In The Press  

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Strong economic growth in India predicted for first quarter

29th August, 2010

Despite the government’s rollback of various stimulus measures, many economists are forecasting the Indian economy to grow by between 8.9 per cent and 9.4 per cent for the first quarter of the new fiscal year; almost matching the growth rates achieved three years ago. The Indian economy already expanded by 8.6 per cent during the March quarter of 2010 – the second fastest growth rate in the world, surpassed only by China’s 11.9 per cent growth rate over the same period. Nevertheless, the forecast is significantly higher than India’s slower pace of just 6 per cent over the same period last year. In particular, growth is expected to be driven by India’s strong industrial and manufacturing sector, complemented by a smaller extent by India’s levels of agricultural growth. During and after the global financial crisis, the relative resilience of India’s economy has been considered an integral part in leading global economic recovery, along with China.

US Federal Reserve prepared to take further action

28th August, 2010

The Chairman of the US Federal Reserve – Ben Bernanke – has reassured investors and policymakers that the central bank still has effective tools at its disposal to stimulate the US economy further, despite already having dropped interest rates to their lowest possible levels of 0-0.25 per cent while purchasing $1.7 trillion of US Treasury bonds and housing debt. Additional tools available, according to Bernanke, include further purchases of US government securities and a reduction in the interest rate it pays on banks’ excess reserves. In recent weeks and months, a slew of sluggish information regarding employment and manufacturing in the US economy has raised fears of a double-dip recession. Indeed, a day before Bernanke’s comments, second quarter growth estimates for the US economy were revised lower by the Commerce department from 2.4 per cent initially to 1.6 per cent.

Greece’s recession milder the earlier forecast

26th August, 2010

According to Greece’s Finance Minister, George Papaconstantinou, Greece’s recession will be milder than initially expected; the economy is now expected to shrink by less than the earlier forecast of 4 per cent over the year. Nevertheless, a key survey has recently indicated that eight out of every ten Greek businesses have witnessed deterioration in their financial positions during the first six months of the year. Greece narrowly escaped defaulting on its international debt obligations in May earlier this year after an assistance package put together by the International Monetary Fund (IMF) and the European Union (EU) valued at $140 billion began its first round of dissemination. In return for the financial assistance, Greece’s government agreed to strict austerity measures aimed at reducing the budget deficit from 13.6 per cent of GDP last year to below the EU’s limit of 3 per cent by 2014. Austerity measures include cutting the pay of government workers, reducing pension allowances and increasing consumer and income taxes. However, these measures have sparked violent protest in Greece and remain highly controversial.

India and Japan likely to seal trade pact in 2010

26th August, 2010

According to India’s Commerce Secretary, Rahul Khullar, India and Japan are likely to sign a bilateral trade pact in October 2010 as part of efforts to increase trade between the two nations. Presently, trade between the two is already $10.4 billion. The two countries have been negotiating a Comprehensive Economic Partnership Agreement (CEPA); a pseudonym for a free trade agreement (FTA) between the two countries. If signed, the free trade agreement will eliminate or substantially reduce tariffs on as many as 9,000 products, ranging from steel to drugs. Already, India has signed a similar trade pact with the Association of South East Asian Nations (ASEAN) covering goods. Presently, India and ASEAN have been negotiating the extension of this trade pact to include services and investment: widely seen as crucial given that services account for roughly 55 per cent of India’s overall gross domestic product (GDP).

India’s economy continues strong performance

15th August, 2010

The Indian economy has continued its relatively strong run of economic growth due to a resurgence of demand in the domestic and international market. Overall industrial output increased by 11.5 per cent in May, which represents double digit growth for eight consecutive months. GDP growth over the final quarter of 2009-10 was 8.6 per cent, compared to a smaller 5.8 per cent during the same period last year. The government has predicted GDP growth of 8.5 per cent in 2010-11 and 9 per cent in 2011-12. However, some have voiced concern that the growth recorded has been uneven. In particular, sluggish performance in India’s agricultural sector for the second successive year has raised some concerns. Furthermore, like many other emerging markets, India’s strong growth has also prompted inflationary pressures stretching from food prices to the cost of labour in India’s manufacturing industry. Nevertheless, the Reserve Bank of India (RBI) has projected for headline inflation to fall to 5.5 per cent by March 2011, and has begun preliminary steps to hike interest rates.

Germany’s economy expands at record pace

13th August, 2010

During the year’s second quarter, the German economy – the largest economy in the European Union (EU) – grew at its fastest pace since the country’s reunification over two decades ago. Germany’s Gross Domestic Product (GDP) increased by 2.2 per cent; a significant increase from economists’ expectations of 1.3 per cent. On annualised terms, this means that the German economy expanded by roughly 9 per cent, placing it in the pantheon of emerging markets such as China and India. The positive result is driven by a general recovery in global demand and the euro’s 10 per cent decline against the dollar, which has boosted the international competitiveness of Germany’s export industries. Germany’s growth helped to drive total EU growth to 1 per cent, which is its fastest level of growth in four years. Germany accounts for roughly one quarter of the EU’s economy and accounted for approximately two-thirds of the region’s second quarter growth. The positive result is especially welcome news given the recent skittishness of European financial markets due to Greece’s debt crisis and only modest growth reports from other European countries – France’s economy expanded by 0.6 per cent, Italy’s by 0.4 per cent, Spain’s by 0.2 per cent while Greece suffered a 1.5 per cent contraction. Furthermore, efforts by European governments to cut spending and therefore rein in large budget deficits may threaten growth in the coming months.

US economy facing grim conditions once more

13th August, 2010

More bleak news regarding the state of the US labour market has heightened fears that the US may slide into a ‘double-dip’ recession. The number of American citizens applying for Federal unemployment benefits has increased to its highest level in six months, with 484,000 former employees applying for help during last week alone. This marked the second consecutive week in which applications for unemployment benefits exceeded 480,000. Additionally, banks have been foreclosing on mortgaged homes at nearly record levels, taking over almost 93,000 properties in July. Resultantly, a poll released by the Wall Street Journal has indicated that almost two-thirds of Americans believe the economy will get worse before it improves. A consensus amongst many commentators is that US households and businesses have been cautious about spending and investment due to the uncertainty of the US recovery, and have thus decided to save rather than spend. The result of this has been only sluggish recovery in aggregate demand.

Brazil experiences strong economic resurgence

12th August, 2010

In recent months, Brazil’s economy has experienced significant growth after officially emerging from recession during 2009. Indeed, during the first quarter of 2010, Brazil’s economy grew by a substantial 9 per cent, according to the central government. According to the International Monetary Fund (IMF), Brazil’s relatively successful weathering of the global financial crisis was due to fiscal responsibility, exchange rate flexibility and the strength of its domestic financial system. However, like other emerging markets, stronger growth levels have raised fears of inflationary pressures. Brazil’s central bank had already raised official interest rates by 2 per cent over the course of 2010. Many commentators expect the rate to increase even further and to possibly reach 11.75 per cent by 2010’s end. Overall, the IMF predicts that Brazil’s real GDP will increase by 7.1 per cent in 2010, compared to its minor decline of 0.2 per cent in 2009.

RBA Predicts 3 per cent growth for Australia

6th August, 2010

The Reserve Bank has predicted growth of 3 per cent for the Australian economy for the year to June 2010, with growth expected to increase to 3.75 per cent by June 2011. Additionally, they have predicted that Australia’s level of headline inflation – measured by the Consumer Price Index (CPI) – will hit 3.1 per cent for June 2010 but reach 3.25 per cent by June 2011. Underlying inflation, however, is expected to be noticeably softer and arrive at 2.75 per cent by the end of 2010 and remain there until June 2012. The Reserve Bank also expects Australia’s terms of trade to remain at historically high levels, driven by strong demand for Australia’s commodities and mineral exports from developing giants such as China and India. However, the Reserve Bank has also warned of downside risks to the Australian economy, including the uncertainty of some investment projects in the mining industry and continued instability in European financial markets. As per usual, the Reserve Bank confirmed that much of Australia’s growth depends on the trajectory of the mining industry.

Rio Tinto’s profits increase by 125 per cent

5th August, 2010

Continued economic strength in China has helped Australia’s mining industry to obtain record profits, including Rio Tinto who has recently reported a 125 per cent profit increase for the first half of 2010. Specifically, China’s demand for iron ore has driven this outcome, as around 75 per cent of Rio Tinto’s profit for the year has been driven by iron ore sales. Iron ore, as the key ingredient for steel, is indispensable to China’s construction of new infrastructure. However, many have expected China’s demand for iron ore to slow over the second half of 2010 as China implements measures to cool down an overheating economy. In addition to China, India has also become a key consumer of copper, aluminium and coking coal – all of which are metals and raw materials that Rio Tinto produces in significant quantity.

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.

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.

Economy to increase growth rate to 4 per cent

May 11, 2010

According to the new 2010-11 Commonwealth Budget, the Australian economy is expected to grow by 3.25 per cent in the next year, lifting to 4 per cent in 2011-12 before moderating slightly. Notably, Treasury’s predictions are slightly weaker than those of the Reserve Bank, which predict a higher rate of 3.75 per cent growth in the next year. Significant commodity exports to large, industrialising nations like China and India are expected to increase Australia’s terms of trade by 25 per cent in mid-2010, injecting $30 billion into the domestic economy. Treasury also predicted that inflation would remain relatively soft, with the Consumer Price Index (CPI) remaining steady at 2.5 per cent over the next four years. Finally, unemployment is forecast to drop to 5 per cent this year, before decreasing even further to historic lows of 4.75 per cent.

IMF confirms financial support for Greece

April 25, 2010

The International Monetary Fund (IMF) has confirmed that it will provide an aid package, if necessary, to assist Greece in its battle to sustain its crippled economy. Greece has requested an aid package from the European Union (EU) and the IMF totaling around $60 billion to help Greece service its international debt obligations – if not, Greece is at risk of defaulting on its debts, prompting widespread capital flight from Greece and the possibility of more financial problems. However, some in Greece have voiced concern over whether the IMF should be consulted for assistance, given the counterproductive impact IMF policies had during the Asian Financial Crisis of the 1997. However, IMF chief Dominique Strauss-Kahn has sought to assuage such concerns by confirming that the IMF has learnt from its past mistakes and will not repeat them. Concerns over whether a comprehensive assistance package will be adequately implemented have rattled investors all over the world, since a Greek default on its debts could hurt investors globally.

US grapples over financial reform package

April 24, 2010

The US Senate is currently debating a piece of legislation to impose new regulations on the US financial industry in an effort to prevent a financial crisis on the scale of 2007-2009 from occurring again. In particular, reforms being floated include provisions to end taxpayer funded bailouts of big banks or financial institutions that are facing difficulty, as well as further protection for consumers from predatory financial and lending practices. The US domestic debate is taking place within a broader global effort to introduce new regulations on the global financial sector – finance ministers and heads of central banks met at a recent G-20 meeting and also pledged to introduce new financial reforms.

Japan’s economy shows positive signs

April 23, 2010

Japanese exports increased by a significant 43.5 per cent compared to a year ago, helping to provide increased momentum for the country’s economic recovery. Exports grew for a fourth consecutive month in March, prompted mostly by large companies like Mitsubishi Electric Corp. Additionally, in a sign that domestic demand has picked up, Japan’s imports grew by 20.7 per cent last month. The International Monetary Fund (IMF) has predicted that Japan’s economy will grow by 1.9 per cent this year; significantly below the 8.8 per cent predicted for India and the 10 per cent for China. Most commentators believe that the recovery is likely to continue, given that rising demand in emerging markets will drive demand for Japanese exports: exports to Asia have already risen by 52.9 per cent. Specifically, exports to China have increased by 47.7 per cent and exports to the US have grown by 29.5 per cent.

Australia to resume ‘two-speed’ economic growth

April 23, 2010

Despite Australia’s resilient performance during the global recession, the Reserve Bank has warned that the gap between Australia’s booming mining sector and the remainder of its economy may widen. Resultantly, not everyone will experience the benefits of economic growth in the years to come. While rising commodity prices benefit Australia’s commodity exporters, it pushes up the value of the Australian dollar and therefore makes other exporters – mostly in regions away from the large mining centres of Western Australia and Queensland – less internationally competitive. For example, the number of mining jobs grew by 11.9 per cent in the three months to February while the number of jobs in the accommodation sector fell by 2.7 per cent. Different growth rates between regions also makes it difficult for the Reserve Bank to raise interest rates, as it may adversely affect industries that have not fully recovered from slower conditions.

Britain’s economy grows by 0.2 per cent in first quarter

April 22, 2010

Official figures indicate that Britain’s economy grew by 0.2 per cent in the first quarter, slightly lower than the 0.4 per cent expected by many economists and noticeably lower than the normal quarterly rate of 0.6 per cent. Nevertheless, the figures are consistent with the British Government’s budget forecast of 1 to 1.5 per cent economic growth for the year. The growth comes in spite of an increase in Britain’s national value-added tax to 17.5 per cent. Business services and manufacturing contributed the most to economic growth, driving private sector growth to a little over 0.2 per cent. Overall, the figures suggest that Britain has turned a corner in its path to economic recovery, and most economists expected that the growth rate will continue to rise as the year progresses.

Australia to lead global recovery according to IMF

April 21, 2010

A new report released by the International Monetary Fund (IMF) has claimed that Australia is one of only a few countries helping to lead the global economy out of the depths of severe recession. While pointing to the sluggish recovery being witnessed in other advanced, industrialised economies – such as the US and the UK – the report praises Australia’s economic performance and predicts 3 per cent economic growth for this year and 3.5 per cent for next year. In particular, strong demand for commodities from industrialising countries like China and India is expected to promote steady, sustainable growth, helping Australia’s unemployment rate to average 5.3 per cent this year before dropping to 5.1 per cent next year. Many additional reasons have been floated to explain Australia’s resilience during the worst global recession since the 1930s – in particular, Australia’s relatively low level of indebtedness and tougher regulation of its financial sector reduced its exposure to the global slowdown. Overall, the IMF is predicting that the global economy will grow by 4.2 per cent this year. China is expected to grow by 10 per cent; India by 8.8 per cent and the US by 3.1 per cent.

US economy adds 162,000 jobs

April 2, 2010

The US economy posted the largest job gain in over three years during March 2010, adding a significant 162,000 jobs to the US labour force. However, since more people are now entering the labour force in search of employment (an increase in the nation’s labour force participation rate), the unemployment rate itself remained steady at 9.7 per cent for the third month in a row. Nevertheless, the increase in jobs was slightly lower than expected – economists had earlier expected the creation of 190,000 jobs, rather than 162,000 jobs. Private employers added 123,000 jobs – significantly higher than the 8,000 added in February and the 16,000 added in January. However, in a sign that the financial sector remains fragile and weak, companies in the finance industry lost 21,000 jobs. Overall, however, the pace of economic recovery in the US has been slow and most economists do not believe there will be a significant decrease in the unemployment rate over the course of 2010. Presently, around 15 million Americans are still unemployed. During the course of the recession, around 8.4 million Americans lost their jobs. Those that remained hit historically high productivity rates in 2009. In the broader context, the US Federal Reserve has continued to leave interest rates at historically low rates of 0 – 0.25 per cent for an ‘extended period’ in order to promote spending and investment.

India’s industrial output increases by 16 per cent throughout February

April 1, 2010

India’s economy continued to perform strongly throughout February, with industrial output increasing by a significant 16 per cent. However, stronger economic conditions have increased the likelihood of an interest rate hike by the Reserve Bank of India in order to temper the prospect of inflationary pressures. Already, the RBI increased key lending and borrowing rates by 25 basis points earlier in the month and is expected to increase rates by a further 25 basis points in April. India’s inflation levels are presently sitting at around 10 per cent. Overall, the government expects India’s economy to grow by 7.2 per cent in 2009-10.

Australia’s trade deficit widens

April 1, 2010

Australia’s trade deficit worsened throughout February, driven by strong domestic demand for imports and slightly slower exports in the face of a still weak international environment. The balance on goods and services (BOGS) deficit thus widened to $1.92 billion in February, compared to earlier expectations of around $1.32 billion. Interestingly, the trade deficit has widened even after Australia has been able to negotiate significant price increases for its commodity exports, such as coil and iron ore. On the other hand, imports increased significantly as Australian miners purchased equipment from overseas in order to meet their production schedules. Nevertheless, higher commodity prices are expected to reverse the deficit over the course of 2010, pushing Australia’s trade balance back into surplus. Indeed, contract iron ore prices may increase by 65 per cent over this year alone.

EU develops bailout options for Greece

15th March, 2009

The European Union (EU) has developed a range of international support measures to help Greece overcome its increasingly fragile economy. In particular, the EU – presently comprised of 27 member nations – has brainstormed ways in which the Greek government can reduce its massive budget deficit, which presently sits at almost 13 per cent of GDP. Greece has promised to reduce this number to 8.7 per cent in 2010. To do so, it has already introduced wage cuts for public sector workers and tax increases in order to increase public revenues and decrease public expenditures, thereby helping to bring the budget deficit under control. Greece’s economy has been especially hard hit by the global financial crisis of 2007-2009. In the fourth quarter of 2009, Greece’s economy contracted by 2.5 per cent. In a sign of continued weakness of consumer spending on foreign goods, Greece’s imports plunged by 18 per cent. The weak economic conditions have also sparked significant social unrest in the country, characterised by mass protests against wage cuts and tax increases adopted by the Greek government in pursuit of its ‘austerity’ program – the term given to its efforts to reduce the budget deficit.

China denies that its currency is undervalued

14th March, 2010

China has rejected international criticism of its exchange rate policy, hitting back at complaints that it is deliberately undervaluing its currency – the yuan¬ – in order to make its goods more internationally competitive and thereby boost its exports. Contrastingly, trade groups in the US say that the yuan is undervalued by up to 40 per cent. If China’s currency is undervalued, it provides Chinese exports with an unfair international advantage – a lower exchange rate makes it cheaper for international customers to purchase goods from China, thereby disadvantaging exporters in other countries. The yuan was previously tied to the US dollar until 2005, after which China permitted its value to rise by around 20 per cent. The criticism and China’s response comes amidst fears of retaliatory protectionist measures being taken by the US against China, such as the Obama administration’s tariffs on tire imports from China.

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