NEWS,29.4.2013

Japan PM to meet Putin, a first in 10yrs

Japanese Prime Minister Shinzo Abe was to meet Russian President Vladimir Putin in Moscow on Monday for the first such top-level visit in a decade that aims to break years of stalemate in a territorial dispute dating from World War II.

The failure of the two sides since the 1950s to agree a peace treaty owing to the dispute over ownership of the Pacific Kuril islands chain has held up full potential of bilateral ties.

However since returning to power in December, Abe has made a priority of improving relations with Russia. Before leaving Tokyo, he reaffirmed his desire to restart stalled talks over the dispute.

"I would like to build a trusted personal relationship with President Putin," Abe told reporters in Tokyo ahead of his departure for the three-day trip.

"I will work on boosting Japan-Russia relations so that this visit will mark a restart in stalled negotiations over a peace treaty," Abe said.

Abe and Putin were expected to release a joint statement confirming they would restart territorial talks, a Japanese government source told Kyodo News.

Biggest delegation ever

Abe and Putin are due to hold one-on-one talks at the Kremlin, followed by meetings involving business delegations from both sides. They were then to give a joint news conference.

The last such top-level official visit was by then Japanese Prime Minister Junichiro Koizumi, who travelled to Moscow to meet Putin in January 2003.

Former prime ministers Yasuo Fukada and Taro Aso visited in 2008 and 2009 for shorter, lower-level trips.

Abe's visit is also taking place after an intriguing trip to Moscow in February by Abe's close ally, the former Prime Minister Yoshiro Mori, who delivered a message from the new premier to Putin.

Abe is being accompanied by a business delegation of 120 people, the biggest ever such group to join a Japanese prime minister on a visit to Russia.

Japan is particularly interested in increasing its import of Russian energy resources as it seeks to diversify supplies in the wake of the Fukushima nuclear disaster

'Unforgivable outrage'

Russia's trade with Japan reached $32bn in 2012. But Russia, despite its size and proximity, was only Japan's 15th most important trading partner, in a sign of the unrealised potential of relations.

The dispute surrounds the southernmost four of the Kuril islands - known in Japan as the Northern Territories - which have been controlled by Moscow since they were seized by Soviet troops at Stalin's behest in 1945 at the end of World War II.

The Kremlin said in a statement that Russia believed that "dialogue in the interests of arriving at a mutually acceptable solution must be held in a calm, respectful atmosphere."

Yet there remains little hope of an immediate breakthrough, with Tokyo insisting the four islands currently inhabited by around 16 500 Russians are its territory and Moscow showing no hint of a compromise.

Russian Prime Minister Dmitry Medvedev has twice visited the island of Kunashir, called Kunashiri in Japan, infuriating Tokyo.

Medvedev's first visit to the island, which juts out past the north-eastern tip of Japan's Hokkaido island, in November 2010 - when he still held the post of president - was condemned by Tokyo as an "unforgivable outrage".

One solution mooted in the past could involve Russia ceding control of the two smallest islands of Shikotan and Khabomai and keeping the much larger Kunashir and Iturup (known as Etorofu in Japan).

But even this would require massive concessions from both sides that would be unacceptable for nationalists.

After Russia, Abe was due to visit Saudi Arabia, the United Arab Emirates and Turkey for talks with leaders there.

 

Mine strife a test for private equity

 

With the world's largest miners flocking to sell assets, cost cuts across the industry and a virtual drought in buyers, private equity funds may finally be tempted into a sector long seen as potentially lucrative but risky.
Industry veterans say the coming months will be a test of whether private equity funds can turn intentions into investments and become more than niche players in an industry that has traditionally relied on public markets for cash.
"Interest from private equity in the sector is the highest I have ever seen," one veteran industry banker said.
Another senior industry adviser described a "now or never" moment despite volatility in commodity prices, citing what could be a drawn out period of low valuations in which traditional buyers - largely, other miners - are kept out by demands they refocus and cut back rather than grow.
Volumes certainly point to increased interest.
According to research and data group Preqin which studies private equity, eight natural resources funds focused solely on mining raised an aggregate $8.5bn in 2012, more than the years 2006-2010 combined, though data did not show how much was spent on acquisitions.
Analysis by consultancy Ernst & Young suggests that private capital investors accounted for 21% of mining deal activity globally in the nine months to September 30 last year, against just 12% for the same period in 2011.
Smaller miners and developers are also eager to tap alternative sources for funding. In a sign of how tough the markets now are, the Toronto stock exchange - the prime destination for emerging producers - has not had one mining IPO in the first quarter, for the first time in a decade.
"There are a lot of buying opportunities, and for those who have the funds, you might find there is less competition, and that is what private equity looks for - a good deal," said Jason Burkitt, UK mining leader at PricewaterhouseCoopers.
Gold rush?
Private equity firms have so far steered clear of mining because of the scale and political risk involved in many operations.
Volatile commodity prices and long time horizons are also off-putting, not to mention that the investment firms often lack the manpower or expertise to cover global projects.
Typically, funds have stuck to niche assets, like high-end aluminium products for the aerospace and auto industry, in the case of Alcan Engineered Products, later Constellium, bought from Rio Tinto by funds led by Apollo in 2011.
Now, however, heavyweights like Apollo but also KKR and Carlyle are joining specialised energy-focused First Reserve, Denham Capital and Resource Capital in betting more heavily on the sector, drawn in by the prospect of an extended period of cheap prices and an unprecedented funding drought.
Apollo, which aims to invest $100m to $500m per transaction, closed a $1.3bn natural resources fund in 2012 which will invest in areas including oil, gas and mining.
The fund was one of several to look at BHP Billiton's majority stake in Canadian diamond mine EKATI, which also elicited interest from rival KKR before being sold to miner Dominion Diamond Corp.
KKR has also been named as a potential suitor for Rio's majority stake in the Northparkes copper-gold mine.
Smaller firms in pole position
However industry bankers and specialist funds both questioned whether big name private equity firms would be able to successfully compete in the mining sector.
"Size sometimes can be a disadvantage in our environment. You need to make decisions quickly - you need to have the coal face not too far removed from decision making process, so you can react quickly," Sierra Rutile's chief executive, John Sisay, said. The Sierra Leone-focused mineral sands producer's largest shareholder is specialist fund Pala.
"Smaller firms are able to do that better."
Traditional funds may also lack the extensive specialist teams needed to evaluate projects across commodities and across the world, and may be unable to invest for the longer term.
One of the top shareholders in EMED Mining, a London-listed company redeveloping the former Rio Tinto copper mine near Seville, is specialist Resource Capital.
"If you are playing the development game you are playing the development timeline," EMED's chief executive, Harry Anagnostaras-Adams, said.
Bert Koth, a Perth, Australia-based director at Denham Capital, also questioned the idea that traditional firms would step in. Although mining firms are shedding assets at a pace not seen for decades, many are doing so at auctions which can drive up prices - something private equity is likely to want to avoid.
"Generalist PE firms have a pretty poor track record as they don't fully understand the risks involved. I query whether they really appreciate what they are getting into," Koth said.

Iran squeezed by higher edible oil costs

Iran is having to pay a premium for basic foodstuffs such as cooking oil, highlighting the increasing strain on Tehran from Western sanctions aimed at its disputed nuclear programme, even though the sanctions don't cover food.
Wilmar International, the world's largest listed planter, and Mewah International, a $570m edible oils processor - both listed in Singapore - are driving sales to Iran on long-term contracts, with Middle Eastern trading sources reporting premiums of up to $30 a tonne to the cash benchmark.
Food shipments are not targeted under the sanctions, but the financial squeeze has cut off firms operating in Iran from much of the global banking system and pushed inflation above 30%. Oil exports, Iran's major source of hard currency, have more than halved since 2011.
Food exporters largely shun Iranian deals, with a volatile rial currency deepening risk and foreign banks wary of financing the food trade for fear of reputational damage.
A shopkeeper in Tehran told Reuters he had put up his price of imported cooking oil by up to 30% this month. A 900 millilitre bottle of cooking oil costs around 39 000 rials ($3.18), compared to a 1 litre bottle that sells for $3.10 in Britain and $1.20 in palm oil-producing Malaysia. Another storekeeper said prices had been stable for weeks.
"One woman man"
Iran has shifted to Southeast Asian palm oil as sanctions and limited supplies have disrupted imports of soybeans and oil from Argentina. Malaysia, the world's second-largest palm oil producer, saw exports to Iran jump 60% last year to a record 548 603 tonnes - still less than 5% of Malaysia's total exports of about 17 million tonnes.
Wilmar and Mewah dominate the trade with Iran where demand for high-value refined palm olein, used in cooking oil, can reach 500 000-700 000 tonnes a year.
Wilmar sells to Saudi Arabian food company Savola, which buys palm oil to feed its edible oil processors in Iran, three Middle Eastern trading sources told Reuters.
They said Wilmar demands a premium of $20-$30 per tonne to cover potential payment delays and interest charges.
Wilmar said it does not comment on specific contracts. Savola did not respond to requests for comment.
"Savola is a one woman man. It sticks to one palm oil company to supply its refineries and it's Wilmar for the past few years," said a Dubai trading source close to Savola. "Payments can be slow, but there are ways around it. The money will be banked in (Saudi) riyals, euros and US dollars from Turkish banks. Sometimes, the money will come via India."
Mewah last month shipped 75 310 tonnes of palm oil to Iran, its best month so far this year, shipping documents show.
"Mewah is the go-to person for Iran. It buys the palm oil from Malaysian firms and then sells it to Iran," said a trading executive from a Malaysian plantation who deals with Mewah. "They are established in the Iran trade and have deep pockets to withstand payment delays."
Planters who have sent cargoes to Iran with Mewah include subsidiaries of IOI Corp, Kuala Lumpur Kepong and a Malaysian unit of Wilmar, cargo surveyor documents show. Officials at those companies declined comment.
Shipping documents obtained by Reuters show Wilmar exported at least 114 000 tonnes of refined palm oil to Iran from the Indonesian island of Sumatra alone last year. In January of this year, Wilmar shipped another 10 700 tonnes to Iran from Sumatra.
"Wilmar doesn't do high stakes gambling. So it has taken a corporate guarantee from Savola's head office in Saudi Arabia," said a Southeast Asian trading source who has done deals with Savola. "It's become standard practice."
Savola has 832,000 tonnes of annual capacity in Iran, giving it nearly 40% market share in a country of over 74 million people. The firm's revenues from Iran increased by almost a third last year to 4.4bn riyals ($1.17bn), about 42% of its global edible oil sales.
Captive market
Iran is proving more profitable than price-sensitive China, where competition means Wilmar only profits from refining margins. And India, the world's top palm oil buyer, has imposed higher import taxes to stem the flow of cheap refined edible oil from Indonesia and Malaysia.
With more than half a million hectares of oil palm estates in Indonesia and Malaysia, Wilmar makes most of its sales, and profits, from trading with India and China.
"Indonesia is looking for new markets for its refined palm oil. Iran is a natural choice, it has captive consumers. They desperately need the oil and they will pay a premium," said a Singaporean trader, who didn't want to be named as he is not authorised to speak to the media.
So far this year, shipping records show Mewah has exported 168 100 tonnes of palm oil from Malaysia to ports in Iran. Most cargoes are taken up by private Iranian buyers though state food procurement firm GTC is also an occasional buyer, traders said.
"We do come into the palm oil market from time to time to buy. These are private deals," a GTC official told Reuters from Tehran. He declined to discuss the deals.

Central banks prop up global economy

Five years after the onset of the global financial crisis, the world economy is in such a chronic condition that the European Central Bank might cut interest rates this week and the Federal Reserve is likely to indicate no let-up in the stimulus it is providing the US economy.
With the eurozone economy in recession, momentum is building for the ECB to lower interest rates for the first time since July 2012, according to senior sources involved in the deliberations.
If the bank does not act on Thursday, a quarter-point cut in June is considered a racing certainty.
The ECB is the most conservative of the world's main central banks. Its main short-term rate, now at 0.75%, is higher than the equivalent rate of the Fed, the Bank of England and the Bank of Japan. And unlike its peers the ECB has not engaged in quantitative easing - printing new money to buy bonds.
But the ECB seems to be softening. "I would argue that the ECB should be thinking of easing policy; whether they are currently is more debatable," said Stephen King, global chief economist for HSBC in London.
Only a small majority of 76 economists polled by Reuters expected a cut as early as this week.
The swing factor for King is what is happening to Germany, the eurozone's largest economy. Until recently, Germany had been showing resilience thanks to its export sector. But April's survey of purchasing managers and the Munich IFO institute's monthly poll were distinctly soft.
"Germany is becoming more like everybody else. It is being dragged down, whether it likes it or not, through weakness in southern Europe, slowing growth in China and the depreciation of the Japanese yen," he said.
"None of these things are good for Germany. So the weaker Germany becomes, the easier it is to agree on a common monetary policy," he added.
China's official purchasing managers' survey for April, to be released on Wednesday, is likely to provide more evidence that the world's second-largest economy is shifting down to a lower trend rate of growth after three decades of averaging around 10 percent a year.
Economists polled by Reuters expect the index derived from the survey to have edged up to 51.0 from 50.9 in March, holding above the threshold of 50 that demarcates month-on-month expansion from contraction.
Jian Chang, who tracks the Chinese economy for Barclays in Hong Kong, prefers to describe the economy as being in a stabilisation rather than a recovery phase.
"As long as the PMI comes in above 50 it will show that modest, slow growth is continuing," she said.
Global markets have become addicted to the drug of super-fast Chinese growth and tend to react badly to signs of softness. But Chang said the authorities in Beijing, intent on guiding the economy to a more sustainable growth rate, are not panicking.
There has been no big investment package, for example, to support the government's urbanisation drive.
Policymakers will be comfortable as long as growth for the year as a whole comes in above their target of 7.5%, she said. Barclays is forecasting an outcome of 7.9%.
Whether that target is met will depend in part on an improvement in exports to the European Union and to the United States, which on Friday reported a disappointingly soft first-quarter gross domestic product growth rate of 2.5%.
The pace of expansion has averaged just 1.4% over the last two quarters and 1.8% over the past year, noted Jay Feldman, director of US economic research at Credit Suisse in New York.
"All in all, growth is persistent, but decidedly underwhelming. At this trajectory, achieving a labour market recovery beyond the fits-and-starts progress of the last few years will be a challenge," he told clients.
Figures this week are likely to fit into the same pattern.
The Institute of Supply Management's April manufacturing survey is forecast to dip to 51.0 from 51.3 in March, while the economy is likely to have generated 150 000 jobs in April, up from just 88 000 in March but not enough to reduce the jobless rate from 7.6%.
Because the Fed has pledged to stick to its super-loose policy until unemployment falls to 6.5%, the central bank is expected to confirm at this week's policy meeting that it will keep buying $85bn in bonds every month to keep bond yields low and encourage investment.
Talk had started to grow that the Fed might start to wind down, or taper its quantitative easing programme. But after the latest economic data, the central bank's tone is likely to change, according to Steve Ricchiuto, chief US economist for Mizuho Securities in New York.
"They're going to come out of this meeting with a more balanced view on tapering and say, 'we could increase or we could taper'," he said.
Indeed, price pressures are so muted because of slack in the economy that some Fed policymakers have raised the prospect of injecting even more stimulus.
The core personal consumption expenditure deflator, the Fed's favourite inflation gauge, rose just 1.3% in the year to March, Friday's GDP report showed.
"Low inflation leaves that much more leeway for the Fed to focus on growth and jobs. If the core PCE index falls much farther, look for 'inflation being too low' to show up in more Fed communications," Feldman said.

Netanyahu: Iran hasn't crossed red line

Prime Minister Benjamin Netanyahu said on Monday, Iran had not crossed the "red line" he set for its nuclear programme, despite an assessment to the contrary by a former Israeli intelligence chief.

At the UN in September, Netanyahu drew a red line across a cartoon bomb to illustrate the point at which he said, Iran will have amassed enough uranium at 20% fissile purity to fuel one nuclear bomb if enriched further.
He said then that Iran could reach that threshold by mid-2013.
Last week, Amos Yadlin, a former chief of Israeli military intelligence, told a security conference in Tel Aviv, that "the Iranians have crossed the red line" Netanyahu drew at the UN General Assembly.
Without referring directly to Yadlin, Netanyahu said at a meeting on Monday of his Likud-Beitenu parliamentary faction, that Iran's nuclear activities remained short of his benchmark.
"Iran is continuing with its nuclear programme. It has yet to cross the red line I presented at the UN, but it is approaching it systematically," he said in broadcast remarks.
"It must not be allowed to cross it."
Uranium usage
The Islamic republic says it is enriching uranium only for peaceful energy and medical purposes.
Israel, widely believed to be the Middle East's only nuclear-armed power, has issued veiled warnings for years, that it might attack Iran if international sanctions and big power diplomacy fail to curb what it regards as a drive by Tehran to develop atomic weapons.
Israel has long insisted on the need for a convincing military threat and setting clear lines beyond, which Iran's nuclear activity should not advance.
It says this is the only way to persuade Iran to bow to international pressure, by curbing enrichment activity and allowing unfettered UN inspections.

Venezuela signs $1bn agreement with Cuba

Venezuelan President Nicolas Maduro wrapped up a two-day visit to Cuba late on Sunday in which the two allies reaffirmed their strategic alliance, signing $1bn in co-operation agreements.

The visit, which came just two weeks after Maduro's election to replace the late Hugo Chavez, was hailed as great success by state media, which said it will help Havana and Caracas "strengthen our union."

The two countries said they signed 51 agreements encompassing health, education, transportation, sports, energy and special "social missions".

Maduro, before he departed the island, hailed his nation's relationship with Cuba as "a strategic alliance that transcends the times; more than an alliance, it is a brotherhood".

Cuba is only the second country Maduro has visited since his 14 April election victory.

Maduro held talks with President Raul Castro, who reaffirmed Cuba's "unyielding will to continue co-operation in solidarity with Venezuela, determined to share our fate with the heroic Venezuelan people".

He also held a separate, five-hour meeting with Fidel Castro, aged 86, the retired leader of the Cuban revolution, who paid homage to his dear friend Chavez and the alliance that the two nations forged in October 2002.

12-year-old leftist relationship

The relationship has been crucial to Cuba, shoring up a Soviet-style economy that has floundered since the collapse of the Soviet Union in 1989.

The deal is Cuba's biggest source of cash, well ahead of money sent home by expatriate Cubans, tourism or exports of nickel and tobacco.

The two allies also have engaged in a variety of joint projects, like a refinery in Cienfuegos, Cuba.

An estimated 40 000 Cuban doctors, technicians and advisers work in Venezuela, which supplies Cuba with 130 000 barrels of oil a day as part of a 12-year-old relationship that has closely bound together their leftist, anti-US governments.

But the Cuban connection also remains a point of heated contention in Venezuela, which split 50.8-49 in the elections to succeed Chavez and saw some 700 000 people switch to the opposition.

During the election campaign, opposition candidate Henrique Capriles repeatedly attacked the "gifts" sent from Venezuela to Cuba, calling Maduro "Cuba's candidate" and demanding that Caracas cut off oil supplies to Havana.

Venezuela's National Electoral Council plans to begin an expanded audit of the results on Monday, but cautioned the move cannot overturn Maduro's win.
The opposition has until the end of next week to file suit with the Supreme Court to contest the outcome.

NEWS,27.04.2013

US first-quarter growth quickens

US economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already weakening economy could struggle to handle deep government spending cuts and higher taxes.
Gross domestic product expanded at 2.5% annual rate, the Commerce Department said on Friday, after growth nearly stalled at 0.4 percent in the fourth quarter. The increase, however, missed economists' expectations for a 3.0% growth pace.
Part of the acceleration in activity reflected farmers' filling up silos after a drought last summer decimated crop output. Removing inventories, the growth rate was a tepid 1.5%.
Given the smaller-than-expected increase and signs the economy has weakened in recent weeks, the GDP data will probably weigh on US stocks. It could also give ammunition for the Federal Reserve to maintain its monetary stimulus.
The US central bank, which meets next week, is widely expected to keep purchasing bonds at a pace of $85bn a month.
Data ranging from employment to retail sales and manufacturing weakened substantially in March after robust gains in the first two months of the year. There are indications the weakness persisted into April.
Broad-based gains
The GDP showed contributions to growth from all areas of the economy, with the exception of government, trade and investment by businesses in offices and other commercial buildings.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased at 3.2% pace - the fastest since the fourth quarter of 2010. It grew at a 1.8% rate in the fourth quarter of last year.
However, households cut back on saving to fund their purchases after incomes dropped at a 5.3% rate in the first quarter - a bad sign for future spending growth. The drop in income was the largest since the third quarter of 2009.
The saving rate - the percentage of disposable income households are socking away - fell to 2.6%, the lowest since the fourth quarter of 2007, from 4.7% in the fourth quarter of 2012.
Much of the gains in first-quarter spending came from automobile purchases and outlays for utilities, which were boosted by unusually cold temperatures. Consumers managed to step up their spending despite the return of a 2% payroll tax and higher gasoline prices.
Despite the spike in gasoline prices, inflation pressures were benign in the first three months of the year.
An inflation gauge in the government's GDP report rose at a 0.9% rate, the smallest increase since the second quarter of 2012. The personal consumption expenditure index had increased at a 1.6% pace the fourth quarter.
A core measure that strips out food and energy costs rose at a 1.2% rate, still well below the Fed's 2% target. Core PCE had increased at a 1.0% rate in the fourth quarter.
The lack of inflation should come as welcome relief for American households, but it could cause some nervousness at the US central bank, which may see it as a symptom of the economy's weakness.
Another big contributor to growth in the fourth quarter was inventory accumulation, which added a full percentage point to GDP growth after chopping off 1.5 points from output in the final three months of last year.
Business spending on equipment and software slowed sharply, growing at an only 3.0% rate after a brisk 11.8% pace in the fourth quarter.
Economists caution that it is too early to blame the cooling in business investment and other more recent signs of economic softness on the $85bn in mandatory government spending cuts, known as the sequester, that began on March 1.
Homebuilding marked an eighth straight quarter of growth, though the pace moderated from the fourth quarter. Housing added to growth last year for the first time since 2005 and its recovery should help ensure the economy does not contract.
While export growth rebounded, it was outpaced by imports, resulting in a trade deficit that cut off half a percentage point from output.

Cyprus partly eases capital controls

Cyprus has further eased capital controls imposed last month to prevent a run on deposits, raising the threshold for transactions that do not require prior approval by the central bank, the finance ministry said on Thursday.
With the latest decree, Cyprus has permitted transactions up to €500 000 domestically without prior vetting, the ministry said in a statement.
Banks on the island were shut down for nearly two weeks in March after Cyprus agreed a €10bn international bailout that forced major depositors at its two biggest lenders to pay part of the cost of the rescue.
The banks reopened under tight restrictions on March 28, a first in the history of the eurozone, to prevent a run on deposits by panicked savers.
Firms, which cannot make transfers exceeding €20 000 overseas unless they are vetted by the central bank, had complained the restrictions were stifling. Russia had warned it would only restructure its loan Cyprus if its interests were protected.
Finance Minister Harris Georgiades told Reuters he was confident the controls, which he called "necessary but temporary measures", would gradually be lifted within the next six months.
Other provisions of the new decree raised the amount individuals can transfer domestically to €10 000 a month from €3 000, and to €5 000 from €2 000 abroad.
Travellers may now take €3 000 abroad, increase from €2 000. Other restrictions, such as a €300 cash withdrawal limit and a ban on cashing cheques, remained in place.

British economy grows in first quarter

Britain's economy dodged a return to recession and grew faster than expected in the first three months of this year, providing some political relief for a government under fire over its austerity drive.
The Office for National Statistics said Britain's gross domestic product rose 0.3% in the first quarter, well above forecasts for a 0.1% rise.
The economy shrank shrank 0.3% quarter-on-quarter in late 2012, so a second contraction would have put Britain into its third recession in less than five years.
Year-on-year, the latest GDP reading was 0.6% higher, the strongest rise since the end of 2011.
Finance minister George Osborne said Thursday's data was encouraging and vowed to stay the course on fixing Britain's budget problems.
"We all know there are no easy answers to problems built up over many years, and I can't promise the road ahead will always be smooth, but by continuing to confront our problems head on, Britain is recovering and we are building an economy fit for the future," he said in a statement.
Sterling hit its highest level in two months against the dollar after the data and British government bond prices fell.
Britain's preliminary GDP figures are one of the first for a major advanced economy, and based mostly on estimated data, but it would be rare for a reading this high to be revised down into negative territory.
The rise was driven by strong services sector growth and a bounce-back in North Sea oil and gas output.
Politically, a slip back into recession would have been difficult for the government in general and Osborne in particular, coming just days after ratings agency Fitch stripped Britain of its top-notch credit rating.
Osborne is sticking to his commitment to eliminate Britain's underlying budget deficit in five years, betting that growth will pick up in time for a national election in May 2015 despite sluggish expansion forecast to be just 0.6% this year.
But the International Monetary Fund - previously supportive of Britain's approach to deficit reduction - thinks some cuts may need to be deferred given the weakness in demand.
An IMF mission visits Britain next month for an assessment of the country's economy that could include recommendations for a change of course.
The stronger-than-expected reading may help Osborne when he tries to convince the IMF that Britain's economy is on track for recovery, and that he is right to stick with his current plans.
Pitfalls ahead
Analysts warn of a broader problem of stagnation that has led some to warn that Britain risks a Japanese-style 'lost decade of near-zero growth.
Britain's GDP remains 2.6% below its peak in the first quarter of 2008 and even with Thursday's data, has stagnated for the past 18 months.
Rob Wood, an economist at Berenberg Bank, said a recovery appeared to be on the horizon but pitfalls lay ahead.
"The economy seems to have done a little better than the main surveys suggested but it is hardly a picture of rude health right now," he said. "We suspect there will be another couple of disappointing quarters to get through before the UK can see a return to sustainable growth."
Britain has been much slower to recover from the financial crisis than most other big economies. Weak demand from a recession-hit eurozone, a drag from the government's deficit-reduction measures and high inflation eating into meagre wage rises are all to blame.
Furthermore, the global economy is weakening and there are signs of slowing growth in the United States and China.
Britain's government and the Bank of England are making some efforts to boost growth without requiring more public spending, including seeking to expand bank lending .
The first-quarter rise in output was driven by a broad-based increase in services output, building on a strong January, with the motor trade particularly strong.
Industrial output was lifted by the biggest rise in the mining and quarrying sector since 2002, as some North Sea oil and gas fields came back on line after lengthy maintenance that depressed output in 2012.

UK credit scheme to aid small firms

Britain sought to inject new life into the country's stagnant economy on Wednesday by giving banks greater incentives to lend to small and medium-sized firms which complain they are starved of credit.
The Bank of England and the Treasury said a new phase of their flagship Funding for Lending Scheme would be heavily skewed towards smaller firms.
Banks taking part in the programme will also now be able to lend to alternative providers of credit - such as leasing firms which often work with small companies - as well as mortgage and housing credit corporations.
Under a third change, banks can get funding from the FLS for an extra year until the end of January 2015.
The Bank of England and the government see a lack of credit to small businesses as a major factor behind Britain's very slow recovery from the financial crisis. On Thursday, data could show the economy slipped into its third recession in under five years
Finance minister George Osborne is under pressure to boost growth after concerns from the International Monetary Fund - previously a supporter of his austerity policies - said he may need to slow the pace of spending cuts.
He announced measures to boost the housing market in March and employers groups welcomed Wednesday's changes to the FLS. But they said it remained to be seen whether banks would become less risk-averse and lend to such borrowers as start-up firms.
"What a lot of SMEs (small and medium-sized enterprises) will be looking for is money actually getting to the front line on reasonable terms, and not just to the safe bets," said Adam Marshall, policy director at the British Chambers of Commerce.
Economists said the changes were not a game-changer for the economy. "The FLS is likely to provide a boost when confidence returns to the economy, but confidence is the elusive factor," analysts at Barclays said in a note to clients.
Alan Clarke, an economist at Scotiabank said the changes were probably a complement to more broad-based stimulus in the future by the Bank of England, and were unlikely to stop it from buying more government bonds later in the year.
Incentives to lend to small firms now
The original FLS was launched last August and offers banks cheap credit if they increase lending to households and businesses. Results have been mixed, with benefits so far mainly going to banks and homebuyers rather than small businesses.
Banks drew £14bn ($21bn) in cheap funding from the Bank of England between August and the end of last year but the FLS failed to stop a decline in overall bank loans at the end of 2012, adding to pressure on the government to take more action.
Bank of England Governor Mervyn King said the extension of the FLS would assure banks about their cheap funding rates.
"This innovative extension will now do even more for small and medium-sized businesses so that they can play their full part in creating new jobs," Osborne said in a statement.
One of the changes announced on Wednesday seeks to get credit to small and medium-sized firms flowing as soon as possible: for every pound of additional lending by banks to the sector in the remainder of 2013, the amount of funding that banks will be able to draw upon increases by 10 pounds.
In 2014, that falls to five pounds of FLS funding for banks for every pound they lend to SMEs.
Lending to other sectors will count on a one-for-one basis towards the allowance for banks accessing the scheme.
Cormac Leech, a banking analyst at Liberum Capital, said the 10-to-1 ratio to increase bank lending to small firms this year would help banks such as Royal Bank of Scotland and Lloyds, which are Britain's biggest business lenders.
"They are highly incentivised to write SME loans even at an underwriting loss. So it's a key positive for them and should help to drive their share price and sector earnings," he said.
Employers groups want more competition in Britain's banking sector as a way to spur fresh lending. Those hopes suffered a blow on Wednesday when the planned sale of 630 bank branches by Lloyds to the Co-Operative Group fell through.

Chinese manufacturing slows in April

Manufacturing activity slowed in China in April as exports were hit by sluggish overseas demand, HSBC said on Tuesday, fuelling concerns about the strength of the world's second-largest economy.
The preliminary figures come just over a week after China revealed growth in the January-March quarter had slowed from the previous three months and HSBC said Beijing would likely move to take measures to stoke economic activity.
HSBC said its initial purchasing managers' index (PMI) fell to 50.5 this month from a final figure of 51.6 in March.
The index tracks manufacturing activity and is a closely watched barometer of the health of the economy. A reading above 50 indicates expansion while anything below points to contraction. The bank's final result will be released on May 2.
"New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak," Qu Hongbin, a Hong Kong-based economist with HSBC, said in a release.
"Beijing is expected to respond strongly to sustain the economic recovery by increasing efforts to boost domestic investment and consumption in the coming months."
China's 2012 growth of 7.8% was its slowest in 13 years owing to weakness at home and in overseas markets.
Observers had hoped for a rebound this year that would drive a global recovery after October-December saw expansion of 7.9%, snapping seven straight quarters of slowing growth.
But the government last week said the first quarter of this year saw the economy grow just 7.7%, disappointing economists who had predicted 8.0%.
On Tuesday the International Monetary Fund lowered its forecast for China's growth this year to 8.0%, while Beijing last month kept its target for this year at 7.5%, unchanged from the previous year's.
China's industrial output, which is crucial to job creation, slowed in the first quarter to 9.5%, from 10% in October-December.
Xiao Chunquan, spokesperson of the Ministry of Industry and Information Technology, said on Tuesday that downward pressure remains on industrial production growth this year.
"Insufficient effective demand has become a rather significant constraint on industrial development," he said at a press conference.
Xiao noted that both domestic retail sales and overseas markets were slack, while fixed-asset investment has been less efficient in driving industrial growth.
Zhang Zhiwei, an economist with Nomura International, said China's economic growth would further trend down through the rest of the year and could potentially come in at 7.0% - 7.5% for the whole year.
"The effectiveness of policy easing has been diminished by aggressive stimulus measures taken over the past five years," he said in a research note.

India tightens security for richest man

The Indian government has agreed to provide billionaire Mukesh Ambani with top-level security cover following threats to his life, an interior ministry spokesman said on Monday.
The country's richest man, who controls the Reliance Industries Ltd conglomerate, personally requested the "Z Category" security that is usually reserved for politicians and top-level civil servants.
The government has not yet decided whether Ambani will pay the government for the services, and how many policemen will guard the billionaire, Home Ministry spokesman H. Rahman said.
A source familiar with the issue, who declined to be named, said Ambani may pay the government up to 900,000 rupees ($16,600) a month for protection by armed commandos.
Ambani received a handwritten letter about two months ago that threatened an attack at his $1bn Mumbai residence. He added that the Islamist group Indian Mujahideen was suspected of sending the letter, but investigations were still under way.
Social media websites were abuzz with criticism of the move, with many questioning why highly trained commandos should protect a private citizen.
Among them was Arvind Kejriwal, an anti-graft activist, who told Reuters: "He is such a rich man. He can hire the best security agencies. Why does the government need to provide him with security?"
"None of the political parties is opposing this move. This clearly shows Mukesh Ambani is in the good books of all political parties," Kejriwal added.
Reliance already provides protection for Ambani, whose personal worth Forbes magazine has put at $21.5bn, the source said. However, the company lacks government intelligence and, by law, private security guards are not allowed to carry sophisticated weapons.
Under "Z Category" cover, Ambani will have 22 security guards, an escort and a pilot car, an arrangement similar to that provided for Prime Minister Manmohan Singh and ruling Congress party chief Sonia Gandhi, news network NDTV said. ($1 = 54.0750 Indian rupees)

France logs record unemployment

The number of jobless people in France has climbed to a new record, the French Labour Ministry said late on Thursday.
At the end of March, 3.2 million people were unemployed in the country, which is the second-largest economy in the eurozone after Germany.
The number of jobless went up by 36 900 in March over the number of unemployed in February and the total was 29 100 more than the previous record set in January 1997, the ministry said.
Unemployment has been on the rise in France since May 2011. An end to the trend is expected at the end of the current year at the earliest.

Spanish unemployment tops 6 million

More than six million Spaniards were out of work in the first quarter of this year, raising the jobless rate in the eurozone's fourth biggest economy to 27.2%, the highest since records began in the 1970s.
The huge sums poured into the global financial system by major central banks have eased bond market pressure on Spain, but the cuts Madrid has made in spending to regain investors' confidence have left it deep in recession.
Unemployment, 6.2 million in the first quarter, has been rising for seven quarters and the latest numbers will fuel a growing debate on whether to ease off on the budget austerity which has dominated Europe's response to the debt crisis.
"These figures are worse than expected and highlight the serious situation of the Spanish economy as well as the shocking decoupling between the real and the financial economy," strategist at Citi in Madrid Jose Luis Martinez said.
The collapse of a property boom driven by cheap credit has seen millions in the construction sector laid off since 2009 and private service sector, worth almost half gross domestic product, has followed as Spaniards tightened purse strings and investment plummeted.
The malaise has been made worse by billions of euros in state spending cuts and tax hikes to reduce one of the euro zone's highest deficits and convince nervous markets Spain can control its finances.
Spain and Italy's costs of borrowing hit their lowest in more than two years this week and EU officials have begun to talk openly of easing up on deficit targets.
Prime Minister Mariano Rajoy said earlier this week that a new reform plan, to be announced on Friday, would not include more austerity measures in an effort to calm increasingly desperate Spaniards and reassure investors the country will soon be able to grow.
Protests have become commonplace across the country and thousands of police have been drafted in to Madrid to handle a march on Parliament on Thursday.
But few believe the government's plans will be ambitious enough to restart the ailing economy and create jobs. The International Monetary Fund sees Spanish unemployment at 26.5% next year.

China's factories crawl, Germany's shrink

China and Germany, the world's two biggest exporters, showed new signs of weakness in major business surveys on Tuesday, increasing doubt about the strength of global demand and economic recovery.

A similar survey for US manufacturing is due later in the day, expected to show growth among factories there slowed slightly this month.
The surveys come as a rethink by European leaders of their budget-cutting is gaining momentum - that, in the words of European Commission President Jose Manuel Barroso, austerity has reached its limits as a policy.
Business activity in Germany shrank for the first time in five months in April, while growth among the legion of Chinese factories slowed to a near-crawl as export orders dwindled.
Although purchasing managers' indexes (PMIs) published on Tuesday showed France may have passed the worst of its downturn, Germany's relapse means the wider eurozone still looks a long way from a return to economic growth.
The unexpected decline in German activity also adds a new dimension to next week's European Central Bank policy meeting.
"With Germany unable to offset the austerity and credit crunch drag on growth in the (weaker parts of the eurozone), and with excess capacity growing and business expectations falling, the only question is why the ECB has not cut rates already," said Lena Komileva, director of G+ Economics.
Markit's flash, or preliminary, services PMI for Germany, measuring growth in companies ranging from hotels to banks, fell to 49.2 in April from 50.9 the previous month.
That was worse than even the most pessimistic forecast from economists polled by Reuters and meant the index slipped below the 50 point dividing growth and contraction for the first time since November.
"Whereas we'd seen evidence that the economy had bounced back quite nicely in the first quarter ... there are suggestions that we could see a renewed downturn in the second quarter," said Chris Williamson, chief economist at compiler Markit.
Europe's politicians are becoming increasingly focussed on what will get the economy growing again, as the recession has undermined governments' efforts to get their finances in order.
Finance leaders of the G20 economies on Friday edged away from a long-running drive toward government austerity in rich nations, rejecting the idea of setting hard targets for reducing national debt in a sign of worries over a sluggish global recovery.
Exports wilt
Those fears were illustrated plainly by the PMIs.
The flash HSBC Purchasing Managers' Index for April fell to 50.5 in April from 51.6 in March but was still stronger than February's reading of 50.4.
The figures followed an unexpected contraction in export orders in March to Taiwan, one of the region's biggest providers of tech gadgets, signalling that Asia's trade-reliant economies may be losing further momentum.
"This release was more in line with the official PMI headlines in previous months, painting a picture of a painfully slow recovery in China's manufacturing sector," said Societe Generale economist Wei Yao in Hong Kong.
He said the official PMI, due on May 1, might provide a better guide for clues on how the second quarter is shaping up for China.
At least there might be better times ahead for its emerging market peer India, whose finance minister on Tuesday said the country's worst slowdown in a decade has bottomed out.
France too might have passed the nadir of its own economic troubles, the PMIs suggested, which helped the broader eurozone composite survey hold steady in April at 46.5.
But while on one hand showing the eurozone's recession is not worsening, the dire tone of the German PMIs means that might not be the case in the coming months.
"It is statistically neutral, but not in economics terms," said Komileva at G+ Economics of the eurozone PMIs.

France, Spain miss deficit goals

France and Spain fell short of their budget deficit goals last year, data showed on Monday, although the overall fiscal picture for the eurozone improved.
France's 2012 budget deficit was 4.8% of economic output, statistics office Eurostat said in the final reading of all 27 countries' public accounts. It compared with a target of 4.5%.
Spain's budget shortfall was 7.1%, excluding bank recapitalisation, higher than the government's 6.98% official year-end reading and well above Madrid's original target of 6.3%.
Overall, the 17-nation eurozone looked much better off at the end 2012, however. Its combined fiscal deficit was 3.7% of gross domestic product, compared with 4.2% in 2011 and 6.5% in 2010.
Budget cuts are at the centre of the euro zone's strategy to overcome a three-year public debt crisis but they are also blamed for a damaging cycle where governments cut back, companies lay off staff, Europeans buy less and young people have no little hope of finding a job.
Crippling levels of unemployment and outbreaks of violence in southern Europe are now forcing something of a rethink, with the focus shifting to economic growth strategies.
Both Spain and France are expected to get more time to reach EU-mandated targets of 3%.
"We need to combine the indispensable correction in public finances, huge deficits, huge public debt... with proper measures for growth," the European Commission's President Jose Manuel Barroso said in a speech in Brussels just before Eurostat released its data.
EU leaders are desperate for economic growth as the eurozone struggles through its second consecutive year of recession, and some officials say they will back off from the spending cuts blamed for deepening Europe's economic downturn.
The Commission will decide on May 29 whether to recommend to EU finance ministers to give Paris and Madrid until 2015 to cut its fiscal gap to 3% of GDP, today targeted for 2014.
End of austerity?
It is not yet clear how big a policy shift EU policymakers are planning.
EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in Washington on Thursday that financial leaders from the group of 20 economies calling for less austerity were "preaching to the converted."
Rehn says he is willing to grant more flexibility on fiscal targets to try to increase economic growth and is looking increasingly at countries' fiscal efforts in structural terms, which means removing the effects of the business cycle and one-off measures on the budget.
Germany and the European Central Bank still want to see the euro zone put its finances in order after a decade of borrowing that saw countries' debt and deficit levels rise dramatically.
In addition, the EU's Fiscal Compact treaty signed by all EU countries, except Britain and the Czech Republic, in March 2012 requires governments to keep the budget in balance or surplus with a structural deficit no higher than 0.5% of GDP.
"I can't see there's been a big change and that austerity is off the table," said Jurgen Michels, a senior economist at Citigroup in London. "Most countries will have to come out with additional, substantial fiscal measures in order to meet their new targets," he said.
Underscoring that, the task facing Spanish Prime Minister Mariano Rajoy remains daunting if he is eventually to bring Spain's budget deficit down to EU-mandated levels.
Adding in the cost of recapitalising Spain's banks and a €40bn ($52 billion) bank bailout from the eurozone, Spain's deficit was nearly 11% in 2012, higher than the European Commission's forecast of 10.2%, and an increase from the 9.4% deficit of 2011.

Oil buyers owe Iran $4bn - official

Iran is owed $4bn for oil sales to customers who have been unable to pay because of sanctions imposed on the Islamic republic over its nuclear programme, a top Iranian oil official said on Sunday.
"We have been unable to get paid around four billion dollars due to the sanctions," National Iranian Oil Company chief Ahmad Qalebani told reporters when asked about the amount owed by customers, mostly Western, to Iran.
"There is a possibility that it could be paid either as medicine, food or barter of commodities," he told a press conference on the sidelines of an oil and gas trade fair in Tehran.
Qalebani did not give details on these customers.
But on Saturday, Oil Minister Rostam Qasemi said that Anglo-Dutch energy giant Shell was among the firms that owes Tehran petro-dollars which the Islamic republic can not repatriate due to sanctions.
"Currently, we have approximately $2.336m payable to and $11m receivable from National Iranian Oil Company. We are unable to settle the payable position as a result of applicable sanctions," Shell said in its 2012 annual report.
Last December, Economy Minister Shamseddin Hosseini said that Tehran is losing half of its oil revenues because of international sanctions imposed over its disputed nuclear programme.
Iran is struggling against what it calls an "economic war" to cope with punitive measures targeting its vital oil income and access to global financial systems.
An oil embargo imposed by the European Union on Iran came into effect in July 2012, ending European purchases of Iranian crude. It has also lowered purchases by major Asian customers under pressure from the United States.
Iran's oil output dropped to 2.67 million barrels per day in February from 2.72 in the previous month, Opec said in April, citing secondary sources.
On Saturday, Qasemi confirmed that production and export of oil had declined in 2012.
"Our export has declined (in 2012) compared to the previous year because the European nations are not buying from us and naturally we have had a decline in oil production."
Iran is now Opec's fourth biggest producer, after Saudi Arabia, Iraq and Kuwait, according to the cartel's data. In 2011, it ranked second.