Wealth of Nations

Migrating to a new site

2007-12-27T07:39:00.000+08:00

Hi all,

I've currently migrating to a new site. Check this out:
http://economics-zone.blogspot.com/

Investing tricks of the wealthy

2007-12-19T23:09:00.000+08:00

Average investors can apply the same techniques to their own investments, no matter the size of their portfolio

Dec 19, 2007
By BEN FOK

RECENTLY, I asked a wealth manager whether an average investor can make more money by mimicking the investment strategies of the rich. He answered: not really. Later he explained that the rich invest differently because, well, they're different. They can take more risks because they have more money to lose. Furthermore, they can speculate and have a short-term view because losing money is not a problem for them.

Well, I do not totally agree with his opinion. For the past few years, I have been advising wealthy people on their financial well-being. As a financial adviser, my job is to help these rich clients search for financial services who meet their needs. Throughout my interaction with them, I have gained an insight into how they accumulate wealth.

I can tell that the rich don't necessarily have any special insights into which stocks or assets are going to soar. But what they do have is the confidence to apply a disciplined and systematic approach to managing their money. They have the habit of applying common sense to each investment opportunity facing them. Even though the interests of wealthy investors are not always necessarily aligned with those of the average investor, there are a number of principles and strategies employed by wealthy investors that do apply to virtually anyone who seeks to invest for the future.

It is a common fact that most financial textbooks teach us that in order to build wealth we need diversification, wealth preservation and strategic growth. To me, this not an accurate statement in itself because two of those strategies - diversification and preservation - don't help to build wealth. Perhaps the rich use these two strategies to maintain wealth.

After they have accumulated great wealth, they didn't use the strategies during the accumulation phase and they tend to preserve the wealth they have built. Yet average investors have not yet reached the ranks of the financially independent, so they are generally more concerned about investment growth and losses. The wealthy, as a general rule, do not have this concern. At the same time, they also learn how to avoid taxes legally so that they can keep their money working for them and learn how to pass their assets on to the future generations without the government taking a huge part of what they spent their lives building.

Another common perception is that the rich take more risk, therefore they accumulate wealth faster. However, the truth is that the majority of rich people do not build their fortunes by speculating on high-risk investments as is commonly believed. My experience tells me that the rich do not heavily rely on high-risk investment vehicles like hedge funds or venture capital funds but are moderate risk takers who put more than half of their money into listed securities and keep a large amount as cash. The reason for this is that they have so much money that even if they do not meet their goals for investment growth, it would not be bad news to them; however losing their financial independence would be devastating.

So how do the rich invest? Unlike the average investor, the rich think long term in most of their investment strategies. They believe that there is power in long-term thinking and many of them make it habit of doing so. Great investors like Warren Buffett - his successes in investment include Washington Post Co, where Berkshire invested US$11 million in 1973 and which investment was worth US$1.3 billion at the end of 2006. That is 33 years of holding power which demonstrates his investment philosophy - always invest for the long term. Hence, most rich do not engage in short-term speculation but have a long-term goal in mind.

However, the rich make use of risk by taking advantage of risk. They often build fortunes using volatile assets and investments but that does not mean they were engaging in risky behaviour. They understand the risk and embrace risk because they know it always brings an opportunity for growth; however, the average investor is fearful of risk. Nevertheless, taking risk for the rich does not mean taking a shot in the dark. The rich take calculated risk that means to gain knowledge first and to consider the consequences of failing before taking action. The rich overcome fear with knowledge as knowledge can cause fear to fade away.

The rich also demand value for their money. Otherwise, how do you think they got to be rich in the first place? Value to them is buying assets at a discount to its intrinsic value. So for them the right time to buy is when there is weakness in the market. They buy when others are despondently selling and sell when others are greedily buying. This requires the greatest fortitude but also has the greatest rewards. This bargain-hunting approach to buying value will enable them to buy quality assets at reasonable prices. So they buy when there is bad news and sell on good news. For instance, some of the wealthy invest because they understand that the weakness is only temporary, and the stock price had fully priced in negative news and it was time for them to hunt for bargains again.

If we look back at the Singapore stock market, there are many opportunities for investors to bargain hunt and buy on bad news, e.g. the Asian financial crisis in 1997/98, the Sept 11 terrorist attack and SARS. The rich take advantage of these negative events to buy assets, whether in real estate or stocks and that's where value can be found. However, the average investor will seek to sell and get out of a bear market fearing that the asset will fall in value.

To the rich, probably now is the best time to sell and get out of the market, where all assets prices have gone up in value. Over the past years, we have very good reports about our economic growth and all the good news are now factored into the stock price, so for the rich it's time to sell.

Another investing secret of the rich is that they approach investing like a business. They set up a business plan, establish annual targets, then analyse the results and they have reasonable expectation. At the end of the day what they want to achieve is increasing their net worth and not their income. The rich truly understand the meaning of working smart not working hard: to focus on growing your net worth is working smart but working for an income is working hard. As their net worth grows, they do not increase their spending, instead they increase their investment. By repeating this over the years, once their net worth is built to a certain level, they are free to do what they want. Hence, to increase your net worth you need patience, knowledge, and wisdom.

Often they are not willing to pay more for investment services simply because they find a particular adviser to be charming or knowledgeable. Nor do they chase after the hottest manager or the most publicised fund. Instead, they go shopping for the best combination of reasonable fees and consistently good performance. However, they will pay for advice from people who have specialised knowledge in a field they need to learn about. They don't believe in free advice as it can often be the most expensive advice.

As you can see, most investing secrets of the rich are nothing more than a combination of basic common sense and knowledge. The difference between the rich and the average investor is that they have the self-confidence to stick to the basics and to find out what they need to know. They don't get caught up in the theory of the week or the trend of the month. It's an approach that's easy to articulate but difficult to follow.

However, average investors can learn important lessons from the wealthy, specifically the need to manage both risk and their own investment expectations. The failure to match expectations to the risk an investor is willing to take can result in frequent switching among investments, or even worse. Now the good news for the average investor is that you can apply many of the same techniques to your own investments, no matter how big or small your portfolio is.

Fed proposes mortgage rules to protect borrowers

2007-12-19T23:06:00.000+08:00

Dec 19, 2007 - Lenders would have to confirm that a borrower can afford a mortgage before making the loan under protections proposed by the Federal Reserve on Tuesday following the havoc wrought by the US sub-prime loan crisis.

The proposals are intended to replace loose standards that have put many Americans at risk of losing their homes because they took out loans they could not afford and may not have fully understood.

The new rules will not assist today's struggling homeowners but would give consumers the right to sue mortgage lenders who act unfairly and deceptively in preparing loans. Millions of Americans who stretched to buy homes in recent years face the risk of foreclosure as mortgages with initial 'starter' rates reset sharply higher.

The Fed's board of governors unanimously approved the standards recommeded by its consumer rights staff and said they strike a balance by protecting consumers while preserving their access to credit.

'These new rules, once adopted, would apply to all mortgage lenders,' Fed Chairman Ben Bernanke said as the board met to consider the proposal. He said the rules would be 'consistently applied and vigorously enforced' by state and federal regulators.

The new rules would put the nation's 50,000 mortgage brokers under some federal supervision, according to Fed staff.

The proposal was criticised by several leading lawmakers and praised by an industry group.

The Fed has been faulted for failing to use all its consumer protection authority during the housing boom that ended in 2005, and lawmakers are threatening to take back some of those powers.

The proposed regulations would require that lenders confirm a borrower can afford a home loan by verifying his income and assets with tax records, payroll receipts and other documentation. That is aimed at ending the recent practice of so-called 'stated income' loans in which borrowers could state a particular income without anything to back the claim up.

The proposals would also limit the penalties imposed when a borrower pays off a home loan early. No 'prepayment penalty' would apply, for instance, if a loan is refinanced less than 60 days before its interest rate resets higher.

The proposed rules also would require that borrowers receive details on their brokers' compensation and be billed monthly for annual charges, such as property tax and insurance, that are placed in escrow.

The Fed plan also contains sweeping new standards for home appraisers and targets abusive practices by loan servicers.

The proposed regulations protect borrowers with interest rates of more than 3 percentage points above Treasury securities of similar duration. For example, a 30-year Treasury bond yields around 4.55 percent, and so a 'high-cost' 30-year mortgage loan today would have an interest rate of 7.55 per cent or higher.

Several leading lawmakers said the new rules were too little, too late and suggested Congress should assume some of the Fed's consumer protection role.

Senate Banking Committee Chairman Christopher Dodd faulted the Fed for limiting mandatory escrow to the mortgage's first year and opening only a two-month window of prepayment protection.

'It raises serious questions as to whether the Federal Reserve is the appropriate institution to house consumer protection functions,' the Connecticut Democrat said.

Mr Dodd, a Democratic presidential hopeful who has sponsored legislation aimed at reforming sub-prime mortgage lending, said legislative action was needed to help protect homeowners from 'abusive and predatory lending practices'. The Senate has yet to act on his legislation, but the House of Representatives has passed a bill aimed at curbing predatory lending practices.

The American Bankers Association praised the Fed for setting standards that could reach mortgage lenders who used Wall Street money to dive into the market and generally loosened standards more than depositor-backed institutions.

The proposed regulations will be open to public comment for 90 days before the Fed staff proposes final rules. At that point, there will be another public comment period, pushing final adoption well into next year.

HK's central bank cuts base rate by 25 basis points

2007-12-12T23:04:00.000+08:00

Dec 12, 2007 - The Hong Kong Monetary Authority (HKMA) on Wednesday lowered the base rate charged through its overnight discount window by 25 basis points to 5.75 per cent.

The HKMA's move came after the U.S. Federal Reserve cut benchmark interest rates by a quarter-percentage point to 4.25 per cent to prevent economic fallout from credit turmoil stemming from troubles in the U.S. mortgage market.

Hong Kong tends to track US rate moves because its currency is pegged to the US dollar.

The HKMA, Hong Kong's central bank, sets its base rate through a formula that includes the US federal funds rate and Hong Kong interbank offered rates.

Fed Lowers Rate by a Quarter Point to 4.25 Percent

2007-12-12T19:01:00.000+08:00

Dec. 11 (Bloomberg) -- The Federal Reserve lowered its benchmark interest rate by a quarter point to 4.25 percent, while signaling officials are open to further cuts if the housing slump and credit squeeze worsen.

Stocks fell and Treasury notes surged after the decision, which some economists said fell short of what's needed to spur lending and avert a recession. The central bank also pared the discount rate by a quarter point to 4.75 percent, counter to speculation among investors that the Fed would make a deeper reduction.

``Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation,'' the Federal Open Market Committee said in a statement after meeting today in Washington. Lower borrowing costs ```should help promote moderate growth over time.''

The Fed dropped language from its previous statement that risks of slower growth and faster inflation were ``roughly'' balanced. The economy is faltering after a third-quarter surge as house prices drop, consumer spending slows and banks tighten lending standards for even their best customers.

Policy makers are actively considering steps to ease credit in financial markets, and haven't ruled out moves to increase liquidity before their next scheduled meeting on Jan. 29-30.

``If things deteriorate they will cut again,'' said Stephen Cecchetti, professor of international economics at Brandeis University in Waltham, Massachusetts, and a former director of research at the New York Fed. ``If financial conditions don't start to improve dramatically,'' officials might have to cut before their January gathering, he said.

Discount Rate

The gap between the discount rate, which the Fed charges for direct loans, and the federal funds rate, the rate banks charge each other for overnight loans, remains half a point.

``Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,'' the FOMC said. ``The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.''

The central bank also said some ``inflation risks remain,'' and probably was reluctant to reduce borrowing costs at all, said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs and now a resident scholar at the American Enterprise Institute in Washington.

Rosengren Rebels

Today's decision, which matches the median forecast of economists surveyed by Bloomberg News, wasn't unanimous. Boston Fed President Eric Rosengren voted in favor of a half point cut.

Rosengren has a background in banking, having formerly headed the Boston Fed's banking supervision department. His research focused on financial crises including New England's credit crunch in the early 1990s and Japan's bad-loan debacle last decade.

The Dow Jones Industrial Average slumped 2.1 percent to 13,432.77, while the yield on the two-year Treasury note -- among securities most sensitive to official interest rates -- fell about a quarter-percentage point to 2.92 percent at the close in New York.

``When stocks go into a tailspin after you release your press statement, you know as a central banker that you didn't meet the market's expectations,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``There were rumors today about the possibility of 50 basis points, so that was a modest disappointment.''

Policy Under Bernanke

The benchmark rate is now at the lowest level since January 2006. Ben S. Bernanke, 53, who succeeded Alan Greenspan as chairman the following month, continued a series of increases that lifted the federal funds rate to 5.25 percent by June last year.

Policy makers held their ground until August this year, when the collapse in assets backed by subprime mortgages roiled markets around the world and forced central banks to pump billions of dollars into the banking system. It also spurred the Fed to start cutting the federal funds rate in September. The Fed was joined last week by the Bank of Canada and Bank of England.

Investors became confident of further reductions after Bernanke and Vice Chairman Donald Kohn said in separate speeches last month that ``turbulence'' in markets could alter their outlook for growth. Fed officials estimated in October the economy would grow 1.8 percent to 2.5 percent in 2008. Rosengren said Dec. 3 that the expansion will be ``well below'' its long- term pace for the next two quarters.

Weaker Numbers

Since Fed officials made their forecasts, government reports show orders for U.S.-made durable goods fell in October, capacity-use rates in the nation's factories slipped and retail sales slowed. Payrolls increased by 94,000 jobs last month, after a 170,000 increase in October.

The economy will expand at an annual pace of 1 percent in the fourth quarter, down from 4.9 percent in the previous three months, according to the median estimate in a Bloomberg News survey of 63 economists.

The number of Americans who fell behind on their mortgage payments rose to a seasonally adjusted 5.6 percent in the third quarter, the highest in two decades, the Mortgage Bankers Association said last week. New foreclosures hit a record.

As creditors took possession of properties, the supply of unsold homes grew to a 10.8-month supply in October. Prices of previously owned homes fell 5.1 percent from a year ago, the most on record, according to the National Association of Realtors.

Across Atlantic

The credit deterioration has spread to Wall Street and commercial banks around the world that hold bonds and derivative contracts created from pools of home loans. Banks including Credit Suisse Group in Zurich and London-based Barclays Plc are among lenders that have marked down more than $50 billion on losses linked to U.S. home loans.

Because banks are protecting capital, lending has been cut and concerns about counter-party risk are higher. About 40 percent of lenders have increased their standards for the most creditworthy borrowers to qualify for a so-called prime loan, according to a Fed study in October.

Throughout the rate cutting-cycle, Fed officials have highlighted longer-term inflation risks in their statements and their public remarks. Oil prices hit a record $99.29 a barrel in New York on Nov. 21, and traded at $89.21 this morning.

The Fed's preferred gauge, the personal consumption expenditures price index excluding food and energy, rose 1.9 percent in October from a year ago. The index has remained below 2 percent since June.

Not all bonus issues are good news

2007-12-06T23:11:00.000+08:00

BONUS share issues are usually viewed positively. Investors welcome them and companies always present such issues as efforts to reward shareholders. And there have been no shortage of bonus issues on the Singapore Exchange (SGX) in recent months. At least a dozen or so SGX-listed companies have announced bonus issues, according to filings with the stock exchange.

However, like most things, bonus issues aren't always all that they are made out to be.

A bonus issue refers to the issue of new shares to existing shareholders at no cost and in direct proportion to their existing shareholdings in the company. So in a 1-for-4 bonus issue, for instance, shareholders get one new share for every four existing shares they hold.

Because bonus issues are free, it is well understood that they do not directly benefit the company. This is unlike rights issues (where shareholders pay for rights shares at a discount to the market price) which raise funds for the company. Bonus issues also do not materially alter the balance sheet of a company. They are normally done using the retained earnings of a company and involve a book entry transferring an amount from retained profits to share capital. This is also known as the capitalisation of reserves.

But do bonus issues really benefit shareholders, as companies make them out to be?

This is debatable. It can be argued that, theoretically, a bonus issue brings no additional benefit to the shareholder.

While it is true that the shareholder would end up with more shares at no cost, the share price would - theoretically at least - also adjust downwards accordingly to what the market calls the theoretical ex-price. Issuing bonus shares also has the effect of diluting earnings per share.

One way shareholders would benefit from a bonus issue is when the adjusted lower share price makes the stock more affordable and encourages more investors to invest in it. This would result in more liquidity and potentially more upside for the share price.

This would be what companies want shareholders to believe, and indeed, is the rationale given in every bonus issue announcement. Such an outcome is not a given, however, and the share price performance depends not just on having more shares in issue but on a host of other factors.

There are, in fact, some hidden dangers in bonus issues.

For one, companies may be making bonus issues in lieu of dividends. So while getting more shares at no cost, shareholders may be forgoing cash dividends. In some cases, like when a company needs to conserve cash to expand its business, there are sound reasons for a bonus issue in lieu of dividends. But this does not apply to all situations, and shareholders should ask if a bonus issue is masking the lack of dividends when these should be forthcoming.

Another danger is when a penny stock makes a bonus issue. While there may be a good reason for a high-priced stock to make a bonus issue to improve affordability and boost liquidity, it's harder to apply this logic to penny stocks which are already affordable in the first place. So if a penny stock becomes even cheaper, it may pull in speculators rather than long-term investors. Indeed, institutional shareholders - which companies value - are known to shun very low-priced stocks. Attracting speculators and the syndicates may boost the share price in the short term, but if this comes at the expense of having serious investors as stakeholders, it could ultimately curb the upside potential of a stock in the long term.

The other thing to watch out for is when recently listed companies make bonus issues. Companies often say they are rewarding shareholders' loyalty when they make a bonus issue. For a newly listed company, however, there really is no shareholders' loyalty to speak of. So the motives a company has in making a bonus issue in such a situation should be questioned.

Of course, there are many bond fide bonus issues made by companies which are doing well, are confident of their future prospects and are genuinely seeking to reward shareholders. But investors should not see all bonus issues as good news. There may well be a sting at the end of the tail.

Weekly Indicators - Nov 1

2007-11-01T10:49:00.000+08:00

Nov 1st 2007
From The Economist print edition

The Federal Reserve cut its target for the federal funds rate to 4.5%. One member of the Fed's rate-setting committee voted to keep rates unchanged at 4.75%.

Other central banks followed a different path. Sweden's Riksbank raised its benchmark interest rate by 0.25 percentage points to 4% and said further increases were likely. India's central bank left rates unchanged but raised the cash reserves that banks need to keep with it from 7% to 7.5% of total lending. Central banks in Japan, Norway, Hungary, Poland and Malaysia all kept their key interest rates unchanged.

America's GDP rose at an annualised rate of 3.9% in the third quarter, according to an initial estimate. The stronger-than-expected increase owed much to an improved trade performance, which almost offset the adverse effects on growth of falling housebuilding. The S&P/Case-Shiller house-price index that covers 20 large American cities fell by 4.4% in the year to August.

Consumer prices in Japan fell by 0.2% in the year to September. Prices excluding fresh food fell by 0.1% from a year earlier. The unemployment rate rose from 3.8% to 4%.

Consumer prices in the euro area rose by 2.6% in the year to October, according to a preliminary estimate, compared with 2.1% in the year to August. The unemployment rate fell to 7.3%. The figure for August was revised from 6.9% to 7.4%, owing to changes to the way Germany's jobless are counted.

Fed Lowers Rate by a Quarter Point to 4.5 Percent

2007-10-31T22:40:00.000+08:00

Oct 31, 2007 - The Federal Reserve cut its benchmark interest rate by a quarter point to 4.5 percent and signaled it's reluctant to lower borrowing costs further.

The second reduction in as many months should help the U.S. economy withstand the fallout from August's credit collapse, the Federal Open Market Committee said in a statement after meeting today in Washington. ``After this action, the upside risks to inflation roughly balance the downside risks to growth.''

The language ``has all the subtlety of a sledgehammer,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``The FOMC has just stated unequivocally that `we think we are done easing.' Whether they are or not remains to be seen, but the message is loud and clear.''

Hours earlier, the Commerce Department said economic growth accelerated to an annual pace of 3.9 percent in the third quarter, the fastest in more than a year. The Fed statement also warned that higher energy and commodity prices may spur faster inflation.

Stocks fell in the minutes after the Fed announcement, before resuming their rally. Treasury notes declined and the dollar weakened.

The Fed acknowledged that ``economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance.'' At the same time, ``the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.''

Hoenig Dissents

Today's decision wasn't unanimous. Kansas City Fed President Thomas Hoenig preferred no change, the first dissent since December.

The Fed also lowered the discount rate, the cost of direct loans to banks, by 25 basis points to 5 percent, from 5.25 percent. A basis point is 0.01 percentage point.

``Unless the incoming data signal a net increase in downside growth risk, they think they are done,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``Inflation worries -- oil and commodities -- just won't go away.''

Policy makers have now lowered their target rate for overnight loans between banks by 0.75 percentage point in six weeks, the most aggressive easing since the economy was emerging from its last recession in 2001.

Odds of a quarter-point cut in the benchmark rate at the Dec. 11 meeting receded to 40 percent, from 66 percent yesterday, according to futures contracts quoted on the Chicago Board of Trade.

Economists and former officials said before the meeting that the central bank would want to preserve leeway to take back the rate cuts should the economy weather the risks from credit and housing markets. Vice Chairman Donald Kohn said Oct. 5 the Fed must be ``nimble in adjusting policy to promote'' both growth and price stability.

Insurance

Chairman Ben S. Bernanke, 53, and other officials in speeches this month have described the importance of taking out insurance to protect the economy from risks when the outlook is difficult to judge.

``Intuition suggests that stronger action by the central bank may be warranted to prevent particularly costly outcomes,'' Bernanke said in an Oct. 19 speech on recent economic research. Chicago Fed President Charles Evans said Oct. 22 that ``at times we may need to adopt a risk management approach to policy'' to guard against threats to growth or inflation.

Consumer-price increases have slowed, while a falling dollar and rising oil costs threaten a renewed acceleration. The Fed's preferred gauge, the personal consumption expenditures price index excluding food and energy, probably rose 1.8 percent in September from a year ago, according to the median forecast. The Commerce Department reports the figures tomorrow.

The index remained below 2 percent from June to August. Bernanke, before taking the Fed's helm, said his ``comfort'' range for the measure was 1 percent to 2 percent.

Faster Expansion

The Commerce Department said today that the expansion picked up in the third quarter, though economists surveyed by Bloomberg predict a slowing this quarter. A private report showed companies hired 106,000 this month after creating 61,000 jobs in September.

The economy grew at a 3.9 percent annual rate in July to September, up from 3.8 percent in the previous three months, Commerce figures showed. It will slow to a 1.8 percent pace in the current period, according to the median estimate in a survey published Oct. 10.

Housing Downturn

Housing figures this month showed the industry has yet to find a bottom. A private survey yesterday showed home values in 20 metropolitan areas slid the most in at least six years. Sales of previously owned homes fell to the lowest level since National Association of Realtors began keeping records in 1999, and government figures recorded a 14-year low for housing starts.

Continued stress in credit markets may lengthen the housing recession and temper business investment plans. The world's largest banks and securities firms announced more than $30 billion of third-quarter charges.

Citigroup Inc. the biggest U.S. bank, said Oct. 15 that earnings fell 57 percent as loan losses increased. Merrill Lynch & Co. last week wrote down the value of subprime mortgages, asset-backed debt and leveraged loans by $8.4 billion.

The benchmark rate is now at the lowest level since January 2006. Bernanke took office the following month, and continued a series of rate increases that lifted the federal funds rate to 5.25 percent by June last year.

Mexico Central Bank Unexpectedly Raises Rate to 7.50%

2007-10-26T22:55:00.000+08:00

Oct 26, 2007 - Mexico's central bank unexpectedly raised interest rates and said inflation will take longer to retreat than policy makers previously estimated.

The five-member board, led by Governor Guillermo Ortiz, lifted the benchmark rate a quarter percentage point to 7.50 percent, surprising 22 of 29 economists surveyed by Bloomberg. The peso climbed to a three-month high.

Inflation hasn't slowed as quickly as the central bank predicted in May, when it said the rate would fall to 3 percent by the end of next year. Today, the bank revised its outlook to estimate the target won't be reached until the end of 2009 because of rising food prices and higher taxes approved by Congress last month. It also dropped its ``restrictive bias,'' hinting it doesn't intend to follow with more increases.

``They had to show commitment to the target,'' said Alonso Cervera, a Latin America economist at Credit Suisse Group in New York, who predicted the increase correctly. ``It would have been very odd for them to increase their inflation forecast and then not come through with a rate hike.''

The economists who predicted today's increase, such as Cervera, Dresdner Kleinwort's Omar Borla and RBS Greenwich Capital Markets' Benito Berber, said they don't expect the bank to raise interest rates again this year. In today's statement, said the threat to Mexico's economic expansion from a decelerating U.S. economy had increased.

`Preventive'

``Clearly it was a preventive move,'' Borla said.

The decision marks the second time this year the central bank unexpectedly raised borrowing costs in Latin America's second-largest economy. The bank in April also unexpectedly increased its rate by a quarter percentage point.

Mexico's benchmark stock index rose 250.66, or 0.8 percent, to 32,123.6. The peso gained 0.7 percent to 10.7345 per dollar.

A report Oct. 24 showed core inflation rose more than expected in the first half of October because of higher prices for pasteurized milk and tobacco.

Core consumer prices, which exclude fresh food and energy, rose 0.21 percent, more than the median estimate of 0.15 percent in a Bloomberg survey of 18 economists, putting them at 3.87 percent on an annual basis, higher than the 3.5 percent forecast the central bank has for the end of the year.

Core Prices

That report led RBS Greenwich's Berber to change his forecast to predict central bankers would raise to 7.50 percent today. The central bank has missed its 2-to-4 percent inflation target in eight of the past 13 months.

Rising food prices may lead Mexico to suspend import duties on wheat for three months to reduce costs for local food producers, El Milenio newspaper reported Oct. 24, citing Economy Minister Eduardo Sojo.

Rate increases put the central bank at odds with President Felipe Calderon's administration.

Finance Minister Agustin Carstens criticized the bank in April for raising rates, saying it had acted ``prematurely'' at a time of slowing economic growth. In an Oct. 23 interview from Washington, Carstens said Mexico doesn't have an inflation problem and ``there are no underlying inflation pressures.''

Central bankers seemed to disagree with that assessment today in their statement, saying ``greater pressures on food prices and the probable impact of the recently-passed tax reform'' had led to their inflation-outlook change.

Fuel Tax

Congress last month passed tax legislation backed by Calderon that includes a 5.5 percent levy on gasoline that will take effect in January.

Meanwhile, Mexico's economy is expected to slow on falling demand from the U.S. According to the IMF's World Economic Outlook released Oct. 17, Mexico's economic growth will fall to 2.9 percent this year from 4.8 percent in 2007. Growth in 2008 is forecast at 3 percent.

Mexico sold a record $211.9 billion, or about 85 percent of its exports, to the U.S. last year.

Yields on Mexico's 10-year benchmark security have risen 28 basis points since the end of May on concern that U.S. growth will decline as subprime mortgage loan defaults push up borrowing costs.

Today's decision follows months of warnings from policy makers that they were prepared to raise rates should inflation not begin to decelerate fast enough to reach 3 percent by the end of 2008.

`End of the Line'

In May, the same month it introduced its 3 percent forecast, the bank adopted a ``restrictive bias,'' meaning it was more likely to raise rather than cut rates. In subsequent months, central bank surveys showed economists did not believe inflation would decelerate so rapidly.

Inflation will end 2008 at 3.69 percent, according to the average estimate of 33 economists surveyed by the bank between Sept. 24 and Sept. 28.

``In October the Bank of Mexico reached the end of the line,'' said Guillermo Aboumrad, an economist with Banco UBS Pactual in Mexico City, who forecast policy makers would increase borrowing costs today. ``Either they're meeting the inflation targets or they're not.''

U.K. Economy Grows Faster Than Forecast on Services in Q3

2007-10-19T20:58:00.000+08:00

Oct 19, 2007 - The U.K. economy grew faster than economists forecast in the third quarter, driven by services from airlines to banks, a sign higher borrowing costs have yet to cool expansion.

Gross domestic product increased 0.8 percent, the same as in the second quarter, the Office for National Statistics said in London today. Economists forecast 0.7 percent, according to the median of 34 predictions in a Bloomberg News survey. The annual growth rate was 3.3 percent, the most since 2004.

Service industries, which make up three-quarters of the economy, expanded as business and finance held at the quickest growth pace since 2003. Investors speculate bank earnings will now weaken after credit costs jumped. Bank stocks comprise 37 percent of the benchmark FTSE-100 index, whose 6 percent gain this year has lagged increases of 11.4 percent on the Dow Jones Industrial Average and 20 percent for Germany's DAX.

``The momentum coming into the U.K. economy in the services sector, particularly in the financial sector, will abate,'' Kenneth Wattret, an economist at BNP Paribas in London, said in an interview. ``That will put Bank of England rate cuts on the agenda for early next year.''

The pound rose 0.4 percent after the report and traded at $2.0493 as of 12:31 p.m. in London. The currency reached a 26- year high of $2.0654 on July 24.

Rate Increases

The Bank of England raised its benchmark rate to 5.75 percent in the year through July, leaving Britons with the highest borrowing costs in the Group of Seven industrialized nations and increasing the repayments on the nation's record 1.4 trillion pounds ($2.8 trillion) of consumer debt.

London, which rivals New York in some markets as the world's largest financial center, has led the U.K.'s economic growth after a banking boom prompted record bonus payouts of 8.8 billion pounds at the start of this year, the Centre for Economics and Business Research Ltd. estimates.

Contagion from the U.S. mortgage market collapse, which prompted a surge in borrowing costs, is spreading to the U.K. and Europe. A worsening U.S. housing slump sent profits lower at Bank of America Corp. and Washington Mutual Inc. yesterday, putting financial company earnings on pace for the worst quarter in at least a decade.

Business Services

Business and financial services, which account for 28 percent of the U.K. economy, expanded 1.7 percent, the statistics office said. Manufacturing growth slowed to 0.2 percent from 0.8 percent in the second quarter.

The International Monetary Fund on Oct. 17 raised its forecast for the U.K. economy this year, predicting growth of 3.1 percent, the fastest pace since 2004. The fund forecast expansion to slow to 2.3 percent in 2008. The group predicts the euro-region's economy will grow 2.5 percent this year and 2.1 percent next year.

The IMF also reduced its global growth forecast for 2008 and warned that it might still be too optimistic, given threats posed by the sell-off in credit markets. The U.K. GDP report is the first for the third quarter from a G-7 economy.

Britain's growth will be among the fastest of the G-7 this year and the economy is well placed to weather a slowdown, Chancellor of the Exchequer Alistair Darling told lawmakers in Parliament yesterday. The Labour government, led by Tony Blair until Gordon Brown replaced him as prime minister in June, has now overseen 41 consecutive quarters of growth.

Northern Rock Panic

The collapse of the U.S. subprime mortgage market led to a jump in credit costs and a panic among savers at Northern Rock, the Newcastle-Upon-Tyne, England-based home-loan lender.

A survey of U.K. banks shows they are now poised to reduce the supply of credit to companies ``significantly,'' the Bank of England said Sept. 26. Services expansion weakened to a 13-month low in September, the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc said Oct. 3.

U.K. house prices fell at the fastest pace in two years in September after higher interest rates and concern about the outlook for economic growth sapped homebuyers' confidence, the Royal Institution of Chartered Surveyors said Oct. 11.

Bank of England Governor Mervyn King said in an Oct. 9 speech that policy makers won't reduce the benchmark interest rate to shield banks from the credit slump.

While the bank's Monetary Policy Committee considered a cut at its Oct. 4 meeting, only David Blanchflower sought an immediate move, citing ``downside'' risks to economic growth. The majority of policy makers said that business surveys have ``stayed firm'' and there is little sign of weakening.

Inflation stayed below the bank's 2 percent target for a third month in September, giving policy makers scope to reduce the benchmark if growth slows. Annual gains in consumer prices, at a rate of 1.8 percent, matched the lowest since March 2006.

Of 18 economists surveyed Oct. 12 by Bloomberg News, 12 predict the bank will lower its rate by a quarter-point in February. Four expect a reduction in November.

China Requires Banks to Set Aside Bigger Reserves

2007-10-13T21:57:00.000+08:00

Oct 13, 2007 - China ordered banks to set aside more money as reserves for the eighth time this year to cool speculation in stocks and real estate and curb the fastest inflation in 10 years.

Lenders must park 13 percent of deposits as reserves from Oct. 25, up from 12.5 percent, the People's Bank of China said today on its Web site. The required ratio is the highest in almost a decade.

Seven increases in the reserve requirement and five interest-rate rises this year probably failed to stop the economy expanding faster than 11 percent for a third quarter, a government report may show next week. Surging exports have pumped money into the world's fastest-growing major economy, fanning inflation and fueling a boom in shares and real estate.

"They're clearly concerned primarily about inflation, because it did get out of hand over the summer," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. Inflation 'creates asset bubbles because when inflation is high then it doesn't seem meaningful for people to save money -- they would rather invest in real estate or the stock market.'

China's consumer prices surged 6.5 percent in August from a year earlier, the biggest jump since December 1996. The rate breached the government's annual 3 percent target for a fourth consecutive month, as food costs soared. Inflation was a factor in protests that led to the Tiananmen Square crackdown in 1989.

China's trade surplus jumped 56 percent in September, the customs bureau said yesterday, taking it to $185.65 billion for the first nine months of the year, more than the $177.5 billion for all of last year.

Money Supply

Money supply is surging because the government wants to hold down the yuan, forcing the central bank to sell the currency and pump cash into the banking system. Some of that money is finding its way into stocks, pushing the benchmark CSI 300 Index up 181 percent this year. Money supply rose 18.5 percent in September.

The economy, the world's fourth largest, probably grew 11.5 percent in the third quarter, the government may announce next week, according to the median estimate of 14 economists surveyed by Bloomberg News. The date for the release of the gross domestic product report hasn't been set.

Of 20,000 households surveyed in a central bank quarterly report released Sept. 20, a record 61.3 percent said they expect inflation to quicken in the fourth quarter.

Inflation Expectations

"Inflation is a priority for policy makers because in China, it is not just an economic problem, but also a political risk," said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong. "The Chinese government wants a `harmonious society,' but how can you have one with prices going up?"

Inflation is raising the risk of social unrest as the ruling Communist Party prepares for its 17th National Congress, a five-yearly meeting starting Oct. 15 that will decide leadership changes.

China has taken other action to combat rising prices.

All government-regulated prices have been frozen until the end of the year, and the state has boosted the supply of grains, vegetables and pigs and cracked down on illegal collusive price increases. The central bank has sold bills to soak up cash from the financial system.

Household Savings

Stock and house prices have gained as households shifted money from low-yielding bank deposits. Household savings fell 41.8 billion yuan in August from the previous month. Housing prices jumped 20.8 percent in Shenzhen and 12.1 percent in Beijing in August.

China has resisted calls from the U.S. and Europe to let its currency strengthen at a faster pace, which would make imports less expensive and ease pressure on domestic prices as well as helping to curb the widening trade surplus.

The yuan has gained about 10 percent to 7.51 versus the dollar since the end of a fixed exchange rate in July 2005.

"Unless the Chinese allow the exchange rate to go up, I'm worried about the stability of the economic system," former Federal Reserve Chairman Alan Greenspan said in a speech in London on Oct. 2. "The exchange rate will create more economic problems than they know."

The government will be forced into further reserve ratio increases soon, according to Kowalczyk of CFC Seymour Ltd.

"The impact will be negligible," he said. "When you look at how much in yuan terms is taken away from the money market, it's not enough to neutralize the impact of maintaining the exchange rate."

U.S. Economy: Retail Sales Ease Recession Concerns

2007-10-12T23:57:00.000+08:00

Oct 12, 2007 - Retail sales in the U.S. blew past economists' forecasts last month, reducing concerns that a housing-fueled consumer slowdown might drag the economy into recession.

The 0.6 percent increase was double the previous month, the Commerce Department said today in Washington, and three times the size predicted by analysts in a Bloomberg News survey. Separately, the Labor Department said core producer prices, which exclude food and energy, rose less than anticipated.

The retail report spurred investors to pare bets that the Federal Reserve will continue cutting interest rates to keep the economy growing.

"The pessimism that's been so widely spread about collateral damage from housing hasn't been realized," said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio. "The downside risks so feared a month ago have diminished."

Bonds recouped some of their losses after the Reuters/University of Michigan preliminary index of consumer sentiment fell to 82.0 from 83.4 in September. The gauge compares with an average 89.6 in the first half of the year.

"It matters more what consumers do than what they say," said Kevin Flanagan, a Purchase, New York-based fixed-income strategist at Morgan Stanley's Global Wealth Management Group. "The decline in confidence is not spilling over into a significant retrenchment in spending."

Purchases excluding automobiles rose 0.4 percent, compared with a decline of 0.4 percent in August.

Wholesale Prices

The 0.1 percent increase in core wholesale prices eased concern that rising fuel and food costs would filter through the economy. Overall prices increased 1.1 percent as oil costs climbed.

The yield on the benchmark 10-year Treasury was 4.68 percent at 4:54 p.m. in New York. Earlier, the yield increased as high as 4.69 percent in the minutes after the retail figures were released. The Dow Jones Industrial Average rose 78 points, or 0.56 percent, to close at 14,093.1.

Inventories at U.S. businesses rose a less-than-forecast 0.1 in August, a separate report from the Commerce Department also showed. Economists said companies are holding back on production and spending as they gauge the effect on demand from the deepening housing slump.

Today's retail sales report showed purchases at automobile dealerships and parts stores rose 1.2 percent after climbing 3.3 percent in August.

Electronics, Groceries

Sales at electronics and appliance stores rose 0.9 percent, and purchases at food and beverage merchants increased 0.8 percent. Americans also spent more to fill up their gasoline tanks. Filling station sales increased 2 percent in September after dropping 2.6 percent in August.

The report also reflected the effects of the decline in the housing market and the weakness reported yesterday in sales at chain stores. Furniture sales dropped 0.6 percent and building materials gained just 0.1 percent. Clothing weakened 0.4 percent and purchases at department stores fell 0.5 percent.

Yesterday's chain-store figures account for about 17 percent of total retail sales, which in turn make up almost half of all consumer spending.

Wal-Mart, the world's largest retailer, posted a 1.4 percent gain in September same-store sales, at the lower end of its forecast. Company officials cited softer demand for home goods and said consumers remained ``concerned with their finances, the cost of living and gas prices.''

Department Stores

Macy's Inc. and J.C. Penney Co. said sales declined. Nordstrom, among the few chains to post a gain, fell short of analysts' estimates.

"Unseasonable weather in large areas of the country and the well-chronicled issues affecting the housing market impacted our sales for the September period," J.C.Penney Chief Executive Officer Myron Ullman said in a statement yesterday.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.3 percent, following little change the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

Economists had forecast producer prices would rise 0.5 percent, according to the median of 73 projections. Core prices were forecast to rise 0.2 percent.

Over the past 12 months, producer prices rose 4.4 percent, compared with a 2.2 percent rise in the 12 months through August. Producer prices excluding food and energy rose 2.0 percent in the year through September.

Fed's Preference

Fed policy makers, including Chairman Ben S. Bernanke, have said they prefer to look at core price measures to gauge underlying trends in inflation.

Faced with rising commodity costs, some companies are raising prices to maintain their profit margins.

Kimberly-Clark Corp., the maker of Huggies diapers, said Oct 9 it's raising prices in the U.S. 4 percent to 7 percent on Feb. 3 to counter higher raw material and energy costs. The increases will affect products in the company's consumer tissue and baby and childcare businesses, the Dallas-based company said in a statement.

"The increases are necessary to offset significant inflationary pressure from higher raw material and energy costs," the company said.

Some companies aren't passing on all their cost increases to consumers.

"We pass on a lower rate of price increases to consumers than we are feeling in our input costs," said Stephen Sanger, chairman of food processor General Mills Inc. yesterday at the annual Business Council meeting in Williamsburg, Virginia.

French Annual Inflation Rate Accelerates to 1.6%

2007-10-12T20:42:00.000+08:00

Oct 12, 2007 - French annual inflation accelerated in September, spurred by energy costs and tobacco prices.

Consumer prices rose 1.6 percent from a year earlier, higher than the 1.3 percent of the previous month, based on European Union-harmonized methods, Insee, the national statistics bureau, reported today in Paris. From a month earlier, prices rose 0.1 percent. Both figures were below the median expectations of analysts surveyed by Bloomberg News.

Signs of discord are beginning to emerge among European Central Bank monetary-policy makers on the course of interest rates. The ECB's Axel Weber yesterday said the bank may need to raise the key rate to a level that restricts growth in order to control inflation. His colleagues Vitor Constancio and Klaus Liebscher have noted that the stronger euro is helping to contain prices.

"The inflation numbers were very good," said Alexandre Bourgeois, an economist at Natixis in Paris. "Inflation is under control." The ECB aims to keep inflation below 2 percent.

Energy prices increased 1.9 percent in September from a year earlier, while the cost of tobacco rose 6.2 percent, boosted by higher taxes. On the month, fresh food prices jumped 3.2 percent and tobacco rose 1 percent.

The ECB stepped back from plans to raise rates in September, saying it wanted to assess the economic impact of rising credit costs and financial-market turbulence caused by the U.S. housing slump.

"The impact of the financial crisis in the fourth quarter and the first quarter of 2008 should prompt the ECB to reconsider its scenario and progressively consider a monetary response, with two rates cuts in the first half," said David Naude, economist at Deutsche Bank in Paris.

China Trade Surplus Jumps 56 Percent to $23.9 Billion

2007-10-12T08:37:00.000+08:00

Oct 12, 2007 - China's trade surplus jumped 56 percent in September to $23.9 billion, adding pressure on the central bank to increase borrowing costs and let the yuan strengthen faster to prevent the economy overheating.

The gap widened from $15.3 billion a year earlier, the customs bureau said on its Web site today, after gaining 33 percent in August. That exceeded the $21.6 billion median estimate of 20 economists surveyed by Bloomberg News.

Export earnings helped push China's foreign-exchange reserves to a record $1.43 trillion at the end of September, a separate report showed. Chinese stocks dropped on speculation the central bank is poised to raise rates for a sixth time this year as cash from overseas sales fuels inflation running at a 10-year high.

"All the money flooding in is a phenomenal problem for policy makers," said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. "The government may raise rates, but accelerating the pace of yuan appreciation or raising bank reserve requirements are more efficient tools."

The yuan has gained about 10 percent versus the dollar since the end of a fixed exchange rate in July 2005. The currency traded at 7.5080 at 3 p.m. in Shanghai after closing yesterday at 7.5057.

The CSI 300 Index of stocks fell 0.4 percent, after earlier plunging as much as 4.8 percent. It has almost quadrupled in the past year. Inflation reached an annual rate of 6.5 percent in August on food costs and the September figure may be announced as soon as next week.

Borrowing Costs

"Rates are likely to rise again because of the higher inflation rate," said Yao Maogong, head trader at Shanghai Securities Co. in the city.

The one-year lending rate increased to 7.29 percent last month and the central bank told lenders to set aside larger reserves for the seventh time this year.

Speculation an increase is likely comes ahead of the ruling Communist Party's five-yearly congress next week. Central banker Zhou Xiaochuan, who oversaw the revaluation of the yuan and raised borrowing costs for the first time in nine years in 2004, is likely to be moved to a new post after a five-year term, economists predict.

The trade surplus for the first nine months jumped 69 percent to $185.65 billion, topping the $177.5 billion record for all of last year.

M2, the broadest measure of money supply, increased by 18.5 percent in September, according to a report released today -- the eighth straight month that it has exceeded the central bank's 16 percent annual target.

`Anti-China Sentiment'

European finance ministers this week urged China to let the yuan appreciate more quickly against their currency to make its exports more expensive and narrow the gap. Recalls of Chinese- made products such as lead-painted toys have exacerbated trade tensions this year.

"Anti-China sentiment is only going to get worse," said Tim Condon, head of Asia research at ING Groep NV in Singapore, citing U.S. politicians' calls for protectionist legislation in the run-up to next year's presidential election.

Exports rose 22.8 percent in September from a year earlier to $112.48 billion and imports had the smallest gain in three months, climbing 16.1 percent to $88.57 billion.

"Imports are becoming weaker because they are being replaced by domestic production," said Sun Mingchun, an economist at Lehman Brothers Holdings Inc in Hong Kong. "The government should lower tariffs and boost domestic consumption to encourage more imports and the pace of yuan appreciation needs to accelerate too."

Bush: No `Trade War'

U.S. Treasury Undersecretary David McCormick last month said the yuan needs to strengthen faster to boost Chinese consumption and rebalance the world's fourth-largest economy. In the U.S., the Senate Finance Committee in July approved legislation aimed at pressuring China and other countries to allow their currencies to trade more freely.

President George W. Bush said he won't approve any laws that will 'start a trade war or spark protectionist policies,' the Wall Street Journal reported on its Web site today.

Exports to the U.S. rose 15.8 percent in the first nine months from a year earlier and those to Europe jumped 30.8 percent. Shipments to India soared 67.5 percent, the customs bureau said.

Growth in the surplus has slowed from June's 87 percent increase from a year earlier on cuts to export rebates.

The government is concerned that the growth in money supply is helping to fuel increases in property prices. In August, housing prices jumped 20.8 percent in Shenzhen and 12.1 percent in Beijing from a year earlier.

China has the world's fastest-growing major economy. It expanded 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years, on exports and investment.

Japan's Wholesale Inflation Slows for Third Month

2007-10-12T08:34:00.000+08:00

Oct 12, 2007 - Japan's wholesale inflation slowed for a third month in September as financial-market turmoil triggered by a U.S. housing slump damped commodity prices and strengthened the yen, making imported materials cheaper.

The producer price index climbed 1.7 percent from a year earlier, extending 3 1/2 years of gains and following a revised 2 percent advance in August, the Bank of Japan said in Tokyo today. The median forecast of 34 economists surveyed by Bloomberg News was for a 1.9 percent increase.

Economists say it's unlikely that producer prices will keep slowing, given that the Japanese currency has since weakened and commodities have rebounded. Yamazaki Baking Co. Japan's largest bread and pastry maker, this week said it would raise prices for the first time in 17 years to cope with higher wheat costs.

"Japan's corporate goods prices will stay on a moderate upward trend," said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo and a former central bank official. "As long as the global economy keeps expanding at the current solid pace, demand for energy and raw materials will stay strong."

The yen traded at 117.20 per dollar at 3:11 p.m. in Tokyo from 117.39 before the report was published. Japan's currency has weakened 2.5 percent against the dollar in the past month.

The Japanese economy is ``steadily advancing to the end of deflation,'' Economic and Fiscal Policy Minister Hiroko Ota said.

Food Prices

The government is closely monitoring the effect of recent increases of food prices on households, Ota told reporters. Policy makers are also watching whether small companies can pass rising costs on to clients and protect their profits, she said.

Marudai Food Co. said this week that it will raise prices of its ham and sausages, following rivals Nippon Meat Packers Inc. and Itoham Foods Inc.

Instant-noodle makers Nissin Food Products Co., House Foods Corp. and Sanyo Foods Co. announced price increases last quarter. Global wheat prices have almost doubled in the past six months as adverse weather lowered harvests. The government raised the price of the grain it sells to millers by 10 percent this month.

Wholesale price gains have yet to translate into consumer inflation in the world's second-largest economy.

Core consumer prices, which exclude fresh food, declined 0.1 percent in August from a year earlier. They haven't risen this year. Even so, the wave of price increases for food and household goods is influencing consumers' expectations of inflation, Bank of Japan Governor Toshihiko Fukui said.

Inflation Perceptions

"Though the consumer price index hasn't moved an inch, consumers' inflation perceptions may be changing," Fukui told reporters yesterday. "Their perception is an important factor, and we need to make a policy judgment by reflecting it."

Core consumer prices will increase 'before long' and inflationary pressure 'is mounting gradually,' he said.

The Bank of Japan yesterday kept the key overnight lending rate at 0.5 percent, the lowest in the industrialized world, as policy makers sought more time to assess the effect of the U.S. subprime-mortgage crisis on global economic growth.

Eleven of 31 economists surveyed by Bloomberg News forecast a rate increase by the end of the year.

The central bank's overseas commodity index of 16 raw materials, which includes crude oil, nonferrous metal and steel, soared 23.2 percent in September from a year earlier, the fastest gain in almost a year, according to the central bank.

Small Companies

Small companies, which have less price-setting power than large companies, are struggling to pass energy and material costs to clients and that's eroding their sentiment and profits.

Confidence at small manufacturers and service providers fell in September, according to bank's quarterly Tankan business survey. They estimated profits would drop this fiscal year, a reversal from the growth in income forecast three months earlier.

"Pass-through of costs is happening only among companies that have pricing power," said Yoshimasa Maruyama, a senior economist at BNP Paribas Securities in Tokyo.

Economy Minister Ota said the inability to raise prices may hurt small businesses and the Tankan indicated such concerns.

"Most important is that the economy keeps recovering, and that the recovery of corporate profits spreads to small companies and helps to raise wages," she said.

From a month earlier, Japan's producer prices fell 0.1 percent, the central bank said.

The central bank plans to reshuffle the producer-price index in December and release data using the revised method on Dec. 12, the bank said today.

The revision may lower the index, said Azusa Kato, an economist at BNP Paribas Securities Japan Ltd. in Tokyo.

South Africa Lifts Key Rate to 10.5% to Cut Inflation

2007-10-11T23:37:00.000+08:00

Oct 11, 2007 - South Africa's central bank raised its benchmark interest rate by half a percentage point, the third increase this year, as it struggles to bring inflation back within the target range.

The repurchase rate was increased to 10.5 percent, Governor Tito Mboweni said in a televised speech from Pretoria today. That was in line with the forecast of 12 of the 28 economists surveyed by Bloomberg last week. The others expected rates to be left unchanged.

Inflation, which has exceeded the central bank's 3 percent to 6 percent target band since April, may continue to accelerate, fueled by rising food and gasoline costs. The Reserve Bank has increased its key rate by 3.5 percentage points since July 2006, to crimp consumer spending and head off higher inflation.

"If we allow the inflation genie to get out of the bottle, which it's threatening to do, then they run the risk of having to raise rates even more," said Rudolf Gouws, chief economist of Rand Merchant Bank in Johannesburg. "It's a brave decision, but a correct one."

The rand strengthened to 6.743 against the dollar as of 4:30 p.m. in Johannesburg from 6.835 before the rate decision. The yield on the R153 bond, due 2010, rose 8 basis points, or 0.08 percentage point, to 8.88 percent.

Inflation Outlook

The inflation rate, which reached 6.3 percent in August, will probably peak at 6.8 percent in the first quarter of next year and drop to the upper limit of the target range in the second quarter, Mboweni said today. At the last monetary policy committee meeting in August, the central bank forecast the inflation rate would drop below 6 percent by the second quarter.

The Reserve Bank is concerned that price pressures are spreading beyond food and fuel, threatening to keep inflation above the target for longer.

"Even when we exclude food and energy from CPIX, one still finds pressure is on the upside," Mboweni said today. "There is a more generalized set of pressures on inflation, which must be contained, otherwise we run into many problems."

While the Reserve Bank was aware that raising interest rates today won't bring inflation back within the target range in the next few quarters 'at least we are doing something' to curb inflation, Mboweni added.

Unexpected

The monetary policy committee couldn't properly assess, with the data available, if the slowdown in consumer spending will be sustained, Daniel Mminele, a member of the committee, said in a televised interview today.

More than half of the economists surveyed by Bloomberg didn't predict today's rate decision as higher interest rates crimp consumer spending and threaten to undermine economic growth.

"A lot of people never expected the interest rate hike," said Asief Mohamed, chief investment officer of Aeon Global Capital, a Cape Town-based hedge fund. "The increase in interest rates will have a continued negative impact on consumer spending. This is probably the final hike" in rates until at least the end of next year.

Vehicle sales fell an annual 12.9 percent in September, an industry body said on Oct. 2, while retail sales growth slowed for a second month to an annual 4.9 percent in July from 7.1 percent in June, the statistics office said on Sept. 20.

The slowdown in consumer spending has hurt manufacturing, which accounts for 16 percent of the economy, causing economic growth to slow to an annualized 4.5 percent in the second quarter from 4.7 percent in the previous three months.

"It's gone a bit too far now," said Rejane Woodroffe, an economist at Metropolitan Asset Managers in Cape Town. "To have gone a full 50 is a bit too stringent. The economic turndown is worrying."

U.S. August Trade Deficit Narrowed More Than Forecast

2007-10-11T22:12:00.000+08:00

Oct 11, 2007 - The U.S. trade deficit narrowed more than forecast in August as exports climbed to a record for a sixth consecutive month.

The gap shrank 2.4 percent to $57.6 billion, the smallest since January, from a revised $59 billion in July, the Commerce Department said today in Washington.

Foreign companies, benefiting from growing demand and a weaker dollar that's made American goods less expensive, have been snapping up Boeing Co. aircraft and General Electric Co. turbines. Rising exports will help keep the economy from falling into recession even as the housing slump persists.

"Strong global demand is going to be a very important source for U.S. economic growth," said Meny Grauman, an economist at Scotia Capital in Toronto who forecast the trade balance would narrow to $58 billion. "We see ongoing strength in exports and ongoing softness on the domestic side."

Economists had forecast the deficit would narrow to $59 billion, from a previously reported $59.2 billion in July, according to the median of 74 forecasts in a Bloomberg News survey. Estimates ranged from $57 billion to $62.3 billion.

Prices of goods imported into the U.S. rose 1 percent in September as costs for oil shipped from overseas jumped to a record, a Labor Department report also showed. Prices excluding oil fell 0.2 percent, the biggest drop since October 2006.

Fewer Claims

A separate report from Labor showed the number of workers filing first-time claims for unemployment benefits declined more than forecast to 308,000 last week.

The trade report showed exports rose 0.4 percent to $138.3 billion, led by demand for food and industrial supplies such as cotton and metals. Imports fell 0.4 percent, the first decline since April, to $195.9 billion.

A jump in petroleum costs prevented imports from dropping even more in August. Petroleum import prices rose to a record $68.09 a barrel.

Rising oil prices may keep the trade imbalance from shrinking in coming months. Crude oil futures reached a record close of $83.32 on the New York Mercantile Exchange on Sept. 20 and have remained near that level since.

The government excludes the effect of prices on trade when calculating its impact on economic growth. On that basis, the gap shrank to $52 billion, the smallest since February 2004.

Trade's Contribution

The U.S. is scheduled to release its advance estimate of third-quarter growth on Oct. 31. Net exports added 1.32 percentage points, the most in more than a decade, to the second-quarter's 3.8 percent growth rate.

A weaker dollar is supporting exports by making U.S. goods cheaper abroad. The dollar is down more than 10 percent since the beginning of 2006 against a basket of currencies of major trading partners, according to Federal Reserve figures.

Also, growth in other countries is outpacing that of the U.S. The economy in countries that use the euro expanded 2.5 percent in the year ended in June, and China grew 12 percent, compared with a 1.9 percent increase in the U.S.

"International is a great opportunity for us," NCR Corp. Chief Executive Officer Bill Nuti said in an interview Sept. 26.

NCR will focus on boosting overseas sales of products such as self-service grocery checkout machines, Nuti said.

GE Turbines

GE, the world's biggest maker of turbines for power plants, said Oct. 8 it will supply six gas-turbine generators and related services to Electricitie de France SA, an agreement valued at more than $750 million. The Fairfield, Connecticut-based company projects revenue from outside the U.S. will increase to $130 billion by 2010, from $80 billion in 2006.

A cheaper dollar may also be boosting gains in tourism to the U.S. The nation's surplus in services grew to a record $9 billion in August mainly reflecting an increase in travel.

The trade deficit with China, the second-largest U.S. trading partner behind Canada, narrowed 5.4 percent to $22.5 billion in August as American companies exported a record $5.9 billion worth of goods.

Demand for American-made goods from South and Central America and from the nations in the Organization of Petroleum Exporting Countries also reached records.

Some U.S. lawmakers and manufacturers say Chinese companies have an unfair trade advantage because China keeps the value of its currency, the yuan, artificially low to stimulate exports.

The U.S. wants China to 'accelerate' its efforts to make its currency more flexible, Allan Hubbard, director of President George W. Bush's National Economic Council, said in an interview on Oct. 5.

HK cutting taxes to shore up financial centre status

2007-10-11T10:16:00.000+08:00

Oct 11, 2007 - Hong Kong's government will cut income and corporate taxes by one percentage point to help protect the city's position as an Asian financial centre in its high-stakes race with Singapore.

Salaries tax will be cut to 15 per cent and profits tax to 16.5 per cent in 2008-2009, chief executive Donald Tsang said in his annual policy address yesterday, his first since being elected to a five-year term in March.

The reduction will widen the gap with Singapore, which in February announced a cut in its corporate tax rate to 18 per cent from 20 per cent to lure more financial-services and technology companies. Singapore's top income tax rate is currently 20 per cent.

Mr Tsang had pledged in his election campaign to cut the standard rate of salaries tax and profit tax to 15 per cent within five years.

'We will consider further profits tax relief if our economy remains robust and our public finances stay sound,' Mr Tsang said yesterday.

Hong Kong's corporate tax rate is currently 17.5 per cent, while its salaries tax is 16 per cent. The city's economy in the three months ended June 30 climbed 6.9 per cent from a year earlier after gaining a revised 5.7 per cent in the previous quarter.

Mr Tsang, who has said that his long-term goal is to preserve Hong Kong's status as Asia's top financial centre, also said that the government plans 10 major infrastructure projects in the next five years that will create 250,000 jobs and add HK$100 billion (S$18.9 billion) to the economy annually.

The plans include building an expressway linking Hong Kong with the southern Chinese cities of Guangzhou and Shenzhen, Mr Tsang said. Financing arrangements for a bridge linking Zhuhai city with Hong Kong and Macau are also being finalised, he added.

The city will also spend HK$20 billion to complete a direct road link between Shenzhen and Hong Kong's airport.

Traffic growth at Hong Kong's port, the world's second busiest container port last year, has slowed because of competition from mainland ports.

The Hong Kong government also plans to build a new rail line in southern Hong Kong Island. The line, which will cost more than HK$7 billion, is scheduled to begin operations before 2015.

Mr Tsang said that the city may also start building a line linking Shatin in the New Territories to Central, the downtown business district, in 2010.

In addition, Mr Tsang said that rates for property owners totalling some HK$2.6 billion would be waived for the final quarter of the fiscal year.

S'pore GDP growth remains strong in Q3, up 9.4% year-on-year

2007-10-10T08:47:00.000+08:00

Oct 10, 2007 - The Singapore economy continued to register strong growth in the third quarter of 2007.

Advance estimates showed that real gross domestic product (GDP) rose by 9.4 per cent on a year-on-year basis, up from 8.7 per cent in the previous quarter.

The data indicated that the economy is well on track to meet the government's forecast of seven to eight per cent growth for the year.

On a quarter-on-quarter annualised basis, real GDP growth decelerated to 6.4 per cent from 14.4 per cent in the second quarter.

The advance estimate, based largely on data from July and August, gives an early indication of the economy's performance in the third quarter.

Minutes of the Federal Open Market Committee for Sep 18

2007-10-09T23:53:00.000+08:00

A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, September 18, 2007 at 8:30 a.m.

The Manager of the System Open Market Account (SOMA) reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting. The Manager also reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.

The information reviewed at the September meeting suggested that economic activity advanced at a moderate rate early in the third quarter. After expanding at a robust pace in July, retail sales rose at a somewhat slower rate in August. Orders and shipments of capital goods posted solid gains in July. However, residential investment weakened further, even before the recent disruptions in mortgage markets. In addition, private payrolls posted only a small gain in August, and manufacturing production decreased after gains in the previous two months. Meanwhile, core inflation rose a bit from the low rates observed in the spring but remained moderate through July.

Private nonfarm payroll employment rose only modestly in August, and the levels of employment in June and July were revised down. The weakness in employment was spread fairly widely across industries. Residential construction and manufacturing posted noticeable declines in jobs, employment in wholesale trade and transportation was little changed, and hiring at business services was well below recent trends. Both the average workweek and aggregate hours were unchanged in August. The unemployment rate held steady at 4.6 percent, 0.1 percentage point above its second-quarter level and equal to its 2006 average.

After posting solid gains in June and July, total industrial production edged up only a bit in August. This increase was attributable to a surge in electricity generation, as temperatures swung from mild in July to very warm in August. After large gains in the preceding two months, manufacturing output declined in August, held down by a decrease in the production of motor vehicles and parts. High-tech output rose only modestly in August, but production gains in June and July were revised up considerably.

Consumer spending appeared to have strengthened early in the summer from its subdued second-quarter pace. Although auto sales were weak in July, real outlays for other goods rose briskly. At the same time, spending on services was up moderately despite a drop in outlays for energy associated with relatively cool weather in the eastern part of the United States. In August, consumption appeared to have posted another solid gain. Although nominal retail sales outside the motor vehicle sector were about flat (abstracting from a drop in nominal sales at gasoline stations associated with falling gas prices), vehicle sales stepped up and warmer weather likely caused an increase in energy usage. Real disposable income rose further in July, as wages and salaries posted a strong gain and energy prices came down. However, household wealth likely was providing a diminishing impetus to the pace of spending, reflecting recent declines in stock market wealth and an apparent further deceleration in house prices. Readings on consumer sentiment turned down in August after having risen in July, and the Reuters/Michigan index remained near its relatively low August level in early September.

The housing sector remained exceptionally weak. Home sales had dropped considerably this year: Sales of new and existing single-family homes in July were down substantially from their averages over the second half of last year. Demand was restrained by deteriorating conditions in the subprime mortgage market and by an increase in rates for thirty-year fixed-rate conforming mortgages. In the nonconforming mortgage market, the availability of financing to borrowers recently appeared to have been crimped even further. Most forward-looking indicators of housing demand, including an index of pending home sales, pointed to a further deterioration in sales in the near term. Single-family starts slid in July to their lowest reading since 1996, and adjusted permit issuance continued on a downward trajectory. Although single-family housing starts had come down substantially from their peak, the drop had lagged the decline in demand, and as a result, inventories of new homes had risen considerably. In the multifamily sector, starts in July were in line with readings thus far this year and at the low end of the fairly narrow range seen since 1997. Meanwhile, house prices generally continued to decelerate.

Orders and shipments of capital goods posted a strong gain early in the third quarter. In particular, orders and shipments of equipment outside the high-tech and transportation sector registered a robust increase in July, and data on computer production and shipments of high-tech goods pointed to solid increases in business demand for high-tech. In contrast, indicators of spending for transportation equipment were mixed. Aircraft shipments in July and public information on Boeing's deliveries suggested that domestic spending on aircraft was retreating somewhat in the current quarter. While fleet sales of light vehicles appeared to have moved up in July and August, sales of medium and heavy trucks remained below the second-quarter average. More generally, surveys of business conditions suggested that increases in business activity were somewhat slower in August than in the second quarter.

Book-value data for the manufacturing and trade sectors excluding motor vehicles and parts suggested that inventory accumulation stepped down noticeably in July from the second-quarter pace. Inventories of light motor vehicles rose again in July and August. The number of manufacturing purchasing managers who viewed their customers' inventory levels as too low in August slightly exceeded the number who saw them as too high.

The U.S. international trade deficit narrowed slightly in July, as exports increased more than imports. Sharp increases in exports of both aircraft and automobiles contributed importantly to the overall gain. Exports of agricultural products and consumer goods were also strong. In contrast, exports of industrial supplies and semiconductors exhibited declines. The value of imported goods and services was boosted by a large increase in imports of automotive products. Higher imports of capital goods excluding aircraft, computers, and semiconductors and of oil also contributed to the overall gain in imports.

Economic growth slowed in the second quarter in most advanced foreign economies, except the United Kingdom. The step-down was most pronounced in Japan, where GDP contracted, but was also substantial in the euro area, where total domestic demand rose only slightly. Although growth remained robust in Canada, data late in the quarter, including retail sales, indicated a more significant weakening in activity. This softness appeared to have continued into the third quarter in some economies. In July, indicators for Europe generally moderated, on balance, from their second-quarter levels; those for Canada and Japan, however, slowed more notably. Most of the readings available on economic developments after August 9, when financial turmoil intensified, were measures of confidence. They dropped, on average, but otherwise were consistent with the indicators reported for July.

Data through July suggested that economic activity in emerging-market countries remained robust. Output in the Asian economies soared in the second quarter, and several countries posted growth at or near double-digit rates. In Latin America, output in Mexico and Venezuela rebounded sharply from earlier weakness. Indicators for China in July pointed to only a modest slowing of output growth from its torrid pace in the first half of the year. The scant data for August received thus far provided little indication that the turmoil in financial markets had a significant negative impact on real economic activity in emerging-market economies.

After rapid price increases earlier this year, U.S. headline consumer price inflation was moderate in both June and July. Although food prices continued their string of sizable increases, energy prices fell in June and July and gasoline prices appear to have dropped further in August. Core PCE prices rose 0.2 percent in June and 0.1 percent in July. On a twelve-month-change basis, core PCE inflation in July was below the comparable rate twelve months earlier. Step-downs in price inflation for prescription drugs, motor vehicles, and nonmarket services accounted for nearly all of the deceleration in core PCE prices. Although owners' equivalent rent decelerated over the past year, this change was largely offset by an acceleration in tenants' rent and lodging away from home. Household surveys indicated that the median expectation for year-ahead inflation declined in August and edged down further in early September to a level only slightly above the reading at the turn of the year; the median expectation of longer-term inflation in early September remained in the range seen over the past couple of years. The producer price index for core intermediate materials rose only modestly in July. Compensation per hour decelerated in the second quarter. Nonetheless, the increase over the four quarters ending in the second quarter was noticeably above the increase in the preceding four quarters and well above the rise in the employment cost index over the same period.

At its August meeting, the FOMC decided to maintain its target for the federal funds rate at 5-1/4 percent. In the statement, the Committee acknowledged that financial markets had been volatile in recent weeks, credit conditions had become tighter for some households and businesses, and the housing correction was ongoing. The Committee reiterated its view that the economy seemed likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy. Readings on core inflation had improved modestly in recent months. However, a sustained moderation in inflation pressures had yet to be convincingly demonstrated. Moreover, the high level of resource utilization had the potential to sustain these pressures. Although the downside risks to growth had increased somewhat, the Committee repeated that its predominant policy concern remained the risk that inflation would fail to moderate as expected. Future policy adjustments would depend on the outlook for both inflation and economic growth, as implied by incoming information. The FOMC's policy decision and the accompanying statement were about in line with market expectations, and reactions in financial markets were muted.

In the days after the August FOMC meeting, financial market participants appeared to become more concerned about liquidity and counterparty credit risk. Unsecured bank funding markets showed signs of stress, including volatility in overnight lending rates, elevated term rates, and illiquidity in term funding markets. On August 10, the Federal Reserve issued a statement announcing that it was providing liquidity to facilitate the orderly functioning of financial markets. The Federal Reserve indicated that it would provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the target rate of 5-1/4 percent. The Federal Reserve also noted that the discount window was available as a source of funding.

On August 17, the FOMC issued a statement noting that financial market conditions had deteriorated and that tighter credit conditions and increased uncertainty had the potential to restrain economic growth going forward. The FOMC judged that the downside risks to growth had increased appreciably, indicated that it was monitoring the situation, and stated that it was prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets. Simultaneously, the Federal Reserve Board announced that, to promote the restoration of orderly conditions in financial markets, it had approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent. The Board also announced a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as thirty days, renewable by the borrower. In addition, the Board noted that the Federal Reserve would continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets, while maintaining existing collateral margins. On August 21, the Federal Reserve Bank of New York announced some temporary changes to the terms and conditions of the SOMA securities lending program, including a reduction in the minimum fee. The effective federal funds rate was somewhat below the target rate for a time over the intermeeting period, as efforts to keep the funds rate near the target were hampered by technical factors and financial market volatility. In the days leading up to the FOMC meeting, however, the funds rate traded closer to the target.

Short-term financial markets came under pressure over the intermeeting period amid heightened investor unease about exposures to subprime mortgages and to structured credit products more generally. Rates on asset-backed commercial paper and on low-rated unsecured commercial paper soared, and some issuers, particularly asset-backed commercial paper programs with investments in subprime mortgages, found it difficult to roll over maturing paper. These developments led several programs to draw on backup lines, exercise options to extend the maturity of outstanding paper, or even default. As a result, asset-backed commercial paper outstanding contracted substantially. Investors sought the safety and liquidity of Treasury securities, and yields on Treasury bills dropped sharply for a period; trading conditions in the bill market were impaired at times. Meanwhile, banks took measures to conserve their liquidity and were cautious about counterparties' exposures to asset-backed commercial paper. Term interbank funding markets were significantly impaired, with rates rising well above expected future overnight rates and traders reporting a substantial drop in the availability of term funding. Pressures eased a bit in mid-September, but short-term financial markets remained strained.

Conditions in corporate credit markets were mixed. Investment- and speculative-grade corporate bond spreads edged up; they were near their highest levels in four years, although they remained far below the peaks seen in mid-2002. Investment-grade bond issuance was strong in August as yields declined, but issuance of speculative-grade bonds was scant. Speculative-grade bond deals and leveraged loans slated to finance leveraged buyouts continued to be delayed or restructured. Bank lending to businesses surged in August, apparently because some banks funded leveraged loans that they had intended to syndicate to institutional investors and perhaps because some firms substituted bank credit for commercial paper. Although markets for nonconforming mortgages were impaired over the intermeeting period, the supply of conforming mortgages seemed to have been largely unaffected by recent developments. Broad stock price indexes were volatile but about unchanged, on net, over the intermeeting period. The foreign exchange value of the dollar against other major currencies fell, on balance.

Investors appeared to mark down significantly their expected path for the federal funds rate during the intermeeting period, evidently in response to the strains in money and credit markets and a few key data releases, including weaker-than-expected reports on housing activity and employment. Yields on nominal Treasury securities fell appreciably across the term structure. TIPS-based inflation compensation at the five-year horizon was about unchanged, while inflation compensation at longer horizons crept higher.

Growth of nonfinancial domestic debt was estimated to have slowed a little in the third quarter from the average pace in the first half of the year. The deceleration in total nonfinancial debt reflected a projected slowdown in borrowing across all major sectors of the economy excluding the federal government. Although it decelerated in the third quarter, business-sector debt continued to advance at a solid pace, boosted by a surge in business loans. In the household sector, mortgage borrowing was estimated to have slowed notably, as mortgage interest rates moved up, nonconforming mortgages became harder to obtain, and as home sales slowed and house prices decelerated. M2 increased at a brisk pace in August. The rise was led by a surge in liquid deposits and in retail money funds as investors adjusted their portfolios in response to the turmoil in financial markets.

In preparation for this meeting, the staff continued to estimate that real GDP increased at a moderate rate in the third quarter. However, the staff marked down the fourth-quarter forecast, reflecting a judgment that the recent financial turbulence would impose restraint on economic activity in coming months, particularly in the housing sector. The staff also trimmed its forecast of real GDP growth in 2008 and anticipated a modest increase in unemployment. Softer demand for homes amid a reduction in the availability of mortgage credit would likely curtail construction activity through the middle of next year. Moreover, lower housing wealth, slower gains in employment and income, and reduced confidence seemed likely to restrain consumer spending in 2008. Despite the recent difficulties in some corporate credit markets, financial conditions confronting most nonfinancial businesses did not appear to have tightened appreciably to date. But going forward, the staff anticipated that businesses would scale back their capital spending a touch in response to financing conditions that were likely to become a little less accommodative and to more modest gains in sales. With credit markets expected to largely recover over coming quarters, growth of real GDP was projected to firm in 2009 to a pace a bit above the rate of growth of its potential. Incoming data on consumer price inflation that were slightly to the low side of the previous forecast, in combination with the easing of pressures on resource utilization in the current forecast, led the staff to trim slightly its forecast for core PCE inflation. Headline PCE inflation, which was boosted by sizable increases in energy and food prices earlier in the year, was expected to slow in 2008 and 2009.

In their discussion of the economic situation and outlook, meeting participants focused on the potential for recent credit market developments to restrain aggregate demand in coming quarters. The disruptions to the market for nonconforming mortgages were likely to reduce further the demand for housing, and recent financial developments could well lead to a more general tightening of credit availability. Moreover, some recent data and anecdotal information pointed to a possible nascent slowdown in the pace of expansion. Given the unusual nature of the current financial shock, participants regarded the outlook for economic activity as characterized by particularly high uncertainty, with the risks to growth skewed to the downside. Some participants cited concerns that a weaker economy could lead to a further tightening of financial conditions, which in turn could reinforce the economic slowdown. But participants also noted that the resilience of the economy in the face of a number of previous periods of financial market disruptions left open the possibility that the macroeconomic effects of the financial market turbulence would prove limited.

Although financial markets were expected to stabilize over time, participants judged that credit markets were likely to restrain economic growth in the period ahead. Given existing commitments to customers and the increased resistance of investors to purchasing some securitized products, banks might need to take a large volume of assets onto their balance sheets over coming weeks, including leveraged loans, asset-backed commercial paper, and some types of mortgages. Banks' concerns about the implications of rapid growth in their balance sheets for their capital ratios and for their liquidity, as well as the recent deterioration in various term funding markets, might well lead banks to tighten the availability of credit to households and firms. Tighter credit conditions were likely to weigh particularly on residential investment and to a lesser extent on other components of aggregate demand in coming quarters. Meeting participants also noted that financial market conditions, while seeming to have improved somewhat in the most recent days, were still fragile and that further adverse credit market developments could well increase the downside risks to the economy. Even after market volatility subsided and the recent strains eased, risk spreads probably would be wider and credit terms tighter than they had been a few months ago. Although these developments would likely be consistent with longer-term financial stability, they were likely to exert some restraint on aggregate demand.

In their discussion of individual sectors of the economy, participants noted that recent data suggested greater weakness in the housing market than had previously been expected. Furthermore, recent financial developments had the potential to deepen further and prolong the downturn in the housing market, as subprime mortgages remained essentially unavailable, little activity was evident in the markets for other nonprime mortgages, and prime jumbo mortgage borrowers faced higher rates and tighter lending standards. The faster pace of foreclosures as subprime mortgage rates reset was also seen as posing a downside risk to the housing market. Nonetheless, participants observed that conforming mortgages remained readily available to creditworthy borrowers and that rates on these mortgages had declined in recent weeks. Moreover, conditions in the jumbo mortgage market were expected to improve gradually over time.

Although employment probably was not as weak as the most recent monthly data had suggested, trend growth in jobs had fallen off even prior to the recent financial market strains, and participants judged that some further slowing of employment growth was likely. Indeed, financial services firms had already announced layoffs, largely reflecting mortgage market developments, the demand for temporary workers appeared to have softened, and the most recent weakening in construction employment was likely to continue for a while. Moreover, if declines in house prices were to damp consumption, that could feed back on employment and income, exerting additional restraint on the demand for housing. Nonetheless, to date, initial claims for unemployment insurance did not indicate a substantial and widespread weakening in labor demand, and labor markets across the country generally remained fairly tight, with several participants citing continued reports of shortages of labor from their contacts in some sectors.

Participants thought that the most likely prospect was for consumer expenditures to continue to expand at a moderate pace on average over coming quarters, supported by growth in employment and income. However, some participants saw indications of a possible weakening of consumer spending. Sales of automobiles and building materials had flagged of late, and survey measures suggested that consumer confidence had been adversely affected by the recent financial market developments. Also, a further tightening of terms for home equity lines of credit and second mortgages seemed possible, which could weigh on consumer spending, especially for consumer durables.

Participants reported that recent financial market developments generally appeared to have had limited effects to date on business capital spending plans and expected that business investment was likely to remain healthy in coming quarters. The access of investment-grade corporate borrowers to credit so far remained unimpeded, and rates on investment-grade bonds had declined in recent weeks. Moreover, participants noted that many capital expenditures were internally financed, making them less sensitive to credit market conditions. Nonetheless, the pace of financing for lower-rated firms--including issuance of both speculative-grade bonds and leveraged loans--had slowed sharply over the summer. Participants also noted that standards and terms for commercial real estate credit reportedly had tightened, and that credit availability for homebuilders could be trimmed going forward. In addition, contacts indicated that business executives in parts of the country had apparently become somewhat more cautious and that some were delaying investment outlays in view of heightened economic and financial uncertainty.

Some participants noted that foreign demand remained robust and net exports appeared strong. Port utilization rates reportedly remained high. Participants discussed the turbulence in foreign financial markets and noted that unusually high precautionary demand for dollar-denominated term funding in Europe had added to strains in U.S. interbank markets and contributed to a wide spread between libor and federal funds rates.

Participants made only modest revisions to their outlook for inflation in the period since the Committee's last regular meeting. Still, they recognized that incoming data on core inflation continued to be favorable, and they generally were a little more confident that the decline in inflation earlier this year would be sustained. Inflation expectations seemed to be contained, and the less robust economic outlook implied somewhat less pressure on resources going forward. Participants nonetheless remained concerned about possible upside risks to inflation. Higher benefit costs, rising unit labor costs more generally, reduced markups, and levels of resource utilization both in the United States and abroad that remained relatively high were all cited as factors that could contribute to inflationary pressures. Inflation risks could be heightened if the dollar were to continue to depreciate significantly.

In the Committee's discussion of policy for the intermeeting period, all members favored an easing of the stance of monetary policy. Members emphasized that because of the recent sharp change in credit market conditions, the incoming data in many cases were of limited value in assessing the likely evolution of economic activity and prices, on which the Committee's policy decision must be based. Members judged that a lowering of the target funds rate was appropriate to help offset the effects of tighter financial conditions on the economic outlook. Without such policy action, members saw a risk that tightening credit conditions and an intensifying housing correction would lead to significant broader weakness in output and employment. Similarly, the impaired functioning of financial markets might persist for some time or possibly worsen, with negative implications for economic activity. In order to help forestall some of the adverse effects on the economy that might otherwise arise, all members agreed that a rate cut of 50 basis points at this meeting was the most prudent course of action. Such a measure should not interfere with an adjustment to more realistic pricing of risk or with the gains and losses that implied for participants in financial markets. With economic growth likely to run below its potential for a while and with incoming inflation data to the favorable side, the easing of policy seemed unlikely to affect adversely the outlook for inflation.

The Committee agreed that the statement to be released after the meeting should indicate that the outlook for economic growth had shifted appreciably since the Committee's last regular meeting but that the 50 basis point easing in policy should help to promote moderate growth over time. They also agreed that the inflation situation seemed to have improved slightly and judged that it was no longer appropriate to indicate that a sustained moderation in inflation pressures had yet to be shown. Nonetheless, all agreed that some inflation risks remained and that the statement should indicate that the Committee would continue to monitor inflation developments carefully. Given the heightened uncertainty about the economic outlook, the Committee decided to refrain from providing an explicit assessment of the balance of risks, as such a characterization could give the mistaken impression that the Committee was more certain about the economic outlook than was in fact the case. Future actions would depend on how economic prospects were affected by evolving market developments and by other factors.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with reducing the federal funds rate to an average of around 4-3/4 percent."

Hungarian August Trade Deficit Narrows; Industrial Output Grows

2007-10-09T23:39:00.000+08:00

Oct 9, 2007 - The Hungarian trade deficit narrowed to EUR211.1 million in August from EUR348.6 million deficit registered last year, the statistical office said Tuesday. Economists expected a trade deficit of EUR167.0 million for the month of August. The value of exports amounted to EUR5.34 billion in August, while imports totaled EUR5.56 billion.

During the eight months ended August, the trade deficit was EUR830.6 million versus EUR1.946 billion deficit reported over the same period last year. The value of exports stood at EUR43.81 billion and imports were valued at EUR44.65 billion.

Hungarian industrial output increased 9.5% year-on-year in August, the Statistical Office said Tuesday. Meanwhile, the industrial output index adjusted by working days rose 12.2% in August from the previous year. Economists expected an annual increase of 10.3% for the month of August.

The report stated that the volume of industrial output climbed 0.9% in August from the previous month, on a seasonally and by working-day adjusted basis.

During the eight months ended August, the volume of industrial production improved 9.0% over the same period last year.

IMF Lowers Italian Growth Forecast

2007-10-09T23:37:00.000+08:00

Oct 9, 2007 - The International Monetary Fund, or IMF, lowered its growth outlook for Italy, media reports said Tuesday. The Fund cut its Italian gross domestic product, or GDP, growth forecast to 1.7% from the previous estimate of 1.8% for 2007, the Italian newspaper Il Sole 24 Ore said.

The Italian growth outlook for 2008 was slashed to 1.3% from 1.7% for 2008. The IMF forecast is in line with the Italian economy minister, Tommaso Padoa-Schioppa's projected growth of below 2.0%. For 2008, the minister sees the growth in the range of 1.3% to 1.6%.

The GDP outlook of the IMF for the U.S. in 2008 now stands at 1.9%, a drastic reduction from the 2.8% previously estimated.

At the same time, the Euro zone growth outlook was lowered to 2.1% from 2.5% for 2008, while the forecast for was reduced to 1.7% from 2.0%.

Reports said that the IMF has also reduced German growth forecast to 2.0% from 2.4% estimated earlier. For Britain, the Fund slashed the figures to 2.3% from 2.7% and for France, the outlook was lowered to 2.0% from 2.3%.

The IMF expects world GDP to rise 4.8% in 2008.

French Trade Deficit Narrows In August

2007-10-09T23:36:00.001+08:00

Oct 9, 2007 - France's seasonally adjusted trade deficit came in at 2.8 billion euros in August, official data showed Tuesday. The July deficit was downwardly revised to 3.2 billion euros from 3.3 billion euros reported previously.

Economists were looking for a deficit of 3.4 billion euros for August.

In August, exports totaled to 34.7 billion euros, compared to 34 billion euros logged in July. Meanwhile, imports reached 37.4 billion euros compared to 37.2 billion euros in July.

UK Trade Deficit Narrows In August

2007-10-09T23:36:00.000+08:00

Oct 9, 2007 - UK's trade deficit contracted to 4.1 billion pounds in August from a deficit of 4.6 billion pounds in July, the Office for National Statistics, ONS, said on Tuesday. In the three months to August, trade deficit grew marginally to 12.3 billion pounds after posting a deficit of 12.2 billion pounds in the previous three months.

UK's deficit on trade in goods narrowed to 6.9 billion pounds in August, from the deficit of 7.4 billion pounds revised up from 6.8 billion pounds in July. Economists were expecting a deficit of 7 billion pounds.

The trade deficit with non-EU countries was 3.9 billion pounds in August, a little less than economists' consensus of a 4 billion pound deficit. In July the deficit was 4.4 billion pounds, revised up from the deficit of 4.2 billion pounds in the first estimates.

Total exports of goods grew 0.5% in August, to 19 billion pounds while imports eased 2% to 25.8 billion pounds. Exports to the EU were little changed, while imports from the EU slipped 0.5%. Exports to non-EU countries rose 1.5%, helping to narrow the trade deficit, while imports from non-EU countries dropped 3.5%.

Though monthly data are volatile, the latest estimate of the trends indicated that the goods deficit with the whole world was fairly flat, the ONS said.

In the three months to August, the deficit on trade in goods declined 0.1 billion pounds to 20.8 billion pounds. Exports climbed 5.5%, while imports grew 3.5%.

Compared to July, the volume of exports increased 3.5%, while imports declined 2%, in August. Both export and import prices slipped 0.5%.

The balance on trade in oil showed a deficit of 0.5 billion pounds in August, more than the 0.3 billion pounds deficit in July. This was the highest deficit in more than a year, according to the ONS.

In the three months to August, exports of all the main commodity groups showed a rise in volume except fuels, the ONS said. Exports of manufactured products like cars climbed 11%, while exports of capital goods and exports of consumer goods other than cars, posted 9.5% growth each. Exports of chemicals grew 3.5%, while exports of semi-manufactured goods advanced 2.5%.

Imports of all commodity groups except fuels increased in the three months to August. Imports of manufactured products such as cars jumped 9.5%, while imports of consumer goods other than cars grew 6.5%. Imports of capital goods advanced 4.5%, while imports of chemicals expanded 10% and imports of other semi-manufactured goods grew 1.5%.

Exports of goods to the U.S.A. rose 0.6 billion pounds in the three months to August, while export of goods to France increased by 0.5 billion pounds. Imports of goods from the U.S.A. rose 0.4 billion pounds while imports from Canada advanced 0.2 billion pounds. Import of goods from Norway and China eased 0.2 billion pounds.

In August, UK's trade in services registered a surplus of 2.7 billion pounds, a tad lower than the surplus of 2.8 billion pounds in July.

The surplus on trade in services was 8.5 billion pounds in the three months to August, compared to the surplus of 8.7 billion pounds in the previous three months. Exports of services declined 0.6 billion pounds to 33.4 billion pounds, while imports of services slipped 0.3 billion pounds to 24.9 billion pounds.

The trade figure came as no surprise even though the pound has soared to historic highs in recent months, making exports uncompetitive and imports cheaper. A down side of the current financial market crisis was that UK's services exports which consisted of a big chunk of financial services, could be hit. The UK Services Purchasing Manager's Index, PMI, fell to a 13-month low reading of 56.7 in September. Activity and new orders were weaker in the financial intermediation industry than previously.

BNP Paribas forecast that the UK economy would grow 2.8% in both 2007 and 2008. The trade deficit for the full year 2007 was projected at 77.6 billion pounds, rising to 87.1 billion pounds in 2008. The current account deficit was forecast at 47.8 billion pounds in 2007, or 3.7% of GDP.

The economy is now operating at close to or even above potential, BNP Paribas said. However, following the turbulence in the financial markets, the outlook had deteriorated and economic growth was likely to slow in the coming quarters, according to BNP Paribas.

German Trade Surplus Narrows More-than-expected In August, Industrial Output Growth Beats Expectations

2007-10-09T23:26:00.000+08:00

Oct 9, 2007 - The German trade surplus narrowed more than expected in August, official data showed Tuesday. Meanwhile, industrial output growth came in better than expected in August.

The Federal Statistical Office announced that the trade surplus narrowed to 14.1 billion euros in August from 17.9 billion euros surplus recorded in July. The trade surplus narrowed more than the expected 16.4 billion euros in August. However, the trade surplus increased from 11.0 billion euros registered in the prior year. The foreign trade showed a seasonally adjusted balance of 15.3 billion euros in August.

Exports of commodities amounted to 77.7 billion euros in August, up 12.4% on an annual basis. Exports climbed by a seasonally adjusted 3.0% on month compared to a decline of 0.3% in July. This is the highest monthly growth since September 2006. The number came in better than the expected growth of 0.3% in August.

Meanwhile, imports grew 9.5% year-on-year to 63.6 billion euros. The report said imports were up by 5.6% on a monthly basis in August, reversing a 2.8% fall recorded in July. Economists were looking for a monthly fall of 0.8% in imports.

The current account surplus declined to 9.1 billion euros in August from a revised 13.5 billion euros registered in July. A year ago, the current account surplus totaled 5.3 billion euros. Economists were looking for a surplus of 11.0 billion euros in August.

Exports to EU member states amounted to 47.9 billion euros and imports from those countries were valued at 40.7 billion euros. Commodities to the value of 30.3 billion euros were dispatched to the euro area countries in August, while the value of commodities received from those countries was 28.2 billion euros.

Elsewhere, the Ministry of Economy and Technology said that industrial output grew at a faster pace of 1.7% on a monthly basis in August. In July, industrial production showed a monthly growth of 0.2%, revised up from 0.1% initially estimated. The number came in better than the expected growth of 0.4% in August.

Energy output climbed 0.3% from the prior month, while construction output increased 2.0%.

On an annual basis, industrial production improved 5.0% in August, smaller than the 8.1% in July. Meanwhile, industrial production improved by working day adjusted 5.1%, while economists expected only 3.6% growth in August.

During July and August, industrial production rose 1.0% compared to May and June.

Commenting on the German data, Danske Bank economists, Niels-Henrik Bjørn said, “Following stagnating industrial production and exports through most of H1 07 the numbers today seem to (although yet only very tentatively) indicate a fairly strong rebound in German manufacturing.”

A report from the Ifo institute for Economic Research indicated that Business Climate Index for industry and trade slipped to 104.2 in September from 105.8 in the previous month. This was the fourth straight month of decline in the Business Climate Index in September.

The latest GfK survey revealed that the consumer confidence forecast for October tumbled to 6.8.The indicator was higher at 7.4 in September. Consumer confidence fell as a consequence of rising food prices, a higher euro and the roiling international financial markets due to the U.S. sub-prime crisis.

The manufacturing PMI released earlier in the month noted that manufacturing growth moderated in September. The index declined to 54.9 in September from 56.0 in August, the NTC Economics said.

Greek Annual Inflation Accelerates In September

2007-10-08T23:28:00.000+08:00

Oct 8, 2007 - The Greek Statistical Office said the Consumer Price Index, or CPI, for September increased 2.9% over the same month last year. The rate is higher than the 2.5% logged in August. The September annual inflation was in line with the rate recorded in the same month prior year.

On a monthly basis, the CPI rose 2.0% in September. Whereas, the monthly increase was 1.6% in September 2006. In August, consumer prices fell 0.7%.

Clothing and footwear prices logged the biggest increase of 15.4% in September. Meanwhile, communication costs declined 2.4%.

The average rate of increase of the CPI in the twelve-month period of October 2006-September 2007 was 2.7%, compared to a rate of change of 3.4% reported in the same period a year earlier.

For September, the Harmonized Index of Consumer Prices, or HICP, rose 2.9% over the same month last year. In the year earlier period, the annual HICP inflation rate was 3.1%.

Monthly HICP inflation rate for September came in at 2.3%, while it was 2.0% in the corresponding period a year ago.

Annual average rate of HICP increase was 2.9% in the twelve-month period. In the comparable period last year, annual average HICP inflation rate was 3.4%.

Czech trade numbers show surprise deficit of 600 mln crowns in August

2007-10-08T22:22:00.000+08:00

Oct 8, 2007 - The Czech Republic showed a deficit on foreign trade of 600 mln crowns in August, surprising on analysts' consensus expectations of a 1 bln crown surplus, data today showed.

But data released by the Czech statistical office (CSU) showed that year-on-year, the deficit shrank by 500 mln crowns, and the numbers left intact expectations that the former communist country's trade surplus will double overall this year.

The Czech Republic's currency the crown, which hit fresh all-time highs on Sept 17 at 27.385, was unmoved by the data.

"It was a (negative) surprise although not a big surprise," said Jan Vejmelek, an analyst with Komercni Banka. He expects the full year 2007 trade balance to end in a 59 bln crown surplus, up from a surplus of 39.8 bln crowns in 2006.

Trade balances in other central European former communist economies have worsened in recent quarters as strong currencies have hurt their exporters, whilst imports have increased on the back of booming domestic demand. But the Czech Republic continues to be supported by multinational investments, which use low local wages and costs to produce cheaply and export to elsewhere in the enlarged European Union.

The statistical office also said that the August trade balance was hit by a 1.4 bln crown drop in the surplus on trade in cars and machinery, where local Volkswagen and Peugeot factories remain a key net exporter.

Exports grew 12.1 pct annually, the slowest growth rate since September 2006. Imports rose just a touch slower, by 11.7 pct.

David Navratil from Ceska Sporitelna said the trade balance from the previous 12 months was at a surplus of 68 bln crowns and for the whole year of 2007 he expects it to reach 70 bln crowns.

Latvian September Inflation Rate Increases to 11.4%

2007-10-08T22:19:00.000+08:00

Oct 8, 2007 - Latvia's annual inflation rate rose to a 10-year high of 11.4 percent in September, led by food and tobacco, pushing the nation further from euro adoption.

The annual inflation rate, the European Union's second highest, rose from 10.1 percent in August, the fourth consecutive gain, the statistical office reported in the capital Riga. In the month, consumer prices rose 1.9 percent. The annual figure exceeded the 10.7 percent median estimate of four economists.

Inflation in the EU's fastest-growing economy is picking up at more than five times the pace of the 13 nations sharing the euro. The government was forced to abandon its 2008 target date for adopting the euro as economic growth pushed consumer prices beyond targets required for the currency switch.

"The trend is quite shocking," said Zigurds Vaikulis, an economist at Parex Asset Management. "We are seeing an inflation spiral. If you add increases in heating and water prices, then inflation could surpass 13 percent next month," Vaikulis said.

The cost of food rose 14.8 percent in the year, alcohol and tobacco prices grew an annual 18.5 percent and restaurants and hotels were 20.1 percent more expensive than a year ago, the statistics office said. Housing, water, electricity and gas expenses grew 16.7 percent on the year.

Euro adoption is limited to countries that meet targets on inflation, budget deficits, debt, interest rates and currency stability. Inflation must be within 1.5 percentage points of the 12-month average rate of the three EU nations with the slowest consumer price growth.

Bulgaria's annual inflation rate was 12 percent in August, the EU's highest.

Czech Sept CPI up 2.8 pct yr-on-yr, in line with expectations

2007-10-08T22:17:00.000+08:00

Oct 8, 2007 - Czech inflation accelerated to the fastest in 13 months in September, closing in on the central bank's target and suggesting interest rates may rise again as early as this month.

Consumer prices rose an annual 2.8 percent, up from a 2.4 percent in August, the Prague-based statistics office said on its Web site, matching the median estimate by 13 economists surveyed by Bloomberg. Consumer prices fell a monthly 0.3 percent, at half the pace from September 2006, the office said.

The central bank has been lifting the European Union's lowest rates for two years on concern the consumption-driven expansion will foster price growth. Policy makers target inflation one point either side of 3 percent and have signaled borrowing costs will have to rise further because consumer-price increases are forecast to exceed 4 percent next year.

"Inflation confirms the central bank's assumption that a stagnation of prices during the summer months was just a temporary factor," said Patrik Rozumbersky, the chief economist at Zivnostenska Banka AS, who sees a rate increase this month. "The basic effect and steep growth of some food prices in the rest of the year will push inflation markedly above 3 percent."

Koruna Advances

The koruna was trading at 27.49 per euro by 5:03 p.m. in Prague, compared with 27.550 on Oct. 5. The ask yield on the government bond due 2016 rose 1 basis point to 4.304 percent. The price fell 0.1, or 10 koruna per 10,000 koruna ($511) face amount, to 118.100, according to Komercni Banka AS prices. A basis point is 0.01 percentage point.

September's inflation compared with the central bank's forecast of 2.9 percent, pushed lower by core inflation, Tomas Holub, the head of the central bank's monetary and statistical department, said on the central bank's Web site.

Food, cigarettes and fuel prices for automobiles were higher than predicted in the July forecast, he added.

The central bank foresees annual price growth of as high as 4.5 percent next year, driven by higher indirect taxes and regulated prices.

The mid-point peak of the so-called monetary-policy inflation, which excludes the effect of one-time changes in indirect taxes that the central bank omits, is projected to jump to 3.7 percent in 2008 from about 1.8 percent in September.

Central bankers raised the key two-week repurchase rate in May, July and August, bringing it to 3.25 percent, still below the European Central Bank's 4 percent.

Seasonal Declines

The monthly price growth was driven by a seasonal drop of costs of travel packages, which were on average 16.1 percent lower last month than in August, the statistics office said.

That decline, which was less than usual due to new methodology for data collection that makes the data less volatile, caused prices to be 0.2 percent higher than a year ago, the office said.

In the month, transportation costs were lower, with motor fuels shedding 0.9 percent, while regulated rents added 1.3 percent. Education prices increased 1.8 percent in month, followed by a 0.9 percent growth of clothing and shoes prices while food got only 0.1 percent more expensive last month.

Adjusted inflation, excluding food and motor fuels, which measures inflationary pressures of domestic demand, jumped to 1.1 percent in September from 0.6 percent, according to calculations of Jiri Skop, an economist at Komercni Banka AS in Prague.

Rate Increase

Economists are split on whether the central bank will come up with another rate increase this year or wait until 2008 to bring the repo rate higher. While Skop predicts the benchmark rate to be lifted twice this year and two more times in 2008, others say the bankers may refrain from any action this year.

Interest-rate futures show investors have scaled back expectations of rate increases, reflecting the stronger-than- projected koruna and a reduced outlook for lending rates abroad.

The forward-rate agreement used to gauge bets for the six- month Prague Interbank offered rate beginning six months from now, traded at 3.79 percent, down 23 basis points over the past two months.

"A pickup of inflation is triggered by food, gasoline, cigarettes and other cost factors, still not by demand," said David Navratil, an economist at Ceska Sporitelna AS in Prague. "With the koruna stronger than anticipated by the central bank, a hawkish argumentation gets one blow after another."

Weekly Indicators - Oct 4

2007-10-06T08:43:00.000+08:00

Oct 4th 2007
From The Economist print edition

American manufacturing grew more slowly in September, according to the Institute for Supply Management. Its activity index slipped to 52 from 52.9 in August.

Consumer prices in the euro area rose by 2.1% in the year to September, according to a preliminary estimate, sharply faster than the 1.7% in the year to August. The currency zone's unemployment rate was 6.9% in August, unchanged from July.

Australia's central bank left its benchmark interest rate at 6.5% on October 2nd.

Manufacturers in Japan remain confident despite recent gyrations in financial markets, according to the central bank's quarterly Tankan survey. The percentage balance of large firms reporting “favourable” over “unfavourable” business conditions was 23, the same as in June.

Industrial production in South Korea rose by 11.2% in the year to August, thanks to strong global demand for its cars, semiconductors and machinery goods. Consumer prices rose by 2.3% in the year to September.

In Britain the number of loans approved for purchasing homes dropped to 109,000 in August from 115,000 in July.

The outlook for rich-world economies is gloomier, according to the The Economist's monthly poll of forecasters (see article). Forecasts for GDP growth in 2008 have been marked down in most countries. The one exception is Australia.

Estonia Annual Inflation Increases In September

2007-10-05T20:02:00.000+08:00

Oct 5, 2007 - Estonia's consumer prices rose at a faster pace of 7.2% year-on-year in September compared to the 5.7% increase in August, the Statistics Estonia said Friday. On a monthly basis, the consumer price index climbed 1.1% in September, larger than the 0.1% growth in August.

The annual growth was fueled mainly by rise in housing prices and higher prices in hotels, café and restaurants. The monthly increase was driven by rise in the prices of dairy products; motor fuel and recreational services and the seasonal increase clothing prices.

Almost all the commodity groups experienced price increase, except charges of communications, which declined 0.5% year-on-year in September.

Philippines Annual Inflation Accelerates In September

2007-10-05T15:59:00.000+08:00

Oct 5, 2007 - Philippines annual inflation accelerated to 2.7% in September from 2.4% in August, the National Statistics Office said Friday. Consumer prices rose more than the expected growth of 2.6%. However, inflation remained with in the central bank's expectations of 2.1% to 2.8%.

Core inflation, excluding food and energy items, eased to 2.7% in September from 2.9% recorded in the prior month.

On a monthly basis, consumer prices climbed 0.1% in September, the same rate registered in August. Inflation averaged 2.6% for the first nine months of the year.

Higher prices of food, beverages and tobacco and prices of services item contributed to annual increase in the inflation rate in September. Food, beverages and tobacco charges climbed at a faster pace of 3.5% and service charges were up 2.4%. Meanwhile, inflation for clothing eased to 2.0% and fuel, light and water prices slowed to 2.3%.

Compared to previous month, food, beverages and tobacco charges moved up 0.7%, while price increments in clothing decelerated to 0.1%. Prices of fuel, light and water fell 2.3% and housing and repair charges showed a zero growth rate.

The inflation numbers came a day after the central bank lowered the key overnight borrowing rate or Reverse Repo Rate, by 25 basis points to 5.75%. The overnight lending or repurchase rate, RP was also reduced by a similar margin to 7.75%. This was the second time that the policy rates were adjusted this year, after the central bank slashed the RRP rate by 150 basis points in July, while removing the tiering system.

Taiwan Sept CPI up 3.08 pct yr-on-yr vs revised 1.60 pct rise in Aug

2007-10-05T15:51:00.000+08:00

Oct 5, 2007 - The consumer price index (CPI) in September was up 3.08 pct year-on-year and up a seasonally adjusted 0.78 pct month-on-month at 107.38, the Directorate General of Budget, Accounting and Statistics (DGBAS) said.

The calculation was made using the 2001 benchmark of 100, the DGBAS said.

Growth in September CPI compares with August's revised 1.60 pct year-on-year increase and seasonally adjusted 0.31 pct month-on-month rise.

The September core price index, which excludes prices of fresh vegetables and fruits, fishery products and energy, was up 1.94 pct from a year earlier and up 0.30 pct from August.

Changes in the September core price index compare with data in August showing a revised year-on-year increase of 1.60 pct and 0.15 pct month-on-month rise.

The wholesale price index (WPI) in September rose 4.63 pct year-on-year to 126.67 (also based on the 2001 benchmark of 100), which was up a seasonally adjusted 0.48 pct month-on-month, the DGBAS said.

Comparative data for August show the WPI rising by a revised 3.63 pct year-on-year and increasing by a seasonally adjusted 0.01 pct month-on-month.

Wu Chung-ming, a section chief at the DGBAS, said the CPI in September this year marks the largest year-on-year increase in two years, after a rise of 3.16 pct in September 2005, as prices of vegetables were inflated as a result of typhoons and torrential rains.

"There were three typhoons in August, causing higher prices of vegetables in September, considering the time required to grow them," Wu said.

The food sector contributed 2.08 percentage points to the growth figure of 3.08 pct in September CPI.

"Vegetable prices alone in September rose 32.63 pct from a year ago," Wu said.

In addition, the upswing in raw materials international prices were reflected in some of the food prices, helping push up the CPI as well, he said.

The increase of 1.94 pct in September core prices marks the highest since the 2.12 pct rise posted in February 2002.

"The core price index was boosted by price hikes in garment, Chinese medicines, tobacco, meat and dairy prices, which mirror the uptrend in global raw materials prices," Wu said.

The DGBAS forecast in August that CPI in full year 2007 would grow 1.48 pct. Against such forecast, CPI inflation in the first nine months of the year registered an average 0.90 pct rise.

"While the fourth-quarter CPI will be dictated by weather (influences) and the impact of international raw material prices, possible growth in CPI for the whole year is unlikely to surpass 2 pct," Wu added.

During the January-September period, the core price index inched up 1.00 pct, while the WPI grew 6.08 pct.

The DGBAS also said that in September, the import price index rose 7.69 pct year-on-year and was up 1.65 pct month-on-month in US dollar terms.

The September export price index rose 1.14 pct from the same month last year and increased 0.22 pct from August, also in US dollar terms, it said.

For the first nine months of the year, the import price index rose 6.12 pct year-on-year and the export price index grew 2.28 pct, it added.

Dutch Annual Inflation Accelerates In September

2007-10-04T23:28:00.000+08:00

Oct 4, 2007 - Dutch annual inflation accelerated to 1.3% in September, the statistical office said Thursday. In August, consumer prices climbed 1.1% on an annual basis. Prices of gas, diesel and LPG were up 7.5%.

The Harmonized Index of Consumer Prices, or HICP, also rose 1.3% in September, larger than the 1.1% in August.

Philippine Central Bank Unexpectedly Cuts Key Rate

2007-10-04T11:31:00.000+08:00

Oct 4, 2007 - The Philippine central bank unexpectedly cut its benchmark interest rate for the second time this year to stoke an economy growing at its fastest pace in two decades.

Bangko Sentral ng Pilipinas lowered its overnight borrowing rate by a quarter percentage point to 5.75 percent. Only three of 12 economists in a Bloomberg News survey expected a cut, while the others predicted no change. The benchmark is at its lowest level since 1992.

"Economic growth is rising, money supply growth has been slowing down, inflation is clearly under control," Jonathan Ravelas, an economist at BDO Unibank in Manila, said after today's announcement. "The rate cut clearly highlights that the central bank is very comfortable." Ravelas had expected the rate to be kept unchanged.

The central bank said inflation, close to a seven-year low, is unlikely to accelerate as gains in the peso hold down the cost of imports, including oil. The outlook for consumer price increases is 'benign' while the currency provides a 'buffer,' Bangko Sentral Governor Amando Tetangco said today.

The government forecasts the $117 billion Philippine economy will expand by as much as 6.7 percent this year, after growing at the fastest pace in two decades in the second quarter. Bangko Sentral unexpectedly reduced its benchmark to 6 percent in July.

Peso Gains

The peso has climbed 9 percent against the dollar this year, the second-biggest gain among actively traded currencies tracked by Bloomberg in Asia, and is poised for its biggest annual gain against the U.S. currency since 1994. The peso rose 0.4 percent to 44.96 per dollar today, according to Tullett Prebon Plc.

Inflation in 2007 will fall below Bangko Sentral's 4 percent to 5 percent target, the bank said today. The consumer price index rose to 2.6 percent from a year earlier in September after increasing 2.4 percent in August, according to the median estimate of 13 economists surveyed by Bloomberg News. The National Statistics Office report is scheduled for release at 9 a.m. tomorrow in Manila.

"We continue to believe that inflation is likely to accelerate, potentially restricting the central bank's ability to loosen policy significantly," Frederic Neumann, a Hong Kong- based economist wrote in a note to investors after today's cut. Neumann, who predicted today's reduction, said any further lowering would depend on monetary policy in the U.S.

Central bank Governor Amando Tetangco on Sept. 19 said there was 'room to maneuver' interest rates after the U.S. Federal Reserve lowered borrowing costs a day earlier.

Bangko Sentral will also lower the rate it pays for funds in its special deposit accounts, with payments for amounts held for six-months dropping to 6.25 percent from 6.5 percent, an official said after today's announcement.

The central bank in May extended access to the higher- interest deposit accounts to slow money-supply growth, which eased to the slowest pace in 11 months in August after surging by a record in April.

Malaysian Trade Surplus Posts Year's Record High in Aug

2007-10-04T11:29:00.000+08:00

Oct 4, 2007 - Malaysian exports rose 6.1% to 53.61 billion ringgit in August from the previous month, driven mainly by a 10.9% increase in exports of electrical and electronic products, the Statistics department said Thursday. However, on a yearly basis, exports edged up 0.3% in August.

Imports amounted to 44.61 billion ringgit in August, up 4.9% from July and 2.9% from a year ago.

The overall trade value showed increases of 5.6% from the prior month and 1.5% from a year earlier. Trade surplus widened 12.7% monthly to this year's high of 8.99 billion ringgit, marking consecutive monthly increase since November 1997.

In July, Malaysia's trade surplus stood at 8.0 billion ringgit, as total exports and imports were valued at 50.5 billion ringgit and 42.5 billion ringgit respectively.

In the first eight months, exports reached 387.24 billion ringgits, an increase of 2.0% from last year, while imports expanded 3.3% to 326.59 billion ringgit. The cumulative trade surplus amounted to RM60.65 billion during the period.

Electrical and electronic products group was the main driver of growth in exports in August. The value of electrical and electronic products grossed 24.24 billion ringgit during the month, accounting for 45.2% of the total exports.

Palm oil, chemicals and chemical products crude petroleum, liquefied natural gas refined petroleum products, machinery, appliances and parts occupied remaining space with significant contributions.

ASEAN, US, EU, China, Japan, Hong Kong and West Asia were the top export markets, which accounted for 80.4% of Malaysia's total exports in August.

Reserve Bank Of Australia Leaves Cash Rate Unchanged At 6.5%

2007-10-03T08:04:00.000+08:00

Oct 3, 2007 - The Reserve Bank of Australia has left its key cash rate unchanged at 6.5 percent.

The stable rate comes as widely expected by economists. The cash rate is the interest rate charged to the overnight money market.

Economists expect the central bank keep rates unchanged until its November board meeting when it will have September-quarter inflation figures to take into consideration.

The Reserve Bank will publish its own underlying inflation figures on October 24, which most accurately reflect whether inflation is within its target range of 2-3 per cent.

If inflation exceeds the top end of the target, the central bank is expected to change rates in November, regardless of the federal election, which generally expected to be held next month.

Hong Kong August retail sales rise faster on stock market, tourism

2007-10-02T21:40:00.001+08:00

Oct 2, 2007 - Hong Kong retail sales growth accelerated in August from the previous month, lifted by rising incomes, tourist spending and improved job prospects, the government said Tuesday.

Retail sales by value increased 15 percent to 20.6 billion Hong Kong dollars, faster than July's revised 14.3 percent gain. The figure, however, was less than the 15.5 percent forecast of economists polled by Thomson IFR.

"The trend of higher retail sales will continue in coming months, especially in the last quarter because of the Christmas season," said Daniel Chan, senior investment strategist at DBS Bank in Hong Kong. "The main driving force continues to be domestic consumption and tourism."

Faster growth along with a booming stock market resulted in higher incomes for most of Hong Kong's nearly 7 million-strong population and boosted demand for computers, televisions, cameras and other electronic goods. The economy expanded 6.3 percent in the first half of the year, faster than the government's estimate.

The stock market reached record levels in August, propelled by China's announcement on the 20th that it would allow individual investors to trade Hong Kong stocks directly. The loosening of China's investment rules helped the Hang Seng Index recover from a slump that was caused by the subprime mortgage crisis that began in the US.

The key stock index rose 3.4 percent in end-August to a record 23,984 points from end-July, according to data provided by Chan.

"The overall thriving stock market in August despite some market volatilities arising from the US sub-prime mortgage turbulence, together with the further expansion in inbound tourism, also helped'' push retail sales, the government said in a statement.

Electronic goods and photo equipment, jewelry and watches rose the most during the period, it said Sales of electronic items jumped 37.7 percent, while those of jewelry and watches gained 31.8 percent. Sales of footwear and clothing accessories increased 19.5 percent, and those of motor vehicles and auto parts were up 15.7 percent.

Tourist arrivals rose 16.9 percent in August to a 2.8 million, the highest single month on record, according to the Hong Kong Tourism Board. Tourists from China, who comprised over 60 percent of the total, grew 23.5 percent.

"The trend of mainland tourists will continue to boost Hong Kong retail sales, despite the competition posed by Macau," Chan said.

Retail sales account for about a third of private consumption, one of the key drivers of Hong Kong's gross domestic product.

For the whole year, retail sales may grow between 10 to 15 percent , said Frances Cheung, an economist at Standard Chartered Bank in Hong Kong.

"The favorable employment outlook, wage increases and vibrant stock market will result in a double-digit growth for retail sales in the last quarter of this year," Cheung said.

Hong Kong's jobless rate hovered at a nine-year low in June to August, with the number of employed persons reaching a record 3.5 million.

Mainland Chinese are flocking to Hong Kong to shop "because they are assured of the quality of the merchandise here," Cheung said.

Retail sales by volume grew 12.5 percent in August from a year ago, less than the 12.9 percent estimate of economists but higher than July's 12.1 percent increase.

(1 US dollar = 7.80 Hong Kong dollars)

European Producer-Price Inflation Eases to 3-Year Low

2007-10-02T20:31:00.001+08:00

Oct 2, 2007 - European producer-price inflation eased in August to the lowest rate in more than three years, reflecting a drop in energy costs.

Factory-gate prices in the euro region rose 1.7 percent from the year-earlier month, down from a 1.8 percent increase in July, the European Union's statistics office in Luxembourg said today. That is the lowest reading since April 2004. Unemployment in the 13 nations that use the euro remained at a record low in August, according to a separate report.

The easing in inflation may be temporary after prices for commodities including oil and wheat reached records last month. While the European Central Bank in September stepped back from a planned interest-rate increase after turmoil in the credit markets pushed up borrowing costs, policy makers have so far refused to shift their focus from fighting inflation.

"Excluding energy and food, there are some signs of pipeline pressures for core inflation," said Luigi Speranza, an economist at BNP Paribas in London. "We see a very moderate upturn in prices, nothing to threaten the price stability."

The producer-price inflation rate for August was lower than the 1.8 percent median forecast of 27 economists surveyed by Bloomberg News. Prices rose 0.1 percent in the month, compared with a 0.3 percent increase in July.

Inflation pressure may be curbed as the pace of euro-area economic growth eases, according to BNP, which forecasts that the ECB will leave its benchmark interest rate at 4 percent through 2008.

Unemployment

Unemployment in the 13-nation euro area remained at 6.9 percent in August, the lowest since the data series began in 1993. The rate is down from 7.8 percent a year earlier.

Energy prices at the producer level fell 0.7 percent in August from the previous month and were down 2.2 percent from a year earlier, according to today's report.

Oil prices have jumped 31 percent since the beginning of the year and reached a record $83.90 a barrel on Sept. 20. Wheat prices have almost doubled this year, touching a record $9.6175 last week.

ECB policy makers, who hold their next meeting in Vienna Oct. 4, remain concerned about inflation, which they aim to keep at or below 2 percent. Consumer-price growth in the euro area accelerated last month to a 13-month high of 2.1 percent.

"The monetary-policy stance is still on the accommodative side," ECB Vice President Lucas Papademos said on Sept. 28. "At the same time, given the increase in uncertainty surrounding the economic outlook, it is prudent and appropriate to wait and gather additional information before drawing any firm conclusions for monetary policy."

Swiss Inflation Accelerates on Higher Energy Prices

2007-10-02T20:28:00.000+08:00

Oct 2, 2007 - Swiss inflation accelerated in September, led by higher costs for heating oil.

Consumer prices rose 0.7 percent from a year earlier after increasing an annual 0.4 percent the previous month, the Federal Statistics Office in Neuchatel said today. Economists expected an inflation rate of 0.8 percent, according to the median forecast of 18 economists surveyed by Bloomberg News.

The Swiss central bank raised its key interest rate on Sept. 13 even as defaults on U.S. subprime mortgages pushed up the cost of credit and clouded the global growth outlook. The Swiss National Bank said rising energy prices and a declining currency may push up import prices and stoke inflation.

"Switzerland still has a low-inflation environment," said Jan Amrit Poser, chief economist at Bank Sarasin in Zurich. "We've had some inflationary pressure from petrol, but the core price index is not signaling danger in any way."

The Swiss economy will probably grow 2.5 percent this year after expanding 3.2 percent in 2006, the fastest pace since 2000, according to the central bank. The SNB forecasts inflation will average 0.6 percent this year and 1.5 percent in 2008.

Energy and housing costs gained 2.4 percent in the year because of higher heating-oil prices, today's report showed. Alcoholic-beverage and tobacco prices advanced 2.9 percent from a year earlier, while the cost of clothing and shoes increased 3.2 percent from a year earlier and was unchanged in the month, according to the statistics office.

S. Korea Sep CPI rise 2.3% from year ago

2007-10-02T12:40:00.000+08:00

Oct 2, 2007 - South Korean consumer prices in September rose 2.3 per cent from a year earlier, data showed on Tuesday, accelerating from August but slightly missing expectations ahead of a central bank policy review next week.

The median forecast in a Reuters poll was for the CPI to rise 2.4 per cent from a year earlier, accelerating sharply from growth of 2.0 per cent in August.

Annual inflation has held at or below the low end of the Bank of Korea's 2.5-3.5 per cent target range after it averaged 2.2per cent in 2006.

The consumer price index rose a non-seasonally adjusted 0.6 per cent in September from August, picking up from a monthly gain of 0.1 per cent in August, the data from the National Statistical Office showed.

The annual rate of core inflation, which strips out volatile food and fuel prices, held steady at 2.3 per cent in September.

The Bank of Korea held interest rates steady in Septemberafter raising them by a quarter percentage point each in August and July to a six-year high of 5.0 per cent.

The Bank of Korea reviews interest rates on Oct 11.

S Korea's Aug current account surplus widens

2007-10-02T12:38:00.000+08:00

Oct 2, 2007 - South Korea's current account surplus widened to a seasonally-adjusted US$1.83 billion in August from a revised US$1.69 billion surplus in July, central bank data showed on Tuesday.

For the first eight months of the year, South Korea's current account produced a seasonally-adjusted surplus of US$4.85 billion, compared with a US$1.52 billion surplus for the same period in 2006, the Bank of Korea data showed.

The data also showed that South Korea's overseas borrowing rose by a net US$7.85 billion in August after a net gain of US$6.00 billion in July.

US consumer spending up 0.6%; incomes rise 0.3%

2007-09-28T23:23:00.000+08:00

Sep 28, 2007 - US consumer spending rose 0.6 per cent in August as Americans shrugged off credit and housing market turmoil, government data showed on Friday.

The Commerce Department report was better than the 0.4 per cent rise expected by Wall Street analysts and showed that a key driver of US economic activity remained strong.

Personal income however rose a more modest 0.3 per cent, slightly below expectations of a 0.4 per cent gain.

A key inflation gauge in the report known as the personal consumption expenditures price index fell 0.1 per cent in August, and shows a 1.8 per cent rise over the past 12 months.

Core inflation, which excludes volatile food and energy costs, rose 0.1 per cent in August and 1.8 per cent in the past year.

Real disposable incomes, which are inflation-adjusted and measure income after taxes, rose 0.4 per cent in August after rising 0.5 per cent in July.

The report suggested that consumer spending, which represents two-thirds of US economic activity, held up in August even as credit conditions tightened in the face of concerns about a wave of failures of sub-prime mortgages.

French Economic Growth Slows In Q2

2007-09-28T22:02:00.000+08:00

Sep 28, 2007 - The French economic growth slowed to 0.3% sequentially in the second quarter, a revised report from the statistical office INSEE showed Friday. The report confirmed the preliminary estimate. The economy expanded 0.6% in the first quarter.

Household expenditure improved 0.6%, slightly larger than the 0.5% growth seen in the first quarter. Household expenditure contributed 0.3 point to GDP growth. Total gross fixed capital formation growth eased to 0.4%, contributing 0.1 point to GDP growth.

Exports climbed at a slower pace of 0.9% compared to 1.4% in the prior quarter. Meanwhile, imports were up 1.9%, following a 0.6% rise in the first quarter. The net foreign trade contributed minus 0.3 point to GDP growth. Inventory changes contributed 0.1 point to GDP growth, after showing minus 0.2 in the previous quarter.

Croatian Economic Growth Slowed to 6.6% on Spending

2007-09-28T21:59:00.000+08:00

Sep 28, 2007 - Croatian economic growth slowed in the second quarter as consumers and the government curbed spending.

Gross domestic product rose an annual 6.6 percent in the quarter, the state statistical office said on its Web site today, exceeding a median estimate of 6 percent by four economists in a Bloomberg survey. The economy grew 7 percent in the first quarter, the fastest growth in more than four years.

"We expect a certain slowdown of economic activity's growth in the second half of the year," Zdeslav Santic, economist at Raiffeisenbank Austria d.d. Zagreb said in an e- mailed report. "However, the GDP growth for the whole of 2007 should be visibly higher than in the year before and we don't expect it to be lower than 5.5 percent."

Lower economic expansion, combined with rising inflation pressures and slower wage growth, may dampen chances for boosting living standards in the country with purchasing power of 55 percent of the European Union average.

The former Yugoslav republic, which was devastated by the Balkan civil wars of the 1990s, is ahead of Ukraine, Serbia and Turkey in negotiations to join the EU and the Adriatic Sea state aims to become a member in this decade.

Construction, Investment

Capital investments dropped to 5.8 percent in the second quarter of the year from 11.2 percent in the first, the office said. Construction grew 2.5 percent in the second three months of the year annually, compared with 7.6 percent in the first.

"Construction works are a significant part of capital investments, so their slowing contributed to a drop in investment, which had the slowest growth rate in two years," Santic said.

Personal spending growth slowed to 6.5 percent from 7.1 percent in the previous quarter and government spending to 2.7 percent from 2.8 percent in the period, it said.

Industrial output grew 7.1 percent on average in the second quarter, according to Bloomberg calculations, from 8 percent in the first three months, and slid to a 14-month-low of 2.8 percent in August.

Manufacturing Imports

Electrical equipment makers Ericsson Nikola Tesla and Koncar Elektroindustrija d.d., which had a 43 percent net income growth in the first half of the year, needed to import manufacturing goods for production, increasing the trade deficit to 36 billion kuna in the first six months of the year, up 10.4 percent from the same period in 2006.

The trade gap is the main contributor to the increase in the current-account deficit, which amounted to 2.04 billion euros in the first three months of 2007. The central bank will report the second quarter balance of payment details later today.

Retail sales growth slowed to 5.8 percent annually in the second three-month period from 7.7 percent in the first three months of the year. Average net wages were 2.8 percent higher in the period from 3.6 percent in the first quarter and gross wages grew 3.6 percent in the second quarter compared with 4.5 percent in the previous three months.

``We expect growth to slow in 2008 given a post election more neutral fiscal stance, fading of recent unsupportable retail dynamics and high import dependency of the economy,'' Hypo Group Alpe Adria bank said in a market report. It forecasts growth of 5.9 percent for 2007 and 5.2 percent in 2008.

Croatia, which is having parliamentary elections in November, had external debt of 30.4 billion euros in August, carried mainly by companies and corporate banks taking loans abroad to meet demand. The government in 2004 started borrowing money domestically and reduced its contribution in the foreign debt.

The economy grew 1.2 percent from the previous quarter, the office said. Growth was 4.8 percent in all of 2006.

Malaysian M3 Broad Money Increases In August

2007-09-28T21:38:00.000+08:00

Sep 28, 2007 - Malaysia's broad money, or M3, grew at an annualized rate of 11.8% percent in August, Bank Negara Malaysia said Friday. In July, M3 increased by 13.4%.

The central bank data showed that the M3 expanded mainly on account of higher claims on the private sector, supported by higher loans extended, as well as the holdings of private debt securities by the banks.

At the same time, narrow money, or M1, increased 17.8% due to higher currency in circulation and placements of demand deposits.

The central bank said in a statement that the gross financing to the private sector remained strong amid robust growth in the banking system loan disbursements in August.

Also, major loan indicators for the business and household sectors continued positive growth through August.

Meanwhile, the net NPL ratio of banking institutions improved further to 3.6% in the month of August.

Mexico posts 300 mln peso fiscal deficit in August

2007-09-28T21:29:00.000+08:00

Sep 28, 2007 - Mexico posted a fiscal deficit of 300 million pesos ($27.4 million) in August compared with a surplus the month before, the government said on Friday.

Budgeted income rose 9 percent over the year-ago period, mostly because of a 9.5 percent rise in tax income unrelated to oil sales, the government said.

Spending in August jumped 29.3 percent in real terms, with more money handed out for pensions, as well as investment in state-oil firm Pemex and agriculture.

In July, the government posted a fiscal surplus of 15.7 billion pesos.

Thai August exports rise 18.4% on year

2007-09-28T12:20:00.000+08:00

Sep 28, 2007 - Thailand's exports rebounded strongly in August, rising 18.4 per cent from a year earlier as shipments to Asian and European markets surged, central bank data showed on Friday.

Economists polled by Reuters this week had forecast a 17.6 per cent increase in exports compared with a rise of 6.2 per cent in July.

August imports rose 12.1 per cent from a year earlier, the data showed, below expectations of a 13.9 per cent increase and compared with a 3.7 per cent rise in July.

Record exports of US$13.82 billion and record imports of US$12.85 billion produced an August trade surplus of US$973 million, above expectations of a US$700 million surplus.

August's current account surplus widened to US$735 million from US$367 million in July, but was below the US$900 million analysts had expected.

Industrial production in August rose higher-than-expected 10.2 per cent from a year earlier after a revised 7.5 per cent growth in July and 4.1 per cent in June.

Japan August nationwide core CPI falls 0.1%

2007-09-28T12:18:00.000+08:00

Sep 28, 2007 - Japanese core consumer prices fell 0.1 per cent in August from a year earlier, marking the seventh straight month of annual declines and matching economists' consensus forecast, government data showed on Friday.

In the Tokyo area, the core consumer price index (CPI), which excludes volatile fresh food prices, fell 0.1 per cent in September compared with a year earlier, against the consensus forecast of a flat reading.

The government announces Tokyo area figures a month before the nationwide figures.

August jobless rate rise to 3.8%
Japan's seasonally adjusted unemployment rate rose to 3.8 per cent in August against a market consensus forecast of 3.6 per cent, government data showed.

The jobs-to-applicants ratio for August was 1.06, meaning 106 jobs were available per 100 applicants, below the market consensus forecast of 1.07.

Industrial output up 3.4%
Japan's industrial production rose 3.4 per cent in August from a month earlier, compared with a median market forecast for a 3.2 per cent rise.

Manufacturers' output, the core component of production, is expected to fall 0.8 per cent in September but rise 4.1 per cent in October, data from the Ministry of Economy, Trade and Industry showed.

The ministry said industrial output is on a moderate rising trend, upgrading its assessment for the first time in four months.

August retail sales rise 0.5%
Japanese retail sales rose 0.5 per cent in August from a year earlier, compared with economists' median forecast for a 0.1 per cent increase.

It was the first time in three months that retail sales increased from the same month a year ago, signalling a moderate recovery in consumer spending.

Compared with July, retail sales were up 3.9 per cent on a seasonally adjusted basis, the Ministry of Economy, Trade and Industry said.

All households spending up 1.6%
Overall household spending in Japan rose 1.6 per cent in August from a year earlier in price-adjusted real terms, against a median market forecast of a 1.2 per cent rise.

Compared with July on a seasonally adjusted basis, spending rose 0.4 per cent.

The average household spent 296,035 yen (US$2,561) in August, according to the data released by the Ministry of Internal Affairs and Communications.

Spending by wage earners' households rose 3.6 per cent in August from the same month a year ago, the data showed.

Malaysian Q2 Current Account Surplus Widens

2007-09-28T12:06:00.000+08:00

Sep 28, 2007 - Malaysia's June quarter current account surplus widened to 23.7 billion ringgit from 20.1 billion ringgit in the previous quarter, the department of Statistics said Friday.

The growth was mainly due to higher trade surplus on goods amounting to 29.1 billion ringgit, up from 27.6 billion ringgit in the earlier quarter. Services account was in surplus of 0.9 billion ringgit, compared to deficit of 0.5 billion ringgit in the previous quarter. Income account showed a deficit of 2.5 billion ringgit, improving from the earlier deficit of 3.1 billion ringgit. The net outflow on current transfers remained unchanged at 3.8 billion ringgit in the second quarter.

The department further said that exports expanded 4.6% to 138.6 billion ringgit in the second quarter, while imports climbed 4.4% to 115.9 billion ringgit.

For the first half year, the current account surplus reached 49.4 billion ringgit, sharply up from 24.0 billion ringgit last year. Trade surplus on goods fell 7.4% to 56.7 billion ringgit, from 61.2 billion ringgit over the same period. Services account showed a surplus of 0.3 billion ringgit in the first half year. This compared to a deficit of 5.4 billion ringgit posted last year. Meanwhile, the net outlay on government services improved to 0.1 billion ringgit from an outflow of 0.2 billion ringgit a year ago.

Japan's Industrial Production Rebounds In August

2007-09-28T11:05:00.000+08:00

Sep 28, 2007 - Japan's August industrial output increased for the first time in two months, driven by higher production of transport equipment, electronic parts and devices and general machinery, the Ministry of Economy, Trade and Industry said Friday.

The ministry upgraded its assessment of industrial output saying, " Industrial Production is on a moderately upward trend." In July, the ministry said that Production appeared to be flat.

The industrial production index increased 3.4% in August from the previous month compared to a decline of 0.4% in July. This marked the highest growth in eight months.

On an annual basis, industrial output rose 4.3% in August, after climbing 3.2% in the previous month. Commodities that mainly contributed to the increase are large passenger cars, drive, transmission and control parts and small passenger cars.

Based on the survey, the Ministry forecasted that the production would decrease 0.8% in September and increase 4.1% in October. In the August survey, production was projected to fall 2.5% in September.

Transport equipment, information and communication electronics equipment, and general machinery industries are expected drag output in September. However, these industries are projected do better in October, the Ministry said.

The shipment index rose 4.3% from the previous month in August compared to a drop of 1.2% in the prior month. The monthly fall in July remained Unrevised. The shipping activity grew for the first time in two months. The index climbed 4.3% annually compared to the 3.1% growth in the prior month.

The industries that mainly contributed to the increase in shipping activity are Transport equipment, Electronic parts & devices, and Electrical machinery.

The inventory index increased 0.3% on a monthly basis in August compared to a fall of 0.1% in the previous month. The inventory index recorded an increase for the first time in four months. The index rose 2.2% in August compared to a increase of 2.4% in the previous month.

The inventory ratio declined 1.0% in August from the previous month, following a decline of 1.4% in the previous month. Annually, the ratio increased 0.9% in August, after a fall of 0.6% in July.

Japan August Consumer Price Index -0.2 YOY

2007-09-28T08:01:00.000+08:00

Sep 28, 2007 - Japan's consumer price index for August 2007 was 100.6, a decline of 0.2 percent from the year before but a gain of 0.5 percent from the previous month.

The consumer price index for the Ku-are of Tokyo for September of 2007 was 100.4, a drop of 0.2 percent from the previous year but a gain of 0.1 percent from the previous month.

Among the top ten major national groups in the index, furniture and household utensils fell 1.8 percent for the year and 0.3 percent since July, Reading and recreation was down 1.2 percent for the year but up 1.6 percent from the month before.

Clothes and Footwear and Medical Care sectors posted the largest year-to-year gains, each at 0.8 percent for the year, although clothes and footwear was down 1.7 percent from July.

The food sector fell 0.4 percent for the year, but posted a 1.0 percent gain for July.

New Zealand Economic Growth Slows Less Than Expected

2007-09-28T07:56:00.000+08:00

Sep 28, 2007 - New Zealand's economic growth slowed less than expected in the second quarter, signaling the central bank is unlikely to cut interest rates from a record.

Gross domestic product increased 0.7 percent in the three months ended June 30 from the first quarter when the economy expanded a revised 1.2 percent, Statistics New Zealand said in Wellington today. The median estimate of 11 economists surveyed by Bloomberg News was for 0.5 percent growth.

Reserve Bank of New Zealand Governor Alan Bollard raised the benchmark interest rate four times between March and July to a record 8.25 percent to slow domestic demand and inflation. Stronger-than-expected growth in the first half of the year suggests he has little scope to cut borrowing costs, buoying the New Zealand dollar.

"The strain on resources will bring no comfort to the Reserve Bank," Doug Steel, an economist at Westpac Banking Corp. in Wellington, said before the report was released. Rising growth 'ould certainly add to inflation worries and see a reduction in the probability of interest-rate cuts.'

New Zealand's dollar rose to 75.38 at 10:50 a.m. in Wellington from 75.09 cents immediately before the report.

Bollard will keep the official cash rate unchanged for the remainder of this year, according to all 13 economists in a second Bloomberg survey. Just four predict a cut before June 30.

Annual Growth

Steel says Bollard won't cut the rate cut until 2009, noting the Reserve Bank expects inflation will accelerate to 3 percent this year. Bollard is required to keep inflation between 1 percent and 3 percent. Consumer prices rose 2 percent in the year ended June 30.

From a year earlier, the economy expanded 3.2 percent. Annual- average growth was 2.2 percent from 1.7 percent in March. Economists forecast 2.1 percent.

Economic expansion will probably accelerate this year. Bollard expects 2.9 percent annual average growth in the year ending March 31, according to his latest forecasts. He predicted 0.5 percent in the second quarter.

Economists aren't as optimistic. Growth will probably be 2.4 percent in the year ending March 31, 2008, before slowing to 2 percent a year later, according to the average estimate of 10 economists surveyed by the New Zealand Institute of Economic Research Inc.

Growth could be as little as 2 percent over the next year, ANZ National Bank Ltd. said yesterday, basing its forecast on its monthly measure of business confidence. More companies expect profits will fall and fewer plan to hire workers, according to the survey of 423 firms.

Consumer Spending

The expenditure-based measure of GDP rose 0.8 percent as a 1.5 percent increase in domestic demand was offset by net exports, which subtracted from growth, the statistics agency said today.

Buoying growth, investment in new housing surged 3.8 percent. Government spending also increased. Inventories rose, adding to growth.

Household spending, which makes up 60 percent of the economy, gained 0.6 percent from the first quarter when it rose 2.1 percent.

Hallenstein Glasson Ltd., the third-biggest publicly traded retailer, said on Sept. 14 that full-year profit fell. The performance in New Zealand ``was challenging, with rising interest costs finally beginning to dampen consumer spending,'' Chairman Warren Bell said in a statement.

Skills Shortage

Spending on alcohol, food and other so-called non-durable goods rose 1.4 percent in the quarter. Purchases of cars, appliances and durable items gained 0.4 percent.

On Sept. 13, Bollard said there were signs that higher borrowing costs are damping domestic spending. Still, rising wages, government spending and record payouts to dairy farmers will prevent spending stalling, analysts said.

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.

Fonterra Cooperative Group Ltd., the world's biggest dairy exporter, has raised its milk payment to 10,900 farmers by 43 percent, citing record prices. That will add NZ$2.6 billion ($1.9 billion) to farm incomes this year.

Crimping growth, imports rose and business investment fell 2.9 percent from the first quarter, the agency said. Purchases of plant and machinery declined. The purchase of a navy ship buoyed investment in transport equipment.

Service Industries

Imports rose 2.5 percent, buoyed by the navy ship and spending also increased on overseas travel, which is treated as an import of services. Consumption goods imports fell 3.4 percent.

Exports of goods and services increased 0.5 percent in the quarter, with meat and dairy volumes declining. Tourist spending helped exports of services increase.

Service industries including finance and business services, transport and communications contributed most of the growth in the quarter, the agency said. Production from those industries increased 0.9 percent. The output from farmers and other primary industries rose 0.2 percent, while production from manufacturers and other goods producers dropped 0.1 percent.

Real estate sales and lending by financial institutions contributed most to output from the services industries.

Production from primary industries rose, buoyed by output from the nation's oil and gas fields. Farm production fell. Among goods- producing industries, manufacturing increased while construction declined.

The implicit price deflator gained 3.1 percent for the year ended June 30, the agency said.

South African Producer Prices Grow At A Slower Pace In August

2007-09-27T23:55:00.000+08:00

Sep 27, 2007 - South African producer prices index rose 9.4 percent year-over-year in August, the Statistics South Africa said Thursday. In July, the index climbed 10.3%.

The statistical office said that the lower PPI figure can be attributed to decreases in the annual rates of change in the production price indices for electrical machinery and apparatus, basic metals, metal products, products of petroleum and coal, furniture, paper products, electricity and communications equipment.

These decreases were partially counteracted by increases in the annual rates of change for agricultural products that increased to 25.1 percent in August of this year from 22.7 percent at July 2007.

On a monthly basis, the PPI for all commodities for consumption in South Africa increased by 0.7 percent in August.

Icelandic Producer Prices Rebound In August

2007-09-27T23:53:00.000+08:00

Sep 27, 2007 - Iceland's producer prices index or, PPI rose 4.8% to 121.0 points in August, the Statistics Iceland said Thursday. In the previous month the index fell 2.3%. The official data showed that this is the biggest monthly increase in 2007.

In August, the PPI for fish products increased 5.7% compared to July, while producer prices for power intensive industry products were up 9.1%. The PPI rose 3.5% for other manufactured products. Meanwhile, the PPI for food products declined 0.1%.

In August, producer prices for domestically sold products climbed 0.7%. The index rose 7.3% for exported products.

Compared to the same month of last year, the PPI edged up 0.2% versus a decrease of 6.5% in the prior month.

Dutch Economic Growth Rises In Q2

2007-09-27T23:52:00.000+08:00

Sep 27, 2007 - Dutch economic growth in the second quarter stood slightly above the estimate, the Central Bureau of Statistics or CBS said Thursday.

Figures from Statistics Netherlands showed that the economy grew 2.6% year-over-year in the second quarter. First estimation showed that the economy would grow 2.4% in the second quarter.

Production in the care sector and goods sector increased higher than previously estimated, leading to an upward adjustment of 0.2 of a percentage point. Consequently, net exports and government consumption also grew in the second quarter.

At the same time, growth of re-exports and fixed capital formation were lower than previously estimated. Lower consumption of natural gas led to smaller increase in the household consumption, compared to 2006.

Consumer spending on durable goods such as consumer electronics and cars, and on hotels and restaurants and transport and communication maintained higher growth rate. Higher spending on care spurred on government consumption.

Among all sectors of industry, the construction industry had the highest production growth rate at 5%. Growth rate climbed 4% for commercial services and care sector.

Economic growth dropped slightly in the second quarter than in the same period in 2006 mainly due to a fall in production of natural gas. Due to this, growth for consumption by households and exports of goods declined. Other factors also resulted in a substantially lower growth of fixed capital formation.

Compared with the preceding quarter, economy grew 0.3% in the second quarter, which is slightly above the consensus of 0.2%. The CBS data showed that this is the lowest quarter-on-quarter growth for two years.

Euro Zone M3 Continues To Expand In August

2007-09-27T22:38:00.000+08:00

Sep 27, 2007 - The M3 broad money supply measure grew a seasonally adjusted 11.6% in annual terms in August, the European Central Bank, ECB, said Thursday. This was slightly lower than the 11.7% expansion forecast by economists. The M3 had grown at a slightly higher rate of 11.7% in the previous month. The three- month average rate of growth came in at 11.4%.

The M1 measure of money supply comprises currency like banknotes and coins and overnight deposits and is commonly referred to as narrow monetary aggregate. The M2 is an intermediate aggregate, and comprises deposits with an agreed maturity up to two years, along with the M1.

The M3 is the broad measure of money supply, which the ECB uses to determine inflationary pressures. M3 comprises of M1 and M2, and certain marketable instruments. The M3 is less affected by substitution between various liquid asset categories and is more stable than narrower definitions of money.

M1 grew a seasonally adjusted 6.8% on an annual basis, the same as in the last month. Short-term deposits, stripped of overnight deposits, climbed 15.3%, slightly more than the 15.0% growth in the previous month. On the other hand, the growth of marketable instruments slowed to an annual growth 17.8%, after expanding 19.5% in the prior month.

On the asset side of the consolidated balance sheet, total credit granted to euro area residents advanced at an annual rate of 8.8% in August, a tad more than the 8.7% growth in the previous month. Credit extended to general government eased 4.2%, on the heels of a 3.7% annual decline in the preceding month.

Credit extended to the private sector quickened to 11.8% annual growth in August, after gaining 11.6% in July. Loans to the private sector climbed 11.2% in August, following an 11% expansion in the previous month. Loans to non-financial corporations surged a seasonally unadjusted 14.2% in August, while loans to non-financial corporations climbed 13.6% annually in the preceding month.

In August, loans to households grew 7% on an annual basis, while loans for house purchase expanded 8.1%. Consumer credit advanced 5.7% annually in August, a little less than the 5.8% growth in the previous month.

Loans to non-monetary financial intermediaries, except insurance corporations and pension funds soared 19.6% on an annual basis in August, slightly less than the 20.5% surge in the preceding month.

In the twelve months to August, the net external asset position of the euro area MFI sector rose 247 billion euros, less than the 280 billion euros rise in the twelve months to July. Longer-term financial liabilities climbed 9.4% in August, after gaining 9.3% annually in July. Among the central banks, the ECB had taken the lead in mitigating the global credit squeeze by pumping in some 95 billion euros into money markets in August. The ECB said Thursday that it had loaned 3.9 billion euros at a penal 5% rate to unspecified borrowers. This was the largest sum tapped from its ‘marginal lending facility' since October 2004, the Financial Times reported.

This showed that European banks continued to face credit difficulties as a fall-out of the U.S. sub-prime crisis, analysts opined. The ECB was acting to ease the tightening of credit in money markets that has sent short-term interest rates soaring. Yet, once the money markets settled down to normal functioning, the ECB would shift its focus back to fighting inflationary pressures, analysts said.

U.S. Q2 GDP Growth Revised Down to 3.8%

2007-09-27T22:34:00.000+08:00

Sep 27, 2007 - The Department of Commerce released its final report on second quarter gross domestic product Thursday morning, showing that the annual rate of GDP growth in the quarter was downwardly revised a little more than economists had expected.

The report showed that GDP growth in the second quarter was revised down to 3.8 percent from the preliminary estimate of 4.0 percent growth. Economists had expected GDP growth for the quarter to be revised down to 3.9 percent.

The downward revision to the second quarter growth reflected an upward revision to imports and a downward revision to non-residential construction. An upward revision to spending on equipment and software helped to limit the size of the downward revision.

Despite the downward revision, the GDP growth in the second quarter still represents a significant acceleration from the 0.6 percent growth that was seen in the first quarter.

The acceleration came amid a downturn in imports as well as upturns in federal government spending and in private inventory investment. Faster export, non-residential construction, and equipment and software spending growth also contributed to the acceleration.

However, the acceleration compared to the first quarter was partly offset by a notable deceleration in the pace of consumer spending growth, which slowed to 1.4 percent in the second quarter from 3.7 percent in the first quarter.

While the report also showed a slowdown in the pace of core consumer price growth compared to the first quarter, the increase in core prices was revised up to 1.4 from the preliminary reading of 1.3 percent growth. Core consumer prices rose 2.4 percent in the first quarter.

Nonetheless, the data is likely to be seen as old news, with many traders and economists focusing on more recent data to get an indication of the broader economic impact of the recent problems in the credit market.

Last week, the Federal Reserve announced its decision to cut interest rates by 50 basis points in an effort to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in the financial markets.

The Federal Open Market Committee, the policy-setting arm of the Federal Reserve, is scheduled to make its next decision on interest rates after a two-day meeting in late October.

Spanish Retail Sales Growth Improves In August

2007-09-27T22:32:00.001+08:00

Sep 27, 2007 - Spanish retail sales grew 4.3% year-on-year in constant prices in August, the statistical office INE said Thursday. Retail sales growth came in much higher than the 3.4% rise logged in July.

Sales of foodstuff rose 2.3%, while non-food product sales climbed 5.6%. Among non-food products, sales of personal goods increased 6.6% and sales of furniture and household equipment gained 1%. Other goods showed an improvement of 5.4% in retail sales.

The statistical office noted that August 2007 was not impacted by calendar effect as the month had the same number of working days as August 2006. Hence, the adjusted General Retail Trade Index at constant prices revealed a 4.3% increase.

In department stores, retail sales rose 2.4% on an annual basis in constant terms in August. Sales of foodstuff declined 1.1%, while sales of non-food products rose 4.6%.

The retail sector had 1.8% employment growth in August. Employment in department stores increased 2.1%.

Hong Kong's August Merchandize Exports Rise Slower Than Expected

2007-09-27T17:30:00.000+08:00

Sep 27, 2007 - Hong Kong's exports in August rose 7.5 per cent year-on-year boosted by vibrant trade flows from mainland China and rapid economic expansion in emerging markets, the government said on Thursday.

Exports rose to HK$243.2 billion (US$31.2 billion) after rising 8.6 in July, with re-exports, or imported goods reprocessed and exported from Hong Kong, grew 9.5 per cent year-on-year to HK$233.5 billion.

Imports expanded 9.0 per cent to HK$256.8 billion, although domestic exports dropped 25.3 per cent to HK$9.7 billion.

A government spokesman said while the external trading environment remains largely supportive, it is being subjected to increasing uncertainty.

'The direction of the US economy, in the face of its housing market correction and sub-prime mortgage turbulence, will be the key source of uncertainty in the period ahead,' he said.

'Also relevant to Hong Kong's export performance would be the effects of the mainland's cut in export tax rebate and tightening measures on processing trade, as well as exchange rate movements,' he added.

During the month, exports rose 11 per cent year-on-year to mainland China, the biggest market, and by 5.9 per cent to the Netherlands.

However, exports to some of Hong Kong's major destinations fell, with those to the UK falling 8.8 per cent, Japan down 7 per cent and Taiwan dropping 4.9 per cent.

For the first eight months of the year, exports to mainland China rose 14 per cent, the Netherlands were up by 8.8 per cent, France gained 8 per cent and Germany climbed 6.3 per cent.

IMF sees Chile growth easing to 5.3 pct in 2008

2007-09-26T23:31:00.000+08:00

Sep 26, 2007 - The International Monetary Fund (IMF) on Wednesday said it expected Chilean economic growth to slow to 5.3 percent next year from 5.8 percent in 2007, but said the economy was well placed to weather external shocks.

In a Chile country report, the IMF said it would revise its inflation forecasts for Chile upward, and now saw year-end inflation of around 5.5 percent in 2007, easing to around 3.0 percent in 2008.

The IMF said it expected the central bank to tighten monetary policy further in the coming months as excess capacity is absorbed and as the economy continues to rebound from a poor performance in 2006.

The Washington-based body said the impact of recent turbulence in financial markets had been "relatively mild" in Chile and that the country's financial system was strong.

However, it warned that the risks to the Chilean economy were greater now than in May, when IMF officials visited the country.

"The recovery from the unexpected slowdown in the third quarter of 2006 remains broad based, and we believe growth will reach close to 6 percent in 2007 and remain around the potential rate of 5 percent next year," it said.

"Nevertheless, the risks to the outlook are now more on the downside given uncertainties about the global financial system, the U.S. outlook and investors' risk appetite, including for emerging markets."

The IMF also gave a forecast for Chilean copper production, which accounts for more than half its export revenue and makes up a third of global supply.

It said it saw Chile's copper output growing at about 3 percent per year over the medium term, rebounding after supply concerns in recent years.

"Labor disputes and technical problems slowed production in 2006, but completion of several labor contracts and investment projects should propel output toward its projected medium-term growth rate of 3 percent per year," the IMF said.

Brazil Aug primary surplus down more than forecast

2007-09-26T23:16:00.000+08:00

Sep 26, 2007 - Brazil's consolidated primary budget surplus fell more than expected in August from a year earlier as government spending grew and profits at state-owned companies declined, government data showed on Wednesday.

The primary surplus fell to 8.09 billion reais ($4.37 billion) in August from 13.18 billion reais in August a year ago, the central bank said.

The result was much lower than the 12.75 billion reais median estimate of 14 economists in a Reuters poll. The estimates ranged from 9.8 billion reais to 13.7 billion reais.

In July, the government had a primary surplus of 7.9 billion reais.

In the 12 months through August, the primary surplus was equal to 4.12 percent of gross domestic product compared with 4.35 percent of GDP in the 12 months through July.

The primary surplus, which excludes interest payments, is closely watched by investors as a gauge of a country's ability to service its debt.

The overall budget including interest payments resulted in a deficit of 2.85 billion reais in August, compared with a gap of 2.38 billion reais in August a year ago.

The overall deficit, referred to in Brazil as the nominal budget deficit, fell sharply from 6.18 billion reais in July.

Net public sector debt edged down to 43.1 percent of GDP in August from 44 percent in July.

U.S. Economy: Durables Orders Decline by Most in Seven Months

2007-09-26T23:15:00.000+08:00

Sep 26, 2007 - Orders for American-made jetliners, automobiles and communications gear fell in August by the most in seven months, raising concern that businesses are losing confidence in the economy.

Demand for durable goods fell a greater-than-forecast 4.9 percent, the Commerce Department said today in Washington. Excluding transportation equipment such as airplanes, orders declined 1.8 percent after a 3.4 percent gain.

The report suggests business investment, which had been forecast to make up for a slowdown in consumer spending triggered by the housing recession, may instead weaken. Falling orders reinforce economists' predictions that economic growth will slow in the final quarter.

"The report makes us a little more worried about business investment in the second half," said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. "Businesses are probably making decisions a little more deliberately than they did before the credit crunch."

Economists noted that durable goods figures are volatile, and last month's decrease followed a 6.1 percent gain in July, the biggest jump in almost a year. Treasury securities were little changed immediately after the release and later dropped.

Companies may decide to rein in spending after the meltdown in subprime lending sent financial markets reeling in August, dimming growth prospects.

Mortgage Applications

Mortgage applications fell 2.8 percent last week, led by the biggest drop in purchases since January, a report from the Mortgage Bankers Association today also showed. The group's purchase index dropped 7.3 percent, while its refinancing gauge increased 3.3 percent.

Orders for durable goods, made to last several years, were forecast to fall 4 percent, according to the median of 74 estimates in a Bloomberg News survey, after a previously reported 6 percent rise in July. Estimates ranged from a 7.9 percent decline to 1 percent gain.

Excluding transportation equipment, orders were projected to fall 1 percent, according to the survey median, after the 3.8 percent increase the government reported earlier.

Economists prefer to track the durable goods figures excluding transportation because orders for aircraft and automobiles can vary widely from month to month, obscuring underlying trends in spending.

Orders for commercial aircraft plunged 41 percent in August after increasing 13 percent a month earlier.

Boeing Co., the world's second-largest maker of commercial jets, received 75 orders in August, about half the 149 the Chicago-based company had in July, according to figures issued earlier this month. It shipped 42 planes, compared with 33 a month earlier.

Auto Strike

Demand for autos dropped 6.2 percent after an 11 percent gain the prior month that was the biggest in four years.

Auto dealers in July may have been trying to boost stockpiles ahead of a threatened strike against General Motors Corp. Detroit-based GM today reached a tentative four-year contract agreement with the United Auto Workers, ending a two- day strike. Union leaders will seek ratification this weekend and workers could return to picket lines if they reject the contract.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, fell 0.7 percent, after rising 0.9 percent in July. Shipments of those items, used in calculating gross domestic product, increased 0.8 percent after little change the prior month.

One bright spot in the report was that unfilled orders for capital equipment rose 1.2 percent, suggesting manufacturers had enough of a backlog to keep production lines busy in coming months. Inventories of all durable goods dropped 0.1 percent, the first decline since February 2006.

Lower Forecasts

Economists at Morgan Stanley in New York lowered their forecast for third-quarter growth to an annual rate of 2.2. percent following the durable goods report, from a prior estimate of 2.4 percent.

The drop in inventories 'should set the stage for an eventual pick-up in production - especially with unfilled orders continuing to surge,' said David Greenlaw, chief U.S. fixed- income economist at Morgan Stanley, in a note to clients.

The economy will grow 2 percent this year, the least since 2002, based on the median estimate of 64 economists surveyed by Bloomberg News Aug. 30 to Sept. 7. Economists projected 2.5 percent growth at the beginning of the year.

Less Confidence

Confidence among chief executives fell this quarter to the lowest point in four years, according to a survey released Sept. 17 by the Business Roundtable in Washington. The Duke University/CFO Magazine Business Outlook index also showed a similar decline this month among chief financial officers.

Demand for U.S. exports and lean stockpiles outside of the auto industry suggest manufacturing is unlikely to collapse, economists said.

U.S. steel inventories fell in August to the lowest since 2005, the Metal Service Center Institute, a trade association for metals industries, said Sept. 20.

Fort Wayne, Indiana-based Steel Dynamics Inc., the fifth- largest U.S.-based steelmaker, said last week that it will invest $85 million in an iron-making venture in Minnesota with Kobe Steel Ltd. to boost output of raw materials used in steelmaking.

U.K. Current Account Deficit Narrows To GBP9.1 Bln In Q2

2007-09-26T22:41:00.001+08:00

Sep 26, 2007 - The U.K. current accout deficit narrowed to 9.1 billion pounds in the second quarter, the Office of National Statistics, or ONS, indicated Wednesday. The deficit declined from 10.6 billion pounds registered in the previous quarter. The shortfall is smaller than the expected deficit of 11.5 billion pounds in the second quarter.

The ONS said, “The second quarter deficit is equivalent to -2.6% of GDP compared with -3.1% in the previous quarter.”

The surplus on trade in services rose 0.6 billion pounds to 8.9 billion pounds, while the deficit of trade in goods narrowed 0.3 billion pounds to 20.3 billion pounds.

U.K. Q2 Annual Economic Growth Rev. Up To 3.1%, Expands 0.8% Sequentially

2007-09-26T22:40:00.000+08:00

Sep 26, 2007 - The U.K. economy expanded 3.1% annually in the second quarter, revised up from 3.0% estimated earlier, the latest report from the Office of National Statistics, or ONS, showed Wednesday. Compared to the first quarter, the economic growth stood at 0.8%. The sequential growth number was left unrevised from the initial estimate.

The total volume of output in the production industry climbed 0.7% in the second quarter, within which manufacturing output rose 0.8%. The report said within manufacturing, the largest growth were witnessed in transport equipment and paper, printing and publishing. Services output increased 0.9% in the second quarter, slightly smaller that the 1.0% growth seen in first quarter.

Gross domestic expenditure improved 0.6% in the second quarter. Meanwhile, gross fixed capital formation dropped 0.9%. The trade deficit narrowed to 10.3 billion pounds in the second quarter from 10.8 billion pounds in the previous quarter.

Russia August GDP up 6.4 pct yr-on-yr

2007-09-26T22:34:00.000+08:00

Sep 26, 2007 - Russian Economic Development and Trade Ministry head of macroeconomic forecasting Andrei Klepach said the nation's gross domestic product (GDP) rose by 6.4 pct year-on-year in August, Interfax reported.

He added that the ministry estimates GDP grew by 7.7 pct in the January-August period.

Norway central bank raises key interest rate to 5 pct vs 4.75 pct

2007-09-26T22:33:00.000+08:00

Sep 26, 2007 - Norway's central bank has raised its key interest rate 25 basis points to 5 pct in a bid to rein in the country's rapidly-growing economy. It also said it was worried about global growth slowing due to the US sub-prime market crisis.

The bank said in a statement that lately, growth in the Norwegian economy has been faster than expected.

"There is strong growth in the Norwegian economy. There is strong growth....in the money market and house prices," said Norges Bank Governor Svein Gjedrem told a press conference in Oslo.

The bank said in a statement accompanying its rate decision that it was worried by an apparent pick-up on the inflation front.

"Cost inflation is on the rise and there are prospects of a further pick-up in price inflation," the bank said. "These conditions suggest that the interest rate should be increased."

But Norges Bank said a major factor in weighing up the decision had been the turbulence in the world financial markets, and the global economic outlook was uncertain.

"Global growth prospects have weakened as a result of the turmoil in financial markets," the bank said. "The US labour market has weakened. There are prospects of lower growth in the US and Europe."

The bank said the deteriorating situation abroad, and a possible negative on the Norwegian economy, had given it pause for thought in making its decision.

"The Executive Board considered the alternative of leaving the key policy rate unchanged at today's meeting," the bank said.

Norwegian inflation rose more than economists had forecast in August, with the core consumer price index up 1.8 pct year-on-year, increasing the chances of a rate rise.

But before the decision, analysts were evenly balanced on whether Norges Bank would raise its rate -- its 11th rate increase in a row to curb a flourishing and oil industry-dominated economy -- or keep rates on hold in order to calm domestic financial markets concerned about the global liquidity shortage.

"Consensus is split," one senior economist had said. "The latest survey is half and half -- with half the economists thinking the central bank will raise rates 25 basis points, and the other half going for no rate hike."

Earlier in September, Norway's statistics authority increased its forecast for mainland GDP growth in 2007 to 5.1 pct from the previous figure of 4.1 pct. Norway's oil-driven economy has enjoyed four years of growth, helped by relatively low inflation and low-but-rising interest rates.

Singapore Manufacturing Posts Robust Growth In August

2007-09-26T10:39:00.000+08:00

Sep 26, 2007 - Singapore's manufacturing output grew 13.8% on an annual basis in August, the Economic Development Board, EDB, said Wednesday. Economists were looking for a growth of 15%. Factory output growth in August was slower than the 22.1% jump in manufacturing output in the previous month. Manufacturing growth in July was initially estimated at 21.6%.

Manufacturing output slumped a seasonally adjusted 13.7% month-on-month in August, after soaring 25.5% in the preceding month. Manufacturing output climbed 9.3% annually in the first eight months of the year. The three-month moving average index for manufacturing output expanded 8.7%.

The bio-medical cluster output soared 49.4% in annual terms in August. Production in the pharmaceutical segment surged 52.6%, buoyed by production of higher value added pharmaceutical ingredients. Medical technology output climbed 28.6% led by export demand. Pharmaceutical exports jumped an astonishing 105.8% in August.

The transport engineering cluster production gained 19.5% on an annual basis in August. Output of local shipyards shot up 36.6%, pushed by completion of prior contracts for shipbuilding, ship repairing and production of oilrigs. The land transport segment expanded 25.7%. In contrast, the aerospace segment declined 5.2%, due to base year effects, the EDB said.

The chemicals cluster production advanced 6.4% year-on-year in August, buoyed by the 27.7% annual surge in production of petrochemicals, mainly due to base year effects, the EDB noted. Production of petroleum products gained 1.5%.

The electronics cluster grew 5.6% annually in August. Production of semiconductors increased 8.6%, while the data storage segment advanced 5% reversing the prior month's decline in output. The infocomms and consumer electronics segment expanded 7.6% propelled by higher production of mobile products and PCs.

The precision engineering cluster eased an annual 4% in August, pulled down by the 7.4% decline in precision modules and components. This was partially offset by the 1.3% growth in machinery and systems sector.

Output of the general manufacturing industries expanded at an annual rate of 7.8% in August. Production of food, beverages and tobacco products jumped 9%, while output of printed products rose 4.8%.

New Zealand Trade Deficit Tops Expectations

2007-09-26T08:58:00.000+08:00

Sep 26, 2007 - New Zealand's trade balance was a deficit of NZ$945 million in August, marking the highest level since it touched NZ$825 million in January this year. In July, trade deficit widened to NZ$791 million.

In August, the trade balance topped expectations of analysts. They were expecting a deficit of NZ$990.0 million.

Merchandise exports slid 2.7% year-over-year to NZ$ 2.7 billion in August, while imports dropped 2.2% to NZ$3.6 billion.

During the three months ended August, exports of merchandise goods fell 7.9% or NZ$687 million to NZ$8.0 billion, compared to the same period of the previous year. In 2005, exports grew 18.9% in the same period.

In the same period, imports of merchandise goods totaled at $10.3 billion, which is down NZ$247 million or 2.3% year-over-year.

Japan Aug trade surplus 743.2 bln yen, +287.6 pct y/y

2007-09-26T08:02:00.001+08:00

Sep 26, 2007 - Japan's trade surplus rose 287.6 percent in August from a year earlier to 743.2 billion yen ($6.47 billion), government data showed on Wednesday.

The figure compared with analysts' median forecast for a 26.6 percent rise in the surplus to 242.8 billion yen.

Exports rose 14.5 percent from a year earlier to 7.0301 trillion yen, compared with economists' median forecast for a 10.7 percent rise, data from the Ministry of Finance showed.

Imports rose 5.7 percent to 6.2869 trillion yen, against the market consensus for a 10.0 percent increase.

Exports to the United States increased 4.6 percent from a year earlier to 1.3897 trillion yen, while those to China increased 23.8 percent to 1.1256 trillion yen.

On a seasonally adjusted basis, the overall customs-cleared trade surplus increased 30.4 percent from the previous month to 1.1449 trillion yen, the data showed.

Italy govt sees 2008 GDP growth of 1.3-1.6 pct, 2007 GDP below 2.0 pct

2007-09-25T22:20:00.000+08:00

Sep 25, 2007 - Italy's economy minister Tommaso Padoa-Schioppa said that economic growth this year and next will be slower than previously expected because of the slowdown of the world economy.

Speaking in a parliamentary hearing on the 2008 budget, Padoa-Schioppa said that Italy's gross domestic product (GDP) will grow slightly less than the previously forecast 2.0 pct in 2007 and will grow somewhere between 1.3 and 1.6 pct in 2008 compared with the earlier estimate of 1.9 pct.

Both forecasts are within the forecast range of a consensus of economists that pinned GDP growth at 1.7-1.9 pct this year and at 1.3-1.6 pct in 2008.

"Our estimate (for 2008) will probably be in the middle of the range," Padoa-Schioppa said.

The economy ministry confirmed the government's forecasts for Italy's public deficit to be 2.5 pct of GDP in 2007 and 2.2 pct in 2008.

Italy's public debt is seen falling to 105.1 pct of GDP in 2007 from 106.8 pct in 2006, and to 103.5 pct in 2008, the ministry said.

Earlier government forecasts had seen 2007 debt at 104.7 pct of GDP and 2008 debt at 102.7 pct.

The ministry sees Italy's primary surplus being at 2.4 pct of GDP in 2007 and at 2.6 pct in 2008.

The minister said that he has received spending requests of 20 bln eur from Italian ministries and proposals for spending cuts of 5 bln.

Spanish Industrial Prices Hold Steady In August

2007-09-25T22:16:00.001+08:00

Sep 25, 2007 - The Spanish General Industrial Price Index grew 2.3% on an annual basis in August, the statistics office said, Tuesday. Industrial prices advanced 2.3% in the previous month after expanding 2.6% in June. On a monthly basis, industrial prices gained 0.2% in August after rising 0.3% in the preceding month.

Prices of consumer goods gained 2.3% year-on-year in August, accelerating from the 1.9% growth in the previous month. Prices of capital goods increased 3.1% annually, the same as in the previous month. Prices of intermediate goods expanded 5.4%, slowing form the 5.6% climb in the earlier month. Energy prices slipped 2.8% in August, after sliding 2.5% in July.

Producer prices in the mining and quarrying sector climbed 5% on an annual basis in August, while producer prices in the manufacturing sector advanced 2.3% and producer prices in the electricity and gas sector grew 3%.

Industrial prices of manufactured food products and beverages gained 3.7% annually in August, while producer prices of tobacco products expanded 4.3%. Industrial prices of textiles grew 3.3%, while prices of pulp, paper and paper products jumped 6.2%.

In comparison, industrial prices of coke and refined petroleum products slumped 9.9% year-on-year in August, while producer prices in the office machinery and computers sector eased 2%.

Compared to July, producer prices of consumer goods grew 0.3% in August. Industrial prices of non-durable consumer goods gained 0.5%, while producer prices of durable consumer goods remained unchanged. Industrial prices of capital goods edged up 0.1%, while industrial prices of intermediate goods advanced 0.2% and industrial prices in the energy sector eased 0.4%.

Swedish PPI Slows In August

2007-09-25T22:12:00.000+08:00

Sep 25, 2007 - The Swedish producer price index rose 4.2% year-on-year in August to 140.4, the Statistics Sweden said Tuesday. This compared to an increase of 5.5% seen in July. Economists expected an annual increase of 4.9% for the month of August.

On a monthly basis, the index declined 0.4% in August, after rising 0.4% in July. Economists expected a monthly rise of 0.2% for the month of August. The monthly decline was due to lower prices of iron, steel and ferro-alloys, mining and quarrying, chemicals and chemical products, motor vehicles and machinery, excluding computers.

Swedish import prices dropped 2.6% in August from the previous month, which was mainly due to lower prices of crude oil.. This compared to the growth of 1.4% in July. Annually, import prices slipped 0.1%, after an increase of 3.9% in July.

Swedish August Trade Surplus Shrinks

2007-09-25T22:11:00.000+08:00

Sep 25, 2007 - Swedish exports rose 3.0% to SEK85.0 billion in August, from last year, while imports climbed 13% to SEK84.4 billion, the Statistics Sweden said Tuesday. The net trade surplus came in at SEK0.6 billion in August compared to the trade surplus of SEK8.1 billion a year ago.

On a seasonally adjusted basis, the net trade surplus amounted to SEK6.5 billion in August, down from SEK7.3 billion in July.

Trade with the Non-EU member states fetched a surplus of SEK6.5 billion, while the trade with the EU member states resulted in a deficit of SEK5.9 billion in August.

During eight months ended August, the value of exports rose 5.0% SEK738.3 billion from last year. Meanwhile, the value of imports gained 10.0% to SEK657.1 billion. This resulted in the net trade surplus of SEK81.2 billion for the period January-August. During the same period last year, the net trade surplus amounted to SEK104.4 billion.

Estonia Trade Deficit Narrows In July

2007-09-25T22:10:00.000+08:00

Sep 25, 2007 - The Estonian trade deficit narrowed to 3.4 billion kroons in July from the deficit of 3.8 billion kroons in June, the Statistics Estonia said Tuesday. The trade deficit was at 4.7 billion kroons in the same period last year.

The Statistics office said that the Estonian foreign trade turnover climbed 4.0% to 23.4 billion kroons in July from the previous year. But, on a monthly basis, the foreign trade turnover dropped 8.0% in July. Exports of goods rose 12.3% to 9.988 billion kroons in July from last year. In contrast, imports of goods dipped fell 1.2% to 13.445 billion kroons. On a monthly basis, exports slipped 7.3% in July, while imports declined 7.9%.

Slovak Central Bank Retains Key Interest Rate At 4.25%

2007-09-25T21:48:00.000+08:00

Sep 25, 2007 - The Slovak central bank retained two-week repo tender rate at 4.25% on Tuesday. The decision came in line with economists' expectations.

The National Bank of Slovakia also held overnight sterilisation rate at 2.25% and overnight refinancing rate at 5.75%.

Philippines Trade Deficit Widens In July As Imports Outpace Exports

2007-09-25T21:14:00.000+08:00

Sep 25, 2007 - Philippines trade deficit widened to US$854.0 million in July from US$396.0 million a year ago, the National Statistics Office said Tuesday. In June, the trade deficit stood at US$589.0 million.

The report said that imports climbed 14.3% from the previous year to US$5.042 billion, a sharp jump compared to the 3.8% growth in the prior month. Meanwhile, exports rose 4.3% to US$4.188 billion in July, after climbing 1.5% in the prior month. This has taken the total merchandise trade to US$9.230 billion, marking an increase of 9.5% from the previous year; the highest growth recorded this year.

On a monthly basis, total imports rose at a slower pace of 7.2% in July, compared to the 9.5% growth in June.

Imports of electronic products, accounting for 42.7% of the aggregate import bill, advanced 12.8% on an annual basis to US$2.152 billion, compared to an increase of 8.5% in June. The annual increase was due to the robust inbound shipment of semiconductors. On a monthly basis, imports of electronic products dropped 1.7% in July, spiking 22.5% in June.

Commodity wise, cereals and cereal preparations led the list with 59.6% growth, followed by mineral fuels, lubricants and related materials climbing 44.3%. Imports of organic and inorganic chemicals, telecommunication equipment and electrical machinery, plastic and electronic products also registered double-digit growth in July.

The statistics office further said that the total external trade in goods for January to July reached US$59.080 billion, showing a 5.1% increase from last year. Total imports grew 4.1% to US$30.355 billion, while exports went up 6.3% to US$28.725 billion. This has resulted in a trade deficit of US$1.629 billion during the seven-month period.

The U.S remained the top source of imports, claiming12.5% of total import bill. This was despite the imports from US falling 9.9% annually. Meanwhile, exports to the U.S amounted to US$767.95 million. Imports from Japan declined 2.6% while imports from Saudi Arabia increased 319.6% from last year.

Argentina Aug primary surplus up 23 pct from yr ago

2007-09-24T23:00:00.000+08:00

Sep 24, 2007 - Argentina's August primary budget surplus expanded 23 percent from a year ago due to greater social security inflows as well as robust revenue from sales and trade taxes, the government said on Monday.

The primary surplus rose to 2.72 billion pesos ($854 million) from 2.21 billion pesos a year earlier, Economy Minister Miguel Peirano told reporters.

The figure came in above the median forecast of 2.55 billion pesos given in last month's central bank survey.

The primary budget surplus represents excess government revenue over expenditures before interest payments and is seen as a gauge of a country's ability to service its debt.

Argentina targets a primary surplus this year of 2.96 percent of gross domestic product and a surplus of 3.15 percent of GDP next year, according to the government's 2008 budget bill.

President Nestor Kirchner said this month that his wife, a prominent senator and the front-runner in Argentina's presidential race, would aim for a primary surplus of at least 4 percent of GDP if she were to win the Oct. 28 election.

Government spending levels have shot higher during this election year, outpacing growth in revenue. ($1 = 3.185 Argentine pesos)

Hungary central bank cuts leading interest rate 0.25 pct point to 7.5 pct

2007-09-24T21:38:00.000+08:00

Sep 24, 2007 - The Hungarian central bank today lowered its key interest rate by a quarter of a percentage point to 7.50 pct, the bank's rate-setting Monetary Council said in a statement.

The rate cut had been widely expected by analysts, who say inflation in Hungary is now on a downward path.

According to the latest consumer price data published by the central statistics bureau KSH earlier this month, the annual rate of inflation in Hungary stood at 8.3 pct in August, fractionally lower than the 8.4 pct recorded in July.

In the period from January to August, the 12-month rate of inflation averaged 8.5 pct.

Hungary's high inflation rate partially reflects big cuts in state subsidies for household energy, which were implemented to rein in the public deficit, which at 9.2 pct of gross domestic product is the highest in the European Union.

The Hungarian central bank forecasts the annual rate of inflation to average 7.6 pct in 2007. Inflation is then expected to slow sharply to 4.5 pct in 2008.

The central bank had already cut its key interest rates by a quarter-point to 7.75 pct in June. Prior to that, the interest rate had been held at 8.0 pct since October of 2006.

U.K. August Budget Deficit Swells on Spending Growth

2007-09-24T20:02:00.000+08:00

Sep 24, 2007 - The U.K. had a larger budget deficit than economists forecast in August as spending jumped and revenue from profits fell, piling pressure on the government to save money as income from financial services dwindles.

The 9.1 billion-pound ($18.4 billion) shortfall was the highest for the month since records began in 1993, the Office for National Statistics said in London today. It exceeded the median 6.5 billion pounds forecast in a Bloomberg survey of 20 economists.

Spending grew twice as fast as revenue, making it harder for Chancellor of the Exchequer Alistair Darling to cut borrowing. At the same time, revenue may be eroded as the collapse of the U.S. subprime mortgage market hits the profits of banks and cools a decade-long housing boom.

"The financial services sector and corporations have been providing a lot of revenue, and if that slows the near-term outlook for public finances will look worse," said Nick Kounis, an economist at Fortis Bank in Amsterdam who formerly worked on budgetary affairs at the U.K. Treasury.

Government income rose 3.6 percent in August from a year earlier. Corporation tax payments almost halved due to rebates, while value-added tax, a levy on sales, fell by 1.6 percent.

Spending rose by 7.4 percent as departmental outlays increased 8.7 percent and higher borrowing costs pushed up interest payments.

Spending Limits

The increase suggests the Treasury is finding it hard to rein in departments after almost a decade of soaring investment in schools and hospitals drove up taxes and borrowing.

Darling has signaled he intends to stick to the tight budget limits set out by his predecessor Gordon Brown, now prime minister, when he fixes funding for each department for the three fiscal years through March 2011 next month.

The clampdown risks a confrontation with government workers angered at pay increases that are less than inflation, and with Brown refusing to rule out holding an election before the 2010 deadline, pressure for more spending is likely to grow.

"Attempts to cut spending quite substantially over the coming years will be tough to balance with political considerations," Kounis at Fortis Bank said.

Worsening Outlook

Unlike Brown, who enjoyed the strongest economic growth in more than a decade during his first years as chancellor, Darling faces a worsening outlook that may imperil plans to cut the deficit by a third by 2012.

At worst, subprime mortgage losses and the credit squeeze they triggered could shave as much as 1 percentage point from the pace of growth in 2008 and 2009, costing the Treasury billions of pounds in lost revenue, Ernst & Young said Sept. 14.

James Knightley, an economist at ING Financial Markets in London, this month cut his forecast for economic growth in 2008 to 1.7 percent from 1.8 percent. In March, the Treasury forecast growth of as much as 3 percent.

London bankers' bonuses may fall to 7.5 billion pounds this year from a record 8.8 billion pounds in 2006 as higher borrowing costs paralyze leveraged buyouts and mergers, the Centre for Economics and Business Research said Sept. 18.

"The Treasury will doubtless be concerned that the recent problems in banks and financial markets will reduce the tax payments it receives from the financial sector, an unusually important source of revenue for the U.K.," said Gemma Tetlow, a research economist at the Institute for Fiscal Studies in London.

Golden Rule

Tax receipts rose 5.1 percent in the first five months, less than the 6.8 percent the Treasury forecasts for the full fiscal year. Corporation tax receipts fell 3.1 percent. Spending, up 6.4 percent on the year since April, is running ahead of the 6 percent growth projected by the Treasury.

Darling says Britain will continue to meet a golden rule that the government raises enough tax revenue to cover day-to- day spending and borrows only for investment over the economic cycle.

Excluding investment, the budget deficit in the first five months was 11.7 billion pounds, 3.1 billion pounds more than the same period a year earlier, the statistics office said. In August, the deficit was 7 billion pounds, the highest for the month since records began in 1998.

A cash-based budget measure that indicates how much the government will need to borrow through bond sales was in deficit by 5 billion pounds in August, the most for the month since 1984, the statistics office said. It compares with the median 3.5 billion pounds in a Bloomberg survey of 23 forecasts.

The statistics office also announced that it would reclassify Metronet Rail and Tubelines to the public sector from the dates in 2002 and 2003 they signed their public-private partnership contracts with London Underground. The move would add to net debt by the equivalent of 0.1 percent of gross domestic product. Debt stood at 36.7 percent of GDP in August.

The government guarantee of deposits at Northern Rock Plc, which recently sought an emergency bailout from the Bank of England, are classified as a 'contingent liability' and therefore don't appear on the balance sheet, the office said.

Singapore Annual CPI Growth Accelerates In August

2007-09-24T09:29:00.000+08:00

Sep 24, 2007 - Singapore's consumer prices rose in August at the fastest pace in more than 12 years, suggesting the central bank will maintain a policy of allowing its currency to appreciate to damp inflation.

The consumer price index increased 2.9 percent from a year earlier, after gaining 2.6 percent in July, the Department of Statistics said today. That was the quickest pace since December 1994 and exceeded the 2.8 percent expected by economists. Prices rose 0.3 percent from July.

The central bank last month raised its forecast for inflation this year after prices gained the most in more than a decade in July following an increase in the goods and services tax, or GST. The Monetary Authority of Singapore, which has sought a 'gradual and modest' strengthening in the currency since April 2004, will review its policy next month.

"Inflation pressures have increased with oil prices reaching record levels and the higher GST rate," said Vishnu Varathan, an economist at Forecast Singapore. "I don't see the MAS stepping away from its policy for an appreciation in the Singapore dollar anytime soon."

The currency has gained 1.9 percent this year. It rose 0.2 percent to S$1.5047 against the U.S. dollar as of 1:02 p.m. local time from S$1.5071 on Sept. 21.

The central bank expects inflation in 2007 to be between 1 percent and 2 percent, it said on Aug. 27, up from a previous range of 0.5 percent to 1.5 percent. Consumer prices may rise as much as 2 percent next year.

Sales Tax

The government raised the goods and services tax by 2 percentage points to 7 percent on July 1 to make up for a revenue shortfall after corporate tax rates were reduced. The tax increase will add between 0.4 percent and 0.6 percent to consumer prices this year and next, the central bank has said.

Food prices, which make up 23 percent of the index, rose 3.3 percent in August from a year ago, following July's 2.9 percent increase. From July, food prices gained 0.4 percent.

Transport and communication costs, the second-biggest component at 22 percent of the index, climbed 3.4 percent in August from a year earlier. From July, transport and communication prices rose 0.5 percent.

Transport costs are likely to gain further in coming months. Fares for bus journeys will be raised from October, while oil prices above $80 a barrel will increase fuel costs for automobile owners.

Housing, Power

Housing costs, the third-largest component of the consumer price index, climbed 1.1 percent from a year ago, after a 0.7 percent gain in July, today's report showed. From a month ago, housing prices rose 0.2 percent amid higher rental costs.

Singapore Power, the island's biggest power company, raised electricity tariffs for the July to September quarter by an average 8.8 percent, citing higher oil prices. It reviews rates every three months.

Recreation costs, which include holiday travel, gained 4.4 percent in August from a year ago and rose 0.3 percent from the previous month. Prices of clothing and footwear gained 0.8 percent from a year earlier and increased 1.5 percent from July.

Colombia's Q2 GDP at 6.87%

2007-09-21T23:09:00.000+08:00

Sep 21, 2007 - Colombia's economy grew nearly 7 percent in the second quarter of this year, aided by strong foreign investment and the financial, communications and transport sectors, the government said on Friday.

The Andean country's gross domestic product expanded 6.87 percent with illicit crops during the three-month period and 6.97 percent not including those figures, the DANE government statistics agency said in a statement.

The economy grew 8.11 percent in the first quarter of this year and 5.79 percent in the second quarter of last year.

"Domestic demand, which was worrying the central bank, has moderated, and that gives more arguments for the bank not to raise its interest rates today. The investment side is very strong," Bank of Bogota analyst Lorena Lizarazo said.

The central bank is due to decide on key interest rate policy later on Friday. Analysts expect the bank to keep the rate steady at 9.25 percent, according to a Reuters poll earlier this week.

Colombia is the world's top producer of cocaine, most of which is shipped to the United States and Europe. The government receives millions of dollars each year to help fight armed groups and eradicate coca used to manufacture cocaine.

Foreign investment is flowing into the country drawn by the improved security situation under President Alvaro Uribe. Aided by U.S. funds, Uribe has cracked down on leftist rebels fighting Latin America's oldest guerrilla insurgency.

Weekly Indicators - Sep 20

2007-09-21T23:05:00.000+08:00

Sep 20th 2007
From The Economist print edition

The Federal Reserve cut its benchmark interest rate by half a percentage point, to 4.75%. The reduction came amid a further weakening in America's housing market. The National Association of Home Builders index of expected sales fell to a 16-year low. Housing starts fell 2.6% in August to their lowest level since June 1995.

Consumer prices in America fell by 0.1% in August, leaving them 2.0% higher than a year earlier. The core measure, which excludes food and energy, rose by 2.1% in the year to August, the lowest rate in 17 months.

China's central bank raised its one-year lending and deposit rates by 0.27 percentage points, to 7.29% and 3.87% respectively. The move followed the biggest rise in consumer prices in more than a decade.

The Bank of Japan's policy board voted to keep its benchmark interest rate unchanged at 0.5% on September 19th.

Consumer prices in Britain rose by 1.8% in the year to August, down from 1.9% in July and the lowest rate in over a year. There was a downward effect on inflation from falls in the cost of financial services, following new guidelines for home mortgage charges by Britain's financial regulator.

The euro area's trade surplus rose to €4.6 billion in July from €1.1 billion a year earlier.

Switzerland's central bank raised its three-month interest-rate target by a quarter of a percentage point, to 2.75%.

Euro Zone Current Account Surplus Declines In July

2007-09-21T21:53:00.000+08:00

Sep 21, 2007 - The Euro zone current account surplus declined more than expected in July, official data showed Friday.

The European Central Bank, or ECB, revealed that the current account surplus declined to a seasonally adjusted 1.7 billion euros in July, from the 7.3 billion euros registered in June. The number for June was revised up from the 5.9 billion euros estimated earlier. Economists expected the surplus to decline to 3.5 billion euros in July. Surpluses in goods, services and income were partly offset by a deficit in current transfers in July.

The surplus in goods as well as service decreased in July. Trade in goods showed a surplus of 2.6 billion euros in July, down from the 7.9 billion euros in the previous month. Surplus in services declined to 3.0 billion euros from 4.6 billion euros. The shortfall in current transfers widened to 5.2 billion euros from the 5.0 billion euros deficit recorded in June. Meanwhile, the income account showed a surplus of 1.3 billion euros, reversing a deficit of 0.2 billion euros in the prior month.

In the financial account, combined direct and portfolio investment recorded net inflows of 37 billion euros in July, reflecting net purchases of euro area equity securities by non-residents. Within portfolio investment, net inflows in equity securities accounted for by net purchases of euro area equity securities by non-residents. Net outflows in debt instruments resulted mainly on account of net purchases of foreign bonds and notes by euro area residents. Other investment showed net inflows of 28 billion euros.

On an unadjusted basis, the surplus in current account amounted to 3.3 billion euros, smaller than a revised 12.6 billion euros posted in the previous month. The number for June was revised from 11.4 billion euros initially estimated.

During twelve months till July, combined direct and portfolio investment had cumulated net inflows of 188 billion euros compared to a net outflow of 43 billion euros a year ago.

Mexico Holds Rate on Signs of Slowing U.S. Growth

2007-09-21T21:50:00.000+08:00

Sep 21, 2007 - Mexico's central bank kept its benchmark interest rate unchanged as a slowing economy in the U.S., the biggest destination for Mexican goods, eased pressure to control rising local food costs.

The five-member board held the benchmark rate at 7.25 percent, matching estimates from 23 of 24 economists surveyed by Bloomberg. The bank maintained a "restrictive bias" that has been in place since May, citing rising food prices and legislation that will introduce a fuel tax.

The U.S. Federal Reserve's cut in borrowing costs to forestall a recession increased concern that a slowdown there will erode Mexico's expansion. Lower U.S. interest rates also make Mexican assets more attractive, potentially strengthening the peso and easing inflation as imports become cheaper.

"The measures taken by the Fed may make it easier for the Bank of Mexico to stay put," said Omar Borla, a senior Latin America economist with Dresdner Kleinwort in New York, in a telephone interview. "The amount of the Fed cut also signals U.S. activity might be slowing more than expected, which would certainly have an impact on Mexico."

Mexico's peso extended gains after the central bank announcement, gaining 0.4 percent to 10.9473 per dollar at 10:14 a.m. New York time.

Future Increase

Mexico's Finance Ministry on Sept. 8 lowered its 2007 growth estimate to 3 percent from 3.3 percent, citing waning demand from the U.S., which buys about 80 percent of Mexico's exports.

A deceleration in the U.S. next year will trim demand for Mexican exports and restrain growth in Mexico to 3 percent even after legislators passed a tax bill aiming to spur economic growth, Shelly Shetty, senior director for sovereign ratings at Fitch Ratings, said yesterday in an interview.

While the bank had reasons to hold rates unchanged today, policy makers said today the inflation outlook has worsened. The bank said it will revise inflation forecasts for the next two years in its quarterly report to be published next month.

"Pressure from food prices has increased more than expected (particularly dairy and wheat)," the central bank said in its statement today. "What's more, we must assess the consequences of the recently approved tax reform."

Banco de Mexico may still have to raise rates again before year-end to reach the bank's inflation targets, said economists such as Borla, Banco UBS Pactual's Guillermo Aboumrad, JPMorgan Chase & Co.'s Alfredo Thorne and Morgan Stanley's Gray Newman.

Rising costs of food staples from tortillas to sugar have pushed inflation to above 4 percent, which policy makers define as the upper limit of their acceptable range, in eight of the past 12 months.

The central bank predicts inflation will fluctuate between 3.75 percent and 4.25 percent during the third quarter before falling to between 3.25 percent and 3.75 percent in the fourth.

Indian inflation falls to near five-year low

2007-09-21T19:04:00.000+08:00

Sep 21, 2007 - India's annual inflation rate has fallen to a near five-year low, official data on Friday showed, but soaring global crude prices threaten to push the cost-of-living higher, economists said.

Inflation slowed to 3.32 per cent for the week ended Sept 8 from 3.52 for the previous week, according to the wholesale price index, India's closest watched cost-of-living monitor. It was the lowest level since December 2002.

But economists said they expected no early easing of interest rates which are riding at five-year highs amid worries that record oil prices could trigger a rise in state-set domestic fuel prices.

'You'd think rates would fall but I don't see the Reserve Bank doing that now with crude prices heading north and food prices hardening,' said HDFC chief economist Abheek Barua.

The drop in inflation was driven by lower prices of vegetables, energy and some minerals. An acceleration in prices a year ago also helped make the fall look sharper.

Inflation stood at 5.22 per cent in the same week a year earlier.

Economists believe there could be a rise soon in government-set retail prices to staunch heavy losses at state-owned oil firms, a move that would boost inflation, although opposition from the ruling Congress party's communist allies could delay such a step.

U.K. Retail Sales Annual Growth Accelerates In August

2007-09-20T23:43:00.000+08:00

Sep 20, 2007 - UK retail sales posted a seasonally adjusted 4.9% growth in annual terms in August, the Office for National Statistics, ONS said, Thursday. Retail sales grew 4.4% last month. Analysts were looking for a 4% annual increase in August.

Compared to July, retail sales gained 0.6% in August, pushed by growth in food stores, clothing stores and other non-food stores. Monthly growth rates were volatile, the ONS cautioned. Retail sales grew a sequential seasonally adjusted 1.3% in constant prices in the three months to August. Retail sales in the three months to July advanced 1.2%. Sales in the same prior period of the last year were a little higher at 1.5%.

In the three months to August, sales volumes in non-food stores grew 2.2% sequentially, while sales volumes in food stores slipped 0.1%. Sales in household goods stores jumped 5.3%, the biggest increase since April 2001, the ONS said. Sales in non-specialized stores, including department stores gained 5.1%, the highest three-monthly growth for this sector since records began to be maintained in 1986, the ONS noted. The previous high was the 5.0% growth in the three months to July.

On an annual basis, the seasonally adjusted volume of retail sales gained 4.3% in the June to August period, compared to 4.1% in the three months to July. Sales in food stores edged up 0.1%, recovering from a 0.1% fall in sales in the previous period. Sales in non-food stores climbed 6.5% in the three months to August, after rising 6% in the three months to July. This was the highest growth since the three months to November 2004, when retail sales grew 7%, the ONS said.

Consumer price inflation was likely to remain in the 2% target region, the Monetary Policy Committee of the Bank of England, BoE, said at its September meeting. Employment growth continued to be strong and manufacturing had posted solid gains in output. The present turmoil in financial markets would also be contained, the Committee had opined.

Yet, analysts felt that retail sales were riding a high before a fall. They pointed out that the high summer sales were achieved by aggressive price discounting. Further, economic conditions were now tighter as acknowledged by the BoE in its latest meeting. However, given the low 1.8% inflation in August, there was a possibility of a rate cut in the coming months by the BoE, which would boost sales, experts said.

Hong Kong Consumer Prices Rise In August

2007-09-20T15:42:00.000+08:00

Sep 20, 2007 - Hong Kong consumer prices rose 1.6% in August from last year compared to an increase of 1.5% in July, the Census and Statistics Department said Thursday. Economists expected an annual increase of 1.7% for the month of August. The increase was due to higher food prices, which rose to 4.6% in August from the 3.6% growth in July.

During the three months ended August, the consumer price index climbed 1.5% annually. Meanwhile, the index increased 1.7% for the twelve months ended August.

Swiss Producer And Import Prices Rise In August

2007-09-20T15:41:00.000+08:00

Sep 20, 2007 - Swiss producer and import prices rose 0.3% month-over-month in August, the statistical office said Thursday. Economists were looking for a monthly growth of 0.1%. Compared to last year, producer and import prices climbed 2.7%, while economists expected only 2.6% rise.

The import price index and producer price index advanced 0.3% each from the prior month. On a yearly basis, import prices moved up 2.9% and producer prices were up 2.6%.

New Zealand's Current Account Deficit Narrows As Imports Fall In Second Quarter

2007-09-20T15:39:00.000+08:00

Sep 20, 2007 - New Zealand's second quarter current account deficit stood at NZ$3.415 billion, down NZ$162 million from the previous quarter, the Statistics New Zealand said Thursday. The fall in current account deficit was attributed to smaller trade deficit and higher net inflows of current transfers. Meanwhile, investment income showed larger outflow during the June quarter.

The seasonally adjusted trade deficit in goods fell NZ$45 million to NZ$767 million, while services surplus rose NZ$43 million to NZ$177 million in the second quarter.

This value of exports and imports of goods fell due to the appreciating New Zealand dollar in the second quarter, the report said. Imports fell more than exports, reflecting lower consumption of foreign goods.

The value of imports was NZ$9.473 billion in the June quarter, a decrease of NZ$349 million in the prior quarter. The value of goods exports fell NZ$305 million to NZ$8.706 billion over the same period.

Investment income earned by foreigners increased due to higher dividend payout amounting to NZ$1.483 billion.

New Zealand's current account deficit was funded by a financial net inflow of NZ$2.7 billion in the June quarter. This combined with NZ$2.9 billion of net changes in the valuation of international assets and liabilities, pushed New Zealand's net international debtor position by 3.9% to NZ$148.6 billion from the previous year.

The rise in net international position was contributed mainly by the banking sector. The net international debt position of the corporate sector also rose in recent quarters due to merger and acquisition activity.

For the year ended March 2007, the current account deficit was revised down to NZ$13.5 billion from the initial deficit of NZ$13.9 billion. The deficit was equivalent of 8.5% of GDP in the first quarter. The GDP ratios for the latest data will be released on September 27, the report said.

Swiss August Trade Surplus Weakens More Than Expected

2007-09-20T15:38:00.000+08:00

Sep 20, 2007 - The Swiss trade surplus amounted to CHF637.1 million in August, the Federal Administration of Customs said Thursday. The number came in weaker than the expected surplus of CHF0.93 billion. The trade surplus narrowed from CHF1.51 billion recorded in July. However, the trade surplus showed an annual growth of 15.5%

Exports grew 9.7% in real terms and imports climbed 6.3% in August. In nominal terms, exports were up 9.1% to CHF14.54 billion and imports increased 8.8% to CHF13.90 billion.

Taiwan Central Bank Raises Discount Rate To 3.25%

2007-09-20T14:00:00.000+08:00

Sep 20, 2007 - The central bank of Taiwan or the central bank of the Republic of China decided to increase discount rate by 12.5 basis points to 3.25% in its Monetary Policy Meeting Thursday.

Also, the rate on accommodations with collateral and the rate on accommodations without collateral rose 12.5 basis points each to 3.625% and 5.5%, respectively. The changes will be effective from September 21.

The central bank said market forces would determine the NT dollar exchange rate. But, the CBC will step in to maintain an orderly foreign exchange market, when seasonal or irregular factors such as hot money or irrational expectations disrupt the market.

The monitory policy committee took these decisions considering increasing CPI inflation, solid economic growth, improvement in the job market, appropriate monitory growth and low-level real interest rates that are still below the neutral level.

HK Monetary Authority cuts base rate by 0.50 percentage point

2007-09-19T07:59:00.000+08:00

Sep 19, 2007 - The Hong Kong Monetary Authority (HKMA) cut its base rate by 0.50 percentage point to 6.25 percent on Wednesday.

The move comes after the US Federal Reserve decided overnight to cut its benchmark interest rate by 0.50 percentage point to 4.75 percent to stimulate an economy imperiled by housing and credit market stress.

Hong Kong's currency peg to the US dollar links its monetary policy to that of the US so the HKMA generally follows in lockstep any interest rate adjustments by the Fed.

Fed slashes interest rates to buffer economy

2007-09-18T23:30:00.001+08:00

Sep 18, 2007 - The Federal Reserve on Tuesday slashed U.S. interest rates by a hefty half-percentage point in a bold bid to shield the economy from a housing slump and financial turbulence, sparking a big rally on Wall Street.

The unanimous decision by the central bank's policy-makers took the benchmark federal funds rate, which governs overnight loans between banks, down to 4.75 percent, its lowest since May of last year. The Fed also cut the discount rate it charges for direct loans to banks by a half-point to 5.25 percent.

It was the first cut in the federal funds rate -- the Fed's main tool to influence the economy -- since June 2003 and the first half-point cut since November 2002.

Financial markets had widely expected the Fed to lower overnight borrowing costs, but were surprised by the aggressive half-point move, the first rate cut since Ben Bernanke took over as chairman of the central bank in February last year.

Stock prices surged as the decision gave investors hope the housing and credit turmoil wouldn't drag the economy down. The blue-chip Dow Jones industrial average closed up 335.97 points, or 2.51 percent, at 13,739.39. It was the Dow's best daily percentage gain since 2003.

However, prices for long-term government debt fell, suggesting some investors worried the Fed would fail to keep inflation tamped down, although prices for short-term notes rose in anticipation of further rate reductions.

"The Bernanke Fed has finally cast its unwarranted caution aside; we applaud this bold move," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in Valhalla, New York.

LIMITS TO RATE CUTS SEEN

But others worried the Fed may be prematurely abandoning its vigilance against inflation to soothe markets.

"This should make people less confident for the Fed to achieve their No. 1 objective, which is keeping inflation at bay," said Robert MacIntosh, chief economist at Eaton Vance Management, in Boston. "They overreacted."

Commercial banks swiftly followed the Fed and cut the prime rate they charge their best customers for loans.

Often when the Fed begins to lower credit costs, a heavy cycle of rate-cutting is in store. But economists on Wall Street appear to think the course kicked off by the Fed on Tuesday would prove limited.

A Reuters poll of 18 top bond firms that trade directly with the Fed in the markets showed a median forecast for a 4.5 percent federal funds rate by the time the central bank's easing cycle ends -- just a quarter-point below where the Fed left rates on Tuesday.

PRE-EMPTIVE STRIKE

In a statement outlining its decision, the Fed said its move was a pre-emptive strike to neutralize the impact of market turmoil on the economy.

"Today's action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time," it said.

The central bank said it still believed the economy faced some risk of inflation, but said market developments since its last meeting in early August had increased the uncertainty surrounding the outlook.

"The committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth," it said.

There has been accumulating evidence that a prolonged U.S. housing market downturn and a wild financial market ride over the summer have taken a toll on broader economic activity.

A decline in employment in August, the first drop in four years, appeared to confirm that housing-related strains were weighing on businesses and households.

In addition, reports on retail sales and industrial output in August also showed some softness.

At its previous regular meeting on August 7, the U.S. central bank had said its predominant concern was inflation, even as it noted tighter credit and financial market volatility.

Within days, financial markets unraveled as French bank BNP Paribas froze three funds with U.S. subprime mortgage market exposure. The Fed on August 10 said it would pump cash into the banking system as needed to keep markets functioning normally.

Even so, stock markets tumbled the following week, at one point plumbing declines of more than 10 percent below 52-week highs before rebounding.

The Fed then stepped in on August 17 with a surprise cut to the discount rate and an explicit acknowledgment that risks to economic growth had "increased appreciably."

Tuesday's rate cut seeks to address those risks.

"I think it was the right move," said Martin Feldstein, head of the National Bureau of Economic Research, who had called for rate cuts. "It can't solve the problems that are weakening the economy (but) it can help offset them."

Argentina 2008 budget sees 7.3 pct inflation

2007-09-17T23:24:00.000+08:00

Sep 17, 2007 - Argentina's 2008 budget bill, presented to Congress on Friday, sees annual inflation of 7.3 percent and calculates gross domestic product growth at 4 percent.

Inflation is expected to average 7.7 percent over the course of 2008.

Latin America's number-three economy is in its fifth straight year of expansion at about 8 percent. In the country's 2007 budget bill, the center-left government of President Nestor Kirchner had also underestimated growth.

The strategy has allowed the government to announce economic results that have exceeded the budget's stipulations.

A central bank survey carried out among analysts last month gave a median outlook for 2008 growth of 6.2 percent, with inflation for the year estimated at 10 percent.

High inflation has dogged Kirchner's government. Last year's budget included estimates for inflation in a range of 7 percent to 11 percent.

Inflation has come in below market expectations since January, when the government replaced the head of the consumer price unit at INDEC, the national statistics unit, with a political ally, prompting fears of government meddling with the data.

As a result, investors have become increasingly wary of the country's inflation-indexed bonds, which account for more than 40 percent of total public debt.

Inflation in the first eight months of the year stands at 5 percent, with 12-month inflation through August of 8.7 percent.

In relation to the local currency, the budget bill for next year envisages an exchange rate of 3.21 pesos per dollar. The peso closed on Friday at 3.1950/3.1975 against the dollar in informal trade as measured by Reuters.

The budget will be in force for the first year of a new government following a presidential election on Oct. 28. First lady and senator Cristina Fernandez de Kirchner has a wide lead in opinion polls.

It calculates a primary budget surplus of 3.15 percent of gross domestic product and a $10.06 billion trade surplus.

Official details of the bill broadly confirmed those given by an Economy Ministry source earlier this week.

Singapore's non-oil exports up 10.9% in August on-year

2007-09-17T13:17:00.000+08:00

Sep 17, 2007 - Singapore's key exports rose 10.9 percent in August on-year, boosted by increased shipments of pharmaceuticals which tempered a sustained decline in electronics, the government said on Monday.

The increase in non-oil domestic exports (NODX) for the fourth straight month was in the upper range of analysts' forecasts and double the 5.4 percent growth registered in July, the trade promotion body, International Enterprise Singapore, said.

NODX for August totalled S$15.16 billion (US$10.04 billion), IE Singapore said.

Exports of pharmaceuticals surged 105.8 percent from the same period last year to S$2.07 billion, it said.

This offset a 1.3 percent decrease in electronics exports to S$6.43 billion.

IE Singapore said it was the seventh consecutive month of decline for electronics, which is dependent on global demand.

Except for consumer electronics exports which climbed 35.6 percent, four other key electronics products posted declines, led by telecommunications equipment which fell 39.2 percent.

Shipments of disc drives dropped 26.3 percent, integrated circuits were down 5.2 percent and computer parts contracted 6.5 percent, IE Singapore said.

On a month-on-month seasonally adjusted basis, NODX expanded 2.1 percent, faster than the 0.5 percent rise in July, it said.

Total trade was up 0.7 percent to S$72.43 billion, but this was slower than the 6.2 percent expansion in July, the agency said.

Exports totalled S$38.87 billion, up 2.6 percent, while imports shrank 1.4 percent to S$33.56 billion.

NODX is a closely watched measure of the health of Singapore's trade-reliant economy, which is tipped by the government to grow between 7.0 and 8.0 percent this year after expanding 7.9 percent in 2006.

Super stock returns: ROE/PTB v ROE v PTB

2007-09-16T10:01:00.000+08:00

A company that is able to generate a high return on equity - one that exceeds its cost of equity - should trade at a higher price than the book value of its equity. And vice versa. But if a company generates a relatively high ROE, yet is trading at a relatively low price-to-book ratio (PTB), careful analysis is warranted.

There could be legitimate reasons for the low valuation. For example, the earnings were due to exceptional items. If not, the stock may be under-priced.

But without any detailed analysis other than simply grouping stocks based on ROE/PTB, I found that investors can actually generate super returns.

By investing in the 10 per cent of stocks with the highest ROE/PTB every year between 1990 and 2006, and holding each portfolio for a year, one could have turned $100 into $34,000 over the past 17 years. That's a compounded return of 41 per cent a year. All the calculations exclude transaction costs.

If we assume that the investor had lost 10 per cent of the portfolio value to transaction costs every year, the return is still a respectable 27 per cent a year. But in absolute terms the portfolio value today, at $5,678, is significantly less than the $34,000 which excludes transaction costs.

From the above, we can see that ROE/PTB is a good screening tool.

Separate rankings

If we pick stocks just based on ROE or just based on PTB, do we get results that are as good?

I decided to test this based on the same set of data last week. This time around, I ranked stocks based purely on their ROEs first. Again, I grouped them into 10 portfolios, with the first 10 per cent or first decile being stocks with the lowest ROEs. The 10th decile was made up of stocks with the highest ROEs.

As can be seen from the chart, screening stocks using just their ROE still yields good returns. $100 invested in the highest ROE portfolio every year would grow to $8,752 today. That's a compounded annual return of 30 per cent.

But it would lag the performance of the basket of stocks with high ROE yet low PTB.

For both the first and second screening, I excluded loss-making companies.

Next, I ranked the stocks based on their PTB ratios. For this, I did not remove loss-making companies. The first decile is made up of stocks with the lowest PTB ratios. Some could even have negative PTB ratios. And the 10th decile consists of stocks with high PTB ratios.

As you can see from the third chart, there is a clear distinction in performance as well. The lower the PTB, the higher the return. And conversely, the higher the PTB, the lower the return. The lowest PTB stocks generated about 15 per cent return a year, while the highest PTB stocks chalked up a 7.3 per cent loss a year.

However, the returns of portfolio ranked purely on PTB ratio lagged those screened by ROE/PTB or purely on ROE.

One of the reasons for the under-performance could be the continued poor performance of loss-making companies. Other studies previously have found PTB to be the best predictor stock performance. Particularly so when there is a turnaround in the economy. This is also evident in five portfolios that The Business Times tracks every Monday.

But it takes guts to go against the crowd and buy into downtrodden stocks.

So perhaps, the ROE/PTB is a more comfortable approach for many. And as the results above indicated, it is rather rewarding as well.

It does, however, require a little more work. The use of ROE/PTB takes into consideration not only the underlying earnings capacity of a company, but also how much of that has been factored into its stock price.

So if a company can rake in good earnings and good growth and its share price has fully reflected that, it may not be a good stock to buy. What one wants is good earnings growth that is not recognised by the market.

Variations

A reader pointed out that with some simplifications, ROE is earnings per share (EPS) divided by net tangible assets (NTA). And PTB is price per share divided by NTA.

Dividing the former by the latter gives us EPS divided by price per share, which is earnings yield. So stocks with high ROE/PTB are also those with high earnings yield.

And we could go one step further. Earnings yield is the inverse of price-earnings (PE) ratio. So stocks with high earnings yield are also low PE stocks.

'Notwithstanding the mathematical accuracy, ROE relative to value is an interesting approach to investing,' he wrote. 'I have been using something similar for some time to good effect (ROE divided by PE coupled with some other criteria like minimum dividend payout and low debt to equity).

'A variation was also suggested in the book The Little Book That Beats The Market by Joel Greenblatt which uses ROE divided by return on invested capital (to correct for the use of excessive financial leverage). He even has a website www.magicformulainvesting.com to automatically select US stocks that meet the criteria.'

The reader added that the most comprehensive book he has come across on this is What Works On Wall Street by James P O'Shaughnessy.

Below is a table - using data from Bloomberg - showing 30 stocks with high ROE/PTB. Some of the numbers may be skewed by one-off items, so some analysis is advised before any action is taken.

Go for stocks with high return on equity but low price-to-book ratio

2007-09-16T09:56:00.000+08:00

ONE way to value a company is to ascertain how much abnormal earnings - that is, earnings above the cost of its capital - it will be able to generate in the future. This stream of abnormal earnings is then discounted to its present value. Add that number to the current book value of the capital and you arrive at how much the company is worth.

This way of calculation has intuitive appeal. It implies that if a company can earn a rate of return that is equivalent to its cost of capital, then investors should be willing to pay no more than the book value for the stock.

Book value is the original capital invested by the company in its various assets to start up its business after taking into account depreciation.

On the other hand, if the company is able to generate earnings above its cost of capital, then investors should be willing to pay more than the book value of its assets. Conversely, if a company's net earnings cannot even cover its cost of capital, then investors will only invest in the company if it is trading below its book value.

We can see how much the market is valuing a company by comparing the market value of its equity, that is its market capitalisation, with the book value of its equity.

So if a company's market cap is $100 million, and the book value of its equity is $50 million, then this company is trading at two times its book value. This measure is also referred to as the price-to-book (PTB) ratio.

A PTB ratio of two times implies that investors are confident that the company can earn significantly above its cost of capital for a sustained period of time.

We can actually derive the formula for PTB from the abnormal earnings formula. The latter says that to arrive at what a company's shares are worth, we take the current book value of its equity, and add the discounted future stream of net profits which is in excess of the cost of equity. The discount rate used is the cost of equity.

So if we scale the formula with book value on both sides, we get PTB value on the left-hand side, and abnormal return on equity (ROE), among other things, on the right-hand side.

This suggests that a company's PTB ratio is a function of three factors: its future abnormal ROE, the growth in its book equity, and its cost of equity.

Abnormal ROE is defined as ROE less the cost of equity.

Firms with positive abnormal ROE are able to invest their net assets to create value for shareholders, and as mentioned earlier, will have a PTB ratio greater than one.

Strong ROE-PTB links

The whole point of what has been said so far is to show that there is a strong relationship between PTB ratios and ROEs. Companies with high ROE should trade at higher PTB ratio compared with those with lower ROE.

So perhaps one way to spot mispricings by the market is to identify stocks with high ROE but low PTB ratio.

Will such a strategy pay off? Well, I did some back-testing and the results are phenomenal.

I download the ROEs and PTBs of all the companies listed on the Singapore Exchange from 1990 until 2007. These are the yearly numbers on Jan 1 of each year.

I then divide the ROE numbers with PTBs, and rank the stocks based on that number. The top-ranked stock would have the highest ROE relative to its PTB. The lower-ranked stocks would have low ROE and high PTB.

I then split all the stocks equally into 10 groups. The first group, or the first decile, is the top 10 per cent of stocks with the highest ROEs relative to their PTB ratios. The 10th decile comprises those with the lowest ROEs and highest PTB ratios. Then there's a group of loss-making companies.

Compounded returns

Assuming that an investor did this on Jan 1, 1990. Based on data from Thomson Financial Datastream, there were 39 stocks then. After ranking them, he invested $100 in the top four stocks with the highest ROE/PTB.

On Jan 1, 1991, he did the same screening again. Then he divested the initial four stocks and reinvested the proceeds into a new batch of stocks with the highest ROE/PTB.

And he consistently did that for the past 17 years. How do you think his $100 would have grown to? A whopping $34,048.

That's a compounded return of 41 per cent a year. The above calculations did not take into consideration transaction costs. If it did, a huge chunk of profits would disappear.

But the point is, there is a very clear relationship between stock returns and ROE/PTB. As can be seen from the chart, the top 10 per cent of companies with the highest ROE/PTB turned $100 into $34,048 in 17 years.

The next 10 per cent managed to grow the pot to $4,710 - that's still quite a decent 25 per cent a year. The following 10 per cent, or the third decile, managed $958 for a return of 14 per cent a year.

And as we move to stocks with lower and lower ROE/PTBs, the return shrinks correspondingly.

The fifth decile grew only 3.8 per cent a year and the 10th decile - the 10 per cent of the market with the lowest ROE/PTB - shrank the $100 to just $25. It is very clear from the findings that it doesn't make sense buying stocks with low ROE and high PTB.

This screening process takes into consideration the underlying earnings capacity of a company in relation to how the market is valuing the company. Those with high ROE but low PTB are clear cases of mispricing. That's why the back-testing shows such a phenomenal performance.

But of course, a firm's ROE is affected by such factors as barriers to entry in their industries, change in production or delivery technologies, and quality of management. These factors tend to force ROEs to decay over time. But since in the above testing, the holding period is just one year, the decay is not so much a factor.

So the next time you study a stock, look at its ROE relative to its PTB as well. If the ROE is high, but its PTB is high as well, then perhaps the good fundamentals have been reflected in the share price. However, if you find a stock with high ROE but relatively low PTB, then you may potentially have on your hands an undiscovered gem.

Icelandic Economy Expands In The Second Quarter

2007-09-14T22:13:00.000+08:00

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

2007-09-14T21:43:00.000+08:00

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.