastructure grew 3.2 percent quarter-on-quarter after expanding 2.7 percent in the first quarter.

"Capital investments show a strong trend. That's good for more sustained growth going forward," Oreng said.

Household spending rose 1.5 percent as real wages climbed, the government boosted the minimum monthly salary and declining borrowing costs made consumer credit more accessible.

GDP grew a revised 0.9 percent in the first quarter from the fourth quarter of 2006, while year-on-year growth in the first quarter was revised to 4.4 percent from 4.3 percent.

Economists expect revisions later this year will show higher growth in 2007 as the IBGE receives more detailed data.

"It's probable also some future revisions will be made and improve this outcome, which wasn't bad because it indicates the pace of growth continues strong and consistent," said Alexandre Mathias, head of economic research at Unibanco Asset Management.

Brazil's economy expanded 3.7 percent in 2006 and is expected to grow 4.7 percent in 2007, according to the most recent central bank forecast. While those growth rates are above average for Brazil, they still lag emerging market peers like India and China.

Belgian Q2 GDP up 0.6 pct vs Q1

Sep 12, 2007 - Belgium's economy expanded in the second quarter at the slowest pace in almost two years as the stronger euro hurt manufacturing and trade.

Gross domestic product adjusted for seasonal changes expanded 0.6 percent from the prior three months, when it grew 0.7 percent, the Belgian central bank in Brussels said today, confirming a preliminary estimate. A 0.7 percent increase in services offset a slowdown in production, which grew 0.1 percent, and construction, which rose 0.3 percent.

The rising euro and slowing economic growth in Europe have weighed on euro-area exports at a time when higher oil prices and interest rates are sapping consumer confidence. The European Commission yesterday cut its 2007 growth estimate for the euro region to 2.5 percent from an earlier prediction of 2.6 percent, following the collapse of the U.S. subprime market.

"The subprime crisis may have begun in the U.S., but the effects are being felt worldwide," said Marco Valli, an economist at UniCredit Markets & Investment Banking in Milan.

The second-quarter expansion in Belgium, the sixth-largest economy among the 13 nations that share the euro, is the slowest since the third quarter of 2005. Imports grew 1.9 percent, almost double the 1 percent increase in exports.

The euro's advance against the dollar makes Belgian goods less competitive abroad, while a 23 percent increase in oil prices this year has raised raw-material costs for companies. The euro hit a record against the dollar today, touching $1.3889, a sign the outlook for exports may worsen. Brent crude reached an all-time high of $78.30 a barrel in August 2006 and is now trading at about $76.55.

Key Rate

The European Central Bank on Sept. 6 left its key rate at 4 percent, shelving a planned increase after the U.S. housing slump roiled financial markets and threatened to curb global economic growth. Since then, policy makers have stressed they remain focused on fighting inflation. The ECB has raised interest rates eight times since late 2005.

The Belgian economy expanded 2.9 percent in the second quarter from the year-earlier period, the central bank said today, matching its preliminary estimate and the annual growth rate in the first quarter. The bank forecasts the economy will grow 2.5 percent this year and 2.2 percent in 2008, compared with a growth rate of 3.1 percent last year.

Tuesday, September 11, 2007

U.S. Economy: Trade Deficit Shrinks to $59.2 bn as Exports Climb

Sep 11, 2007 - The U.S. trade deficit unexpectedly narrowed in July as Boeing Co., General Electric Co. and Deere & Co. shipped more airplanes, engines and tractors overseas.

Surging exports may help cushion the U.S. economy from the impact of higher borrowing costs, weakening employment and waning consumer confidence. Exports reached records in each of the past five months, buoyed by the strongest global expansion since the 1970s and a weaker dollar.

The gap shrank 0.3 percent to $59.2 billion from a revised $59.4 billion in June that was bigger than previously estimated, the Commerce Department said today in Washington. Economists anticipated a shortfall of $59 billion.

"Foreign demand is strong," said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. "It's a reminder that we do have a bit of a shock absorber."

Sales overseas climbed 2.7 percent, the most in three years, while imports rose 1.8 percent to $196.9 billion, also a record. The increase in imports reflected greater purchases of crude oil, drilling equipment and appliances. Overall demand for foreign- made capital goods slackened, led by a drop in computers.

The trade forecast was based on the median estimate of 70 economists surveyed by Bloomberg News. Projections ranged from deficits of $57.5 billion to $61.5 billion. The June deficit was initially reported at $58.1 billion.

The dollar remained lower against the euro after the report, trading at $1.3837 at 4:21 p.m. in New York, from $1.3802 late yesterday.

Exports Climb

The inflation-adjusted deficit, used to calculate growth, shrank to the smallest in three years.

Exports may help the economy expand as much as 3 percent in the third quarter, said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. His current estimate is 2.8 percent. Growth reached 4 percent from April through June.

American exports are benefiting from a decline in the dollar, which makes U.S. goods cheaper for foreign buyers. The dollar is down 7.9 percent since the beginning of 2006 against a basket of currencies from major trading partners, according to the Federal Reserve's Trade Weighted Broad Dollar Index.

Faster growth overseas is also protecting U.S. companies from slower demand at home. In the second quarter, China expanded 11.9 percent from a year earlier, the most in more than 12 years, and India grew at a 9.3 percent rate. Argentina's economy, the second-biggest in South America, will expand more than 8 percent this year, the government said on Sept. 5.

Growth Rates

The growth rates compare with a 1.9 percent pace of expansion in the U.S. and a 2.5 percent gain in the 13 countries using the euro.

"There are good signs for the trade deficit to gradually get smaller," said Brian Mandt, an economist at Deutsche Postbank AG in Frankfurt, who accurately forecast the gap. "The U.S. economy is definitely also benefiting from good growth outside the country."

Chicago-based Boeing is among the companies seeing overseas demand growing. The world's second-biggest airplane maker after Airbus SAS won a $1.9 billion order in August from Xiamen Airlines of China for 25 craft. Boeing delivered 25 planes to foreign buyers in July, up from 21 in June. Last month, overseas deliveries rose to 30.

GE, Deere

GE projects that as much as 60 percent of sales may come from outside the U.S. within five years, from 50 percent now, as it sells electronics and engines to emerging markets such as India and China.

Deere, the world's largest farm-equipment maker, increased its full-year profit forecast last month after third-quarter earnings rose 23 percent on orders for tractors overseas. Deere's sales of machinery outside the U.S. jumped 30 percent.

The trade gap with China, the second-largest U.S. trading partner after Canada, increased 13 percent to $23.8 billion in July, second only to the record $24.4 billion reached in October 2006.

Trade with China has become a politically sensitive issue as some policy makers and manufacturers say that country has kept its currency, the yuan, artificially low to stimulate demand. Treasury Secretary Henry Paulson has urged China to let its currency rise more.

China reported today that its trade surplus in August widened 33 percent to $24.97 billion from a year earlier, the second-highest monthly total. The surplus with the U.S., $15 billion, accounted for more than half the total. The figures reported by China and the U.S. don't match because of differences in methodology.

Oil Prices

Oil imports will remain a concern as prices continue to climb. The cost of imported petroleum surged 7 percent in July after a 4.4 percent gain the prior month, Labor Department figures show. Prices have increased even more since.

After eliminating the influence of prices, which are the trade numbers used to calculate gross domestic product, the deficit narrowed in July to $53.5 billion, the lowest since September 2004.

Economists at Lehman Brothers Holdings Inc. forecast trade will contribute 0.4 percentage point to GDP this year and 0.3 percentage point in 2008, after subtracting 0.1 last year.

"Still-strong global growth seems likely to provide a powerful offset both to overall growth and to corporate profits," Richard Berner, chief U.S. economist at Morgan Stanley, said in a note to clients yesterday. "Strong demand abroad will buoy U.S. growth."

Some European officials are also upbeat.

"The global economy has solid fundamentals," European Central Bank President Jean-Claude Trichet said at a press conference in Basel, Switzerland, yesterday. While uncertainties 'have augmented' after turmoil in financial markets, the overall sentiment that the world economy remains sound 'hasn't altered.'

U.K. Trade Deficit Widens, Non-EU Gap Reaches Record

Sep 11, 2007 - The U.K. trade deficit widened more than economists forecast in July as the gap with non-European Union nations reached a record, suggesting the pound's appreciation is making British goods less attractive overseas.

The goods trade deficit was 7.1 billion pounds ($14.4 billion), compared with 6.5 billion pounds in July, the Office for National Statistics said in London today. Economists forecast a 6.4 billion-pound gap, according to the median of 26 estimates in a Bloomberg survey.

A pickup in manufacturing, which helped power quicker economic growth in the second quarter, may be waning after the pound reached a 26-year high against the dollar in July. Exports may falter if a surge in corporate borrowing costs, caused by the U.S. subprime mortgage crisis, cools the global economy.

"There's a risk from subprime to global demand," said George Buckley, chief U.K. economist at Deutsche Bank AG in London. "The stronger pound won't help and may weigh on exports."

The goods deficit was close to the record reached in March, the statistics office said. The gap swelled as imports increased 4 percent, outpacing the 2.6 percent gain in exports.

Exports to countries outside the European Union fell 6.2 percent, while imports rose 5.1 percent, the statistics office said. The overall goods deficit with those nations swelled to a record 4.5 billion pounds.

Pound Strength

The pound reached $2.0654 on July 24, the highest since 1981, and traded at $2.0286 in London today. Exports to the U.S., which fell on the month, account for about a tenth of overseas sales.

Cobham Plc, a U.K. supplier of radio antennas to the U.S. military, said today that its first-half profit dropped 35 percent as a weaker dollar and the sale of subsidiaries hurt revenue. The company gets almost half its revenue from the U.S.

The Organization for Economic Cooperation and Development cut its 2007 forecasts for economic growth in the U.S. and Europe on Sept. 5 and said further reductions may follow after the collapse of U.S. subprime mortgages. The OECD trimmed its U.S. forecast to 1.9 percent from a May figure of 2.1 percent, and for the euro region to 2.6 percent from 2.7 percent.

U.K. factory output, which accounts for 15 percent of the economy, unexpectedly fell in July, the first decline in five months, a government report showed Sept. 6.

Services Growth

Services, the largest part of the economy, are likely to support growth. Services growth unexpectedly quickened in August, a survey by the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc. showed on Sept. 5. Gross domestic product growth accelerated to 0.8 percent in the second quarter, from 0.7 percent in the previous three months.

The Bank of England kept its benchmark interest rate unchanged at 5.75 percent on Sept. 6 as policy makers sought to prevent higher credit costs from damaging the economy. The bank said that economic growth has sustained its pace and it is too soon to tell how financial market turmoil will affect lending.

The U.K.'s trade figures have been distorted by value-added tax fraud. The statistics office said today that it has revised 'substantially' its estimates of the fraud for 2006, which may show lower imports than previously measured. This could affect the assessment of net trade on gross domestic product and the deflator. The new estimates will be released with growth data on Sept. 26.

Oil trade showed a deficit of 300 million pounds in July, compared with a gap of 100 million pounds the previous month. The measurement for June was changed from a surplus after the tax authorities detected a duplicated submission from an oil trader of 300 million pounds, the statistics office said.

China's Trade Surplus Widens to $24.9 bn In August

Sep 11, 2007 - China's trade surplus rose 33.0% to US$24.9 billion in August from last year, marking the second highest monthly increase, official data indicated Tuesday.

The monthly trade surplus registered its record high of US$26.9 billion in June and fell slightly to US$24.4 billion in July.

For the first eight months, China's total trade surplus grossed US$161.8 billion, the report said. At the current rate, the surplus is set to cross US$250 billion in 2007, breaching the record high ofUS$177.47 billion posted last year, analysts say.

Exports rose 22.7% to US$111.3 billion in August from last year, while imports advanced 20.1% to US$86.4 billion, the report said.

Europe was China's biggest trading partner, with exports to Europe rising 31.3% to US$23 billion, while imports were up 21.8% at US$10.2 billion.

The strong export growth continued amid growing criticism particularly from the US that China's undervalued yuan gives the country an unfair trade advantage over its trade partners.

China had a trade surplus of US$15 billion with the United States, its second-biggest trading partner. Exports to the United States rose 16.7% to US$20.9 billion, while imports from the US were up 15.5% at US$5.9 billion. China's total trade surplus with the United States stood at US$103.3 billion for the first eight months.

The U.S. Senate is reportedly considering measures to penalize China for its currency controls. The measures have moved ahead despite protests by U.S. Treasury Secretary Henry Paulson, who is conducting a long-range strategic economic dialogue with Beijing over trade and related disputes.

Meanwhile, China has initiated several measures in recent months, to curtail the overrun export momentum and ease frictions with China's trade partners. Companies have been encouraged to curb exports of products that consume vast amounts of energy and cause serious pollution and expand imports of high-tech goods. Government imposed additional export tariffs for exports and lowered import duties from June this year in a move to limit the widening trade gap.

China's trade surplus expanded to US$112.5 billion, in the first half year, up US$51.1 billion from last year, as exports grew 27.6% to US$546.7 billion, and imports advanced 18.2% to US$434.2 billion. The overall external trade showed an increase of 23.3% over a year ago.

The central bank said in its second quarter monetary policy report released on September 6, that the low resource prices and labor costs are among the major factors that boosted trade surplus.

The report said that trade surplus would remain at a relatively high level going forward. The bank noted that the growth of the world economy is likely to be above 4.0% for the fifth consecutive year, making this expansionary cycle the longest in the past 30 years, triggering strong external demands.

Meanwhile, restrictions on exports of high-tech equipment to China by trading partners will continue to limit China's efforts to expand imports, the report added.

The booming external trade helped the economy expand 11.9% in the second quarter and 11.5% in the first half year, bringing excess liquidity in the financial system that put further inflationary pressure.

Consumer inflation in China soared to its highest level in nearly 11 years in August as food prices continue to surge, the National Bureau of Statistics said Tuesday. The annual Consumer Price Index -CPI, rose 6.5% in August after climbing 5.6% in the previous month. The result exceeded 6.0% growth expected for August.

The increasing inflationary concerns intensified expectations of further rate hikes although the central bank raised the key interest rates four times this year.

Last month, the People's Bank of China raised the benchmark one-year interest rate to a nine-year high of 7.02%. The central bank also announced its decision last week to raise the reserve requirement ratio for commercial banks by 0.5 percentage point to 12.5% effective from September 25, in a bid to control excessive bank lending.

China's Inflation Surges to 6.5%; Trade Gap Widens

Sep 11, 2007 - China's inflation rate accelerated to a 10-year high and the trade surplus widened, adding pressure on the central bank to raise borrowing costs for the fifth time this year.

Consumer prices rose 6.5 percent in August from a year earlier after gaining 5.6 percent in July, the statistics bureau said today. The trade gap widened 33 percent to $24.97 billion, the second-highest monthly total.

Stocks fell the most in more than two months on concern the government will raise rates, curb bank lending and sell more bonds to cool the world's fastest-growing major economy. Premier Wen Jiabao is trying to stop money from record exports stoking consumer-price gains and asset bubbles.

"Inflation expectations have begun to rise and the government should do something significant," said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. "Otherwise, the stock and property bubbles will get bigger and eventually crash."

The benchmark CSI 300 Index of shares, the world's best- performing this year, fell 4.7 percent.

China's currency, the yuan, was little changed at 7.5232 against the dollar, from yesterday's 7.5214, the strongest close since a fixed exchange rate was scrapped in July 2005.

Inflation Tops Estimate

The yield on the 10-year treasury rose 7 basis points to 4.35 percent, according to the China Interbank Market. The price of the security due June 2017 was 100.4 yuan.

Inflation topped the 5.9 percent median estimate of 24 economists surveyed by Bloomberg News, driven by food costs. The trade surplus compared with an estimate of $25.9 billion.

The central bank raised the benchmark one-year interest rate by 0.18 percentage point to a nine-year high of 7.02 percent last month. It's also sold bills and ordered lenders to set aside a larger proportion of deposits seven times this year to soak up cash.

The central bank should raise borrowing costs 0.54 percentage point, twice as much as this year's biggest increase, said CLSA's Walker.

"We currently are looking for one more 27 basis point hike this year, but clearly the pressures for more are growing," said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai.

The world's fourth-biggest economy expanded 11.9 percent in the second quarter, the largest increase in more than 12 years, powered by overseas sales and investment.

Stocks, Property

Consumer-price gains have outpaced returns on bank deposits, encouraging households to switch money to property and stocks. The benchmark one-year deposit rate is 3.6 percent.

The CSI 300 has climbed more than 150 percent this year amid government warnings that stocks may be overvalued. It's the best performing of 89 global benchmarks tracked by Bloomberg. In July, housing prices jumped 7.5 percent in 70 major cities.

Inflation has exceeded the central bank's annual target of 3 percent for four straight months. The average rate for the first eight months was 3.9 percent. In August last year, consumer prices rose 1.3 percent.

Exports gained 22.7 percent in August from a year earlier and imports climbed 20.1 percent. The $15 billion surplus with the U.S. for the month may exacerbate friction over product safety and lawmakers' claims the yuan is kept undervalued to aid Chinese exporters.

The currency has gained 10 percent versus the dollar since the end of the peg to the U.S. currency in July 2005. China has said it will move at its own pace on foreign-exchange changes.

Paulson, Politicians

The Senate Finance Committee and the Senate Banking Committee have approved legislation aimed at pressing China to allow faster currency gains. U.S. Treasury Secretary Henry Paulson said the proposals risked triggering protectionist measures worldwide.

Larger gains would help to narrow the trade surplus, forecast by the government to rise to as much as $300 billion this year from $177.5 billion in 2006.

The government has raised export taxes and loosened controls on money leaving the country to try to avoid fueling asset bubbles and consumer-price gains.

Inflation raises the risk of social unrest as the Communist Party prepares for its 17th National Congress, a five-yearly meeting starting Oct. 15 that will decide leadership changes. Soaring consumer prices helped trigger the Tiananmen Square protests that were crushed by the army in 1989.

Pork prices have surged in the world's biggest consumer of the meat because of a pig shortage. Food accounts for a third of the consumer price index, meat alone for 7 percent.

Danish Consumer Prices Dip In August

Sep 10, 2007 - The Danish Consumer Price Index or CPI dipped 0.2% month-on-month in August, the statistical office said Monday. On a yearly basis, the index moved up 1.1% in August.

The Net price index also dropped 0.2% monthly and rose 1.2% annually in August.

The harmonized CPI slid 0.2% over the month, while it rose 0.9% year-on-year.

Romanian 7 mths trade deficit up 62.9 pct

Sep 10, 2007 - Romania recorded a trade deficit of 11.5 bln eur during the first seven months of 2007, up 62.9 pct compared with the same period last year, the institute for national statistics said.

During the seven month period, exports totalled 16.7 bln eur, up 12.4 pct, while imports rose 28.6 pct to 28.2 bln eur.

Trade with EU countries represented about 71 pct of the total.

In 2006, Romania reported a record trade deficit of 14.89 bln eur, 44 pct more than the year before.

Monday, September 10, 2007

Portugal 6 months to June trade deficit shrinks 7.5 pct to 8.75 bln eur

Sep 10, 2007 - Portugal's global trade deficit shrank 7.5 pct to 8.75 bln eur in the six months to June, from 9.47 bln a year earlier, as a 9.2 pct rise in exports to 18.68 bln more than offset a 3.3 pct rise in imports to 27.43 bln, the INE statistics institute said.

In a statement, INE said Portugal's trade gap with non-EU countries in the seven months to July shrank 14.2 pct to 2.81 bln eur from 3.28 bln a year earlier, as exports rose 15.8 pct to 5.03 bln, outpacing a 2.9 pct rise in imports to 7.84 bln.

Italian Economic Growth Eases In Q2

Sep 10, 2007 - The Italian economic growth slowed to 1.8% annually in the second quarter, a revised report from the statistical office ISTAT showed Monday. The growth rate slowed from the 2.3% recorded in the first quarter. On a sequential basis, the GDP growth came in at 0.1% in the second quarter, smaller than the 0.3% registered in the prior quarter.

The growth numbers for the second quarter were left unrevised.

Imports climbed 2.6% annually, while exports were up 1.1%. Final consumption expenditure improved 1.7% and gross fixed capital formation increased 2.0%.

Slovenian Q2 GDP up 6.3 pct year-on-year

Sep 10, 2007 - Slovenian GDP grew by 6.3 pct in the second quarter of the year compared with the same period in 2006, the Slovenian Statistical Office reported.

The economy expanded 1.2 pct from the first quarter, the office said.

"High export growth continued in the second quarter, increasing by 13.6 pct," the office added.

It also revised its 2006 GDP growth, raising it 5.7 pct from 5.2 pct published earlier this year.

Latvian 12-month inflation rises to 10.1 percent August

Sep 10, 2007 - Consumer prices grew by 0.4 percent in new European Union member Latvia in August compared to July, putting 12-month inflation at 10.1 percent, the national department of statistics said.

Average 12-month inflation, which is one of the key indicators for countries wishing to join the eurozone, was 7.8 percent in August.

Latvia is having difficulty keeping inflation under control in the face of spiralling economic growth as it catches up with older members of the European Union, which it joined in 2004.

The Latvian economy grew by 11.9 percent last year, the fastest rate since independence from the Soviet Union in 1991 and the strongest growth rate in the then 25-member EU.

Czech CPI Annual Inflation Edges Up In August

Sep 10, 2007 - Czech consumer prices rose 2.4% on an annual basis in August, the statistical office said, Monday. This matched economists' consensus of 2.4% rise. Consumer prices grew 2.3% in July. Consumer prices advanced 0.3% on a monthly basis, in August compared to the rise of 0.4% in the previous month. Economists were looking for a rise of 0.2% in August.

On an annual basis, prices of alcoholic beverages and tobacco grew 1.2% in August, pushed by the 26.6% surge in prices of tobacco products. Prices of non-alcoholic beverages advanced 0.5%, compared to the rise of 0.4% in the previous month. Prices of clothing and footwear remained unchanged. Housing, water, electricity, gas and other fuels prices grew 0.9%, slightly more than the prices rise of 0.8% in the earlier month.

Transport prices declined 0.1% annually in August, the same as in the previous month. Communications prices slipped 0.1% after remaining unchanged in the earlier month. Prices in the recreation and culture sector eased 0.3% after sliding 0.1% in the previous month.

In August, prices of goods advanced 2.5% and prices of services grew 2.3%.

The inflation rate in the twelve months to August slowed to 2.0%, from 2.1% in the twelve months to July. The Harmonized Index of Consumer Prices, HICP, rose 2.6% annually in August, slightly more than the increase of 2.5% in July. On a monthly basis, the HICP rose 0.3% in August.

Though there was a moderate acceleration in inflation in August, yet it remained well within the Central Bank's target of 3%, and lower than their projection of a 2.6% rise, the Danske Bank said. With the Czech koruna strengthening, and inflation lower than expected, there might be a pause in the current phase of monetary tightening, the Danske Bank observed. However, further hikes at the end of the year could not be ruled out the, Danske Bank said.

The Harmonized CPI for EU purposes moved up 0.3% monthly in August. The HICP annual inflation rate edged up to 2.6% in August from the 2.5% seen in July.

Turkish Economic Growth Loses Steam In Q2

Sep 10, 2007 - The Turkish gross national product or GNP rose 3.9% year-on-year in constant prices to total 38.9 million New Turkish Liras in the second quarter, the statistical agency reported Monday. The annual GNP growth rate sharply slowed from a revised 6.8% logged in the first quarter. Initially, the GNP growth for the first quarter was estimated at 6.7%.

In current prices, the GNP increased 10.5% year-on-year to 148.1 billion New Turkish Liras in the second quarter. In US dollar terms, the GNP enhanced 19.4% to US$110.3 billion.

The gross domestic product or GDP grew at a pace of 3.9% yearly to reach 39.1 million New Turkish Liras in the second quarter at constant prices, much slower than a revised 6.9% acceleration seen in the first quarter. Earlier, the first quarter GDP growth was recorded as 6.8%.

The second quarter growth rate of GDP came to 10.6% in current prices. The GDP was 148 billion New Turkish Liras in current prices. In US dollar terms, the gross domestic product increased19.5% to US$110.189 billion.

At constant prices, private consumption expenditure declined 0.3% in the second quarter, after logging a solid 2.0% rise in the previous quarter.

Gross fixed capital formation gained steam, rising 10%, accelerating from the 3% climb seen in the prior quarter.

Exports moved up 12.7%, slightly slower than the 14.7% pace witnessed in the first quarter. Imports increased 8.4%, marking a stronger growth than the 4.3% gain in the prior quarter.

U.K. August Producer Prices Rise for a Ninth Month

Sep 10, 2007 - British manufacturers increased their prices for a ninth month in August, feeding inflation pressures into the economy.

So-called output prices, unadjusted for seasonal swings, rose 0.1 percent after climbing 0.3 percent in July, the Office for National Statistics said today in London. Economists predicted a gain of 0.2 percent, the median of 26 forecasts in a Bloomberg News survey shows.

The economy is heading for its fastest pace of growth this year since 2004, giving companies room to charge their customers more. Bank of England policy makers, who noted last week that indicators of prices 'remain somewhat elevated,'are trying to contain inflation while gauging the risks to economic growth from a surge in credit costs.

"There are still price pressures in the economy," said Dominic White, an economist at ABN Amro Holding NV in London and a former U.K. Treasury official. "We see rates on hold for the foreseeable future. There's a chance they could rise, but equally there's a chance they could fall."

Traders added to bets the Bank of England will raise its benchmark rate this year. The yield on the December interest- rate futures contract rose 6 basis points to 6.39 percent.

The contract settles to the three-month London interbank offered rate for the pound, which has averaged about 15 basis points more than the Bank of England's key rate for the past decade.

Core Prices

Core output prices, which exclude alcohol, tobacco, food and energy prices, rose a seasonally adjusted 0.2 percent on the month, the statistics office said. They rose an unadjusted 2.4 percent on the year, up from a 2.3 percent annual gain in July.

Overall producer prices rose on the month in five out of 10 categories, led by transport equipment, food and other products, the statistics office said.

Premier Foods Plc, the U.K.'s biggest maker of cakes and instant soup, said Sept. 4 it will meet annual profit forecasts after raising prices to cover higher wheat costs. The company said it may also consider charging more for bread and other products.

Raw-material costs, adjusted for seasonal swings, fell 0.5 percent as oil prices declined, the statistics office said. Crude oil prices slipped as low as $68.63 in August after reaching a record $78.77 a barrel on Aug. 1. On the year, unadjusted raw-material costs increased 0.6 percent.

Companies may face further pressures after the collapse of the U.S. subprime mortgage market led to a jump in credit costs, said Peter Dixon, an economist at Commerzbank AG in London.

Credit Squeeze

"If this credit squeeze leads to a slowdown in demand, that will bear on companies' pricing power," Dixon said. "Rates will remain on hold well into next year."

While the central bank's forecasts on Aug. 8 show a further interest-rate increase may be needed to get inflation under control, only five out of 22 economists in a Bloomberg News survey on Sept. 7 forecast the bank will raise the benchmark from the current 5.75 percent.

Inflation slowed below the central bank's 2 percent target in July for the first time in 16 months. The bank said Sept. 6, after its monthly rate decision, that gains in consumer prices will stay around or below the goal for the next few months.

The central bank still said that economic growth has sustained a 'solid pace' and that it is 'too soon to tell' how financial market turmoil will affect borrowing. The economy will expand 2.9 percent in 2007, the most in three years, International Monetary Fund estimates published July 25 show. That compares with its forecasts of 2 percent for the U.S. and 2.6 percent for the 13 euro countries and Japan.

Philippine net foreign direct investments drop 59.2 percent in June

Sep 10, 2007 - Net foreign direct investments (FDI) in the Philippines dropped 59.2 percent to 89 million US dollars in June from the year-earlier period, central bank data released Monday showed.

For the first half of the year, however, net FDIs posted a 16-percent increase to 1.2 billion dollars. That was despite the repayment by local subsidiaries of loans to their parent companies abroad, the central bank said in a statement.

The figure reflects increased equity capital inflows, which came mostly from the US, Japan, Singapore and South Korea, it said.

Central bank governor Amando Tetangco Jr said the business climate in the Philippines remains conducive to investors.

"The macroeconomic gains realized in the first semester, such as the strong external payments position, decelerating inflation, and the robust second-quarter GDP growth are expected to provide more confidence-boosting support to the country's investment landscape," he said.

Lithuania's CPI rises 0.3 pct in August from July

Sep 10, 2007 - Consumer prices in Lithuania grew at an annual rate of 5.5% in August, the Department of Statistics Lithuania, said Monday. This compares with the 5.1% rise in consumer prices in the previous month. On a monthly basis, consumer prices edged up 0.3% in August, slowing from 0.7% increase in July. The rate of inflation in August was the fastest in ten years, the Danske Bank said.

In August, annual inflation was pushed by 10.5% climb in prices of food products and non-alcoholic beverages, while housing, water, electricity, gas and other fuel prices jumped 11.4%. Clothing and footwear prices eased 4.8%, while communication prices slumped 7%.

Over the month, prices of food products and non-alcoholic beverages gained 0.3% in August, propelled by a 5.3% increase in the prices of milk, dairy products and cheeses; while prices of food products and non-alcoholic beverages advanced 1.1% in the previous month. Alcoholic drinks and tobacco products climbed 1.9% in August, while prices in the sector gained 0.6% in the last month.

Clothing and footwear prices slipped 0.3% in August, after falling 3% in the earlier month. Transport prices dropped 0.3% in August, sliding from a 0.9% growth in the preceding month. Petrol prices slumped 4.9%, while diesel prices slipped 0.2% and prices of local passenger road transport services dropped 5.2%. Communication prices eased 0.1% following the 0.6% drop in communications prices in the previous month. Prices of data processing equipment slipped 3.2%, while prices of telephone and fax machines eased 1.3%.

The overheating of the economy with annual wage growth of over 20% continued to be a cause for worry, the Danske Bank observed. “Lithuania has a relatively large current account deficit, around 10% of GDP, a credit growth of more than 50% annually, negative real interest rates and low exports-to-imports. This, along with the inflationary pressures, adds further to the rather unsustainable outlook for the economy, and urgent policy measures to curb inflation are still needed,” according to the Danske Bank.

Estonia GDP slows to 7.6 percent in Q2

Sep 10, 2007 - Estonian economic growth slowed to 7.6 pct in the second quarter of 2007 on an annual comparison, the national statistics office said today, issuing revised figures.

In the first quarter of 2007, gross domestic product expanded by 9.8 percent on a 12-month comparison.

The office attributed the slowdown in the second quarter to weaker domestic demand and a considerable deceleration in exports.

Japan's Economy Contracts a More-Than-Expected 1.2%

Sep 10, 2007 - Japan's economy contracted at almost twice the pace forecast by analysts in the second quarter, reinforcing speculation the central bank will leave interest rates unchanged this year.

The economy shrank at a 1.2 percent annual rate in the three months ended June 30 as business spending slumped, the Cabinet Office said in Tokyo today. The government initially forecast a 0.5 percent expansion.

Bond yields fell to the lowest level since February last year on expectations the central bank will keep its overnight lending rate at 0.5 percent to prevent the economy from falling into recession. Any rebound in growth depends on the severity of the housing slowdown in the U.S., the biggest export market for Japanese companies including Toyota Motor Corp. and Sony Corp.

"A move by the Bank of Japan is out of the question," said Takehiro Sato, chief economist at Morgan Stanley Securities Japan Ltd. in Tokyo. "A cloud is hanging over the domestic and global economy."

The median forecast of 31 economists surveyed by Bloomberg News was for the economy to recede at a 0.7 percent annual pace.

The yield on the benchmark 10-year bond slid 8 basis points to 1.51 percent at 3:55 p.m. in Tokyo. The Nikkei 225 stock average tumbled 2.2 percent. The yen traded at 113.26 per dollar from 113 before the report was published.

Quarterly Drop

Japan's economy contracted 0.3 percent from the previous quarter. The Cabinet Office revised the data to show that the last time the economy shrank was in the third quarter of 2006, when it fell 0.1 percent from the previous three months.

Toyota, Japan's largest automaker, saw its U.S. sales drop for the second straight month in August, the first back-to-back decline in 4 1/2 years. Weaker demand in California, Toyota's biggest U.S. market and one of the states where housing is slumping, was partially to blame. The company's shares fell 2.4 percent today.

Sony Corp. shares dropped 6 percent today, taking their decline the past two months to 18 percent. The world's biggest producer of game consoles makes about 70 percent of its sales outside Japan.

The nation's business investment fell 1.2 percent in the second quarter, reflecting a report last week that showed spending by Japanese companies unexpectedly slid in the period. Public investment was revised to a 2.6 percent drop from the previous estimate of a 2.1 percent decline.

Consumer Spending

Gains in household spending in the quarter helped counter the slump in corporate outlays. Spending by consumers, which makes up half the economy, was revised to show a 0.3 percent increase, from an initial estimate of a 0.4 percent gain.

Business and consumer spending were the main drivers of growth last year, reducing the economy's reliance on exports.

Investors now see a zero percent chance that the bank will raise the benchmark rate from 0.5 percent when policy makers conclude their next meeting on Sept. 19, according to Credit Suisse Group calculations based on interest-rate swaps.

Expectations of a rate increase have fallen since losses on U.S. subprime mortgages caused corporate credit costs to jump, global stocks to plummet and the yen to surge.

The Federal Reserve will probably cut its key rate to 5 percent from 5.25 percent when it meets Sept. 18, according to the median forecast of 111 economists surveyed by Bloomberg News. Those expectations rose last week after a report showed the U.S. economy lost jobs in August for the first time in four years.

'The Bottom Line'

"The bottom line is that there won't be any rate hikes in Japan as long as the U.S. economy keeps decelerating," said Yoshimasa Maruyama, a senior economist at BNP Paribas Securities Japan Ltd. in Tokyo.

Since July, Japan's economic growth has shown signs of losing momentum. The trade surplus shrank for the first time this year on weak export growth and industrial production fell. Household spending, a measure of consumer activity, had the biggest drop since December.

There are some indications the economy will accelerate again, albeit at a slower pace than some economists had been forecasting.

"There are enough warning signs in the latest business and consumer surveys to suggest that the subsequent rebound may be rather weaker than usual," Julian Jessop, an economist at Capital Economics in London, said in a note.

Manufacturing Production

Manufacturers expect industrial production to improve after July's drop. They forecast then that output would rise 6.8 percent in August and 2.5 percent in September.

Japan's broadest indicator of the outlook for growth was 70 percent in July. A reading of 50 or more indicates the economy may expand in three to six months.

"The recent rebound in the index is reassuring," said Jessop.

A report tomorrow is expected to show that machinery orders, which point to capital spending in three to six months, rose 5.3 percent in July, according to the median forecast of 21 economists surveyed by Bloomberg News.

"There is no change in Japan's economic trend overall," said Finance Minister Fukushiro Nukaga in Tokyo today. "We expect that the economy will continue its long-lasting growth."

Even after the contraction, Japan's economy expanded at a 2.5 percent annual pace in the first two quarters, the government said, higher than the economy's potential growth rate of 2 percent.

Sunday, September 9, 2007

Swiss full year GDP growth forecast hiked to 2.6 pct from 2.4 pct previously

Sep 9, 2007 - Swiss GDP growth for 2007 has been hiked to 2.6 pct compared to an earlier forecast of 2.4 pct, the University of Zurich's centre for economic research (KOF) said in its latest survey of economists.

At 2.2 pct, GDP growth for 2008 is seen slowing down compared to 2007, but slightly higher than an earlier consensus of 2.1 pct.

KOF's latest forecast on full-year exports growth was hiked to 8 pct, from 6.4 pct earlier, but is seen weaker in 2008 at 5.4 pct.

The unemployment rate forecast for 2007 was cut to 2.8 pct, compared to 2.9 pct previously and is expected to fall further in 2008 at 2.5 pct.

Investment in the construction sector is expected to grow by 3.9 pct in the current year compared to an earlier forecast of 3.2 pct.

Construction growth for 2008 is seen higher at 2.7 pct versus 2.3 pct previously, but slower compared to 2007.