NEWS,25.10.2012

Eurozone business slump accelerates

Eurozone private sector business activity slumped deeper into the mire in October, falling at its fastest rate since June 2009 to 40-month lows, a closely watched survey showed on Wednesday.The Composite Purchasing Managers Index (PMI), a survey of 5 000 eurozone businesses compiled by the Markit research firm, fell to 45.8 points in October from 46.1 in September.The index is a leading indicator and any reading below 50 indicates a contraction in activity, with the eurozone getting off to a bad start for the fourth quarter as the debt crisis continues to undermine growth and jobs.The preliminary data showed the Services sector PMI at 46.2 points in October, edging up from 46.1 in September while the Manufacturing sector fell very sharply to 45.3 from 46.1.Markit said eurozone firms "continued to cut employment, adjusting capacity down in response to lower levels of demand for goods and services."Further declines in activity over the coming year were signalled by another deterioration in business optimism in the service sector, which also suggests that employment looks likely to be cut again," it added. Markit chief economist Chris Williamson said the data suggested the eurozone economy was shrinking at a rate of 0.5% on a quarterly basis, more than enough to count the eurozone as deep in recession."While gross domestic product may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter," Williamson said."The financial markets may have cheered the positive developments from policymakers in seeking to resolve the region’s debt crisis ... but business appears to have been less impressed."Sentiment about prospects for the year ahead are now the gloomiest since early-2009, when the post-Lehman Brothers crisis was in full swing," he said.Analysts said the survey findings were cause for concern, with the eurozone falling deeper into recession.The figures "worryingly indicate that the eurozone downturn is, if anything, deepening rather than easing. Consequently, it already looks highly likely that the eurozone is headed for further economic contraction in the fourth quarter," said Howard Archer of IHS Global insight.Archer noted how austerity policies implemented to combat the debt crisis were hitting domestic demand while muted global growth undercut exports.The European Central Bank was now likely to cut its benchmark interest rate to 0.50% from 0.75% in December in an effort to boost growth, he said, although it could be delayed until early 2013.

EU, IMF insist no Greek creditor deal yet

 

Greece's finance minister announced he had agreed a new austerity deal with international creditors, but the EU and IMF insisted that while there had been progress, no deal had yet been thrashed out.Yannis Stournaras told parliament Wednesday the so-called troika had granted a long-sought extension in return for a €13.5bn austerity package needed to unlock funds vital to keep the country afloat.But officials at both the European Union and the International Monetary Fund were quick to make it clear that the troika had not yet reached any agreement with Athens."Substantial progress has been made in talks with Greece but a few outstanding issues remain before a staff-level agreement can be reached," a spokesperson for European economic affairs commissioner Olli Rehn said in a tweet.The International Monetary Fund issued a similar message soon after."There has been progress in recent days, but some outstanding issues remain to be agreed upon to reach full staff-level agreement," a spokesperson said."Furthermore, financing issues will be discussed between the official lenders and Greece."European Central Bank chief Mario Draghi also said that while there had been progress "the review is not finished yet".The EU has been negotiating alongside the ECB and the IMF on a new round of spending cuts and reforms by Greece to unlock a €31.2bn installment from its rescue loans.A finance ministry source had said earlier that the government hoped to present the deal to a Eurogroup meeting on Thursday, ending talks that have dragged on since July.But Finance Minister Wolfgang Schaeuble of key paymaster Germany said: "As far as the German government knows there are no new findings."When the proposals (from the troika) are on the table, the Eurogroup will look at them. There is nothing more to add."Earlier Stournaras had said that he had finalised the agreement on cutbacks in talks with the troika's auditors."We have obtained the extension," he told parliament, announcing that two draft laws related to the package would be presented to parliament next week.The new measures, to be voted on by November 12, still have to be approved by Greece's three-party coalition government, with key allies remaining split over the painful reforms.According to the draft budget, Greece plans to cut the public deficit to 6.6 percent of output this year - still over twice the EU limit.'Greece will be saved by those who dare'European leaders have long maintained that extra time for Greece means more money from eurozone taxpayers.But Stournaras said: "Greece aims to cut its debt through lower interest rates and an extension in the repayment of loans it has received from the EU and the IMF."German daily Sueddeutsche Zeitung and Greek media had reported that Athens would be given two more years to slash its public debt mountain and implement key labour reforms and privatisations.Greece, heading for a sixth straight year of recession, is desperately trying to unlock the new installment of loans from the troika.In exchange, Athens has to agree to tough economic reforms, but the measures are deeply unpopular among ordinary Greeks who have taken to the streets in sometimes violent protests.With unemployment topping 25%, the government has been pleading for more time to implement the austerity measures.Media reports had said Athens would be given to 2016 to cut its deficit to the EU limit of 3% of gross domestic product rather than the previous deadline of 2014. Its total debt stood at a whopping 150% of GDP at the end of the second quarter, according to Eurostat.The reported agreement also scaled back targeted privatisation revenue to €10bn by 2016 - effectively nine billion less over an extra year - while calling for a two-year rise in the statutory retirement age and fresh cuts to state salaries and pensions.Earlier Wednesday, ECB executive board member Joerg Asmussen said that if Athens did get another two years to implement its reforms, other members of the 17-nation eurozone would have to lend it more money to bridge the deficit shortfall.Athens recently pledged €7.8bn in cuts next year, only to be told by the troika that an effort of €9.2bn was required to counterbalance the effects of the recession.Prime Minister Antonis Samaras's political allies, the socialist and moderate leftist parties, have baulked at calls to lower severance pay and facilitate layoffs while the country faces record unemployment."Greece will be saved by those who dare," Samaras said on Tuesday after a meeting of coalition leaders. "We have already modified many of the troika's original proposals - on labour issues and others - and the negotiation continues."

Olympics lift Britain out of recession

Britain stormed out of its longest double-dip recession since the 1950s after its economy returned to growth in the third quarter with a robust gain of 1%, official data showed on Thursday.British gross domestic product, or combined value of produced goods and services, grew at the strongest rate for five years during the July-September period after contracting in the previous three quarters.Market expectations had been for the economy of Britain, which is not part of the eurozone, to have expanded by 0.6% in the third quarter compared with the second after falling into a double-dip recession in late 2011.British Prime Minister David Cameron welcomed the data but warned against complacency amid global economic headwinds."There is still much to do, but these GDP figures show we are on the right track, and our economy is healing," Cameron said in a statement.Finance minister George Osborne echoed the cautious sentiment, saying that "yesterday's weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad."Britain escaped from a deep downturn in late 2009 but fell back into recession at the end of 2011.The economy contracted by 0.4% in the second quarter of this year after shrinking by 0.3% in the first - and by 0.4% in the final quarter of 2011."GDP was estimated to have increased by 1% in Q3 2012 compared with Q2 2012," the Office for National Statistics said in a statement."The largest contribution to the increase came from the services sector. There was also an increase in activity in the production sector. Activity in the construction sector fell."Growth was also affected by one-off factors, including the London 2012 Olympic Games and rebounding activity after an extra public holiday for Queen Elizabeth II's Diamond Jubilee, the ONS said."Not only did the UK pull out of its double-dip in Q3, but the one percent quarterly rise in GDP was a fair bit better than expected," said Vicky Redwood, senior economist at the Capital Economics research group." Admittedly, much of this reflected temporary factors. We think that the reversal of the Jubilee effect probably added about 0.5 percent, the Olympic ticket sales added 0.2% and there may have been a wider Olympic boost."But even accounting for this suggests that underlying output managed to rise by a small amount - an improvement on recent quarters. It won't be plain sailing from now on, though. There are still a number of constraints on the recovery."Output was meanwhile flat in the third quarter compared with the equivalent period in 2011, the ONS added.Despite emerging from recession, Britain was facing considerable difficulties, not least from tight credit conditions and worries about the impact of the debt crisis in the eurozone, a key trading partner.Other major headwinds include rising inflation on higher energy and food prices, an uncertain jobs market and ongoing austerity measures from Britain's coalition government.

China to open energy to private investors

China will seek to encourage more private investment in its state-dominated energy sector, according to a new industry white paper published by official news agency Xinhua on Wednesday.China is preparing for a once-in-a-decade leadership transition in November, and its new leaders are widely expected to push for the sort of market-oriented reforms that will break up monopolies in sectors such as energy. The new policy document said China planned to “give full play to the fundamental role of the market in allocating resources” and would draw up new regulations designed to reform the energy sector.  Included in the list of possible private investment targets were the exploration and development of energy resources, coal processing, oil refining, renewables, the construction of oil and natural gas pipelines and the electricity sector.“All projects listed in the national energy program, except those forbidden by laws or regulations, are open to private capital,” the document said.Policy makers have struggled to bring market forces to bear on the energy industry, with dominant state-owned enterprises like the State Grid Corp. proving resistant to change. The white paper said China would also seek to improve legislation on, and regulation of, the industry, with plans to adopt a comprehensive new energy law and new provisions dealing with oil reserves, natural gas and nuclear reactor management. While China is committed to raising the share of renewables in its overall energy mix to 15% by 2020, it said it would also promote the clean development of fossil fuels and improve power generation efficiency.      

China slams money-making off religion

China's religious affairs ministry has lashed out at the rampant commercialisation of sacred places and temples in the country, including the practice of employing "fake monks" and fortune-tellers. In a statement posted online, the State Administration for Religious Affairs, which oversees the country's religious organisations, also criticised plans by some Buddhist and Taoist temples to raise funds by listing on the stock market." Temples shall not in any way engage in 'stock' or 'joint venture' activities," the administration said in the statement dated October 22.Policies by the Communist Party suppressing religion have been relaxed since the 1970s, leading to a rapid increase in pilgrimages and visits to temples. Religious organisationsare still required to register with the government. The State Administration for Religious Affairs picked out for particular criticism those "using the excuse of promoting traditional culture" to profit from devotees." There have been reports of non-religious sites employing fake monks... illegally setting up donation boxes to take religious donations, even threatening religious believers and tourists to cheat them out of money," the statement said."These phenomena seriously violate the party's policies towards religion, and national laws," it added, listing other abuses including pressuring tourists to buy expensive incense and illegal fortune-telling. The Famen temple in northwest China is set to list on Hong Kong's stock exchange next year, according to the Global Times daily, while Mount Putuo, a sacred Buddhist mountain, has announced plans to go public within three years.Two fake monks wearing orange Buddhist robes were detained in Beijing in April after they were caught drinking alcohol on the city's subway and checked into a luxury hotel with two women, local reports said at the time.