NEWS,13.12.2012

Mild pick-up for US economy next year

The US economy is expected to remain sluggish next year, despite widespread expectations for more monetary stimulus from the Federal Reserve later on Wednesday, a  poll showed.Most consensus forecasts for the first half of 2013 were downgraded to their lowest since  began polling for this period more than a year ago. The forecast for the current quarter was slashed again.That underscores a very fragile world economic outlook, given sharp slowdowns in many big emerging economies such as Brazil and India and only a tentative sign of re-emergence of China's economic growth engine."Too much of the global economy is stumbling to support export demand," said Carl Riccadonna, senior US economist at Deutsche Bank. "It's Europe, it's recession in Japan, (and) softer growth out of China for much of the year.""US exports are likely to pose a drag on growth in the current quarter, which is something we haven't see since the collapse in trade during the recession," he said.Much depends on whether politicians can sort out a deal to avoid the "fiscal cliff", a series of automatic tax hikes and spending cuts next year. Uncertainty around that has already damaged business confidence and curtailed hiring.Indeed, the poll showed growth is expected to have slowed to just 1.2% on an annualised basis in the quarter that ends this month, down sharply from 1.6% in the November poll, and well below the economy's potential.Weak exports have dragged on growth, not to mention superstorm Sandy, which hit the US east coast in October and shut down most of New York City and surrounding area for days, damaging business and infrastructure.The outlook for all of 2013 has been chopped to 1.9%, far below the Fed's September prediction of 2.5%-3.0%, and also the lowest consensus for 2013 polled so far this year.Despite a third round of bond purchases from the Federal Reserve to boost the jobs market, employment expectations remained tepid. The consensus for average monthly non-farm payrolls growth was mostly unchanged at 127 000 for the first three months of 2013. That comes despite a strong majority of forecasters, 47 of 51, expecting the central bank to buy more US Treasuries when its Operation Twist program expires at the end of December.The Fed is expected to buy $45bn of Treasuries every month in addition to the already-announced purchases of $40bn every month in mortgage-backed securities. But these new purchases will further expand the Fed's balance sheet.The poll also showed the Fed is likely to continue its monetary stimulus for at least a year, making for an additional $1 trillion of purchases. The Fed has bought bonds worth $2.3 trillion in two prior rounds of quantitative easing.A majority, 31 of 49, also expect the Fed eventually to adopt numerical thresholds for inflation and unemployment, similar to results of a survey taken last week.So far, markets have been sanguine that Washington will avoid the fiscal cliff. US stocks have erased all their losses after the November 6 presidential election and the S&P 500 is up almost 1% so far this month.But signs from lawmakers have been mixed with nothing concrete to indicate a deal will be reached by the end-of-the-year deadline.US House of Representatives Speaker John Boehner offered no signs of progress on Tuesday but said he remains hopeful that both sides would reach an agreement.But Senate Democratic leader Harry Reid said it would be difficult to get a deal before Christmas.If a deal is not reached it could lead to $600bn being sucked out of the economy in 2013 in what is essentially a self activating austerity program built into current law.

EU approves budget for 2013

EU lawmakers gave final approval on Thursday for a European Union budget of nearly €133bn ($172bn) for 2013, removing some uncertainty around the bloc's future funding after talks on spending for 2014-2020 broke down.The vote by the European Parliament in Strasbourg brought some clarity to EU finances at least for next year, and saw off a threat that some EU programmes, including the Erasmus student exchange scheme, would run out of money this year."We have managed to avoid a budgetary crisis on top of the economic crisis," Goran Farm, a Swedish socialist member of the European Parliament, said in a statement. However, doubt still surrounds the EU's long term spending plans. EU leaders were unable to reach a compromise last month on a proposed budget of some €1 trillion between 2014-2020. Under the 2013 deal, EU payments next year will be limited to a maximum of €132.84bn, which represents a just-above-inflation rise of 2.9% from the original budget agreed on for this year. The vote will also unlock an extra €6bn in spending for this year.The €6bn will fill a spending gap in research, education and employment programmes and means total EU spending in 2012 of €135bn, the highest level ever.About three-quarters of the EU's annual budget is spent on farm subsidies and funding for new motorways, bridges and other public infrastructure projects in poorer eastern and southern European member countries.EU leaders will hold further talks, possibly in February, to try to agree on the bloc's long-term funding.

EU, IMF agree to lend Greece €49bn

Eurozone finance ministers and the International Monetary Fund have agreed to release €49.1bn in aid to Greece by the end of March, with most of that sum flowing immediately, senior EU officials said on Thursday."Money will be flowing to Greece as early as next week," eurogroup chairman Juncker told a news conference after a meeting of ministers from the single currency bloc. "We are convinced the programme is back on a sound track."A eurogroup statement said €34.3 bn would be paid out in the coming days and the remainder in the first quarter of 2013.Agreement to release the funds hinged on the success of a debt buyback launched by Greece last week, which will enable Athens to retire nearly €20bn in bonds repurchased at a third of their face value from private holders.Juncker said he was not sure that additional measures would be needed to reach an agreed goal to bring Greece's debt down to 124 percent of gross domestic product (GDP) by 2020, but the bloc stood ready to take new steps if necessary.

Oil curbs spark new rivalry

 

A new rivalry at the top of the Opec oil group has emerged, pitting up-and-coming Iraq against undisputed cartel heavyweight Saudi Arabia. Having overtaken Iran as Opec's second biggest producer, a rejuvenated Iraq is beginning to worry Riyadh.At Wednesday's meeting of the Organization of the Petroleum Exporting Countries the opening salvos were fired in the struggle over who takes responsibility for cutting output if oil prices, now at a comfortable $108 a barrel, start falling.After 20 years of war, sanctions and civil strife that left its oil industry in disarray, Iraq is in no mood to consider curtailing output, especially as it starts to take off."Iraq will never cut production," said Iraq's Opec governor Falah Alamri. "Some countries that have increased their production in the last two years - they should do so. This is a sovereign issue, not an Opec issue."That was a clear reference to Saudi Arabia, which this summer lifted output to a 30-year high above 10m barrels a day to prevent oil prices ballooning after Western sanctions on Iran halved its production.The view from Riyadh, said delegates at the meeting, is that Iraq should contribute to the next round of Opec supply curbs. If Saudi pushed that line there would be "dark days ahead" warned a senior Iraqi official, saying Baghdad would not even consider output restraints until 2014.Opec delegates said ministers agreed to retain its 30m bpd output target, but many market observers think supply restrictions may be needed sooner rather than later if producers want to prevent slow global growth sending prices tumbling. "Every additional barrel that Iraq produces reinforces its confidence and its expectations that higher production is achievable and it will negotiate on that basis," said Raad Alkadiri of Washington consultancy PFC Energy. "Now Opec is dealing with a much more confident Iraq and Baghdad is looking at regional politics and is less willing to compromise.""Iraq is impervious to arguments. It says that it was subject to sanctions for so long that it has a free pass to rebuild its economy," said Neil Atkinson, director of energy research at Datamonitor.Output from Opec is already down sharply from the highs of the summer when the Saudi surge took the 12-member group to nearly 32m bpd. Production in November was down to 30.8m bpd with Saudi easing to 9.5m bpd. But Opec may need to ease further to balance the market in the first half of next year when, demand depressed by a stagnant economy, its own forecasts indicate the requirement for Opec crude will come in at only 29.25m bpd."We're concerned by the drop in demand and the high level of stocks," said Algerian energy minister Youcef Yousfi."There is rising oil from places like the US and Iraqi output is rising quite sharply. There's a risk that we see a sharp drop in price next year," said Atkinson.Iraq risesThe world's fastest growing crude exporter, Iraq expects more gains next year as foreign companies push production towards the highest level ever, Iraqi oil minister Abdul-Kareem Luaibi told reporters on Sunday ahead of the Vienna meeting.Output began to rise in earnest in 2010 after Baghdad secured service contracts with companies such as BP, Eni, Exxon Mobil and Royal Dutch Shell.Flows have now reached 3.4m bpd, up nearly a million bpd from when companies got down to work three years ago. Luaibi said output in 2013 is expected to average 3.7m bpd, just shy of an all-time high of 3.8m reached in 1979 with exports running at 2.9m bpd, including 250,000 bpd contributed by the semi-autonomous northern Kurdistan Regional Government (KRG).The changing shape of Middle East politics after the US led overthrow of Saddam Hussein in 2003 and the 2011 Arab Spring plays into Opec dynamics."Political issues sit behind this rivalry," said PFC's Alkadiri. "Regional alliances are pitting Saudi Arabia, Iraq and Iran against each other."That was illustrated in Wednesday's meeting by a quarrel over the appointment as Opec's next secretary-general, the group's public face and head of its Vienna headquarters.Iran dropped its nomination to back Iraq's candidate against Saudi Arabia.Adding to the heat is the dramatic rise in oil output from the US, spurred by hydraulic fracturing of shale reserves.The US Energy Information Administration said on Tuesday that US output will increase 760,000 bpd in 2012, the fastest pace since commercial oil production began in 1859.After years outside Opec's quota system because of low output, Iraq was brought into the fold a year ago when it set the 30m bpd target for all 12 producers. But unlike previous Opec deals no individual quotas were assigned.That suited Saudi Arabia, leaving it free to balance the markets by using its spare capacity as it saw fit. But in the event of a build in inventories that hits prices, Opec may need to restore quotas if it is to enforce a credible production cut. That is likely to prove very difficult, not just because of Iraq but because Iran is very unlikely to accept a quota anywhere near its sanctions-constrained production. Venezuela too could resist a lower quota after disputing independent estimates of its output for years."Quotas would become a big issue if we see a price drop and then everyone would have to come to the table," said Datamonitor's Atkinson. "That would cause enormous problems for Iran and Venezuela."Opec can only hope that a difficult decision is postponed by a continued stand-off between Western powers and Iran over Iran's nuclear programme, and the threat of Israeli military action, keeping oil prices high.That could mean a repeat of 2012, with oil prices supported in 2013 for fear of an attack on Iran, even if demand is poor and market fundamentals weaken."Lady luck has been a huge help for Opec because the macro numbers do not add up to 2012 being a successful year," said oil brokers PVM. "She has come in the form of geopolitical tensions and supply uncertainties which have kept speculative interest in oil lively and stimulated stock building."