In The Press   PAGE 2

Page 1 | Page 2 | Page 3 | Page 4 | View All

US unemployment rate remains at 9.5 per cent

3rd August, 2010

Despite the disappointing loss of 131,000 jobs in the US during July, the unemployment rate remained steady at 9.5 per cent. The reason unemployment stayed level, according to the US Labour Department, was due to an accompanying decrease in labour force participation as many Americans stopped looking for work. The lack of substantial increases in US employment is ensuring only sluggish recovery in household spending. Accordingly, credit-card debt dropped to its lowest level since October 2005 in a sign that US households may lack confidence to borrow funds. However, in slightly more positive news, hourly earnings for US workers increased by 0.2 per cent – more than previously anticipated. The US underemployment rate, which includes part-time employees who would prefer to work additional hours, also remained steady at 16.5 per cent. With roughly 15 million Americans presently unemployed but willing and able to work, some economists have called for another round of Federal Government stimulus in order to promote further job creation.

RBA leaves interest rates on hold

3rd August, 2010

The Reserve Bank has decided to leave its cash rate unchanged at 4.5 per cent after new inflation figures confirmed that underlying inflation had fallen to 2.7 per cent – within the Reserve Bank’s 2-3 per cent target band. It has remained at this level for three months since May. Prior to this, the Reserve Bank had raised interest rates a total of six times over the preceding eight-month period. Many economists are now predicting that interest rates will remain at their current levels until November, after which more official inflation figures will be released. According to Reserve Bank governor Glenn Stevens, current monetary policy settings is resulting in interest rates for borrowers close to their overall average over the past decade.

US Treasury urges for stimulus not to be withdrawn too rapidly

July 26, 2010

According to a US Treasury Department official, governments around the world should not rein in stimulus spending too rapidly due to the risk of fragile economies lapsing once more into recession. Over the past several months, calls for continued stimulus by the US have been met with some resistance by various European governments who have emphasised the need to prevent budget deficits from spiralling out of control. Uncertainty in European financial markets due to Greece’s debt crisis has also emphasised the dangers of a premature departure from government stimulus, which could potentially increase investor uncertainty. Due to the global financial crisis of 2008 and the ensuing recession for many advanced countries in 2009, many governments enacted massive public spending programs in order to stimulate aggregate demand. However, the dramatic increase in spending has left many governments mired in debt.

IMF urges changes to China’s growth strategy

July 30, 2010

In an annual review of the Chinese economy, the International Monetary Fund (IMF) has urged China to allow its fixed exchange rate – the yuan – to appreciate as well as to implement measures to boost domestic Chinese consumption. The report focused on the fundamental external imbalances between China and the US. In particular, while China’s heavy reliance on export-led growth has prompted huge trade and current account surpluses as it exports goods to the rest of the world, it has also rendered many US exporters uncompetitive, leading to a significant trade deficit in the US. Furthermore, China’s export income was then used largely to purchase US Treasury Bonds and to therefore finance sizeable US budget deficits. In the report, the IMF applauded the reduction in China’s current account surplus from 11 per cent of GDP to an estimated 4 per cent of GDP by 2010’s end but urged the need for this momentum to continue. Chinese and US officials have been in talks over the past year on how to raise Chinese consumption (prompting an increase in Chinese imports) and raise US exports, thereby alleviating these imbalances.

Australia’s inflation less than forecast

July 29, 2010

Australia’s inflation rate was slightly less than expected at 0.6 per cent in the quarter to July. While this rise in consumer prices pushed headline inflation to 3.1 per cent, underlying inflation moderated to 2.7 per cent according to the Australian Bureau of Statistics (ABS); within the 2-3 per cent target band of the Reserve Bank. The softer than expected inflation figures are likely to place less pressure on the Reserve Bank to lift its cash rate at its next meeting in August, which presently sits at 4.5 per cent. A driving factor in the mild increase in inflation was the government’s recent increase in the excise on cigarettes. Nevertheless, inflationary risks may emerge as the year continues, driven by low levels of unemployment and minimal spare capacity in the Australian economy or ‘capacity constraints’; meaning that increases in aggregate demand may fuel price increases in the coming year. Since October 2009, the Reserve Bank has lifted interest rates six times but left them on hold for the past two months due to the potential for weak European financial markets to drag down global economic growth once more.

Australian banks may win relief from global financial rules

July 28, 2010

During global negotiations on financial reform currently underway in Basel, Switzerland, Australian banks are negotiating a tailor-made exemption from tough liquidity rules. The exemption, if agreed upon, would only apply to countries with low levels of government debt. It was feared that tougher liquidity standards for Australian banks could have pushed up domestic lending rates, costing banks of billions of dollars and placing upward pressure on borrowing rates for households. The ‘Basel Group’ has until November to agree on new global financial rules, due to be presented at a G20 summit later in 2010. Despite predictions of tough new rules, many of the tighter capital standards being agreed upon will not take full effect until 2018 for fear of placing pressure on an already fragile international banking system. The international negotiations in Basel continue just as US President Barack Obama has signed into law a new range of tougher measures for the US banking and financial industry.

US economy grows mildly in second quarter

July 30, 2010

The US economy expanded at an annual rate of 2.4 per cent in the second quarter of 2010, compared to a faster 3.7 per cent in the first quarter. Fixed investment in areas such as office buildings and equipment and software purchases was a key driver of second-quarter growth. Contrastingly, consumer spending has remained slightly sluggish in a sign that financial uncertainty is prompting many US households to save rather than spend, and that businesses may be choosing to defer hiring new workers to instead invest in capital equipment. Consumer spending grew at an annual rate of 1.6 per cent in the second quarter – lower than the 1.9 per cent recorded in the previous quarter. While a resumption in global economic growth elsewhere has accelerated US trade activity, US imports have been growing faster than US exports; therefore contributing to a widening trade deficit. While increases in GDP recorded over the past several quarters have spelled a technical end to the US recession, the sluggishness of recent data and persistent unemployment hovering at just below 10 per cent have led many to caution that the recovery is losing steam and that a ‘double-dip’ recession may occur.

China is now officially world’s second largest economy

July 30, 2010

China’s chief currency regulator has revealed that China has officially overtaken Japan as the world’s second largest economy. The size of China’s economy is surpassed only by the United States. Nevertheless, some projections by banks and economists have predicted that China’s economy will exceed the US by as early as 2025. After expanding by 11.1 per cent in the first half of 2010, China is expected to experience overall growth of 9 per cent for the entire year. Since China undertook market reforms since 1978, it has achieved average economic growth rates in excess of 9.5 per cent. Nevertheless, on a per capita basis, the US is clearly dominant – per capita income in the US is $21,000 compared to just $3,800 in China. In recent years, China has also surpassed the US as the world’s largest carbon emitter and energy consumers.

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.

Page 1 | Page 2 | Page 3 | Page 4 | View All