Thursday, August 27, 2009

Data Suggest Europe, Asia Economy Looking Up

LONDON: Economic data gave more evidence that Europe and Asia are on the mend, while a top Chinese leader cautioned against blind optimism and said the world economy still faced "many new difficulties."

Figures from the European Union statistics office Eurostat on Monday showed that industrial orders in the 16 countries that use the euro rose 3.1 percent in June from the quarter before, suggesting the manufacturing sector could be emerging from recession.

New orders - a key gauge of industry's future growth - rose in both France and Germany, as well as Ireland, which has been among the hardest-hit by the global economic crisis.

The figure was almost twice as strong as the 1.6 percent monthly increase that analysts were expecting.

Any recovery will begin from a far lower base, however, as activity was still much weaker than last year with new orders down 25.1 percent over 12 months.

Experts had been braced for an even bigger fall of 28.6 percent.

The euro-zone pickup in orders was the latest in a run of surveys showing a marked improvement in the euro zone economy.

Most eye-catching was the surprising news that the recessions in Germany and France, the euro zone's two largest economies, ended in the second quarter of the year, while the euro zone as a whole shrank by only 0.1 percent.

The picture was gloomier across the wider 27-nation EU, where industrial orders were down 0.4 percent on the month, and 24 percent on the year.

Meanwhile, a survey for Britain showed that business confidence rose between May and August to its highest level in two years.

The Institute of Chartered Accountants in England and Wales said the business community was largely more optimistic than not for the first time since the May-August period of 2007 - before the global financial crisis erupted and Britain fell into recession.

Michael Izza, the institute's chief executive, said the survey suggested Britain's recession was "at an end."

In Asia, Thailand's economy emerged from recession in the second quarter as manufacturing grew and the government boosted spending.

The state planning agency said Monday that gross domestic product expanded 2.3 percent from the first quarter in seasonally adjusted terms, although the economy was still expected to shrink between 3 percent and 3.5 percent in 2009 compared with 2008.

Chinese Premier Wen Jiabao cautioned against being "blindly optimistic" despite improvements in the economy, according to a statement on the government's Web site.

The economy "still faces many new difficulties and problems," Wen was quoted as saying during a visit to southeastern China that ended Monday.

Wen has repeatedly warned against complacency and assurances that easy credit will continue.
The warnings have clashed with the increasing optimism shown by analysts who say China is making dramatic progress in emerging from its slump.

Beijing is in the midst of a two-year, 4 trillion yuan ($586 billion) effort to boost domestic consumption by pumping money into the economy through higher spending on building highways and other public works.

Driven by that spending, economic growth accelerated to 7.9 percent in the latest quarter, up from the previous quarter's 6.1 percent.

Some observers think China could play a key role in leading the world out of its worst downturn since the 1930s.

Analysts will be particularly interested to see if the closely watched Ifo Institute survey into German business sentiment, which is due on Wednesday, provides further evidence of an improving economy - Germany's fortunes are tied up with a pickup in world trade.

Investors will be focusing on U.S. economic data this week, most notably consumer confidence figures from the Conference Board on Tuesday.

In particular, they will be looking to see if ongoing increases in unemployment more than offset hopes of an improvement in the wider economy.

Investors are fully aware that without the support of the U.S. consumer, which accounts for around 70 percent of the U.S. economy and 20 percent of the global economy, recovery will be muted at best.

Monday, August 24, 2009

Bernanke Says Prospects for Return to Global Growth Good

JACKSON HOLE, Wyoming, Aug 21 — The global economy appears on the mend after a deep downturn, but the recovery is likely to be sluggish and risks remain, Federal Reserve Chairman Ben Bernanke said today.

“After contracting sharply over the past year, economic activity appears to be levelling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Bernanke said in remarks prepared for delivery to an annual Fed conference here.

“Although we have avoided the worst, difficult challenges still lie ahead,” he said, cautioning that the “recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”

Bernanke said “critical challenges remain” from global financial markets still strained from a severe crisis that broke two years ago. The difficulties households and businesses face in getting loans is another source of stress, he said.

The crisis highlights the need to “urgently” address structural weaknesses in the financial system, particularly in the way governments set rules and supervise it, he said.

Bernanke was set to deliver the remarks at a conference sponsored by the Kansas City Federal Reserve Bank that draws top central bankers from around the world, along with a Who’s Who of economists.

Germany, France and Japan have pulled out of recession and the US economy appears to be stabilising after a devastating financial crisis and painful economic downturn that eliminated almost seven million US jobs.

The Fed chopped interest rates to near zero in December and has pumped around US$1 trillion (RM3.5 trillion) into financial markets to combat the crisis and spur economic growth.

Earlier this month, the central bank said it would phase out its purchases of long-term US Treasuries, one of the extraordinary measures it has used to revive the economy.

While the US economy appears to be gaining health, analysts worry a recovery could prove fleeting. Expectations for solid growth in the second half of the year reflect the impact of a government program to spur car buying and an anticipated restocking of inventories.

US consumer demand is still weak and unemployment is rising. — Reuters

Monday, August 17, 2009

V-Shaped Recovery Has Begun: Fund Manager

Global stocks are at the start of a bull market, says Malaysia's only listed closed-end fund icapital.biz
ICAPITAL.BIZ Bhd (5108), Malaysia's only listed closed-end fund with RM267 million of assets, believes the global economy has begun a V-shaped recovery and global stocks are at the start of a bull market.

Its managing director and fund manager Tan Teng Boo, who has been bullish on the economic recovery since February, continues to advocate that the transformation of China from a developing to an industrial nation will keep the world in a long boom that lasts decades.

"China and India economies are no doubt smaller than the US, but what the established economists have missed is the rate of change," Tan told a media briefing in Kuala Lumpur yesterday.

"When China grows, it benefits Australia, India, Canada, Brazil and Southeast Asia - the huge growth that it is generating can more than offset the decline in the US economy," he pointed out.

Such bullishness is still a minority view among economists and the investment community, even as more signs are emerging that the global economy is bottoming out.

This week, Nobel prize-winning economist Dr Paul Krugman told a symposium in KL that the world will likely see slow expansion for a decade with the lack of clear growth driver, especially in the US.

Even Dr Raghuram Rajan, an economic adviser to the Indian prime minister and a believer in China and India's rising economic influence, said the two economies are still too small to pull the world out of this recession.

With Tan's confidence in the global recovery, he said the performance of Malaysian shares hinges solely on local politics and the political will of the current administration to carry through the reforms agenda.

"The country's economy is more resilient than many Malaysians would recognise. If the government can convince investors that they can unleash the potential of the economy, the benchmark FBM KLCI will do very well," Tan said.

It is "realistic" to expect a 5 to 10 per cent rise in the index from its current level, he said, possibly reaching 1,250 within this year, although there will be corrections along the way. The gauge is bound to test the previous high of 1,516.22 in the next one to two years, he added.

icapital.biz, which is conservative in its investment, is down to below RM40 million in cash - the lowest in its four-year history and reflects the many bargains available on Bursa Malaysia. The fund, which invests only in Malaysian shares, bought RM156 million stocks that are now worth RM206 million, giving it an unrealised gain of RM50 million.

Its top five holdings are Parkson Holdings, Astro, Kuala Lumpur Kepong, F&N Holdings and Petronas Dagangan. The fund has sold all its shares in Axiata Group Bhd, VADS Bhd and AirAsia Bhd in the last financial year.

Wednesday, August 12, 2009

Asia Needs To Stimulate Domestic Demand

ASIAN countries need to stimulate domestic demand, given the current economic climate in global markets, said Haas Business School professor Dr Laura D’Andrea Tyson.

“Asian countries need to find ‘a little more growth’ from domestic demand,” Tyson, who is also the economic adviser to US President Barack Obama, told a press conference.

In this regard, Asian countries should, among other measures, strive to create new opportunities for small and medium enterprises and ramp up spending on programmes that are domestic demand-driven, like healthcare.

This would also generate jobs in the local economies, she said.

Tyson urged Asian nations to push for policies like healthcare and education which would help household sectors spend more.

“I was very impressed with what China has done on the stimulus side and it is becoming a more significant source of growth in the region.

“I would emphasise the need for policies like education, healthcare and social security which would help the household sector spend more because they have more safety-led provisions which allow them to save a little less,” she said.

In coping with the current economic slowdown, Tyson said “the correct thing to do” for growth all over (the world) was to “run economic stimulus packages and deficits.”

“You want the world to benefit from each nation trying to stimulate growth,” she noted.

As for the recovery of the US economy, Tyson said the US$787bil rescue package launched in February was “on track”.

She cautioned that the recovery in the United States would be “vulnerable” once the government’s economic measures “took a step back”.

“The second half of this year will be much stronger due to the effects of the stimulus package and the rebuilding of inventory,” Tyson said. “However, once these are done with, where will the continuing momentum come from? Our forecast ability is limited.”

Friday, August 07, 2009

World May Witness W-Shaped Recovery

Nobel laureate Paul Krugman says a double-dip in the global economy is a 'real possibility' if weak labour markets continue to act as a drag.

Nobel prize-winning economist Paul Krugman says a double-dip in the global economy, or a second leg to the downturn, is a "real possibility", meaning that the world may go through a W-shaped recovery.

"That's a real possibility. Some of the support measures, especially fiscal stimulus, will reach their peak later this year, and then recede," Krugman told Business Times in an e-mail interview.

"If weak labour markets continue to act as a drag, a W-shaped recovery is quite possible."

A professor at Princeton University and a New York Times Op-Ed page columnist, Krugman won the Nobel economics prize last year for his works in trade patterns.

A double-dip recession happens when gross domestic product (GDP) growth slides back to negative after a quarter or two of positive growth.

Krugman said he does not foresee a sharp rise in global inflation, even as governments worldwide are pumping in hundreds of billion dollars to counter the impact of the worst global recession in decades.

"No, just no. The stimulus plans may look large by historical standards, but they're not enough to close the output gap, so they are not inflationary," he said.

"Monetary tightening won't happen, I hope, until the gap starts to close, which probably is at least a year away.

"The output gap is the difference between potential GDP and the actual growth in the economy. Many expected the world economy to grow at a rate below its potential in the next couple of years in a slow recovery.

Krugman will be speaking at the World Capital Markets Symposium in Kuala Lumpur next week. He will also join a panel discussion on reshaping the world economy at the same conference on Monday.

He believes that the emerging economies of Brazil, Russia, India and China, commonly known by the acronym BRIC, will "probably" overtake the Group of Seven in terms of output. But this will not happen anytime soon.

"They have a lot more people, and productivity is converging (with the advanced economies)," Krugman remarked.

"But I think we're 20 or more years from the point where China overtakes the US, and more before the emerging markets surpass the West as a whole."

A new international reserve currency may also emerge "someday" to supplant the US dollar, but "not soon".