In The Press   PAGE 1

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Japan’s economic recovery continues lightly, according to government

July 21st, 2010

Japan’s government has said that its economy is recovering steadily from the 2009 global recession. However, news in the last month was not particularly positive. Government reports suggest that machinery orders fell by the largest amount since August 2008, that wage levels declined and that Japan’s unemployment rate worsened. Despite persistently high unemployment, Japan’s economic recovery is expected to be driven by exports. However, given the small levels of consumer confidence in the US and continuing instability in European financial markets, Japan’s export levels have not risen dramatically and are highly susceptible to fluctuations in the international business cycle. Given that Japan is one of Australia’s largest export markets, developments in Japan’s economy are keenly scrutinised by Australian economic commentators.

IMF lifts world economic growth forecast

July 9th, 2010

The International Monetary Fund (IMF) has lifted its forecast for global economic growth in 2010. Specifically, the IMF now estimates that Australia’s economic growth will rise to 3.5 per cent over the coming year, which is above the 2.6 per cent growth forecast for advanced countries as a whole. The IMF also estimates that the entire Asian region will grow by a record 9.2 per cent. While the IMF also upgraded its forecast for other developed countries, including the US, Japan and Germany, it has warned that instability in European financial markets as a consequence of Greece’s debt crisis may spread to the rest of the global economy. The IMF’s more optimistic estimates, however, were driven by unexpectedly strong growth in Asia during the first quarter of 2010. The IMF expects that demand from large emerging economies, such as China and India, will lift commodity prices (excepting oil prices) by 15.5 per cent this year. While Asia does not have significant exposure to the most troubled European nations, such as Greece, a general collapse in European confidence would most certainly harm Asia’s exports, jeapordising its economic growth prospects.

US Federal Reserve Chairman ‘uncertain’ about US economy

July 21st, 2010

The Chairman of the US Federal Reserve (the equivalent of Australia’s Reserve Bank), Ben Bernanke, has warned that the outlook for US economic conditions is ‘unusually uncertain’. In his testimony before the US Senate Banking Committee, Bernanke commented on the continued need for low interest rates to facilitate increased spending by businesses and households in the US. US Interest rates have been held at between 0 per cent and 0.25 per cent since late 2008. Over the past year, many economic commentators have voiced concern that a premature departure from economic stimulus by the Federal Government may lead the US to re-enter recession. The US economy grew at an annualised rate of 2.7 per cent for the first quarter of 2010, marking its departure from recession in 2009. However, persistently high national unemployment and sluggishness in the US manufacturing sector have led many to believe that a ‘double-dip’ recession may be occurring.

Australian economy continues to perform strongly

July 21st, 2010

According to a leading index of economic activity administered by the Westpac-Melbourne Institute, Australia’s annualised economic growth rate during May was 6.7 per cent – significantly higher than Australia’s long-term trend of around 3.0 per cent. Westpac estimates that annualised growth will be 3.5 per cent for the second half of 2010. However, brisk economic recovery in Australia is threatening to put upward pressure on interest rates. If inflationary pressures re-emerge due to strong domestic demand, the Reserve Bank is likely to increase interest rates during its next meeting in August. Westpac forecasts that underlying inflation will be towards the upper range of the Reserve Bank’s 2 – 3 per cent target band.

Obama Administration signs into law new financial market reform regulations

July 22nd, 2010

US President Barack Obama has signed into law a dramatic overhaul of regulations for the US banking and financial sector, claiming that the new provisions will help prevent the conditions that led to the global financial crisis of 2008. As part of the legislation, the US government possesses new powers to wind down companies that threaten the stability of the financial system, provides for greater transparency of hedge funds and derivatives markets, and creates a new Federal agency to protect consumers during financial transactions. In particular, the legislation is aimed at preventing the use of taxpayer funded ‘bail-outs’ for troubled banks and financial institutions in the future: a controversial and much-criticised emergency measure that was used around the world to promote stability after the 2008 crisis. The reform also provides scope for the Obama administration to set new capital and liquidity requirements for banks to ensure that they are more capable of weathering financial distress without resorting to government assistance.

South Korea, China and Japan Explore Free Trade Possibilities:

May 22, 2010

Trade ministers from China, South Korea and Japan met in Seoul to explore different options for promoting freer trade between the three countries. Japan is Asia’s largest economy, with China a close 2nd. Together, the three countries represent 18.6 per cent of the global economy. The trade ministers have agreed to begin a study aimed at evaluating the potential benefits of a free trade agreement. The study is targeted for completion by 2012. However, complications will certainly arise – already, South Korea and Japan have struggled to reach a bilateral trade agreement due to disagreement of rice exports.

Obama Administration Pursues Financial Reform:

May 22, 2010

The US Senate has approved legislation to impose new regulations on US banks and financial institutions. The legislation, which must be reconciled with a similar bill in the US House of Representatives before it can be made law, introduces new measures for the Federal Government to supervise financial institutions; places limits on the size of banks and the sorts of risks they can take under the ‘Volcker’ rule; sets up a new consumer protection agency to prevent predatory mortgage and credit card lending; and allows the Federal Government new powers to ‘wind down’ troubled financial institutions so that they have no impact on the wider economy. US President Barack Obama has suggested that passage of this bill will prevent any future taxpayer-funded bailouts of financial institutions.

Greece to receive first installment of bail-out funds

May 22, 2010

Greece is due to receive its first installment of a massive 110-billion euro bailout package arranged by the European Union (EU) and International Monetary Fund (IMF). For the first installment, 20 billion euros will be transferred to Greece. Of this, 14.5 billion euros are from EU member states and the remaining 5.5 billion euros have come from the IMF. The uncertainty regarding whether the bailout package would be agreed upon has prompted the euro’s value to slide against the US dollar. However, in return for the international community’s financial assistance, Greece’s government was pressured to make certain ‘austerity cuts’ – such as freezing public sector wages in an effort to return Greece’s budget deficit to surplus. Many of these austerity cuts have prompted violent reactions from Greece’s citizens, which has led to protests and riots on the streets in which several people have lost their lives. Spain and Portugal have also experienced similar financial difficulties in recent times.

Japan’s economy experiences more economic growth

May 21, 2010

According to the US Federal Reserve, the US economy is improving more rapidly than earlier expected, with predictions of higher growth and lower unemployment in the Federal Reserve’s minutes from its April meeting. The Federal Reserve predicted that the US economy would grow by between 3.2 and 3.7 per cent, up from the bank’s earlier estimates as low as 2.8 per cent. Additionally, the minutes suggest that the deterioration of the US labour market is finally ending and that unemployment could fall to as low as 9.1 per cent by year’s end. Nevertheless, the minutes also suggest that the financial situation in the US remains precarious due to continued uncertainty in Europe, and the impact it has had on stock prices and exchange rates throughout the world.

US Economy Continues to Bounce Back

May 20, 2010

According to the US Federal Reserve, the US economy is improving more rapidly than earlier expected, with predictions of higher growth and lower unemployment in the Federal Reserve’s minutes from its April meeting. The Federal Reserve predicted that the US economy would grow by between 3.2 and 3.7 per cent, up from the bank’s earlier estimates as low as 2.8 per cent. Additionally, the minutes suggest that the deterioration of the US labour market is finally ending and that unemployment could fall to as low as 9.1 per cent by year’s end. Nevertheless, the minutes also suggest that the financial situation in the US remains precarious due to continued uncertainty in Europe, and the impact it has had on stock prices and exchange rates throughout the world.

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