DESPITE the global economic recovery since the second half of 2009, a minority of observers continue to forecast a double-dip recession, at least in the United States. These include respected economists such as Paul Krugman of Princeton and Robert Shiller of Yale. Theirs is, however, not the mainstream view - which holds that while a slowdown in the second half of 2010 is likely, a recession is not on the cards.
What does the evidence suggest so far? Certainly, there are grounds for concern. US unemployment is stubbornly stuck at close to 10 per cent. The effects of the 2009 economic stimulus programme are now waning. The housing market - a key forward-looking indicator - has yet to turn around.
In a recent speech to a banking conference, US Federal Reserve chairman Ben Bernanke served a sobering reminder. Despite the fact that the economy is expanding, 'we have a considerable way to go to achieve a full recovery', he said. The most recent estimates of retail sales and consumer confidence have also not been good. Tellingly, the pace of the recovery has slowed from an annualised rate of 3.7 per cent in the first quarter to 2.4 per cent in the second quarter.
Over in Europe, there has been much bad news this year, particularly relating to the sovereign debt crisis in the eurozone. This has led to austerity programmes being put in place in several countries, the effects of which we have yet to see.
However, the picture is not all dire. Some of the latest data out of the US, from the Institute of Supply Management, suggests that manufacturing activity expanded for the 12th consecutive month in July. Second-quarter GDP rose 2.4 per cent quarter-on-quarter, beating many analysts' expectations. And on the corporate front, more than 75 per cent of the over 300 companies in the S&P 500 have reported results that have also beaten the average estimates of analysts.
Even Europe has shown some upside surprises. Thanks partly to the weaker euro, the German economy is enjoying an export-led revival. The country's central bank, the Bundesbank, expects 1.9 per cent growth this year, which again is better than earlier anticipated. Germany's growth will vitally help at least cushion the downturn in the eurozone.
The brightest spot of the global economy is Asia, particularly China and India, where growth forecasts remain rosy for this year: close to 10 per cent for China and 8.5 per cent for India.
For the global economy as a whole, last month the International Monetary Fund (IMF) revised up its growth forecast to 4.6 per cent in 2010 from 4.2 per cent in April - although it did note that 'downside risks have risen sharply amid renewed financial turbulence'.
Given what we have witnessed over the last two years, it would be imprudent to rule out unpleasant surprises, including a double-dip recession. But on the weight of the evidence, and with loose monetary policies still in place, this looks unlikely - at least for now.
Source: Business Times, 4 Aug 2010
Showing posts with label World Economy. Show all posts
Showing posts with label World Economy. Show all posts
Wednesday, August 4, 2010
Friday, July 30, 2010
Double-dip recession a part of recovery process?
THE optimism that emerged in the early stages of the recovery has given way to more sobering assessments of challenges facing the global economy and its constituent national parts.
In many countries, fears have arisen of a prolonged period of slow and occasionally negative growth or, worse, of a Japanese- style 'lost decade' with multiple recessions, or, even worse, of a depression.
But are multiple downturns so unusual in periods of severe economic distress?
The global recession was severe, probably unmatched since World War II. From the start of the crisis in December 2007 to its apparent end last year, the decline in
real gross domestic product (GDP) in the United States was 3.8 per cent.
All the other G-7 economies (Japan, Germany, Italy, France, Canada and Britain) also saw severe recessions in this period. Major middle-income trading economies like Brazil, Singapore, South Korea and Taiwan saw brief but even sharper declines. The downturn was so severe, and for so long, that some used the term 'depression', before settling on 'Great Recession'.
How is a recession defined? Different national statistical agencies define, and thus date, such episodes differently. In the US, recessions are officially dated by a non-partisan, non-profit, private research institution, thus depoliticising the measurement.
The point at which the economy stops growing is called the 'peak', and the 'trough' is when it stops contracting. The period from when the economy starts to grow again until the point at which it reaches the previous peak is the 'recovery'. Growth thereafter is an 'expansion'.
For economists, a recession ends when the economy starts to grow. The economy falls to the bottom of a well, and then, as soon as it begins to climb out of it, the recession is declared 'over', even though it may be a long climb back to the top.
Little wonder, then, that ordinary citizens consider a recession over only when the economy has returned to 'normal', which means that incomes are rising and jobs are no longer desperately scarce.
A common rule of thumb is that two consecutive quarters of falling real GDP constitute a recession. But sometimes recessions don't satisfy this rule. Neither the 2001 nor the 1974-75 US recessions met that criterion. Besides real GDP, employment, income and sales are considered, as are the depth, duration and diffusion of the downturn.
Dating a recession is, at times, a judgment call. America had a brief, sharp recession in 1980, followed by a long and severe one in 1981-82. Many economists believe it was one major episode, and that is probably appropriate, in a broader context.
But the economy did indeed grow in the interim - just barely enough to consider them distinct recessions. And, since they were separated by a transition from president Jimmy Carter to president Ronald Reagan, it was politically consequential that two recessions were identified. Likewise, the recent recession was dated as starting in December 2007, but it could equally well have been dated as starting in mid-2008 because, in the interim, the economy grew.
Double-dip downturns are more the rule than the exception. If we focus on real GDP and define a double dip as a historical sequence in which a period long enough to be declared a recession is followed by recovery, and then quickly followed by a second recession, the 1980-82 period in the US is a classic example. In fact, defined more loosely as a sequence that includes periods of growth followed by periods of decline, followed by further periods of growth and decline, the 1973-75 period, with eight quarters of alternating gains and losses in real GDP, was one quadruple-dip recession.
These are not rare occurrences: About the same time, Germany saw this type of double dip and the UK a quadruple dip. In the early 1980s, Britain, Japan, Italy and Germany all had double dips. America's 2001 recession was one brief, mild double dip. Within the current recession, we have already had a double dip; a dip at the start of 2008, some growth, another long, deep dip, then renewed growth. If the economy declines again - a highly plausible prospect - the US would have a triple dip, although perhaps not an outright second recession.
So history suggests that economies seldom grow out of recessions continuously, without an occasional subsequent decline. Dips - double, triple and quadruple - have been America's recessionary experience since World War II.
While the baseline forecast seems to be slow global growth, history suggests that another decline would hardly be surprising before sustained stronger growth emerges.
The writer is professor of economics at Stanford University. He was chairman of President George H. W. Bush's Council of Economic Advisers from 1989-1993.
PROJECT SYNDICATE
Source: Straits Times, 30 Jul 2010
In many countries, fears have arisen of a prolonged period of slow and occasionally negative growth or, worse, of a Japanese- style 'lost decade' with multiple recessions, or, even worse, of a depression.
But are multiple downturns so unusual in periods of severe economic distress?
The global recession was severe, probably unmatched since World War II. From the start of the crisis in December 2007 to its apparent end last year, the decline in
real gross domestic product (GDP) in the United States was 3.8 per cent.
All the other G-7 economies (Japan, Germany, Italy, France, Canada and Britain) also saw severe recessions in this period. Major middle-income trading economies like Brazil, Singapore, South Korea and Taiwan saw brief but even sharper declines. The downturn was so severe, and for so long, that some used the term 'depression', before settling on 'Great Recession'.
How is a recession defined? Different national statistical agencies define, and thus date, such episodes differently. In the US, recessions are officially dated by a non-partisan, non-profit, private research institution, thus depoliticising the measurement.
The point at which the economy stops growing is called the 'peak', and the 'trough' is when it stops contracting. The period from when the economy starts to grow again until the point at which it reaches the previous peak is the 'recovery'. Growth thereafter is an 'expansion'.
For economists, a recession ends when the economy starts to grow. The economy falls to the bottom of a well, and then, as soon as it begins to climb out of it, the recession is declared 'over', even though it may be a long climb back to the top.
Little wonder, then, that ordinary citizens consider a recession over only when the economy has returned to 'normal', which means that incomes are rising and jobs are no longer desperately scarce.
A common rule of thumb is that two consecutive quarters of falling real GDP constitute a recession. But sometimes recessions don't satisfy this rule. Neither the 2001 nor the 1974-75 US recessions met that criterion. Besides real GDP, employment, income and sales are considered, as are the depth, duration and diffusion of the downturn.
Dating a recession is, at times, a judgment call. America had a brief, sharp recession in 1980, followed by a long and severe one in 1981-82. Many economists believe it was one major episode, and that is probably appropriate, in a broader context.
But the economy did indeed grow in the interim - just barely enough to consider them distinct recessions. And, since they were separated by a transition from president Jimmy Carter to president Ronald Reagan, it was politically consequential that two recessions were identified. Likewise, the recent recession was dated as starting in December 2007, but it could equally well have been dated as starting in mid-2008 because, in the interim, the economy grew.
Double-dip downturns are more the rule than the exception. If we focus on real GDP and define a double dip as a historical sequence in which a period long enough to be declared a recession is followed by recovery, and then quickly followed by a second recession, the 1980-82 period in the US is a classic example. In fact, defined more loosely as a sequence that includes periods of growth followed by periods of decline, followed by further periods of growth and decline, the 1973-75 period, with eight quarters of alternating gains and losses in real GDP, was one quadruple-dip recession.
These are not rare occurrences: About the same time, Germany saw this type of double dip and the UK a quadruple dip. In the early 1980s, Britain, Japan, Italy and Germany all had double dips. America's 2001 recession was one brief, mild double dip. Within the current recession, we have already had a double dip; a dip at the start of 2008, some growth, another long, deep dip, then renewed growth. If the economy declines again - a highly plausible prospect - the US would have a triple dip, although perhaps not an outright second recession.
So history suggests that economies seldom grow out of recessions continuously, without an occasional subsequent decline. Dips - double, triple and quadruple - have been America's recessionary experience since World War II.
While the baseline forecast seems to be slow global growth, history suggests that another decline would hardly be surprising before sustained stronger growth emerges.
The writer is professor of economics at Stanford University. He was chairman of President George H. W. Bush's Council of Economic Advisers from 1989-1993.
PROJECT SYNDICATE
Source: Straits Times, 30 Jul 2010
Wednesday, July 28, 2010
When fiscal stimulus turns into fiscal drag
Analysts in panel give their take on the state of the world economy
PEOPLE wondering whether the economy is out of the woods still have reason to seek refuge in the trees.
Experts on the third NUS Business School-The Business Times CEO Luncheon Panel yesterday warned that the recovery of developed nations' economies was slated to lose momentum after the fiscal stimulus runs out.
'The best part of the recovery is over. Fiscal stimulus is going to turn into fiscal drag for most of the developed economies by the end of this year,' said Manu Bhaskaran, director and chief executive officer of Centennial Asia Advisors, at the luncheon.
Mr Bhaskaran pointed out that in the United States, housebuilders' confidence levels have plunged.
In July, the National Association of Home Builders/ Wells Fargo Housing Market Index (HMI) fell to its lowest level since April last year, as the federal home buyer tax credit programme expired.
Fixed mortgage rates in the US also declined to all-time record lows while housing starts in June fell to 5 per cent.
The outlook, while not abysmal, is turning out to be a cautious one, according to Mr Bhaskaran.
'Going forward, the cost of capital is going to be higher and fiscal tightening is going to be here to stay for many years to come,' he said.
On a more controversial note, Duan Jin-Chuan, director of NUS's Risk Management Institute, recommended during his talk yesterday that Greece default on its enormous debt.
'Greece can stay in the eurozone and massively deflate its economy or leave the eurozone to regain control of its monetary policy,' said Professor Duan.
Neither would be likely, which meant that defaulting on its debt would be the most probable outcome.
'Greece should consider the third option, which is to exercise its sovereign immunity, default on its debt and stay in the eurozone,' said Prof Duan.
'Default is a legitimate option, morally and legally, and should be exercised from time to time. Otherwise, why did the issuer pay the premium in the first place?'
He stressed, however, that he was not advocating a disorderly default of Greece's debt, but rather one involving negotiations and coming to reasonable terms like coupon payments after the declaration of default.
The euro, however, should continue to shuffle along for a while, according to him.
'The statistics give me no reason to think that the euro can't survive another 10 years or more, even if it may not look pretty.'
Source: Business Times, 28 Jul 2010
PEOPLE wondering whether the economy is out of the woods still have reason to seek refuge in the trees.
Experts on the third NUS Business School-The Business Times CEO Luncheon Panel yesterday warned that the recovery of developed nations' economies was slated to lose momentum after the fiscal stimulus runs out.
'The best part of the recovery is over. Fiscal stimulus is going to turn into fiscal drag for most of the developed economies by the end of this year,' said Manu Bhaskaran, director and chief executive officer of Centennial Asia Advisors, at the luncheon.
Mr Bhaskaran pointed out that in the United States, housebuilders' confidence levels have plunged.
In July, the National Association of Home Builders/ Wells Fargo Housing Market Index (HMI) fell to its lowest level since April last year, as the federal home buyer tax credit programme expired.
Fixed mortgage rates in the US also declined to all-time record lows while housing starts in June fell to 5 per cent.
The outlook, while not abysmal, is turning out to be a cautious one, according to Mr Bhaskaran.
'Going forward, the cost of capital is going to be higher and fiscal tightening is going to be here to stay for many years to come,' he said.
On a more controversial note, Duan Jin-Chuan, director of NUS's Risk Management Institute, recommended during his talk yesterday that Greece default on its enormous debt.
'Greece can stay in the eurozone and massively deflate its economy or leave the eurozone to regain control of its monetary policy,' said Professor Duan.
Neither would be likely, which meant that defaulting on its debt would be the most probable outcome.
'Greece should consider the third option, which is to exercise its sovereign immunity, default on its debt and stay in the eurozone,' said Prof Duan.
'Default is a legitimate option, morally and legally, and should be exercised from time to time. Otherwise, why did the issuer pay the premium in the first place?'
He stressed, however, that he was not advocating a disorderly default of Greece's debt, but rather one involving negotiations and coming to reasonable terms like coupon payments after the declaration of default.
The euro, however, should continue to shuffle along for a while, according to him.
'The statistics give me no reason to think that the euro can't survive another 10 years or more, even if it may not look pretty.'
Source: Business Times, 28 Jul 2010
Saturday, July 24, 2010
Asia recovering well but risks ahead: GIC
Turmoil in Europe, protectionist pressures may hurt world economy
ASIA is recovering well from the financial crisis but there are still risks to the world economy, including the turmoil in Europe and protectionist pressures in many countries, according to Dr Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC).
Dr Tan told the Swiss Re Forum Singapore yesterday that the global recovery is likely to continue into the next year but at a more moderate pace.
But he cautioned that the rebound is 'fragile' and 'negative shocks could push the global economy towards a recession sooner than expected'.
And while growth prospects are much better for Asia than for the developed world, Dr Tan does not see Asia 'aggressively challenging' the global order, which has benefited the region for decades.
'Asian countries, including China, generally share the view that a multilateral, rules-based international order is critical to their long-term growth and development,' said Dr Tan. 'Asia's rise therefore is not inevitably a zero-sum geopolitical game where the US and Europe must decline as Asian countries grow.'
Dr Tan flagged the turmoil in Europe, saying that growth there should be weaker at around 1 per cent.
According to some analysts, there are growing signs that Europe's sovereign debt crisis is feeding through into the
euro-area economy in the form of a sharp rise in unemployment and a slowdown in manufacturing recovery.
Dr Tan warned that 'protectionism also remains a risk despite the recovery, given high unemployment and what seems to be, for the first time in many years, increasing tensions between American and European businesses and the Chinese policy environment'.
Dr Tan's comments come at a time when investors are increasingly upbeat about Asia's growth outlook, but less bullish about the global economy.
Earlier this month, the Asian Development Bank raised its 2010 forecast for aggregate growth across Asia - embracing East Asia excluding Japan, South-east Asia, South and Central Asia as well as the Pacific island economies - from 7.5 per cent to 7.9 per cent.
Yet Citigroup forecast global growth to rise 3.7 per cent this year and 3.3 per cent next year, trimming its projections by 0.1 percentage points for each year.
Dr Tan said the post-crisis global economic and financial environment will be affected by three major trends.
The first is that the developed world will take a 'long time' to fully heal from the crisis.
The second is the increasing importance of the emerging economies, anchored by Brazil, Russia, India and China.
And the third major trend, as Dr Tan describes it, will be 'increased vulnerability' to negative events, and 'extreme reliance' on government policies for both support and far- reaching reforms over the next few years.
Dr Tan said: 'The challenge for policymakers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimising the negative short-term impact on growth.'
In the emerging economies, policy-makers will have to deal with rising inflation and possible asset price bubbles, he said.
Source: Straits Times, 24 Jul 2010
ASIA is recovering well from the financial crisis but there are still risks to the world economy, including the turmoil in Europe and protectionist pressures in many countries, according to Dr Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC).
Dr Tan told the Swiss Re Forum Singapore yesterday that the global recovery is likely to continue into the next year but at a more moderate pace.
But he cautioned that the rebound is 'fragile' and 'negative shocks could push the global economy towards a recession sooner than expected'.
And while growth prospects are much better for Asia than for the developed world, Dr Tan does not see Asia 'aggressively challenging' the global order, which has benefited the region for decades.
'Asian countries, including China, generally share the view that a multilateral, rules-based international order is critical to their long-term growth and development,' said Dr Tan. 'Asia's rise therefore is not inevitably a zero-sum geopolitical game where the US and Europe must decline as Asian countries grow.'
Dr Tan flagged the turmoil in Europe, saying that growth there should be weaker at around 1 per cent.
According to some analysts, there are growing signs that Europe's sovereign debt crisis is feeding through into the
euro-area economy in the form of a sharp rise in unemployment and a slowdown in manufacturing recovery.
Dr Tan warned that 'protectionism also remains a risk despite the recovery, given high unemployment and what seems to be, for the first time in many years, increasing tensions between American and European businesses and the Chinese policy environment'.
Dr Tan's comments come at a time when investors are increasingly upbeat about Asia's growth outlook, but less bullish about the global economy.
Earlier this month, the Asian Development Bank raised its 2010 forecast for aggregate growth across Asia - embracing East Asia excluding Japan, South-east Asia, South and Central Asia as well as the Pacific island economies - from 7.5 per cent to 7.9 per cent.
Yet Citigroup forecast global growth to rise 3.7 per cent this year and 3.3 per cent next year, trimming its projections by 0.1 percentage points for each year.
Dr Tan said the post-crisis global economic and financial environment will be affected by three major trends.
The first is that the developed world will take a 'long time' to fully heal from the crisis.
The second is the increasing importance of the emerging economies, anchored by Brazil, Russia, India and China.
And the third major trend, as Dr Tan describes it, will be 'increased vulnerability' to negative events, and 'extreme reliance' on government policies for both support and far- reaching reforms over the next few years.
Dr Tan said: 'The challenge for policymakers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimising the negative short-term impact on growth.'
In the emerging economies, policy-makers will have to deal with rising inflation and possible asset price bubbles, he said.
Source: Straits Times, 24 Jul 2010
Tony Tan: global recession risk higher now
Dangers to world economy include Europe's debt turmoil, deleveraging in the United States, and protectionist pressures
A FRAGILE economic recovery could see the world tip back into recession 'sooner than expected', says Tony Tan, deputy chairman of the Government of Singapore Investment Corp (GIC).
Dr Tan, also GIC's executive director and chairman of Singapore Press Holdings (SPH), told delegates at the Swiss Re Forum here yesterday that downside risks to the global economy have increased, highlighting three in particular: the debt turmoil in Europe, deleveraging in the United States, and protectionist pressures around the world.
'It will take a long time for the developed world to fully heal from this crisis,' Dr Tan said. 'The economic recovery, while real, is fragile and there is a risk that negative shocks could push the global economy towards a recession sooner than expected.'
Meanwhile, the developing economies will gain in economic importance and will expect more say on world affairs. 'The shift in economic power to the emerging world will likely increase geopolitical risks,' he said. 'Conflicts could also arise over access to natural resources.'
Investors, meanwhile, will have to place a larger proportion of their assets in emerging markets. 'Far from being a risky and perhaps optional part of their portfolios, emerging markets will become a core and unavoidable asset class in global portfolios,' he said.
But one major risk investors face is that the global recovery has so far been supported by extraordinarily benign government policies. 'Changes in policies or mistakes will thus have a significant impact on the global economic and financial environment,' Dr Tan said. 'A key challenge for policymakers is to properly time the withdrawal of unprecedented monetary and fiscal policies.'
However, governments will have to juggle exit policies with, in some cases, the pressing need to repair public finances. 'The challenge for policymakers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimising the negative short-term impact on growth,' Dr Tan said.
Asia meanwhile will have its own set of problems. 'Asia will increasingly face labour, natural resource and commodity constraints to its high-growth strategy.' As well, growth will have to depend on a more balanced economic model in that case, he said, which should boost Asian currencies and consumption. But policymakers will have to beware asset price bubbles, rising inflation and populist anger in the developed world that could lead to 'excessive regulation and protectionism', he warned.
Dr Tan said: 'Asia is at the cusp of the next stage in its development. There will likely be bumps along the way - perhaps a few crises - but if we learn the right lessons from history, especially those of the recent Great Crisis, Asia will innovate and adapt
Source: Business Times, 24 Jul 2010
A FRAGILE economic recovery could see the world tip back into recession 'sooner than expected', says Tony Tan, deputy chairman of the Government of Singapore Investment Corp (GIC).
Dr Tan, also GIC's executive director and chairman of Singapore Press Holdings (SPH), told delegates at the Swiss Re Forum here yesterday that downside risks to the global economy have increased, highlighting three in particular: the debt turmoil in Europe, deleveraging in the United States, and protectionist pressures around the world.
'It will take a long time for the developed world to fully heal from this crisis,' Dr Tan said. 'The economic recovery, while real, is fragile and there is a risk that negative shocks could push the global economy towards a recession sooner than expected.'
Meanwhile, the developing economies will gain in economic importance and will expect more say on world affairs. 'The shift in economic power to the emerging world will likely increase geopolitical risks,' he said. 'Conflicts could also arise over access to natural resources.'
Investors, meanwhile, will have to place a larger proportion of their assets in emerging markets. 'Far from being a risky and perhaps optional part of their portfolios, emerging markets will become a core and unavoidable asset class in global portfolios,' he said.
But one major risk investors face is that the global recovery has so far been supported by extraordinarily benign government policies. 'Changes in policies or mistakes will thus have a significant impact on the global economic and financial environment,' Dr Tan said. 'A key challenge for policymakers is to properly time the withdrawal of unprecedented monetary and fiscal policies.'
However, governments will have to juggle exit policies with, in some cases, the pressing need to repair public finances. 'The challenge for policymakers in many developed economies will be to convince markets that they have credible plans to ensure sustainable public finances over the medium to long term, while minimising the negative short-term impact on growth,' Dr Tan said.
Asia meanwhile will have its own set of problems. 'Asia will increasingly face labour, natural resource and commodity constraints to its high-growth strategy.' As well, growth will have to depend on a more balanced economic model in that case, he said, which should boost Asian currencies and consumption. But policymakers will have to beware asset price bubbles, rising inflation and populist anger in the developed world that could lead to 'excessive regulation and protectionism', he warned.
Dr Tan said: 'Asia is at the cusp of the next stage in its development. There will likely be bumps along the way - perhaps a few crises - but if we learn the right lessons from history, especially those of the recent Great Crisis, Asia will innovate and adapt
Source: Business Times, 24 Jul 2010
Wednesday, July 14, 2010
Grounds for caution amid rapid growth
ONE of the big surprises in the global economic picture for 2010 so far is how strongly Asian economies have performed, despite lacklustre growth in the G-3 economies of the United States, Europe and Japan.
The International Monetary Fund (IMF) has just raised its 2010 growth forecast for Asia to 7.75 per cent, about 0.5 percentage point higher than it projected as recently as April. Private sector forecasts for the Singapore economy have also been progressively raised as the year has unfolded, with many economists now predicting double-digit growth. The Ministry of Trade and Industry might also raise the official growth forecast following the release of advance GDP estimates for the second quarter.
While all of this may sound like good news, there are reasons to be circumspect. As the IMF has cautioned, Asia is vulnerable to some significant downside risks.
The region's torrid growth in 2010 so far has been driven both by exports and private domestic demand. Exports have been powered partly by the inventory rebuilding in the advanced economies following the recession of 2008/09, during which inventories were substantially depleted. Private demand has been boosted by massive fiscal stimulus programmes, which were launched across the region, most dramatically in China. However, going forward, both these drivers of growth will be less conspicuous: the inventory restocking process is close to ending, and the impact of fiscal stimulus programmes will also wane from the second half of this year. After that, Asia can no longer rely on temporary growth drivers; it will have to look to traditional sources of growth - namely, demand from the G-3 and, to a lesser extent, sustained domestic consumption.
Unfortunately, neither of these can be taken for granted. While the IMF predicts 3.25 per cent growth for the US economy in 2010, the dismal US unemployment figures suggest that growth will slow in the second half of this year. Ditto for Europe, which is embarking on continent-wide fiscal austerity. There will be negative feedback loops from these developments on Asia's exports. Exports could suffer further as Asian currencies strengthen against the majors, which is very possible, especially if the Chinese yuan continues to rise. While Asian currency appreciation would have positive effects in boosting domestic consumption and helping to contain asset bubbles, in the short term it will lead to some loss of competitiveness.
Rapid growth also entails costs. In the Singapore context, these could include rising wage and business costs, further exacerbated by increases in foreign worker levies.
Thus, despite the glowing growth forecasts, there are grounds for caution in the months ahead. While Asia's economies might be on a roll for now, many of them face both internal and external vulnerabilities. Most importantly, the global economy is nowhere near out of the woods. And as we have learnt in 2008 and 2009, that counts for a lot.
Source: Business Times, 14 Jul 2010
The International Monetary Fund (IMF) has just raised its 2010 growth forecast for Asia to 7.75 per cent, about 0.5 percentage point higher than it projected as recently as April. Private sector forecasts for the Singapore economy have also been progressively raised as the year has unfolded, with many economists now predicting double-digit growth. The Ministry of Trade and Industry might also raise the official growth forecast following the release of advance GDP estimates for the second quarter.
While all of this may sound like good news, there are reasons to be circumspect. As the IMF has cautioned, Asia is vulnerable to some significant downside risks.
The region's torrid growth in 2010 so far has been driven both by exports and private domestic demand. Exports have been powered partly by the inventory rebuilding in the advanced economies following the recession of 2008/09, during which inventories were substantially depleted. Private demand has been boosted by massive fiscal stimulus programmes, which were launched across the region, most dramatically in China. However, going forward, both these drivers of growth will be less conspicuous: the inventory restocking process is close to ending, and the impact of fiscal stimulus programmes will also wane from the second half of this year. After that, Asia can no longer rely on temporary growth drivers; it will have to look to traditional sources of growth - namely, demand from the G-3 and, to a lesser extent, sustained domestic consumption.
Unfortunately, neither of these can be taken for granted. While the IMF predicts 3.25 per cent growth for the US economy in 2010, the dismal US unemployment figures suggest that growth will slow in the second half of this year. Ditto for Europe, which is embarking on continent-wide fiscal austerity. There will be negative feedback loops from these developments on Asia's exports. Exports could suffer further as Asian currencies strengthen against the majors, which is very possible, especially if the Chinese yuan continues to rise. While Asian currency appreciation would have positive effects in boosting domestic consumption and helping to contain asset bubbles, in the short term it will lead to some loss of competitiveness.
Rapid growth also entails costs. In the Singapore context, these could include rising wage and business costs, further exacerbated by increases in foreign worker levies.
Thus, despite the glowing growth forecasts, there are grounds for caution in the months ahead. While Asia's economies might be on a roll for now, many of them face both internal and external vulnerabilities. Most importantly, the global economy is nowhere near out of the woods. And as we have learnt in 2008 and 2009, that counts for a lot.
Source: Business Times, 14 Jul 2010
Double-dip recession unlikely: IMF chief
(DAEJEON, South Korea) The International Monetary Fund's chief reiterated yesterday that strong growth in Asia and Latin America made it unlikely that the global economy would suffer a double-dip recession.
Last week, the IMF upgraded its 2010 global economic growth forecast to 4.6 per cent from 4.2 per cent due to robust expansion in Asia and renewed US private demand, but kept its 2011 outlook unchanged at 4.3 per cent.
'We expect 2011 to be a little lower than the level of 2010. But all this is too far from any kind of double- dip,' managing director Dominique Strauss-Kahn said.
South Korea's Finance Minister Yoon Jeung Hyun, who attended the conference too, also voiced confidence in the global economy, saying the recent slowdown in the United States and China was temporary.
The world economy has been recovering this year from its worst downturn in decades, but signs of cooling growth in the world's largest and third-biggest economies sparked worries that the global upswing could prove short-lived.
'The recent weak economic data in the US and China is transitory with the end of governments' stimulus packages. They will be normalised soon,' Mr Yoon said. - Reuters
Source: Business Times, 14 Jul 2010
Last week, the IMF upgraded its 2010 global economic growth forecast to 4.6 per cent from 4.2 per cent due to robust expansion in Asia and renewed US private demand, but kept its 2011 outlook unchanged at 4.3 per cent.
'We expect 2011 to be a little lower than the level of 2010. But all this is too far from any kind of double- dip,' managing director Dominique Strauss-Kahn said.
South Korea's Finance Minister Yoon Jeung Hyun, who attended the conference too, also voiced confidence in the global economy, saying the recent slowdown in the United States and China was temporary.
The world economy has been recovering this year from its worst downturn in decades, but signs of cooling growth in the world's largest and third-biggest economies sparked worries that the global upswing could prove short-lived.
'The recent weak economic data in the US and China is transitory with the end of governments' stimulus packages. They will be normalised soon,' Mr Yoon said. - Reuters
Source: Business Times, 14 Jul 2010
Worst of the eurozone crisis may be over
Signs from financial markets, real economy point to improving prospects
(PARIS) The signs are growing that Europe may have turned a corner in its struggle to restore financial stability.
The evidence comes partly from financial markets, which are calmer, partly from the real economy, which is perkier, and partly from policy, which is responding at last to some investor concerns.
There are still plenty of risks - lack of faith in planned stress tests of European banks, low or no economic growth, more credit rating agency downgrades of sovereign debt, an eventual Greek default or debt restructuring, weaknesses in eurozone governance, and political resistance to painful reforms.
But on balance, things are starting to look up.
'The figures we have are not confirming this pessimism,' European Central Bank president Jean- Claude Trichet said, dismissing analyst predictions of stagnation or even an austerity-induced double- dip recession in the eurozone.
'There is a tendency among some investors and market participants to underestimate Europe's ability to take bold decisions,' Mr Trichet said in an interview with France's Liberation published on the ECB's website on Monday.
'In their defence, I would simply say that the institutional structure of Europe is very different to what they are used to, especially on the other side of the Atlantic.'
Although the Europeans may not have time to arrange the recapitalisation of any banks found vulnerable before the results are published, there is a strong political commitment of governments to do so where necessary, possibly drawing on a newly established eurozone financial backstop, created in May originally to lend to states shut out of credit markets.
The existence of a 440 billion euro (S$766 billion) European Financial Stability Facility (EFSF) guaranteed by eurozone states should reassure investors that any exposed banks won't be left twisting in the wind, even though it would require a unanimous political decision to use it.
So let's examine the case for a turning point.
The euro has recovered from lows of around US$1.19 to touch two- month highs above US$1.27 last Friday, partly due to disappointing US economic data.
Spain and Portugal have been able to sell their debt at auctions, albeit paying higher risk premiums.
The ECB withdrew 199 billion euros in crisis liquidity from the market smoothly at the end of June, and the central bank's emergency purchases of eurozone government bonds have steadily declined. Mr Trichet felt confident enough to highlight that tapering-off last week.
European stock markets have begun to rebound, led by bank shares, on growing expectations that the stress tests will not uncover new horrors.
Governments across Europe are introducing austerity measures to bring down public deficits, and structural reforms designed to address longer-term problems of ageing populations, rigid labour markets and soaring health costs.
Greece, under the whip of a European Union/IMF bailout programme, is pushing through unpopular reforms - cutting pensions, raising the retirement age and reducing layoff payments and notice.
France is raising its retirement age and the contribution years needed for a full pension. Spain is easing hiring and firing laws to try to bring down 20 per cent unemployment.
This will not be smooth or easy, given resistance from labour and interest groups, but the political climate is more permissive for such reforms than at any time in a generation.
At the EU policy level, the Greek bailout and the EFSF are on track and the stress tests are under way.
Governments are broadly agreed on strengthening enforcement of the bloc's battered budget discipline rules. The EFSF, created as a temporary expedient for three years, may be extended and morph into a permanent crisis resolution mechanism.
Longer-term worries, particularly about Greece's ability to pay its debts on time and in full, may continue to dog the eurozone, as well as pessimism about the economic growth prospects of ageing and inflexible west European societies.
Protests against austerity and a shrinking welfare state may grow. Governments may fall over unpopular reforms. But for now, it looks as if the worst of the eurozone crisis may just be over. -- Reuters, Bloomberg
Source: Business Times, 14 Jul 2010
(PARIS) The signs are growing that Europe may have turned a corner in its struggle to restore financial stability.
The evidence comes partly from financial markets, which are calmer, partly from the real economy, which is perkier, and partly from policy, which is responding at last to some investor concerns.
There are still plenty of risks - lack of faith in planned stress tests of European banks, low or no economic growth, more credit rating agency downgrades of sovereign debt, an eventual Greek default or debt restructuring, weaknesses in eurozone governance, and political resistance to painful reforms.
But on balance, things are starting to look up.
'The figures we have are not confirming this pessimism,' European Central Bank president Jean- Claude Trichet said, dismissing analyst predictions of stagnation or even an austerity-induced double- dip recession in the eurozone.
'There is a tendency among some investors and market participants to underestimate Europe's ability to take bold decisions,' Mr Trichet said in an interview with France's Liberation published on the ECB's website on Monday.
'In their defence, I would simply say that the institutional structure of Europe is very different to what they are used to, especially on the other side of the Atlantic.'
Although the Europeans may not have time to arrange the recapitalisation of any banks found vulnerable before the results are published, there is a strong political commitment of governments to do so where necessary, possibly drawing on a newly established eurozone financial backstop, created in May originally to lend to states shut out of credit markets.
The existence of a 440 billion euro (S$766 billion) European Financial Stability Facility (EFSF) guaranteed by eurozone states should reassure investors that any exposed banks won't be left twisting in the wind, even though it would require a unanimous political decision to use it.
So let's examine the case for a turning point.
The euro has recovered from lows of around US$1.19 to touch two- month highs above US$1.27 last Friday, partly due to disappointing US economic data.
Spain and Portugal have been able to sell their debt at auctions, albeit paying higher risk premiums.
The ECB withdrew 199 billion euros in crisis liquidity from the market smoothly at the end of June, and the central bank's emergency purchases of eurozone government bonds have steadily declined. Mr Trichet felt confident enough to highlight that tapering-off last week.
European stock markets have begun to rebound, led by bank shares, on growing expectations that the stress tests will not uncover new horrors.
Governments across Europe are introducing austerity measures to bring down public deficits, and structural reforms designed to address longer-term problems of ageing populations, rigid labour markets and soaring health costs.
Greece, under the whip of a European Union/IMF bailout programme, is pushing through unpopular reforms - cutting pensions, raising the retirement age and reducing layoff payments and notice.
France is raising its retirement age and the contribution years needed for a full pension. Spain is easing hiring and firing laws to try to bring down 20 per cent unemployment.
This will not be smooth or easy, given resistance from labour and interest groups, but the political climate is more permissive for such reforms than at any time in a generation.
At the EU policy level, the Greek bailout and the EFSF are on track and the stress tests are under way.
Governments are broadly agreed on strengthening enforcement of the bloc's battered budget discipline rules. The EFSF, created as a temporary expedient for three years, may be extended and morph into a permanent crisis resolution mechanism.
Longer-term worries, particularly about Greece's ability to pay its debts on time and in full, may continue to dog the eurozone, as well as pessimism about the economic growth prospects of ageing and inflexible west European societies.
Protests against austerity and a shrinking welfare state may grow. Governments may fall over unpopular reforms. But for now, it looks as if the worst of the eurozone crisis may just be over. -- Reuters, Bloomberg
Source: Business Times, 14 Jul 2010
Tuesday, July 13, 2010
Crunch awaits world's banks with trillions due
Credit may turn scarce as lenders seek refinancing for $6.8 trillion owed
FRANKFURT: The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.
The European Central Bank (ECB), the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.
Their concern is that banks hungry for refinancing will compete with governments - which also must roll over huge sums - for the bond market's favour. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.
'There is a cliff we are racing towards - it's huge,' said Mr Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain's central bank. 'No one seems to be talking about it that much.' But, he added, 'it's of first-order importance for lending and output'.
Banks worldwide owe nearly US$5 trillion (S$6.9 trillion) to bondholders and other creditors that will come due in 2012, according to estimates by the Bank for International Settlements (BIS). About US$2.6 trillion of the liabilities are in Europe.
US banks must refinance about US$1.3 trillion in 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.
How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend, on to businesses and households.
The financing crunch has its origins in a worldwide trend for banks to borrow money for shorter periods.
The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.
Government bank guarantees extended in response to the crisis also inadvertently encouraged short-term lending. The guarantees were typically only for several years, and banks issued bonds to match.
Other banks took advantage of the gap between short-term and long-term rates, borrowing cheaply from money markets or central banks and lending to their customers at higher, long-term rates.
A study in November by Moody's Investors Service found that new bond issues by banks during the past five years matured in an average of 4.7 years - the shortest average in 30 years.
Since then, worries about Greek and Spanish debt and whether Europe is headed for another recession have caused new problems. Investors are unsure which institutions are in good shape and which are sitting on piles of bad loans and potentially tainted government bonds.
Bond issuance by financial institutions in Europe plunged to US$10.7 billion in May, compared with US$106 billion in January, and US$95 billion in May last year, according to Dealogic, a data provider. New issues have recovered somewhat since, to US$42 billion last month and US$19 billion so far this month.
Bank stress tests being conducted by European regulators could help if they succeed in convincing markets that most banks are healthy.
Bank regulators plan to release the test results, covering 91 large banks, on July 23.
Mr Sandeep Agarwal, head of financial institutions debt capital markets in Europe at Credit Suisse, predicted that the market could be separated into haves and have-nots, with healthy banks raising money fairly easily but weaker banks being required to pay a premium.
'There is cash at the right price for many institutions, not all institutions,' Mr Agarwal said.
That could add pressure on the weakest banks to merge, seek government help, or scale back their activities. Some might even fold.
The Landesbanken in Germany, savings banks in Spain or other institutions that have struggled may be forced to confront difficult choices.
A shortage of bank finance also could create quandaries for the ECB, which appears anxious to wean banks from the cheap cash that it began providing in the heat of the global financial crisis.
If institutions are unable to raise the money that they need on the open market, the ECB would have to decide whether to continue to prop them up.
'Banks that have trouble tapping new funding sources will have to shrink,' the BIS said in its annual report late last month. The BIS brings together the world's main central banks.
Mr Jean-Francois Tremblay, a Moody's vice-president who has studied the refinancing issue, said that so far banks had managed to roll over debt better than expected.
They have increased customer deposits, drawn on cash from central banks, or simply reduced their lending and their need for new financing - which is exactly what some economists feared.
NEW YORK TIMES
Source: Straits Times, 13 Jul 2010
FRANKFURT: The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.
The European Central Bank (ECB), the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.
Their concern is that banks hungry for refinancing will compete with governments - which also must roll over huge sums - for the bond market's favour. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.
'There is a cliff we are racing towards - it's huge,' said Mr Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain's central bank. 'No one seems to be talking about it that much.' But, he added, 'it's of first-order importance for lending and output'.
Banks worldwide owe nearly US$5 trillion (S$6.9 trillion) to bondholders and other creditors that will come due in 2012, according to estimates by the Bank for International Settlements (BIS). About US$2.6 trillion of the liabilities are in Europe.
US banks must refinance about US$1.3 trillion in 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.
How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend, on to businesses and households.
The financing crunch has its origins in a worldwide trend for banks to borrow money for shorter periods.
The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.
Government bank guarantees extended in response to the crisis also inadvertently encouraged short-term lending. The guarantees were typically only for several years, and banks issued bonds to match.
Other banks took advantage of the gap between short-term and long-term rates, borrowing cheaply from money markets or central banks and lending to their customers at higher, long-term rates.
A study in November by Moody's Investors Service found that new bond issues by banks during the past five years matured in an average of 4.7 years - the shortest average in 30 years.
Since then, worries about Greek and Spanish debt and whether Europe is headed for another recession have caused new problems. Investors are unsure which institutions are in good shape and which are sitting on piles of bad loans and potentially tainted government bonds.
Bond issuance by financial institutions in Europe plunged to US$10.7 billion in May, compared with US$106 billion in January, and US$95 billion in May last year, according to Dealogic, a data provider. New issues have recovered somewhat since, to US$42 billion last month and US$19 billion so far this month.
Bank stress tests being conducted by European regulators could help if they succeed in convincing markets that most banks are healthy.
Bank regulators plan to release the test results, covering 91 large banks, on July 23.
Mr Sandeep Agarwal, head of financial institutions debt capital markets in Europe at Credit Suisse, predicted that the market could be separated into haves and have-nots, with healthy banks raising money fairly easily but weaker banks being required to pay a premium.
'There is cash at the right price for many institutions, not all institutions,' Mr Agarwal said.
That could add pressure on the weakest banks to merge, seek government help, or scale back their activities. Some might even fold.
The Landesbanken in Germany, savings banks in Spain or other institutions that have struggled may be forced to confront difficult choices.
A shortage of bank finance also could create quandaries for the ECB, which appears anxious to wean banks from the cheap cash that it began providing in the heat of the global financial crisis.
If institutions are unable to raise the money that they need on the open market, the ECB would have to decide whether to continue to prop them up.
'Banks that have trouble tapping new funding sources will have to shrink,' the BIS said in its annual report late last month. The BIS brings together the world's main central banks.
Mr Jean-Francois Tremblay, a Moody's vice-president who has studied the refinancing issue, said that so far banks had managed to roll over debt better than expected.
They have increased customer deposits, drawn on cash from central banks, or simply reduced their lending and their need for new financing - which is exactly what some economists feared.
NEW YORK TIMES
Source: Straits Times, 13 Jul 2010
Friday, July 9, 2010
IMF raises world growth forecast
But euro zone's debt woes posing threat to recovery, it warns
HONG KONG: The International Monetary Fund (IMF) upgraded its 2010 global growth forecast yesterday, citing robust expansion in Asia and renewed private demand in the United States, but warned the euro area's debt crisis posed a big risk to recovery.
The IMF said the euro zone's sovereign financing problems and resulting financial market turbulence were significant challenges, especially with the web of financial and trade links connecting Europe to the world. However, a double-dip world recession was highly unlikely.
The fund raised its global output forecast for this year to 4.6 per cent from 4.2 per cent in April's review of the global economy, but kept its view for next year unchanged at 4.3 per cent. The world economy shrank 0.6 per cent last year as a result of the global financial crisis.
'What has happened in Europe is likely to slow down the path to recovery relative to what could have happened, but I think the chances of a double-dip are very small,' Mr Olivier Blanchard, the IMF's chief economist, said at a briefing in Hong Kong for the organisation's latest World Economic Outlook and Global Financial Stability reports.
But in a move that might fuel concern that recovery is fading, the fund lowered its growth forecast next year for China from 9.9 per cent to 9.6 per cent, for Japan from 2 per cent to 1.8 per cent, for the euro zone from 1.5 per cent to 1.3 per cent, and for Britain from 2.5 per cent to 2.1 per cent.
Persistent weakness in the US housing and labour markets, euro zone debt problems and a slowdown in growth of manufacturing activity in Asia have made investors speculate that the global economy will slow sharply for the rest of the year.
While uncertainty about bank regulation has added to investor concerns, the IMF focused the majority of both reports on the implications of the euro zone sovereign crisis.
In the news briefing, Mr Blanchard said the European bank stress test disclosures due on July 23 were an important step towards transparency but underscored that countries must return to a sustainable level of fiscal spending.
Under one scenario - assuming shocks to the global financial system resulting from Europe's debt problems are as severe as those experienced in the wake of the Lehman Brothers' failure two years ago - world gross domestic product growth next year would be reduced by 1.5 percentage points, the IMF said.
Asian economies will expand faster than expected this year but 'downside risks' have intensified for the region following financial turmoil in the euro zone area, the IMF warned.
The Chinese economy should expand by 10.5 per cent following a strong rebound in exports and resilient domestic demand, the fund said, revising upwards its April forecast of 10 per cent.
India's growth this year was revised higher to 9.4 per cent from 8.8 per cent as robust corporate profits and favourable financing conditions fuel investment.
With the upward revisions for the world's two most populous countries, Asia as a whole was forecast to grow by 7.5 per cent this year, up from 7 per cent in April.
However for next year, when stimulus programmes are expected to be withdrawn in several countries, Asia's growth is expected to settle to 'a more moderate but also more sustainable rate' of 6.8 per cent, the IMF said.
Following warnings by the fund earlier this year about the formation of asset bubbles in Asia, such problems in the market had eased, said Mr Jose Vinals, the IMF's financial counsellor.
But the IMF warned that any stalling in the European recovery could affect Asia through both trade and financial channels, even though the region has only limited direct financial linkages to the most vulnerable euro area economies.
'Many Asian economies (especially the newly industrialised economies and the Asean economies) are highly dependent on external demand, and their export exposure to Europe is at least as large as their export exposure to the United States,' the report said.
However, in the event of 'external demand shocks', large economies such as China, India and Indonesia could provide a cushion to growth, it said.
REUTERS, AGENCE FRANCE-PRESSE, ASSOCIATED PRESS
Source: Straits Times, 9 Jul 2010
HONG KONG: The International Monetary Fund (IMF) upgraded its 2010 global growth forecast yesterday, citing robust expansion in Asia and renewed private demand in the United States, but warned the euro area's debt crisis posed a big risk to recovery.
The IMF said the euro zone's sovereign financing problems and resulting financial market turbulence were significant challenges, especially with the web of financial and trade links connecting Europe to the world. However, a double-dip world recession was highly unlikely.
The fund raised its global output forecast for this year to 4.6 per cent from 4.2 per cent in April's review of the global economy, but kept its view for next year unchanged at 4.3 per cent. The world economy shrank 0.6 per cent last year as a result of the global financial crisis.
'What has happened in Europe is likely to slow down the path to recovery relative to what could have happened, but I think the chances of a double-dip are very small,' Mr Olivier Blanchard, the IMF's chief economist, said at a briefing in Hong Kong for the organisation's latest World Economic Outlook and Global Financial Stability reports.
But in a move that might fuel concern that recovery is fading, the fund lowered its growth forecast next year for China from 9.9 per cent to 9.6 per cent, for Japan from 2 per cent to 1.8 per cent, for the euro zone from 1.5 per cent to 1.3 per cent, and for Britain from 2.5 per cent to 2.1 per cent.
Persistent weakness in the US housing and labour markets, euro zone debt problems and a slowdown in growth of manufacturing activity in Asia have made investors speculate that the global economy will slow sharply for the rest of the year.
While uncertainty about bank regulation has added to investor concerns, the IMF focused the majority of both reports on the implications of the euro zone sovereign crisis.
In the news briefing, Mr Blanchard said the European bank stress test disclosures due on July 23 were an important step towards transparency but underscored that countries must return to a sustainable level of fiscal spending.
Under one scenario - assuming shocks to the global financial system resulting from Europe's debt problems are as severe as those experienced in the wake of the Lehman Brothers' failure two years ago - world gross domestic product growth next year would be reduced by 1.5 percentage points, the IMF said.
Asian economies will expand faster than expected this year but 'downside risks' have intensified for the region following financial turmoil in the euro zone area, the IMF warned.
The Chinese economy should expand by 10.5 per cent following a strong rebound in exports and resilient domestic demand, the fund said, revising upwards its April forecast of 10 per cent.
India's growth this year was revised higher to 9.4 per cent from 8.8 per cent as robust corporate profits and favourable financing conditions fuel investment.
With the upward revisions for the world's two most populous countries, Asia as a whole was forecast to grow by 7.5 per cent this year, up from 7 per cent in April.
However for next year, when stimulus programmes are expected to be withdrawn in several countries, Asia's growth is expected to settle to 'a more moderate but also more sustainable rate' of 6.8 per cent, the IMF said.
Following warnings by the fund earlier this year about the formation of asset bubbles in Asia, such problems in the market had eased, said Mr Jose Vinals, the IMF's financial counsellor.
But the IMF warned that any stalling in the European recovery could affect Asia through both trade and financial channels, even though the region has only limited direct financial linkages to the most vulnerable euro area economies.
'Many Asian economies (especially the newly industrialised economies and the Asean economies) are highly dependent on external demand, and their export exposure to Europe is at least as large as their export exposure to the United States,' the report said.
However, in the event of 'external demand shocks', large economies such as China, India and Indonesia could provide a cushion to growth, it said.
REUTERS, AGENCE FRANCE-PRESSE, ASSOCIATED PRESS
Source: Straits Times, 9 Jul 2010
Dangers ahead for recovering global economy: IMF
The Greek crisis highlights need for fiscal tightening
THE global economy, led by emerging markets, is still on track for a fairly strong overall recovery this year and in 2011. But the road ahead is strewn with an unusually large number of obstacles and dangers, the International Monetary Fund (IMF) warned yesterday with the publication of its latest World Economic Outlook (WEO) report.
Predicting that world GDP (gross domestic product) growth would be around 4.5 per cent this year (slightly ahead of the 4.25 per cent forecast in April) - slowing slightly to 4.3 per cent next year - the WEO identified the dangers of financial system shocks transmitted via banking systems and over-rapid fiscal consolidation as being among landmines ahead.
The Greek crisis and the market reaction to it have highlighted the need for fiscal tightening around the world, IMF officials said, while cautioning that this is going to require painful adjustments such as 'reduced social entitlements' in some countries and the raising of retirement age to take pressure off public pension systems.
'We are cautiously optimistic (about the global economic outlook) but there are clear dangers ahead,' said IMF economic counsellor and director of research Olivier Blanchard at a briefing in Hong Kong where the WEO launch was held for the first time outside of IMF headquarters in Washington.
Growth was stronger than expected in the first half of 2010 in economies such as the United States, Europe, Japan, Brazil and India, pushing overall world growth for that period to 5 per cent, Mr Blanchard noted. 'But most recent indicators point to some slowdown of demand,' he said, adding that 'it is too early to assess how significant this will be'.
The WEO expects advanced economies to grow by 2.6 per cent this year and by 2.4 per cent in 2011, while it forecasts 6.8 per cent growth in emerging and developing economies in 2009 falling to 6.4 per cent next year. But this assumes that countries make the right policy responses to global challenges, Mr Blanchard said.
He cautioned that all economies face slowing growth in the short term with fiscal spending cuts. They also face a slowdown in bank lending under the impact of a 'freeze' in inter-bank markets in the wake of the Greek crisis and a reallocation of capital flows between advanced and emerging markets.
Fiscal consolidation could 'derail' the global recovery if not handled properly, Mr Blanchard acknowledged. 'While fiscal stimulus was necessary to stem a potentially catastrophic collapse of output in 2008 and 2009, countries must return to a sustainable fiscal path,' he insisted.
'The adjustment should start soon, but too much front-loading, too sharp a cut in deficits this year or next year would be counter-productive,' he suggested. 'The recovery is still fragile and monetary policy (already very accommodative) cannot yet be used to significantly offset the adverse short run effects of fiscal consolidation.'
Calling Asia a 'fitting' place for the first launch of the WEO, and of the IMF's Global Financial Stability Report, outside the US, because the region is providing 'momentum for a robust global recovery', IMF financial counsellor and monetary and capital markets department director Jose Vinals said it would nevertheless be dangerous to assume that Asia is immune to aftershocks from the eurozone crisis.
'Global financial stability has experienced a setback,' he noted. 'Sovereign credit risks in part of the euro area have materialised and have spread to the financial sector there, threatening to spill over to other regions and re-establish the adverse feedback loop with the economy.'
Banks mainly (but not only) in the euro area 'remain cautious about lending to each other' in the aftermath of the Greek crisis, Mr Vinals noted. Along with their legacy of bad debts resulting from the global financial crisis, many banks now find that they have problematic assets in the shape of government bond holdings, he said.
Domestic liquidity conditions in Asia have remained calm but 'European banks are significant providers of liquidity in certain Asian markets', he noted, without specifying which. The authorities in these markets will need to act quickly to prevent financial contagion from spreading via such mechanisms, Mr Vinals suggested.
Apart from the danger of a liquidity crunch, there is also a danger of 'crowding out' of private borrowers as they compete with governments for funding, he said, citing the cases of Japan, Britain, the US and the euro area where around US$4.3 trillion of government debts will need to be rolled over during the second half of this year.
Mr Vinals also warned of disruptive capital flows into Asia, while praising Singapore, Hong Kong and China for taking measures to offset the impact of such flows by introducing 'prudential measures to dampen real estate price appreciation and (to limit)the share of real estate loans in new bank lending'.
Source: Business Times, 9 Jul 2010
THE global economy, led by emerging markets, is still on track for a fairly strong overall recovery this year and in 2011. But the road ahead is strewn with an unusually large number of obstacles and dangers, the International Monetary Fund (IMF) warned yesterday with the publication of its latest World Economic Outlook (WEO) report.
Predicting that world GDP (gross domestic product) growth would be around 4.5 per cent this year (slightly ahead of the 4.25 per cent forecast in April) - slowing slightly to 4.3 per cent next year - the WEO identified the dangers of financial system shocks transmitted via banking systems and over-rapid fiscal consolidation as being among landmines ahead.
The Greek crisis and the market reaction to it have highlighted the need for fiscal tightening around the world, IMF officials said, while cautioning that this is going to require painful adjustments such as 'reduced social entitlements' in some countries and the raising of retirement age to take pressure off public pension systems.
'We are cautiously optimistic (about the global economic outlook) but there are clear dangers ahead,' said IMF economic counsellor and director of research Olivier Blanchard at a briefing in Hong Kong where the WEO launch was held for the first time outside of IMF headquarters in Washington.
Growth was stronger than expected in the first half of 2010 in economies such as the United States, Europe, Japan, Brazil and India, pushing overall world growth for that period to 5 per cent, Mr Blanchard noted. 'But most recent indicators point to some slowdown of demand,' he said, adding that 'it is too early to assess how significant this will be'.
The WEO expects advanced economies to grow by 2.6 per cent this year and by 2.4 per cent in 2011, while it forecasts 6.8 per cent growth in emerging and developing economies in 2009 falling to 6.4 per cent next year. But this assumes that countries make the right policy responses to global challenges, Mr Blanchard said.
He cautioned that all economies face slowing growth in the short term with fiscal spending cuts. They also face a slowdown in bank lending under the impact of a 'freeze' in inter-bank markets in the wake of the Greek crisis and a reallocation of capital flows between advanced and emerging markets.
Fiscal consolidation could 'derail' the global recovery if not handled properly, Mr Blanchard acknowledged. 'While fiscal stimulus was necessary to stem a potentially catastrophic collapse of output in 2008 and 2009, countries must return to a sustainable fiscal path,' he insisted.
'The adjustment should start soon, but too much front-loading, too sharp a cut in deficits this year or next year would be counter-productive,' he suggested. 'The recovery is still fragile and monetary policy (already very accommodative) cannot yet be used to significantly offset the adverse short run effects of fiscal consolidation.'
Calling Asia a 'fitting' place for the first launch of the WEO, and of the IMF's Global Financial Stability Report, outside the US, because the region is providing 'momentum for a robust global recovery', IMF financial counsellor and monetary and capital markets department director Jose Vinals said it would nevertheless be dangerous to assume that Asia is immune to aftershocks from the eurozone crisis.
'Global financial stability has experienced a setback,' he noted. 'Sovereign credit risks in part of the euro area have materialised and have spread to the financial sector there, threatening to spill over to other regions and re-establish the adverse feedback loop with the economy.'
Banks mainly (but not only) in the euro area 'remain cautious about lending to each other' in the aftermath of the Greek crisis, Mr Vinals noted. Along with their legacy of bad debts resulting from the global financial crisis, many banks now find that they have problematic assets in the shape of government bond holdings, he said.
Domestic liquidity conditions in Asia have remained calm but 'European banks are significant providers of liquidity in certain Asian markets', he noted, without specifying which. The authorities in these markets will need to act quickly to prevent financial contagion from spreading via such mechanisms, Mr Vinals suggested.
Apart from the danger of a liquidity crunch, there is also a danger of 'crowding out' of private borrowers as they compete with governments for funding, he said, citing the cases of Japan, Britain, the US and the euro area where around US$4.3 trillion of government debts will need to be rolled over during the second half of this year.
Mr Vinals also warned of disruptive capital flows into Asia, while praising Singapore, Hong Kong and China for taking measures to offset the impact of such flows by introducing 'prudential measures to dampen real estate price appreciation and (to limit)the share of real estate loans in new bank lending'.
Source: Business Times, 9 Jul 2010
Thursday, July 8, 2010
Global recession unlikely: Analysts
THE global economic recovery will continue but at a slower rate than in the past two quarters and a slide back into recession should be avoided, according to Credit Suisse analysts yesterday.
The Swiss bank's head of Asia-Pacific research, Ms Fan Cheuk Wan, said that while some economists fear another slump this year following job losses and a decline in world manufacturing, she believed such views are 'overly pessimistic'.
Many economies hit a speed bump in the first half due to the problems coming out of Europe, said Ms Fan.
But according to the bank's chief economist for Asia, Mr Joseph Tan, the effect on Asia is 'next to zero' because the nations most affected by the crisis - Spain, Portugal and Greece - account for only 4 per cent of Asian exports to Europe.
'As long as core Europe (France, Germany and the Netherlands) can hold itself up, we should focus on the US and not be overly concerned about Europe,' he said.
Asia is also protected by its low debt to gross domestic product ratio. Most Asian countries have ratios below 40 per cent while the United States and Europe struggle with ratios of more than 100 per cent.
This allows Asia to consume without worry as it normalises its monetary policy.
Mr Tan also said he anticipates more liquid Asian currencies like the Singapore dollar, Korean won and Australian dollar to appreciate in the near future, towed along in the wake of the rising Chinese yuan.
Credit Suisse believes the yuan's appreciation reinforces China's robust growth and advised investors to target commodities such as iron ore.
Ms Fan urged investors to 'look for value' and be cautious about investing in downstream goods such as steel and aluminium.
The bank also recommended investing in consumer stocks from firms such as milk company China Mengniu, sports apparel group China Dongxiang, Indofood, Samsung and Shiseido.
Source: Straits Times, 8 Jul 2010
The Swiss bank's head of Asia-Pacific research, Ms Fan Cheuk Wan, said that while some economists fear another slump this year following job losses and a decline in world manufacturing, she believed such views are 'overly pessimistic'.
Many economies hit a speed bump in the first half due to the problems coming out of Europe, said Ms Fan.
But according to the bank's chief economist for Asia, Mr Joseph Tan, the effect on Asia is 'next to zero' because the nations most affected by the crisis - Spain, Portugal and Greece - account for only 4 per cent of Asian exports to Europe.
'As long as core Europe (France, Germany and the Netherlands) can hold itself up, we should focus on the US and not be overly concerned about Europe,' he said.
Asia is also protected by its low debt to gross domestic product ratio. Most Asian countries have ratios below 40 per cent while the United States and Europe struggle with ratios of more than 100 per cent.
This allows Asia to consume without worry as it normalises its monetary policy.
Mr Tan also said he anticipates more liquid Asian currencies like the Singapore dollar, Korean won and Australian dollar to appreciate in the near future, towed along in the wake of the rising Chinese yuan.
Credit Suisse believes the yuan's appreciation reinforces China's robust growth and advised investors to target commodities such as iron ore.
Ms Fan urged investors to 'look for value' and be cautious about investing in downstream goods such as steel and aluminium.
The bank also recommended investing in consumer stocks from firms such as milk company China Mengniu, sports apparel group China Dongxiang, Indofood, Samsung and Shiseido.
Source: Straits Times, 8 Jul 2010
Wednesday, July 7, 2010
UK economy grows strongly in Q2: survey
But a clampdown on govt spending may plunge it back into recession, it warns
(LONDON) Britain's services sector enjoyed its strongest growth for two years over the past three months and manufacturing grew strongly, but tougher times may be ahead as firms are gloomier about the future, a survey suggested yesterday.
The British Chambers of Commerce's Quarterly Economic Survey showed the private-sector recovery gathering pace. The business lobby's chief economist, David Kern, said the survey pointed to economic growth of 0.6-0.7 per cent in the second quarter, around double the rate earlier this year.
However, he warned that this growth was unlikely to be sustained, as an impending clampdown on government spending risked plunging the economy back into recession.
'Although we're champions of manufacturing, it's a worry for the whole economy that services are not strong,' he said, pointing out that private-sector services activity was still half its long-run average, despite the recent pick-up.
'We now have in place very tight fiscal policy for the next few years. We think it's necessary, but this means the risk of a double-dip recession is greater and makes it more necessary for the Bank of England to keep interest rates low.'
The new Conservative- Liberal Democrat coalition is planning spending cuts of around 25 per cent across government departments to slash a deficit running close to 11 per cent of economic output.
'This year we won't see much impact from the fiscal tightening because the stock cycle is strong and earlier fiscal stimulus is still in place,' Mr Kern said. 'But I think the biggest impact on the economy and jobs will come late this year and next year.'
The domestic sales balance for the services sector rose to +12 from +6 in the first quarter, the highest reading since Q1 2008, and the orders balance rose two points over the quarter to +5, also a two-year high.
The manufacturing balances showed a much bigger improvement. The home sales balance shot up to +30 from +1 and orders surged to +19 from -3, both the highest since 2007.
The survey also showed that the long-awaited boost to exports from a past fall in sterling seemed to have materialised, with the manufacturing export sales balance at its highest in almost four years.
However, manufacturers also reported a surge in price pressures, with a balance of +30 in Q2 compared with +8 in Q1, the highest since Q3 2008. The BCC said 80 per cent of firms reported that they were under pressure to raise prices.
That was mainly due to higher raw materials costs, rather than wage costs, and should therefore be less worrying for the Bank of England, as its policymakers largely discount one-off rises in the cost of raw materials when they consider whether to raise interest rates.
'It's critical at this point of the cycle to keep rates as low as possible for as long as possible,' Mr Kern said. 'Fiscal policy will inevitably increase the deflationary factors in the economy.'
The central bank is widely expected to keep borrowing costs at 0.5 per cent when its meeting concludes tomorrow, although one member, Andrew Sentance, voted for a quarter- point hike last month.
'Clearly at a time when a higher fiscal contraction policy is imminent, to hike rates is the wrong thing to do,' Mr Kern said. -- Reuters
Source: Business Times, 7 Jul 2010
(LONDON) Britain's services sector enjoyed its strongest growth for two years over the past three months and manufacturing grew strongly, but tougher times may be ahead as firms are gloomier about the future, a survey suggested yesterday.
The British Chambers of Commerce's Quarterly Economic Survey showed the private-sector recovery gathering pace. The business lobby's chief economist, David Kern, said the survey pointed to economic growth of 0.6-0.7 per cent in the second quarter, around double the rate earlier this year.
However, he warned that this growth was unlikely to be sustained, as an impending clampdown on government spending risked plunging the economy back into recession.
'Although we're champions of manufacturing, it's a worry for the whole economy that services are not strong,' he said, pointing out that private-sector services activity was still half its long-run average, despite the recent pick-up.
'We now have in place very tight fiscal policy for the next few years. We think it's necessary, but this means the risk of a double-dip recession is greater and makes it more necessary for the Bank of England to keep interest rates low.'
The new Conservative- Liberal Democrat coalition is planning spending cuts of around 25 per cent across government departments to slash a deficit running close to 11 per cent of economic output.
'This year we won't see much impact from the fiscal tightening because the stock cycle is strong and earlier fiscal stimulus is still in place,' Mr Kern said. 'But I think the biggest impact on the economy and jobs will come late this year and next year.'
The domestic sales balance for the services sector rose to +12 from +6 in the first quarter, the highest reading since Q1 2008, and the orders balance rose two points over the quarter to +5, also a two-year high.
The manufacturing balances showed a much bigger improvement. The home sales balance shot up to +30 from +1 and orders surged to +19 from -3, both the highest since 2007.
The survey also showed that the long-awaited boost to exports from a past fall in sterling seemed to have materialised, with the manufacturing export sales balance at its highest in almost four years.
However, manufacturers also reported a surge in price pressures, with a balance of +30 in Q2 compared with +8 in Q1, the highest since Q3 2008. The BCC said 80 per cent of firms reported that they were under pressure to raise prices.
That was mainly due to higher raw materials costs, rather than wage costs, and should therefore be less worrying for the Bank of England, as its policymakers largely discount one-off rises in the cost of raw materials when they consider whether to raise interest rates.
'It's critical at this point of the cycle to keep rates as low as possible for as long as possible,' Mr Kern said. 'Fiscal policy will inevitably increase the deflationary factors in the economy.'
The central bank is widely expected to keep borrowing costs at 0.5 per cent when its meeting concludes tomorrow, although one member, Andrew Sentance, voted for a quarter- point hike last month.
'Clearly at a time when a higher fiscal contraction policy is imminent, to hike rates is the wrong thing to do,' Mr Kern said. -- Reuters
Source: Business Times, 7 Jul 2010
Wednesday, June 23, 2010
Crisis not over: Global panel of property experts
It is important for real estate companies to continue to watch their cashflow, including keeping options open for alternative financing and find new recurring income, said participants at an industry conference yesterday.
They told the Real Estate Investment World Asia 2010 event that they believe the global financial crisis is not over and that it may take 12 to 18 months before the impact of the euro zone crisis is known and only then can economic recovery begin.
“We’re in the middle of Greek tragedy and nobody told us how many acts and scenes it has, so let’s see what the knock-on effect is going to be,” said Mr Peter Van Rossum, chief financial officer of Unibail-Rodamco SE in a panel discussion.
Property developers were among those hardest-hit by the global credit crisis two years ago, which created tougher borrowing conditions and caused loan-to-value covenants to fall. Observers said this shows the need to ensure sufficient liquidity for companies’ operations.
To mitigate cashflow concerns, property players need to diversify into areas such as hospitality to generate recurring income and consider non-traditional forms of funding, said experts.
“We’re looking at other alternative forms of financing, such as bonds and convertible bonds that will ride us through all these ups and downs,” said Mr Thio Gim Hock, chief executive officer and group managing director of Overseas Union Enterprise.
Some developers have, in fact, risen up to the challenge and made headway in raising money using alternative methods.
“We’re looking for equity funding – develop our private equity fund business. Last year, we actually had to float part of one of our subsidiaries in retail for them to continue to have sufficient funds to expand,” said Mr Wen Khai Meng, chief investment officer at CapitaLand.
For now, observers expect better prospects for Asia’s property sector, which will be partly boosted by capital inflows, amid expected currency appreciation in the region.
Source: Today, 23 Jun 2010
They told the Real Estate Investment World Asia 2010 event that they believe the global financial crisis is not over and that it may take 12 to 18 months before the impact of the euro zone crisis is known and only then can economic recovery begin.
“We’re in the middle of Greek tragedy and nobody told us how many acts and scenes it has, so let’s see what the knock-on effect is going to be,” said Mr Peter Van Rossum, chief financial officer of Unibail-Rodamco SE in a panel discussion.
Property developers were among those hardest-hit by the global credit crisis two years ago, which created tougher borrowing conditions and caused loan-to-value covenants to fall. Observers said this shows the need to ensure sufficient liquidity for companies’ operations.
To mitigate cashflow concerns, property players need to diversify into areas such as hospitality to generate recurring income and consider non-traditional forms of funding, said experts.
“We’re looking at other alternative forms of financing, such as bonds and convertible bonds that will ride us through all these ups and downs,” said Mr Thio Gim Hock, chief executive officer and group managing director of Overseas Union Enterprise.
Some developers have, in fact, risen up to the challenge and made headway in raising money using alternative methods.
“We’re looking for equity funding – develop our private equity fund business. Last year, we actually had to float part of one of our subsidiaries in retail for them to continue to have sufficient funds to expand,” said Mr Wen Khai Meng, chief investment officer at CapitaLand.
For now, observers expect better prospects for Asia’s property sector, which will be partly boosted by capital inflows, amid expected currency appreciation in the region.
Source: Today, 23 Jun 2010
Tuesday, June 22, 2010
Real estate players say eye on cashflow important
Real estate industry players have said it is important for companies in the industry to continue to watch their cashflow. This includes keeping options open for alternative financing and finding new recurring income.
They told an industry conference – Real Estate Investment World Asia 2010 – that they believe the global financial crisis is not over and that it may take at least a year before economic recovery is certain.
Property developers were among those hardest hit by the global credit crisis two years ago. The crisis created tougher borrowing conditions and caused loan-to-value covenants to fall.
This shows the need to ensure sufficient liquidity for companies’ operations, observers say. Although the worst of the crisis appears to be over, they warn that the real estate industry may not be out of the woods yet.
Peter Van Rossum, CFO, Unibail-Rodamco SE, said: “I hope this crisis is going to be over soon. The reality though is that there’s still a lot of moving panels. If I look at Europe, particularly the Greek tragedy, we’re in the middle of Greek tragedy and nobody told us how many acts and scenes it has, so let’s see what the knock-on effect is going to be.
“I think if you look at the stock markets, we’ve seen it just over the past week or so have been quite positive. But in the meantime, it just needs a little fragile piece of news to upset the whole balance again.
“I think, let’s face the fact that it takes another year or year-and-a-half before we know enough of all the issues that’s on the table, we know the impact, and then we can start the path to recovery.”
Observers say diversifying into areas such as hospitality is one way for property players to generate recurring income to mitigate cashflow concerns. Another option is to consider non-traditional forms of funding.
Thio Gim Hock, CEO & Group MD, Overseas Union Enterprise, said: “What we have learnt is that right now, perhaps the market has improved, apart from a little hiccup from the European financial situation.
“We’re looking at other alternative forms of financing, either long-term terms of financing that will ride us through all these ups and downs – I’m talking about bonds, convertible bonds, long-term financing – and we’re going to look at these instruments and get them as a back up ready, so that we can ride the rough waves that might come.”
Wen Khai Meng, chief investment officer, CapitaLand, said: “What we’re doing now is we’re looking for equity funding – develop our private equity fund business.
“Last year, we actually had to IPO, float part of one of our subsidiaries in retail in order for them to continue to have sufficient funds to expand.”
For now, observers are expecting better prospects for the Asia’s property sector. This will be partly boosted by capital inflows, amid an expected currency appreciation in the region.
Standard Chartered believes the office and retail space, in particular, will be supported by strong projections for GDP and retail sales. It expects Asian retail sales to maintain a high single digit growth for 2010 and 2011.
Source: Channel News Asia, 22 Jun 2010
They told an industry conference – Real Estate Investment World Asia 2010 – that they believe the global financial crisis is not over and that it may take at least a year before economic recovery is certain.
Property developers were among those hardest hit by the global credit crisis two years ago. The crisis created tougher borrowing conditions and caused loan-to-value covenants to fall.
This shows the need to ensure sufficient liquidity for companies’ operations, observers say. Although the worst of the crisis appears to be over, they warn that the real estate industry may not be out of the woods yet.
Peter Van Rossum, CFO, Unibail-Rodamco SE, said: “I hope this crisis is going to be over soon. The reality though is that there’s still a lot of moving panels. If I look at Europe, particularly the Greek tragedy, we’re in the middle of Greek tragedy and nobody told us how many acts and scenes it has, so let’s see what the knock-on effect is going to be.
“I think if you look at the stock markets, we’ve seen it just over the past week or so have been quite positive. But in the meantime, it just needs a little fragile piece of news to upset the whole balance again.
“I think, let’s face the fact that it takes another year or year-and-a-half before we know enough of all the issues that’s on the table, we know the impact, and then we can start the path to recovery.”
Observers say diversifying into areas such as hospitality is one way for property players to generate recurring income to mitigate cashflow concerns. Another option is to consider non-traditional forms of funding.
Thio Gim Hock, CEO & Group MD, Overseas Union Enterprise, said: “What we have learnt is that right now, perhaps the market has improved, apart from a little hiccup from the European financial situation.
“We’re looking at other alternative forms of financing, either long-term terms of financing that will ride us through all these ups and downs – I’m talking about bonds, convertible bonds, long-term financing – and we’re going to look at these instruments and get them as a back up ready, so that we can ride the rough waves that might come.”
Wen Khai Meng, chief investment officer, CapitaLand, said: “What we’re doing now is we’re looking for equity funding – develop our private equity fund business.
“Last year, we actually had to IPO, float part of one of our subsidiaries in retail in order for them to continue to have sufficient funds to expand.”
For now, observers are expecting better prospects for the Asia’s property sector. This will be partly boosted by capital inflows, amid an expected currency appreciation in the region.
Standard Chartered believes the office and retail space, in particular, will be supported by strong projections for GDP and retail sales. It expects Asian retail sales to maintain a high single digit growth for 2010 and 2011.
Source: Channel News Asia, 22 Jun 2010
Monday, June 14, 2010
Euro debt crisis: France follows Germany in cutting deficit
PARIS: France aims to cut its budget deficit by €100 billion (S$170 billion) by 2013 as fears that the euro zone debt crisis could hit its stronger members have resulted in the country having to pay higher rates to raise fresh funds from the markets.
French Prime Minister Francois Fillon said on Saturday that the aim is to bring the budget deficit down to the European Union (EU) target of 3 per cent of gross domestic product (GDP).
About half would come from slashing spending and half from increasing revenues. The Prime Minister broadly outlined where the savings would come from, including €45 billion in spending cuts and €5 billion from closing tax loopholes.
France is also counting on a rebound in the economy to bring in an additional €35 billion. 'As and when growth returns, revenues will grow once again,' said Mr Fillon.
He told UMP party members: 'We have made the pledge to bring down our deficit to 3 per cent from 8 per cent by 2013 and all our efforts will be focused on this priority.'
France's moves follow in the footsteps of Germany, Europe's powerhouse economy which has just announced an unpopular austerity programme.
With France's budget deficit hitting 8 per cent of GDP, analysts said that investors buying French government bonds want to see France make the extra effort to get its public finances under control like Germany.
German cuts of €86 billion by 2014 will put the country on course for zero deficit.
Such moves have only bolstered Germany's gold-plated reputation for financial probity and put the market spotlight on other countries, such as France, challenging them to follow suit.
In the marketplace, benchmark German 10-year government bonds currently yield 2.560 per cent, while the French equivalent pays investors 3.015 per cent.
The yield spread - the difference in return on the two bonds - is the widest since last year, reflecting how investors will pay more for the perceived lower risk of German assets in the fallout from the Greek debt crisis.
'The markets began by going over the last in the (euro zone) class, Greece, and then have gone up the pecking order, so even if you are well ranked, it finally gets to you,' said Mr Bruno Cavalier, chief economist at Oddo Securities.
It is a problem that may get worse in the run-up to the French 2012 presidential elections.
'To say, 'it will be better tomorrow', as France has done for the last 10 years is no longer possible,' Mr Cavalier said. 'Investors just won't have the patience to wait until 2012,' he added.
Besides deficit reductions, the markets will be looking carefully at key French pension reform plans to be announced next week, analysts said.
Still, even as France embarks on spending cuts, German workers are not taking what is said to be the country's biggest austerity drive since World War II lying down.
Tens of thousands of German workers took to the streets on Saturday to protest against the budget cuts and increased taxes.
Organisers said between 15,000 and 20,000 people demonstrated in Berlin, in one of the biggest protests against government reform in recent years. Police estimated that up to 10,000 people took part in protests in Stuttgart.
'The crisis is called capitalism', 'Employment, human rights, secure future for everyone' and 'Pensions should be enough to live on', protesters' banners read.
AGENCE FRANCE-PRESSE, REUTERS
Source: Straits Times, 14 Jun 2010
French Prime Minister Francois Fillon said on Saturday that the aim is to bring the budget deficit down to the European Union (EU) target of 3 per cent of gross domestic product (GDP).
About half would come from slashing spending and half from increasing revenues. The Prime Minister broadly outlined where the savings would come from, including €45 billion in spending cuts and €5 billion from closing tax loopholes.
France is also counting on a rebound in the economy to bring in an additional €35 billion. 'As and when growth returns, revenues will grow once again,' said Mr Fillon.
He told UMP party members: 'We have made the pledge to bring down our deficit to 3 per cent from 8 per cent by 2013 and all our efforts will be focused on this priority.'
France's moves follow in the footsteps of Germany, Europe's powerhouse economy which has just announced an unpopular austerity programme.
With France's budget deficit hitting 8 per cent of GDP, analysts said that investors buying French government bonds want to see France make the extra effort to get its public finances under control like Germany.
German cuts of €86 billion by 2014 will put the country on course for zero deficit.
Such moves have only bolstered Germany's gold-plated reputation for financial probity and put the market spotlight on other countries, such as France, challenging them to follow suit.
In the marketplace, benchmark German 10-year government bonds currently yield 2.560 per cent, while the French equivalent pays investors 3.015 per cent.
The yield spread - the difference in return on the two bonds - is the widest since last year, reflecting how investors will pay more for the perceived lower risk of German assets in the fallout from the Greek debt crisis.
'The markets began by going over the last in the (euro zone) class, Greece, and then have gone up the pecking order, so even if you are well ranked, it finally gets to you,' said Mr Bruno Cavalier, chief economist at Oddo Securities.
It is a problem that may get worse in the run-up to the French 2012 presidential elections.
'To say, 'it will be better tomorrow', as France has done for the last 10 years is no longer possible,' Mr Cavalier said. 'Investors just won't have the patience to wait until 2012,' he added.
Besides deficit reductions, the markets will be looking carefully at key French pension reform plans to be announced next week, analysts said.
Still, even as France embarks on spending cuts, German workers are not taking what is said to be the country's biggest austerity drive since World War II lying down.
Tens of thousands of German workers took to the streets on Saturday to protest against the budget cuts and increased taxes.
Organisers said between 15,000 and 20,000 people demonstrated in Berlin, in one of the biggest protests against government reform in recent years. Police estimated that up to 10,000 people took part in protests in Stuttgart.
'The crisis is called capitalism', 'Employment, human rights, secure future for everyone' and 'Pensions should be enough to live on', protesters' banners read.
AGENCE FRANCE-PRESSE, REUTERS
Source: Straits Times, 14 Jun 2010
Friday, June 11, 2010
3.3% global growth: World Bank
THE world economy will expand by up to 3.3 per cent this year, according to the World Bank's latest Global Economic Prospects released yesterday.
Developing countries will spearhead the recovery, growing twice as quickly as their higher income counterparts from now until 2012, the bank said.
But the projection is conservative compared with predictions by two other global organisations released in the past two months.
The International Monetary Fund is tipping 4.2 per cent global growth, and the Organisation for Economic Cooperation and Development expects 4.6 per cent.
The World Bank warned that while market conditions have improved, the initial market reaction to a possible Greek debt default and eventual contagion is an indication of the fragility of the current financial situation.
The recovery is now more than a year old and whether growth can be sustained will depend on the strength of private sector activity, as well as measures to address longer-term structural factors, it cautioned.
These factors include fiscal sustainability, banking sector restructuring, and underlying productivity.
'The fiscal situation in high-income countries in Europe and in France, the United States and the United Kingdom is currently on an unsustainable path, and there is a need for fiscal consolidation,' said the World Bank's manager of macroeconomics Andrew Burns at a media briefing.
If this is not managed well, market nervousness could result in a decline in capital available to developing countries - slowing investment and growth.
'Even in a less probable but more serious scenario, you could see a crisis occur similar in some sense to the East Asian crisis in some of these more highly indebted countries,' he said.
'That could have substantial knock-on effects in Europe and elsewhere.'
Mr Burns identified Eastern Europe, Central Asia, Latin America and the Caribbean as developing regions that were most at risk.
He said developing economies were in a relatively vulnerable fiscal position because of the efforts they had made to face the crisis.
Also, rising bad loans due to a slow recovery and significant levels of short-term debt may threaten banking-sector solvency in certain countries of developing Europe and Central Asia.
'But we expect many economies to continue to do well if they focus on growth strategies, make it easier to do business, or make spending more efficient,' said Mr Burns.
Other headwinds threatening medium-term growth include reduced global capital flows, high jobless rates and spare capacity of above 10 per cent in many countries.
Source: Straits Times, 11 Jun 2010
Developing countries will spearhead the recovery, growing twice as quickly as their higher income counterparts from now until 2012, the bank said.
But the projection is conservative compared with predictions by two other global organisations released in the past two months.
The International Monetary Fund is tipping 4.2 per cent global growth, and the Organisation for Economic Cooperation and Development expects 4.6 per cent.
The World Bank warned that while market conditions have improved, the initial market reaction to a possible Greek debt default and eventual contagion is an indication of the fragility of the current financial situation.
The recovery is now more than a year old and whether growth can be sustained will depend on the strength of private sector activity, as well as measures to address longer-term structural factors, it cautioned.
These factors include fiscal sustainability, banking sector restructuring, and underlying productivity.
'The fiscal situation in high-income countries in Europe and in France, the United States and the United Kingdom is currently on an unsustainable path, and there is a need for fiscal consolidation,' said the World Bank's manager of macroeconomics Andrew Burns at a media briefing.
If this is not managed well, market nervousness could result in a decline in capital available to developing countries - slowing investment and growth.
'Even in a less probable but more serious scenario, you could see a crisis occur similar in some sense to the East Asian crisis in some of these more highly indebted countries,' he said.
'That could have substantial knock-on effects in Europe and elsewhere.'
Mr Burns identified Eastern Europe, Central Asia, Latin America and the Caribbean as developing regions that were most at risk.
He said developing economies were in a relatively vulnerable fiscal position because of the efforts they had made to face the crisis.
Also, rising bad loans due to a slow recovery and significant levels of short-term debt may threaten banking-sector solvency in certain countries of developing Europe and Central Asia.
'But we expect many economies to continue to do well if they focus on growth strategies, make it easier to do business, or make spending more efficient,' said Mr Burns.
Other headwinds threatening medium-term growth include reduced global capital flows, high jobless rates and spare capacity of above 10 per cent in many countries.
Source: Straits Times, 11 Jun 2010
Banks see 3% GDP hit by 2015 from reform plans
(VIENNA) A string of regulatory reforms across the banking sector could cut 3 per cent off global economic growth over the next five years and cost almost 10 million jobs, top banks said yesterday.
The Institute of International Finance (IIF), a bank lobby group representing over 400 firms, said a need to hold more capital, proposed bank taxes and other possible reforms could hit economic growth hard.
Gross domestic product (GDP) in the United States, eurozone and Japan would fall by 0.6 percentage point annually between 2011 and 2015 and by an annual average of 0.3 percentage points in the 10 years to 2020, the IIF said in a report released at a meeting in Vienna.
'The IIF calls on the participants of the forthcoming G-20 Summit and the international regulatory authorities to consider carefully the content, timing and calibration of proposed bank regulatory reforms, mindful of the potential drag on economic activity that could result,' said Josef Ackermann, CEO of Deutsche Bank and IIF chairman.
The economic impact would be hardest in the eurozone, where GDP growth would be cut by 0.9 per cent annually until 2015. US GDP growth would be curtailed by 0.5 per cent annually, and in Japan it would be 0.4 per cent, the IIF said.
Some 9.7 million fewer jobs could be created due to the reforms over the next five years, the report warned.
Banks face new taxes and requirements to hold more and better quality capital and liquidity and other reforms to ensure there cannot be a repeat of the recent financial crisis, the worst since the 1930s.
Banks admit change is needed, but are resisting some proposals and are concerned about the cumulative impact of a range of measures and want more time to implement change.
'The point of this report is not to argue against regulatory reform,' said Peter Sands, CEO of Standard Chartered and an IIF director. 'But there is a price for making the banking system safer and more stable, and that price will inevitably be borne by the real economy.
'The challenge is to strike the right balance, to get the maximum benefit for the minimum negative impact,' Mr Sands added. -- Reuters
Source: Business Times, 11 Jun 2010
The Institute of International Finance (IIF), a bank lobby group representing over 400 firms, said a need to hold more capital, proposed bank taxes and other possible reforms could hit economic growth hard.
Gross domestic product (GDP) in the United States, eurozone and Japan would fall by 0.6 percentage point annually between 2011 and 2015 and by an annual average of 0.3 percentage points in the 10 years to 2020, the IIF said in a report released at a meeting in Vienna.
'The IIF calls on the participants of the forthcoming G-20 Summit and the international regulatory authorities to consider carefully the content, timing and calibration of proposed bank regulatory reforms, mindful of the potential drag on economic activity that could result,' said Josef Ackermann, CEO of Deutsche Bank and IIF chairman.
The economic impact would be hardest in the eurozone, where GDP growth would be cut by 0.9 per cent annually until 2015. US GDP growth would be curtailed by 0.5 per cent annually, and in Japan it would be 0.4 per cent, the IIF said.
Some 9.7 million fewer jobs could be created due to the reforms over the next five years, the report warned.
Banks face new taxes and requirements to hold more and better quality capital and liquidity and other reforms to ensure there cannot be a repeat of the recent financial crisis, the worst since the 1930s.
Banks admit change is needed, but are resisting some proposals and are concerned about the cumulative impact of a range of measures and want more time to implement change.
'The point of this report is not to argue against regulatory reform,' said Peter Sands, CEO of Standard Chartered and an IIF director. 'But there is a price for making the banking system safer and more stable, and that price will inevitably be borne by the real economy.
'The challenge is to strike the right balance, to get the maximum benefit for the minimum negative impact,' Mr Sands added. -- Reuters
Source: Business Times, 11 Jun 2010
Thursday, June 10, 2010
European crisis not a major threat to US economy
(WASHINGTON) Anxiety about Europe's debt crisis last month caused US stocks to suffer their worst month in more than a year.
Yet many experts say fears that Europe will deal a sharp setback to the US economy are overblown.
They note that trade between the US and Europe is comparatively small. US banks do lend to their European counterparts and hold billions in investments in those banks and other European firms.
But US banks have enough capital to withstand losses from a European crisis, analysts say.
In addition, the European Union is preparing a US$1 trillion bailout for weak member states. And its central bank has begun buying government debt to protect European banks - and their US counterparts - from the risk of default by EU countries.
The anxieties that have spooked US stock markets could linger a while. The Dow Jones industrial average has fallen more than 12 per cent since late April. But the foundations of the US economy remain secure, experts say.
'The physical linkages with Europe just aren't big enough to undercut the US economy,' said Ethan Harris, head of North American economics at Bank of America Merrill Lynch.
If European countries default on their debt, big US banks with operations in Europe could suffer. US banks don't hold much national debt of Greece, Spain and other countries.
But they do have investments tied up in big European banks - those most at risk in case a European country defaults.
The European Central Bank has warned that European banks might have to reduce the value of assets on their books by US$239 billion over this year and the next. Such losses could prevent the banks from repaying their debts to US financial firms. And if US banks fear such defaults, cross-border lending could dry up.
For all of Europe, US banks have US$1.1 trillion at stake. That's roughly 38 per cent of the US$3.1 trillion in loans and derivatives US banks have with all foreign banks. Derivatives are investments whose value depends on the price of underlying assets, such as stocks or mortgages.
Substantial losses from investments tied to Europe would cause US banks to reduce lending. A deep credit crisis could reduce US growth by 1.5 per cent and possibly cause another recession, Goldman Sachs said in a recent note.
The threat from Greece, Spain, Italy and Portugal - the weakest eurozone countries - itself is small, says Mr Harris of Bank of America Merrill Lynch. US banks' exposure to those countries is US$165.9 billion - just 5.4 per cent of all loans and derivatives US banks have with foreign banks. And US lending to Europe accounts for only about 10 per cent of total US bank assets of nearly US$12 trillion.
Even in case of another credit crisis, few predict anything like the damage caused when banks lost billions on sub-prime loans after homeowners defaulted on their mortgages. Since then, banks have added billions more in capital. They are better able to withstand Europe's problems, Fed governor Daniel Tarullo has said.
Thirty per cent of US exports of goods and services - or US$461 billion - last year went to Europe, according to the Bureau of Economic Analysis. Economic troubles in Europe could sap demand for US exports, slow hiring and drag on the US economy.
Exports could be hurt in two ways: A stronger dollar relative to the euro makes US-made goods and services costlier to foreign buyers. So foreigners buy less. Secondly, budget cuts by European nations further reduce the ability of European customers to afford US products.
'Weaker export growth wouldn't derail the US recovery,' Mr Harris says. Exports account for only about 12 per cent of US economic activity. And US exports to Europe equal only 3 per cent of US gross domestic product - less than the size of the US auto industry.
By contrast, US sales of goods and services to Asia, whose economy is far stronger than Europe's, accounted for 27 per cent of all US exports last year. Exports to Asia would help blunt some of the reduced US export business to Europe. China's currency is pegged to the US dollar, so Chinese customers could still afford US products even if the US dollar kept rising versus the euro.
As the US dollar rises in value compared with the euro, oil prices are falling, too. Lower interest rates and lower oil prices could lead consumers to borrow and spend more and invigorate the economic recovery.
'The U. may actually be an unwitting beneficiary of the crisis in Europe,' James Bullard, president of the Federal Reserve Bank of St Louis, said in a speech last month. -- AP
Source: Business Times, 10 Jun 2010
Yet many experts say fears that Europe will deal a sharp setback to the US economy are overblown.
They note that trade between the US and Europe is comparatively small. US banks do lend to their European counterparts and hold billions in investments in those banks and other European firms.
But US banks have enough capital to withstand losses from a European crisis, analysts say.
In addition, the European Union is preparing a US$1 trillion bailout for weak member states. And its central bank has begun buying government debt to protect European banks - and their US counterparts - from the risk of default by EU countries.
The anxieties that have spooked US stock markets could linger a while. The Dow Jones industrial average has fallen more than 12 per cent since late April. But the foundations of the US economy remain secure, experts say.
'The physical linkages with Europe just aren't big enough to undercut the US economy,' said Ethan Harris, head of North American economics at Bank of America Merrill Lynch.
If European countries default on their debt, big US banks with operations in Europe could suffer. US banks don't hold much national debt of Greece, Spain and other countries.
But they do have investments tied up in big European banks - those most at risk in case a European country defaults.
The European Central Bank has warned that European banks might have to reduce the value of assets on their books by US$239 billion over this year and the next. Such losses could prevent the banks from repaying their debts to US financial firms. And if US banks fear such defaults, cross-border lending could dry up.
For all of Europe, US banks have US$1.1 trillion at stake. That's roughly 38 per cent of the US$3.1 trillion in loans and derivatives US banks have with all foreign banks. Derivatives are investments whose value depends on the price of underlying assets, such as stocks or mortgages.
Substantial losses from investments tied to Europe would cause US banks to reduce lending. A deep credit crisis could reduce US growth by 1.5 per cent and possibly cause another recession, Goldman Sachs said in a recent note.
The threat from Greece, Spain, Italy and Portugal - the weakest eurozone countries - itself is small, says Mr Harris of Bank of America Merrill Lynch. US banks' exposure to those countries is US$165.9 billion - just 5.4 per cent of all loans and derivatives US banks have with foreign banks. And US lending to Europe accounts for only about 10 per cent of total US bank assets of nearly US$12 trillion.
Even in case of another credit crisis, few predict anything like the damage caused when banks lost billions on sub-prime loans after homeowners defaulted on their mortgages. Since then, banks have added billions more in capital. They are better able to withstand Europe's problems, Fed governor Daniel Tarullo has said.
Thirty per cent of US exports of goods and services - or US$461 billion - last year went to Europe, according to the Bureau of Economic Analysis. Economic troubles in Europe could sap demand for US exports, slow hiring and drag on the US economy.
Exports could be hurt in two ways: A stronger dollar relative to the euro makes US-made goods and services costlier to foreign buyers. So foreigners buy less. Secondly, budget cuts by European nations further reduce the ability of European customers to afford US products.
'Weaker export growth wouldn't derail the US recovery,' Mr Harris says. Exports account for only about 12 per cent of US economic activity. And US exports to Europe equal only 3 per cent of US gross domestic product - less than the size of the US auto industry.
By contrast, US sales of goods and services to Asia, whose economy is far stronger than Europe's, accounted for 27 per cent of all US exports last year. Exports to Asia would help blunt some of the reduced US export business to Europe. China's currency is pegged to the US dollar, so Chinese customers could still afford US products even if the US dollar kept rising versus the euro.
As the US dollar rises in value compared with the euro, oil prices are falling, too. Lower interest rates and lower oil prices could lead consumers to borrow and spend more and invigorate the economic recovery.
'The U. may actually be an unwitting beneficiary of the crisis in Europe,' James Bullard, president of the Federal Reserve Bank of St Louis, said in a speech last month. -- AP
Source: Business Times, 10 Jun 2010
Asia warned of spillover from Europe debt crisis
IMF urges govts to be ready to take appropriate action
(SINGAPORE) The International Monetary Fund (IMF) warned Asia yesterday of the potential spillovers of the European debt crisis, saying it could dampen trade, make capital flows volatile and overheat economies in the region.
'Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,' IMF deputy managing director Naoyuki Shinohara told a forum in Singapore.
On the financial front, he said major credit problems could result in a 'significant spillover' through funding channels, especially where banks were dependent on wholesale funding.
There was also increased uncertainty and potential for volatility in the outlook for capital flows, Mr Shinohara said at the forum hosted by the Monetary Authority of Singapore.
He said Asia's bright growth prospects, together with low interest rates in major economies, would likely attract more capital that could 'lead to risks of overheating in some economies if appropriate policy action is not taken. 'On the other hand, further increases in global risk aversion could see capital flows change direction quickly.'
Mr Shinohara called on Asian governments to be wary of the potential risks and be prepared to take appropriate action.
'The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold,' he said.
'With Asia's economic muscle growing, the policy choices made in this region will have an important impact on the global economy,' he added.
Greece is at the epicentre of a mounting debt crisis that threatens to spread across the eurozone and has pulled down the euro to four-year lows.
Asian markets have also been affected by the impact of the crisis.
Mr Shinohara said there was a risk that sovereign debt problems being experienced in some eurozone countries could spill over to others.
He said the strong fiscal position of most Asian economies provided the 'space' to respond flexibly to the European crisis.
'In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus,' he said. -- AFP
Source: Business Times, 10 Jun 2010
(SINGAPORE) The International Monetary Fund (IMF) warned Asia yesterday of the potential spillovers of the European debt crisis, saying it could dampen trade, make capital flows volatile and overheat economies in the region.
'Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,' IMF deputy managing director Naoyuki Shinohara told a forum in Singapore.
On the financial front, he said major credit problems could result in a 'significant spillover' through funding channels, especially where banks were dependent on wholesale funding.
There was also increased uncertainty and potential for volatility in the outlook for capital flows, Mr Shinohara said at the forum hosted by the Monetary Authority of Singapore.
He said Asia's bright growth prospects, together with low interest rates in major economies, would likely attract more capital that could 'lead to risks of overheating in some economies if appropriate policy action is not taken. 'On the other hand, further increases in global risk aversion could see capital flows change direction quickly.'
Mr Shinohara called on Asian governments to be wary of the potential risks and be prepared to take appropriate action.
'The key will be for policymakers to keep an eye on the bigger picture and be ready to act swiftly as developments unfold,' he said.
'With Asia's economic muscle growing, the policy choices made in this region will have an important impact on the global economy,' he added.
Greece is at the epicentre of a mounting debt crisis that threatens to spread across the eurozone and has pulled down the euro to four-year lows.
Asian markets have also been affected by the impact of the crisis.
Mr Shinohara said there was a risk that sovereign debt problems being experienced in some eurozone countries could spill over to others.
He said the strong fiscal position of most Asian economies provided the 'space' to respond flexibly to the European crisis.
'In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus,' he said. -- AFP
Source: Business Times, 10 Jun 2010
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