NEWS,27.11.2012

OECD: Eurozone crisis to hamper recovery

The OECD cut growth forecasts for most countries in the European Union's eastern wing on Tuesday and urged Hungary to do a deal with international lenders even as most analysts give such a deal less than even odds of happening.The Organisation for Economic Cooperation and Development said the euro zone crisis and austerity drives by emerging Europe's governments would sap recovery in most of the region.In a regular report, the group said the economies of Poland, Slovakia, and Estonia would grow both this year and next.It said inflationary pressure implied monetary easing was on the cards for Poland, but interest rate cuts in Hungary could destabilise price stability and undermine policy credibility.

Hungary

The OECD said closing an aid deal with the European Union and IMF was "critical to growth" because it would lower Budapest's borrowing costs, improve investor confidence and boost domestic lending.Under the assumption that a deal will materialise, the organisation forecast economic contractions of 1.6% this year and 0.1% in 2013.In May, the OECD forecast shrinkage of 1.5% for 2012 and growth of 1.1% next year. Analysts give only a 30% chance that Prime Minister Viktor Orban will sign a deal.The OECD said the fiscal deficit would narrow from 3% of gross domestic product (GDP) this year to 2.7% in 2013 and 2014.It said recent interest rate cuts by the central bank risked upsetting price stability and undermining policy credibility, and it added that rate setters should ease monetary policy only once inflation fell back below the bank's 3% target."Failure to conclude a financial agreement with the multilateral organisations could undermine already weak confidence, endanger fiscal sustainability and destabilise the exchange rate," the OECD said.

Poland

The weak European economy and fiscal consolidation will hit Poland, according to the OECD, which cut its growth forecast for the region's biggest economy to 2.5% this year, from 2.9% in May. It saw growth of 1.6% in 2013.It said headline inflation would fall to the lower end of the central bank's 1.5% to 3.5% target band. Along with the slowdown in growth, that implies that rate setters should ease policy to support the economy, the OECD said.The fiscal deficit should fall to 3.5% of gross domestic product  in line with the government's target  before falling to 2.9% next year.The organisation also said the government should push on reforms to sell state owned assets, improve the tax structure, reduce red tape for businesses, end special pension schemes and reform farmers' health and pension systems to boost growth.

Czech Republic

The OECD deepened its forecast for a Czech economic contraction to 0.9%, from an estimate of 0.5% in May. It sees a recovery emerging in 2013 with 0.8% growth, expanding to 2.4% in 2014.The organisation said the public finance deficit should stagnate at 3.3% of gross domestic product this year and next, above the European Union's 3% ceiling.It will fall to 2.7% of GDP in 2014, it said, because of structural improvements in the budget and stronger growth.

Estonia

Estonia should lead EU OECD countries with growth of 3.1% in 2012, the OECD said, raising its forecast from 2.2% in May. That should accelerate to 3.7% next year.The country's public finances should fall into a deficit of 1 percent of GDP this year, but then creep closer to a balanced result over the next two years.

Slovakia

The OECD sees Slovakia's car-export-driven economy expanding by 2.6% this year, unchanged from a May forecast. It said a weak labour market and fiscal retrenchment would squeeze growth to just 2% in 2013, down from an earlier estimate of 3%. The following year, however, growth should pick up to 3.4%, the OECD said.

Slovenia

Austerity measures and deleveraging by foreign-owned banks and companies will hit Slovenia's economy next year, the OECD said, predicting a contraction of 2.1%. It saw the fiscal deficit hitting 4.3% of GDP in 2012 and falling to the EU's 3% ceiling only by 2014.

Israel

The OECD said growth should slow from 3.1% this year to 2.9% in 2014, while an acceleration in price growth that should begin in the second quarter of next year would require monetary tightening.It added that the government's deficit targets of 3% and 2.75% for 2013 and 2014 would be hard to hit, and instead forecast shortfalls of 4.1% and 4%.

 

OECD warns of downward spiral in Portugal

Portugal's economy will contract twice as much as previously expected in 2013 and the bailed-out country risks falling into a fiscal and financial downward spiral, the OECD said on Tuesday.The Paris-based Organisation for Economic Cooperation and Development also warned in its economic outlook that further budget tightening will "likely" be needed to meet deficit targets set out under the €78bn EU/IMF bailout.The OECD now forecasts a 1.8% contraction in 2013, more than the 0.9% it forecast in July and far more than the -1% predicted by the Portuguese government."If the demand effects of the required fiscal retrenchment turn out higher than expected, this could lead the economy into a downward spiral of worsening economic, financial and fiscal conditions," the OECD wrote.It said Portugal will only return to growth late next year as export growth eventually offsets weak domestic demand.The economy contracted 1.7% last year and is expected to fall 3.1% in 2012, marking debt-burdened Portugal's worst recession since returning to democracy in 1974.Lisbon has slashed spending and raised taxes since it received the bailout last year but economists have warned of a recessive spiral which could mean the country needs more aid.The Portuguese face the biggest tax hikes in their modern history in 2013, which the OECD said could drag on growth and private consumption, which it forecast would fall by 3.5% next year, more than the 2.2% the government estimates."Compliance with the headline deficit targets of 4.5% and 2.5% of GDP for 2013 and 2014, respectively, are likely to require additional consolidation measures due to the weak economy," the OECD wrote.Record unemployment will also rise further, it said.Besides updating its macroeconomic scenario, the OECD said deleveraging of Portugal's financial sector was inevitable but that it should work to prevent credit from contracting too fast."The economy will remain sensitive to a further deterioration in credit conditions and worsening conditions in other euro area economies," it said.

 

Parking spots become latest investment

Ivestors looking for new places to park their cash in Hong Kong are driving up prices for parking spaces, sparking fears of a bubble in the Asian financial center.Prices for parking spots in Hong Kong are nearing historic highs, the side effect of government curbs to cool the housing market amid worries of overheating following the latest round of monetary stimulus in the US two months ago.There are "a lot of speculators in the market, especially for car parks," said Buggle Lau, senior analyst with Midland Realty. A bubble is "definitely forming."Over the weekend, a developer sold about 500 parking spots at a new suburban apartment complex at prices up to 1.3 million Hong Kong dollars ($167 000) per space.In a commercial building near the city's financial district on Hong Kong Island, an investor has put 34 parking spaces on sale for HK$100m ($12.9m), according to a report last week in the Ming Pao newspaper. A parking spot in the exclusive Repulse Bay neighborhood sold for HK$3m, the paper also said, citing Land Registry data.On Thursday, a single parking spot in a building in the popular Mid-Levels residential neighborhood will be auctioned off with the opening bid at HK$680 000.Second-hand parking spaces changed hands in the third quarter for an average of HK$640 000. That's up 16.4% over the year before, according to research by property company Centaline. It's also not far off the record HK$660 000 in the fourth quarter of 1997, shortly before the city's property market collapsed.The rising prices are a side-effect of recent measures to cool Hong Kong's housing prices, which have doubled since the end of 2009 and are among the highest in the world.Hong Kong's government has introduced three separate sets of curbs on property purchases since the summer in a bid to cool the market. US policymakers' continuing efforts to stimulate the economy by keeping interest rates at an ultralow level and buying tens of billions in bonds each month has raised concerns in Hong Kong about money flooding into the southern Chinese city, pushing asset prices higher as investors chase profits in the property market.The latest curbs don't cover nonresidential properties such as parking spots so investors have been piling in as they look for higher returns. Hong Kong had the world's third-highest monthly parking charges last year, according to real estate company Colliers International."In some car parks, especially in urban areas where supply is limited, the sales price of some car parks can be as high as two to three million (Hong Kong) dollars" each, said Lau of Midland Realty.Nearly 8 400 parking spaces worth HK$5.6bn changed hands in the first 10 months of this year, compared to 8 300 such transactions worth HK$5.4bn for all of 2011, according to Land Registry data compiled by Midland.Some of that increase comes from developers like Cheung Kong Holdings, Sun Hung Kai Properties and Chinachem Group selling off parking spaces at their apartment complexes. It's a break from the usual practice of renting them out to residents, and is a sign that the developers realize it's a "pretty good time" to sell because of the prices they can get, Lau said.Because Hong Kong's currency is pegged to the US dollar, policymakers cannot take conventional measures to cool property prices like raising interest rates.So the government tightened restrictions on property purchases, including bringing in a new stamp duty on foreign buyers. But parking spots and other non-residential property are exempt."The latest overseas buyers' stamp duty will just put some fuel onto that fire, and is making the whole parking space investment market go out of control," said Josh Wong, whose Hong Kong City Parking owns about 200 parking spots at eight lots around Hong Kong.Many investors who buy spaces rent them out to car owners. Wong said he typically looks for an annual yield, or return, of 5% to 6%, but because prices have risen, yields have been falling to about 4% to 5%. He said has even heard of investors making as little as 1.8% on their investment.Wong, who also runs Parkinghk.com, a website for buyers and sellers of parking spots, said the market was heating up because investors didn't need a lot of money to get started."One million Hong Kong dollars ($129 000) cannot buy anything in Hong Kong. You cannot buy a shop, you cannot buy anything except car parking and that would help the car park investment go even more crazy," he said.

 

French unemployment hits 14-year high

The number of people out of work in France soared again in October to hit its highest level in 14 and a half years, piling pressure on Socialist President Francois Hollande who has promised to halt the relentless rise by the end of 2013.Labour Ministry data showed the number of jobseekers in mainland France rose by 45,400, or 1.5%, to hit 3.103 million, marking the 18th consecutive monthly increase and taking the total to its highest level since April 1998.The increase was only slightly smaller than in October which saw the biggest jump in jobless rolls since April 2009, showing the deterioration in the job market is accelerating as recession in the broader euro zone hits demand.France's 1.9 trillion euro ($2.99 trillion) economy has been virtually stagnant since grinding to a halt at the end of last year, and many economists expect it to contract in the months ahead despite a surprise 0.2% rise in the third quarter.With the economy still struggling, the Labour Ministry said there was a risk the figures could get even worse.But it noted that new measures to bolster company investment and the youth job market that will kick in from next year have yet to produce results."This run of negative figures on employment only increases our resolve to do something to reverse the trend between now and the end of next year," Labour Minister Michel Sapin said in a statement.Hollande won power in May on a pledge to cut unemployment, but has since had to grapple with a wave of layoff announcements that have damaged his popularity and sapped public morale.The government unveiled a set of measures at the start of November, including sweeping tax rebates for companies, aimed at boosting industrial competitiveness and safeguarding jobs.French business newspaper Les Echos said Hollande was now planning a faster rollout of the rebates so that they reach full speed within two years instead of the three year build-up initially envisaged.Meanwhile, Industry Minister Arnaud Montebourg has been increasingly vocal in his criticism of companies mulling job losses. He shocked steelmaker Arcelor Mittal this week, fanning tensions over two threatened blast furnaces, by saying its CEO was no longer welcome in France.With the pace of job losses rising steadily, surveys show the public wants more than promises to save the economy, and economists want deeper structural reforms.The Labour Ministry data is the most frequently reported domestic jobs indicator for France, although it is not prepared according to widely used International Labour Organisation (ILO) standards nor expressed as a rate of the number of job seekers compared with the total work force.

Thousands march in Rio over oil dispute

As many as 200 000 people demonstrated in Rio de Janeiro on Monday to urge Brazilian President Dilma Rousseff to veto a bill that local officials say could cost Rio state billions of dollars in lost oil revenue and cripple plans to host the World Cup and Olympics.Late on Monday, a person familiar with the president's plans said Rousseff is planning to veto at least part of the bill, particularly a portion that redefines royalty payments for existing oil production in Brazil. The president, the person added, instead will propose that Rio and Espirito Santo, the two states with most of Brazil's oil output, continue to get a level of royalties from current production similar to what they received last year. The partial veto would not change parts of the bill that redefine oil royalties from production at new fields.For Rousseff, the protest raised the stakes on what may be the most sensitive decision she has faced in her nearly two-year-old government: How to distribute tens of billions of dollars in expected revenues from a massive offshore oil field that Brazil discovered in 2007.The bill, passed by Congress this month, would spread the windfall more evenly to Brazil's 26 states and federal district. As submitted for her approval, however, it would also alter royalties on existing production, angering Rio and other southeastern states where most of Brazil's oil is located.Rousseff has until Friday to veto the bill, but is expected to decide on the partial veto on Thursday, the person said.Monday's event had attracted about 200 000 demonstrators by early evening, according to police calculations.The protest began with a march through Rio's colonial centre and was followed by a series of speeches, concerts, and impromptu revelry that at times gave it a festive air. In recent days, state officials plastered streets and buildings with banners advertising the protest in large black and white lettering and a command in red for the president: "Veto, Dilma."Rio is spending tens of billions of dollars to build stadiums and other infrastructure for the 2014 soccer World Cup and the 2016 Summer Olympics - two marquee events expected to attract hundreds of thousands of visitors.Rio Governor Sergio Cabral, an ally of the president, led the protest. He has cast the debate in dire language that analysts say may exaggerate the financial stakes but has nonetheless intensified political pressure on Rousseff.The bill "would devastate the state budget and compromise the future of Rio. The state would be inviable," Cabral told journalists after the protest.He urged Rousseff to veto parts of the bill dealing with royalties for existing production, which he said would cost producer states and cities 6.5bn reais ($3.1bn) in 2013 alone.Approving the bill could hurt Rousseff's relations with Cabral's PMDB party, a large and ideologically shape-shifting group that is a linchpin of the broad coalition that supports her ruling Workers' Party.Rousseff has vowed to further Brazil's efforts to reduce poverty, in part by redistributing the windfalls from its growing commodity exports - from oil and iron ore to foodstuffs.Throughout the day on Monday, police had cordoned off large swaths of Rio's centre, along the river-like bay that gives the city its name. State and municipal officials facilitated attendance by waiving subway and ferry fees and providing buses from far-flung towns outside the capital.