The U.K. government should aim to balance its budget two years earlier than currently planned to calm investor concerns the country could lose its top-notch credit rating, the Confederation for British Industry said.
The budget deficit should be eradicated by March 2016, the London-based employers’ group said in proposals submitted to Chancellor of the Exchequer Alistair Darling before his budget this month. This should be achieved through spending cuts and reforms to public services rather than tax increases, it said.
“There is a need to restore macro-economic stability and that depends on getting current levels of government borrowing down,” CBI Director General Richard Lambert told a press conference in London on March 4. “The government is not ambitious enough on that front. It hasn’t set out its spending plans in enough detail. The 2017 date is too far away.”
With an election due by June, the debate over how to tame a deficit equal to Greece’s has taken center stage as some investors and the opposition Conservatives warn Britain’s credit rating is at risk.
Prime Minister Gordon Brown has pledged to halve the gap, set to exceed 12 percent of economic output this year, by March 2014 and says Conservative plans to begin spending cuts this year risk plunging the economy into a “double-dip recession.”
“The economy is still in a very fragile shape,” Lambert said. While the CBI is not proposing “any silver bullets in the short-term,” the process of cutting the deficit “should get under way seriously in 2011.”
Poll Outlook
Polls suggest Britain may be heading for its first minority government since 1974, sparking concern that efforts to cut the deficit may be compromised.
“The scale of our budget deficit and the likely tightening we are going to need does look a lot more serious than in any other G-7 country,” Lambert says. “We are confident that the U.K.’s credit rating is sustainable. The big picture is to get credibility.”
A survey showed that 86 percent of U.K. business leaders said that current levels of public spending needed to be reduced, while 72 percent said cuts should start this year, the Institute of Directors said in a separate e-mailed report today. The lobby group, which questioned 1,500 people between Feb. 26 and March 4, also found that 71 percent said the deficit was a top priority of a new government in its first 100 days.
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Australia’s central bank said economic growth will continue to accelerate this year even if policy makers are forced to raise the benchmark interest rate by another three quarters of a percentage point.
The economy will be growing at an annual pace of 3.25 percent in the three months through December 2010, up from 2 percent last quarter, the bank said today in Sydney. Officials based their forecast on an assumption that the overnight cash rate target will climb to 4.5 percent this year, in line with market estimates.
Reserve Bank Governor Glenn Stevens unexpectedly kept borrowing costs unchanged this week, saying information about the impact of the bank’s record three increases last quarter “is still limited.” A report this week showed retail sales unexpectedly fell in December for the first time in five months and stock markets tumbled today amid increasing concern that the global recovery may falter.
“They are uncertain and waiting for more information,” said Su-Lin Ong, senior economist at RBC Capital Markets Ltd. in Sydney. “It looks like they need greater justification to tighten further. They need to see a broadening in global growth.”
The Australian dollar traded at 86.57 U.S. cents at 12:37 p.m. in Sydney from 86.90 cents before the statement was released. The two-year government bond yield fell 4 basis points to 4.05 percent. A basis point is 0.01 percentage point.
Stocks Fall
Australia’s S&P/ASX 200 Index dropped 2.8 percent to 4,493.40 at 12:05 p.m. in Sydney, setting the benchmark gauge on course for its lowest close in five months.
While interest rates are “no longer at exceptionally low levels,” it is “likely” that borrowing costs will be increased further over time to ensure inflation stays within Stevens’s target range of between 2 percent and 3 percent, the bank said in its quarterly monetary policy statement.
Stevens became the first central banker in the world to raise borrowing costs three times last year after Australia’s economy skirted the global recession, helped by A$20 billion ($17 billion) in cash handouts to consumers from Prime Minister Kevin Rudd and another A$22 billion in spending on roads, railways and schools.
U.S., Europe
By contrast, officials in the U.S., the U.K. and Europe have kept their benchmark lending rates at historic lows, partly on concern that recoveries in their economies will be hampered by high unemployment and weak consumer sentiment.
Australia’s economy will expand 2.5 percent in the June quarter of 2010 from a year earlier, and 3.5 percent in the year through June 30, 2011. Three months ago, the bank predicted growth rates of 2.25 percent and 3.25 percent respectively.
Core inflation will cool this year to an annual pace of 2.5 percent from 3.25 percent, before accelerating again to 2.75 percent in 2011.
The bank said those forecasts are based on the “technical assumption” of an increase in the cash rate, “with the assumed path broadly consistent with market expectations as the statement was finalized.”
Money market yields continue to reflect expectations for “further tightening, though at a slightly slower pace” than anticipated three months ago. “The cash rate is expected to reach around 4.5 percent by the end of the year,” today’s statement said.
“They’re being a little more specific and open about” their assumptions about future interest rates, said David de Garis, a senior economist at National Australia Bank Ltd. in Sydney. “They were probably always assuming something similar to the market.”
Rate Bets
Traders are betting there is only an 18 percent chance of a quarter-point increase in the overnight cash rate target when policy makers meet on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 12:33 p.m.
Today’s forecasts “represent a modest upward revision” to figures released in November, “with recent data suggesting that the economy starts the current upswing in activity with somewhat less spare capacity than earlier thought likely,” today’s statement said.
“It now looks likely that the unemployment rate has peaked at around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would peak at 8.5 percent this year.
Australia’s unemployment rate dropped in December to an eight-month low of 5.5 percent after employers added 135,700 jobs between September and the end of 2009, the biggest four- month surge in hiring in more than three years.
Energy Demand
Increased demand for workers is being stoked by a surge in investment by companies such as Chevron Corp., which is expanding its Gorgon liquefied natural gas venture in Western Australia to meeting rising demand from Asia for energy.
“Mining investment is expected to increase further from its already very high level,” today’s statement said. Exports of resources will “grow strongly, reflecting capacity increases resulting from the high level of mining investment over recent years.
“However, growth outside of the mining sector is expected to be only modest, reflecting the reallocation of productive resources within the economy.”
This is partly due to the surge in Australia’s currency, “which has reduced the international competitiveness of import- competing and exporting sectors, including the manufacturing and tourism sectors,” the bank said.
Household Spending
While increased hiring and an annual 13.6 percent surge in house prices last quarter have helped stoke consumer confidence, which jumped in January by the most in six months, “households are still taking a more cautious approach to their spending than was the case a few years ago,” today’s statement said.
One risk to today’s forecasts is whether the nation’s recent economic performance was prompted by a “bring-forward” of spending by consumers and businesses amid last year’s earlier interest-rate cuts and government spending, the bank said.
“If so, underlying growth would be soft into 2010 as the effects of the temporary stimulus fade,” the bank said. This may be offset by “the improvement in the outlook in the resources sector” which is “clearly not due to temporary policy factors.”
There are also questions about the durability of recent growth in the world’s largest economies, which have been boosted by temporary fiscal measures and the restocking of inventories by companies, today’s statement said.
“For a sustained recovery to take hold, a substantially stronger pick-up in private demand than has been evident to date will be required,” the bank said. “Many of these countries also face very significant fiscal challenges that will need to be addressed over time.”
Retail sales jumped 1.3% in November, according to the Commerce Department, well more than the expected increase.
Economists had expected retail sales to rise 0.6% from October, according to a consensus of forecasts compiled by Briefing.com.
The seasonally adjusted November increase represents $352.1 billion worth of monthly sales. This is slightly less than the October increase, when retail sales jumped 1.4% month-to-month.
Automobile sales had little to do with November’s gains. Without including autos, retail sales rose 1.2% last month.
A consensus of economists had projected ex-auto sales to rise 0.4% in November, compared to October, when ex-auto sales notched up 0.2%.
The year-to-year increase was more dramatic No teletrak payday loan. November retail sales jumped 1.9%, compared to the same month in 2008.
November sales included Black Friday, the post-Thanksgiving shopping spree that is generally one of the hottest days of the year for retail. But this year’s Black Friday disappointed retailers, with sales rising an anemic 0.5%, falling short of Thomson Reuters’ forecast of a 2.1% rise.
Also today, at 9:55 a.m. ET, the University of Michigan will release its preliminary consumer sentiment index for November. The November index is expected to rise to 68.8, according to a Briefing.com consensus, from the prior month’s index of 67.4.
Rupert Murdoch, head of media giant News Corp, met LG Electronics Inc executives in the South Korean capital on Wednesday, and was due to discuss news and movie content with Samsung Electronics Co Ltd, according to sources and local media.
News Corp may be on the lookout for opportunities in the fast-changing South Korean media sector, where deregulation will open the door for major newspapers to expand into broadcasting, media reports have said.
LG Electronics confirmed that Murdoch, whose media empire includes The Wall Street Journal and Fox television, met executives including CEO Nam Yong to discuss “business matters.”
“We have no specific plans,” Nam told Reuters when asked what the talks had been about.
Murdoch was due later to meet Lee Jae-yong, son of former Samsung group chairman Lee Kun-hee, and Choi Gee-sung, head of digital media at Samsung, said an industry source, who asked not to be named.
Yonhap News earlier reported Murdoch and Samsung officials were expected to discuss selling news and movie content in South Korea through Samsung’s broadband TVs.
Murdoch was previously in Japan for talks with several corporate and political leaders, including Prime Minister Yukio Hatoyama, according to a source familiar with the matter but who was not authorized to talk to the media.
Murdoch said in August he was unhappy with Amazon.com’s control of relationships with newspaper subscribers for its Kindle electronic reader, and might seek a better deal with rival e-reader maker Sony Corp.
A spokesman for Samsung declined to confirm any plans related to News Corp. Sony officials would not confirm whether company executives met the media mogul.
A Dow Jones spokesman declined to provide details of Murdoch’s Asian schedule, but said “Mr. Murdoch is stopping in South Korea for a very brief, private visit en route to Beijing.”
Murdoch will also visit the Panmunjom truce village in the Demilitarised Zone (DMZ) on Thursday, a military official in Seoul said.
He is due to leave South Korea late on Thursday and head to China, where he will attend a media summit in Beijing later this week.
(Additional reporting by Kim Yeon-hee, Lee Chang-ho and Jon Herskovitz in SEOUL, editing by Jonathan Thatcher and Ian Geoghegan)
Insurer American International Group Inc’s once-desperate financial state has started to stabilize, a government agency said on Monday, as an influential lawmaker said he would look at easing the terms of the insurer’s federal bailout once more.
AIG’s shares shot up, rising more than 16 percent in afternoon trade to $46.44.
AIG, the recipient of billions of dollars in government support, started to show signs of stabilizing in mid-2009, as financial markets improved, congressional investigators said in a report on the status of the government’s assistance to the company.
The insurer was rescued by the government in September 2008, after losing bets that it made on the U.S. housing market threatened to drive the firm into bankruptcy.
Rep. Edolphus Towns, a Democrat who chairs the Government Reform Committee, told staff to take a look at a proposal from former AIG Chief Executive Officer Hank Greenberg that could make it easier for the insurer to repay federal obligations, a committee spokeswoman told Reuters on Monday.
The proposal would cut the government stake in AIG from the current 80 percent and trim interest rates on AIG’s government loan. It also would extend the term of the loan, giving the company more time to repay, the spokeswoman said.
However, it is still unclear whether U.S. taxpayers would ever be repaid fully, or whether AIG could pull off the restructuring of its business, according to the report compiled by the Government Accountability Office (GAO), the investigative arm of Congress.
The GAO said the U allstate insurance.S. government remains exposed to risks, including credit risk and investment risk, which could result in the Federal Reserve and Treasury not being repaid in full. (The GAO’s full report is available here)
Towns’ spokeswoman said the congressman has not yet spoken with the U.S. Treasury Department or the Federal Reserve about Greenberg’s proposal.
A NEW START?
AIG’s total bailout package, already rewritten three times since September 2008, has swelled to as much as $182.5 billion. The rescue includes the government’s purchase of toxic assets to relieve the insurer of billions of dollars in liabilities, and a funding facility that the insurer has yet to draw in full.
AIG currently owes about $80 billion in federal loans.
To repay its debts, AIG has tried to sell off assets; but so far it has raised net proceeds of only $4 billion, hampered by tight credit markets and buyers looking for bargains.
The possibility of a fourth revision to AIG’s bailout appeared to spark the rally in AIG’s stock on Monday, said Jon Najarian, co-founder of optionmaster.com.
He said the bullish sentiment appeared to be driven by retail investors and day traders, with triple the normal volume taking bets that the shares could trade as high as $65 by next month.
Najarian said there were no signs that big institutions were involved in the surge in activity in the shares on Monday.
The board of General Motors Co GM.UL began meeting in Detroit on Tuesday as the German government stepped up pressure on the automaker to clarify its long-term plans for its European Opel operations.
The board meeting coincided with a warning that the cost of keeping Opel could run $1.45 billion higher than an “overly optimistic” projection prepared by GM in June GM, which emerged from bankruptcy under U.S. government ownership in July, has been in intensive negotiations with two bidders to sell control of Opel and its British affiliate, Vauxhall, since May.
But last month the newly appointed GM board declined to endorse a plan to sell the operations to a group led by Canadian auto-parts group Magna International that has the backing of Germany’s government.
Instead, the 13-member board asked GM management led by Chief Executive Fritz Henderson to return with more information on two alternatives to the Magna deal.
Specifically, the board asked for renewed consideration of a sale to Brussels-listed RHJ International or a third option that would see GM keep Opel by raising the billions of dollars needed for its restructuring, sources familiar with the deliberations have said.
In a report presented to the GM board, adviser KPMG said that GM would face “an additional cash need of up to $6.1 billion” to keep Opel.
GM had previously estimated that it would need $4 payday loans with no fax.65 billion in cash to keep Opel and repay a roughly $2 billion bridge loan from the German government, the report said.
A copy of the report was obtained by Reuters.
KPMG had no comment. A GM spokeswoman could not be reached for comment.
With some 25,000 German jobs directly at stake and an election looming at month end, the slow progress toward a resolution of the Opel situation has been met with mounting frustration by German government officials.
“‘We are keeping Opel’ is not a strategy yet,” German Deputy Economy Minister Jochen Homann said on the sidelines of an energy conference in Munich on Tuesday.
GM’s board of directors began a two-day meeting on Tuesday to discuss Opel, which ranks as the second-largest brand behind only Chevrolet for the still-struggling automaker.
Berlin wants a decision ahead of the Frankfurt car show starting next week, where Opel will unveil the latest version of its most important model, the Astra compact.
MAGNA CONCERNS LOOM
GM consented in May to a Magna deal but gradually retreated from that position after emerging on July 10 from a fast-track bankruptcy funded and sponsored by the U.S. Treasury.
Legislation to reform the U.S. Securities and Exchange Commission and prevent another Madoff-style fraud from escaping notice will be offered by U.S. Senator Charles Schumer, he said in a statement on Thursday.
Citing a recent report that showed the SEC “botched numerous opportunities to uncover financier Bernie Madoff’s years-long fraud,” the New York Democrat said in the statement that he will present the bill at a news conference.
(Reporting by Kevin Drawbaugh; Editing by James Dalgleish)
The U.S. economy does not need a second fiscal stimulus package, instead the government should cut spending over the next two years, according to a survey of business economists released on Monday.
Most economists in the National Association for Business Economics (NABE) semi-annual poll were concerned about the outlook for the U.S. government budget. Also, they doubted health-care reforms proposed by the Obama administration would lower costs while increasing access and maintaining quality.
“This is one of the fastest-moving and most controversial economic policy environments we have experienced in a generation,” said NABE president Chris Varvares. “The more vexing policy challenges about which there is less agreement are federal health-care … budget policies.”
The government early this year stepped in with a $787 billion package of spending and tax cuts to break the worst recession since the Great Depression of the 1930s. Separately, it bailed out banks to prevent the financial system from collapsing.
Those actions left the economy saddled with a $1.58 trillion budget deficit in fiscal 2009, and a shortfall of about $9 trillion between 2010 and 2019.
The ballooning budget deficit is causing alarm and feeding into opposition to President Barack Obama’s central policy priority of overhauling the U.S. health-care system, whose price tag is $1 trillion.
While economists in the NABE survey acknowledged that the stimulus package had helped to brake the pace of the economy’s decline in the second quarter, only 35 percent viewed fiscal policy as being “about right”.
Half of the respondents saw fiscal policy as too stimulative. About 266 members took part in the poll which was conducted between August 3-18. The U.S. economy contracted at a 1.0 percent annual rate in the second quarter after collapsing 6.4 percent in the first three months of the year.
“Fully 76 percent do not believe a second stimulus package is needed. Three-quarters responded that they would like to see fiscal policy become more restrictive over the next two years, but only 28 percent expect that it will be,” the NABE said.
“In fact, the largest share, nearly 42 percent, expects fiscal policy to become even more stimulative than it is now.”
Just over half believed that fiscal stimulus would add between 0.5 and 1.5 percentage points to gross domestic product growth in the second half of 2009, while over a third saw it as adding less than half a percentage point.
About 58 percent felt the stimulus would add between half and 1.5 percentage points to growth from the fourth quarter of 2009 to the fourth quarter of 2010, the survey showed.
Nearly 70 percent of economists believed that monetary policy was “about right”. About 56 percent of respondents expected the Federal Reserve to keep interest rates unchanged over the next six months, while 44 percent saw an increase.
The Fed has cut interest rates almost to zero and pumped around $1 trillion into financial markets via a range of credit easing measures to prevent lending from freezing up, amid a global credit crisis sparked by the collapse of the U.S. housing market.
“Half of the economists do not believe quantitative easing actions of the Fed will be inflationary over the next couple of years, while 41 percent think they will,” the NABE said.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
Anglo-Australian miner Rio Tinto said on Tuesday it had yet to be presented with any evidence to support the detention of four of its China-based staff on suspicions of stealing state secrets.
The mining giant said it had also not been informed of any charges against its detained staff, which include Rio Tinto’s top iron-ore salesman in China, Australian Stern Hu.
Hu and three Chinese colleagues were detained a month ago on suspicion of spying on Chinese steel mills. Rio, the world’s second-largest iron ore producer, and Anglo-Australian firm BHP Billiton,, the third-largest producer, are currently locked in iron ore price negotiations with China.
“We are still not aware of any evidence that would support their detention,” said Rio’s iron ore division chief Sam Walsh.
“We continue to be concerned for the health and welfare of our three other employees detained at the same time as Stern Hu,” Walsh said in a statement, noting that the Australian government had informed the company that Hu was well.
The Rio detentions have cast a shadow over Australia-China trade, worth $53 billion in two-way terms in 2008.
In a growing war of words between Australia and China, Smith delivered a veiled warning on Tuesday for Beijing to rein in its diplomats after its embassy tried to block a speech in Canberra by an exiled leader of China’s Uighur Muslim minority.
An online article published in a magazine run by China’s state secrets agency at the weekend said Rio spied on Chinese mills for six years, resulting in the mills overpaying $102 billion for iron ore, Rio Tinto’s biggest earner payday loans.
The Australian government on Tuesday brushed off the Chinese report accusing Rio of overcharging and spying on Chinese steel mills, saying it had not been officially sanctioned.
“It is now quite clear, given that the article has been taken off the website, that it was essentially the opinion of the individual writer, and not if you like officially sanctioned,” Australian Foreign Minister Stephen Smith said.
Rio Tinto’s shares were some 2.2 percent lower at A$57.22 at midday on Tuesday, continuing a 3 percent slide the previous day amid investors nerves over the miner’s relations with China.
AUSTRALIA-CHINA TIES
Australian diplomats had made a fresh appeal for China to grant legal representation to China-born Hu after they were allowed only their second visit to his Shanghai detention center late last week, Smith said.
“We were very pleased to see that his health and welfare continues to be in good order,” Smith told state radio.
Jiang Ruqin, the author of the article that laid out the allegations, said the claim of losses came from Chinese media reports, including his statement that indications that Rio had been spying for six years came from seized computers.
A U.S. Securities and Exchange Commission lawyer warned about irregularities at Bernard Madoff’s financial management firm as far back as 2004, The Washington Post reported on Thursday, citing agency documents and sources familiar with the investigation.
Genevievette Walker-Lightfoot, a lawyer in the SEC’s Office of Compliance Inspections and Examinations, sent emails to a supervisor saying information provided by Madoff during her review didn’t add up and suggesting a set of questions to ask his firm, the report said.
Several of the questions directly challenged Madoff activities that turned out to be elements of his massive fraud, the newspaper said.
Madoff, 71, was sentenced to a prison term of 150 years on Monday after he pleaded guilty in March to a decades-long fraud that U.S. prosecutors said drew in as much as $65 billion.
The Washington Post reported that when Walker-Lightfoot reviewed the paper documents and electronic data supplied to the SEC by Madoff, she found it full of inconsistencies, according to documents, a former SEC official and another person knowledgeable about the 2004 investigation payday loan no faxing.
The newspaper said the SEC staffer raised concerns about Madoff but, at the time, the SEC was under pressure to look for wrongdoing in the mutual fund industry. Walker-Lightfoot was told to focus on a separate probe into mutual funds, the report said.
One of Walker-Lightfoot’s supervisors on the case was Eric Swanson, an assistant director of her department, the Post reported, citing two people familiar with the investigation.
Swanson later married Madoff’s niece, and their relationship is now under review by the SEC inspector general, who is examining the agency’s handling of the Madoff case, the Post reported.
Swanson, no longer with the agency, declined to comment, the Post said.
SEC spokesman John Nester also declined to comment, citing the ongoing investigation by the agency’s inspector general, the newspaper said.
(Writing by JoAnne Allen; Editing by Eric Walsh)
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