NEWS,05.12.2012

Euro zone downturn eases slightly

The euro zone's economic slump was a little less pronounced in November than previously thought, although there are few signs the region will emerge from recession any time soon, business surveys showed on Wednesday. Markit's Euro zone Composite PMI, which gauges business activity across thousands of companies, rose in November to 46.5 from 45.7 in October markedly higher than the preliminary reading of 45.8 reported 10 days ago.The PMI has lingered below the 50 mark that divides growth and contraction for all but one of the last 15 months and with no economic stimulus in the pipeline, there is little reason to expect a rebound.Survey compiler Markit said there was no single reason for the upward revision to the PMI from the mid-month flash estimate, which could simply be down to a stronger end to the month for businesses.France, Spain and Italy were the biggest drags on the euro zone economy through last month. Germany performed better. Overall, however, the survey still pointed to a deepening recession this quarter, following the economy's 0.1% decline in the third quarter."The (upward revision) is good news as it might be a sign that activity has bottomed out in Q3," said Annalisa Piazza, economist at Newedge Strategy in London."Nevertheless, we see no signs of improvement that suggest that the EMU economy might recover any time soon. Further contraction in GDP remains our baseline scenario at least until Q1 2013."The euro hit a seven-week high on Wednesday and European shares continued their recent rally, although that was mainly due to comments from China's new leader which boosted expectations for global growth. Monday's manufacturing PMI's told a similar story to Wednesday's composite and services numbers. The composite new orders index saw a sharp upward revision to 45.0 from 44.1 in the preliminary data but still showed company order books declining at a fast rate.Service sector businesses like banks, hotels and restaurants that account for the vast bulk of the euro zone's private economy, also saw activity decline at the slowest rate in three months.The final services PMI was revised up a full point from the flash reading, to 46.7 and compared with October's 46.0.Prices charged for products fell again in November, at a similar rate to the previous month, giving further weight to the view that inflation would pose little impediment to the European Central Bank if it wanted to further ease monetary policy.The ECB ends its monthly policy meeting on Thursday. While only a handful of economists polled by Reuters think it will cut interest rates at the meeting, overall they are split on whether the bank will do so early next year. "The improvement in the services sector purchasing managers' survey further reduces the likelihood that the ECB will cut interest rates on Thursday," said Howard Archer, chief UK and European economist at IHS Global Insight."Nevertheless, we believe a cut from 0.75% to 0.50% remains likely in the early months of 2013 as the euro zone continues to struggle to grow and underlying inflationary pressures are muted."

EU imposes record cartel fine on Philips

The European Commission imposed the biggest antitrust penalty in its history on Wednesday, fining six firms including Philips, LG Electronics and Samsung SDI a total of €1.47bn for running two cartels for nearly a decade.The Commission said executives from the European and Asian companies met until six years ago to fix prices and divide up markets for TV and computer monitor cathode-ray tubes, technology now mostly made obsolete by flat screens.Between 1996 and 2006 they met in Paris, Rome, Amsterdam and in Asia for "green meetings", so-called because they often ended in a round of golf.The EU antitrust regulator imposed the biggest penalty, of €313.4m, on Dutch-based Philips for its role in fixing prices and carving up markets. LG Electronics of South Korea must pay the second biggest fine, set at €295.6m."These cartels for cathode-ray tubes are 'textbook cartels': they feature all the worst kinds of anti-competitive behaviour that are strictly forbidden to companies doing business in Europe," EU Competition Commissioner Joaquin Almunia said in a statement. Taiwanese firm Chunghwa Picture Tubes blew the whistle on the cartels in TV and computer monitors and escaped a fine.The Commission also fined Panasonic €157.5m, Samsung SDI €150.8m, Toshiba €28m, and French company Technicolor €38.6m.A joint venture between Philips and LG Electronics was penalised €391.9m while two Panasonic joint ventures were also sanctioned. Almunia said the violations were especially harmful for consumers, as cathode-ray tubes accounted for 50% to 70% of the price of a screen.Cathode-ray tubes have largely been replaced by more advanced display technologies such as liquid-crystal display (LCD), plasma display and organic light-emitting diodes. Philips said it would make a provision of €509m in the fourth quarter for the fine, but Chief Executive Frans van Houten also said the group would challenge what he called the disproportionate and unjustified penalty. Philips sold off the business which committed the infringement in 2001.ING analyst Fabian Smeets told ANP-Reuters that the sanction was significant, but expected. Philips' shares were down 0.2% to €20 in mid-session, erasing earlier gains after news of the fines. Technicolor said the fine, which will be booked as an exceptional item in its second-half accounts, would not affect its 2012 earnings and free cash flow targets.Until now, the Commission's biggest antitrust penalty had been a €1.38bn fine imposed on participants in a car glass cartel in 2008.The Commission's sanctions followed a total fine of €128.74m levied last year against four producers of the glass used in cathode-ray tubes.Chunghwa Picture Tubes, Samsung Electronics, LG Display and three other LCD companies were penalised a total €648m two years ago for taking part in a cartel.

Fiscal watchdog sees a million jobs lost

Britain's fiscal policy watchdog said on Wednesday that more than one million jobs would now be cut from the public sector by 2018 because of further government spending cuts.The independent Office for Budget Responsibility, which produces forecasts that underpin the government's economic policy, said gross domestic product would grow much more slowly than it forecast in March. According to the OBR, about 1.1 million general government jobs would be lost in total from the Conservative-Liberal Democrat coalition's austerity plans, which got underway in mid-2010, "reflecting the additional year of spending cuts pencilled in for 2017-18".In March, it had expected about 730 000 public sector jobs to be cut across the full period of austerity. There are roughly five and half million people employed in Britain's public sector.The watchdog predicted a 0.1% fall in GDP in the fourth quarter followed by growth of 0.3% in the first three months of 2013. In March, it had expected growth of 0.3% in the final three months of this year.It has also cut longer-term forecasts sharply. The economy will grow 1.2% next year and 2% in 2014, while 2015 and 2016 forecasts were revised down to 2.3% and 2.7% respectively.

Senate approves $631bn defence budget

The US Senate unanimously passed the Pentagon's 2013 budget on Tuesday, despite a political impasse over debt reduction that could see huge cuts to military spending next year.After months of negotiations, lawmakers voted 98-0 to approve the $631bn National Defence Authorisation Act for Fiscal Year 2013, which began on 1 October.The sweeping measure, passed after five days of debate and hundreds of amendments, would tighten sanctions on Iran, restrict the president's authorisation in handling terrorism suspects, and prohibit the military detention of US nationals.The bill must be reconciled with a version passed earlier this year in the House of Representatives before going to President Barack Obama's desk for his signature, though the White House has threatened a veto.The two versions have major differences, but both Senate Armed Services Committee chairperson, Carl Levin, and ranking Republican, John McCain, expressed confidence in reaching consensus in conference.The administration "strongly objects" to sections of the bill that would, among other things, impose restrictions on the use of funds to transfer detainees held at the US Naval base at Guantanamo Bay, Cuba to foreign countries; and to the proposed trimming of civilian and contract workers."If the bill is presented to the president for approval in its current form, the president's senior advisers would recommend that the president veto the bill," the Office of Management and Budget said last week. Obama had sought $614bn, of which $89bn would go to the war in Afghanistan.The Senate however, hiked the total figure by $17bn, even as lawmakers and the president grapple with how to avoid hundreds of billions of dollars in automatic spending cuts that kick in next month if no deficit reduction deal is reached. Tuesday's legislation saw more than 140 amendments added to the bill, including a ban on the US government detaining American citizens or US permanent residents without charge, and tough new economic sanctions on Iran aimed at stalling the Islamic republic's nuclear programme.It also includes an amendment requiring the administration to report to Congress on the US military options available for degrading Syrian President Bashar al-Assad's use of air power against his own people, although it does not expressly authorise the use of US military force and is not to be construed as a declaration of war against Syria.The bill also provides a 1.7% pay raise for military personnel, strengthens the Pentagon's anti-sexual assault programmes, and improves the care and management of wounded warriors, McCain said.The bill also approves funding for the deployment of additional US forces to protect American embassies and diplomatic missions abroad a reaction to the September 11 attack on the consulate in Benghazi, Libya.Four Americans including ambassador Christopher Stevens were killed in the attack by Islamist militants, and several investigations are under way to determine possible security lapses that contributed to the incident.Tuesday's vote marked a rare moment of cooperation between the two parties. Democrats and Republicans are engaged in fierce negotiations on deficit reduction for the next 10 years; they have until the end of the month to forge a compromise, but as of Tuesday, the discussions seemed stalled."Our efforts demonstrate that when it comes to addressing the issues important to the men and women in uniform, the Senate can work together in a bipartisan manner," McCain said.

Saudi businesses fear impact of new fees

Glancing through the newspapers one morning last month Saudi Arabian businessperson Ihsan al-Naeem was stunned by a government announcement that he fears will threaten the survival of his family's 30-year-old contracting business.In the latest and most aggressive of a series of labour reforms, the government has started imposing fees on companies that hire more foreign than local workers. The requirement covers everyone from expat professionals to hospital workers and labourers on construction sites and is in addition to quotas already in place to limit foreign staff numbers.The new rule is aimed at reducing unemployment of 10.5% among Saudi nationals by getting them into jobs now performed by 8 million expatriates in the country, a long-term Saudi goal given fresh impetus by the uprisings in Arab countries last year that were partly driven by high unemployment. Labour Minister Adel al-Fakeih said in January that the largest Arab economy needed to create 3 million jobs for Saudi nationals by 2015 and 6 million by 2030, partly through "Saudi-ising" work now done by foreigners. However, in an economy in which imported labour fills nine in 10 private sector jobs, according to central bank data, many companies fear the new fees will hit their businesses hard by adding to their costs and shrinking the pool of available workers."There are no Saudis who can drill or operate heavy machinery ... Where will they work in the construction industry?" said Naeem, who employs more than 1,000 foreign labourers working on 17 government contracts. As of November 15, Naeem and other private sector employers who hire more foreigners than Saudis must pay a fee of 2 400 riyals ($640) a year for each additional expatriate when they renew an expat's one-year residency permit.The rule does not cover foreigners with Saudi mothers or nationals of other Gulf states. Businessmen protested outside Labour Ministry offices after the decision, threatening to raise their fees to cover the additional labour costs o r terminate existing government contracts. A Labour Ministry spokesperson said there were no plans to reverse or amend the decision. "The decision is based on detailed studies of the market mechanisms and it will hopefully increase the competitiveness of our local youth in a market that has no mercy, which has eight foreigners in every 10 employees of the private sector, who compete with our youth for their livelihood," the spokesperson, Hattab Alenezi, said. Businesses say the new system will not address the problem of Saudis unwilling to work in the private sector. Wages are much lower than in government jobs and in many cases people are better off on unemployment benefit, which pays 2 000 riyals a month for up to a year. A security guard in the private sector, for example, earns only around 1 500 riyals a month. After the 1970s oil boom, which propelled many Saudis into a lifestyle of wealth and luxury, locals viewed jobs requiring manual labour as menial and imported cheap foreign labour to build their cities and service their offices. Construction labourers from India, Pakistan, Bangladesh and the Philippines form the biggest group of foreign workers." I have never come across a Saudi willing to work as a labourer," Naeem said, estimating his medium-sized company will have to pay around 2.4 million riyals in annual fees. Businesses complain that the fees on foreign workers were introduced with immediate effect with no warning or consultation, and that they appear to contradict other recent reforms to encourage "Saudi-isation" that take account of different industries' requirements. Last year the Labour Ministry overhauled a crude quota system for Saudi and foreign employees to take account of a company's size and sector. Those who do not comply with the quotas, known as Nitaqat, face hiring restrictions. Before the overhaul the local quota was a flat rate of 30%. Now the rate varies depending on what sector a company is in and what size it is. A small construction company is allowed more foreigners than a large bank, for instance. The impact of the Nitaqat reform is not yet clear but some economists fear the introduction of fees on foreign staff fit an old pattern of ineffective measures that add costs for companies." I think that (the fee) is going to be treated as a tax by some companies rather than an incentive to employ additional Saudis. It doesn't really address the supply issue which is that Saudis need to be incentivised to take private sector jobs," said James Reeve, a senior economist at Samba Financial Group. There is no formal minimum wage despite government efforts to raise pay for Saudis in private companies. Under Nitaqat rules, construction and transport businesses only need employ one Saudi for 19 expatriates and fear the new fees will hit them particularly hard."Saudis can work in the administration, but there are only a few jobs there," said Mahfooz Bin Mahfooz, who owns a transport company and said he cannot find Saudis to work for him as truck drivers." I want a job in the field that I studied for. I did not go to college so I can work as a driver," said a 22-year-old unemployed Saudi in Jeddah w i th a computer science degree. Not all businessmen disagree with the fee. Some say it is important to achieve the kingdom's long-term goal of getting more Saudis into work. Mohammed al-Agil, head of the kingdom's largest listed retailer Jarir Marketing Co, said about 40 percent of his employees are Saudi although he accepted that it was easier to find local workers in his sector." I think it is a good initiative but I think they should have given enough notice," he said. Many newspaper commentators, however, have voiced vehement opposition."The first to be harmed by it are local business owners, and secondly consumers who will no doubt bear the brunt of rising prices," said Essam al-Ghafaily, a columnist in al-Watan daily newspaper. Even the price of bread could rise by as much as 7 percent as bakers expect to transfer the cost of the new fees onto consumers, said Ali al-Shehri, head of the Jeddah Chamber of Commerce bakers' committee, in remarks printed by al-Watan newspaper.Naeem, the contractor, said he feared missing out on important tenders because the price of his bids will have to rise."Coming from a medium-sized company I'm getting exhausted ... my activities internally may change and I may even look to shift business a b road," he said.