From the financial times:
Hungary faces ‘painful crisis management’
By Thomas Escritt in Budapest
Published: March 30 2009 16:33 | Last updated: March 30 2009 16:33
Gordon Bajnai, the Hungarian economics minister who is set to become prime minister next week, promised a period of ”painful” crisis management at a press conference on Monday, as the country’s finance minister suggested the new leader may get less than a year to do his job.
Mr Bajnai said: ”It will be painful. Crisis management will demand sacrifices from every Hungarian family.” He is expected to announce spending cuts, which could include dramatic cutbacks to Hungary’s generous social safety net.
Mr Bajnai, a political independent who is a close ally of Ferenc Gyurcsany, the outgoing prime minister, was the fifth and final candidate floated after a week of increasingly chaotic and leak-strewn negotiations between the governing Socialist party and their liberal Free Democrat allies following the deeply unpopular prime minister’s announcement last week that he would stand aside.
Hungary, which turned to the International Monetary Fund for a €20bn bail-out last autumn, is sliding into a deep recession even as a heavy burden of public and private sector debt limits the country’s ability to spend its way through the downturn. The export-dependent economy is forecast to shrink by 4 per cent this year, while the debt burden remains large, despite Mr Gyurcsany’s achievement in shrinking the budget deficit from 9 per cent to 3 per cent over the past three years. The unemployment rate, currently at 9 per cent, is rising.
Parliament will vote on Mr Bajnai’s appointment on 14 April. Janos Veres, the finance minister, said he was confident the Socialists and Free Democrats could muster the majority needed to appoint him. ”This government must last long enough to prepare and pass in parliament a budget for 2010,” he told the Financial Times. Hungary passes its budget in December, while elections must be held by spring 2010 at the latest.
Monday, March 30, 2009
Japan’s output slides for fifth month
Japanese industrial output slid for the fifth month in a row in February as weak exports weighed on an economy mired in its worst recession since the second world war, but there were tentative signs of recovery.
Manufacturers said they expected output to rise in March and April and they reported a record fall in inventories in February, showing that rapid production cuts in response to the global financial crisis had helped reduce stockpiles of unsold goods.
Still, the government plans to map out a new stimulus package ahead of a G20 summit in London this week to support householders and the service sector to boost the economy, with unemployment forecast to rise and wages stagnant.
“Industrial production will probably bottom out in the second quarter and start rising in the third quarter,” said Kyohei Morita, chief economist at Barclays Capital.
“Manufacturers are bottoming out by cutting costs and jobs, which has a negative impact on households and nonmanufacturers. We need fiscal stimulus for these parts of the economy, and the government may announce something specific at the G20 meeting.”
Hit by plunging global demand and weak consumption at home, Japan’s economy is seen shrinking 2.5 per cent in the first quarter and 0.4 per cent in the second quarter, extending the run of contraction to five quarters in a row.
Highlighting the lack of confidence in the domestic and global economies, the Bank of Japan’s closely watched Tankan survey due on April 1 is expected to show sentiment among big manufacturers tumbled to the lowest since 1975.
Japanese companies cut inventories at an unprecedented pace in February and said they would increase production in coming months, indicating the worst of the country’s manufacturing slump may be over.
Inventories fell 4.2 percent last month, the biggest decrease since record-keeping began in 1953, the Trade Ministry said today in Tokyo. Factory output slid 9.4 percent from January, when it plunged a record 10.2 percent.
Production may rise for the first time since September after companies from Toyota Motor Corp. to Nissan Motor Co. burned off stockpiles by temporarily closing plants. Japan’s recession will linger “for the next few quarters” because global demand remains weak, said economist Tetsuro Sugiura.
“The sharp adjustments in production and inventories are probably finished,” said Sugiura, chief economist at Mizuho Research Institute in Tokyo. “But we don’t expect a sharp rebound in production because exports are dropping very significantly.”
The second monthly reduction in stockpiles brought them to the lowest level since August 2007, today’s report showed. Manufacturers said they’ll raise output 2.9 percent in March and 3.1 percent in April, ending a five-month losing streak.
Toyota expects to have adjusted inventories to levels that reflect demand by April, President Katsuaki Watanabe said last week. The carmaker, which cut global output a record 53 percent last month, plans to ease domestic production cuts from May, he said.
Nippon Steel, Nissan
Nippon Steel Corp. last month said production should improve next quarter because customers have used up their supplies. Nissan, Japan’s third-largest automaker, says it will raise domestic output next month.
“Production cuts may already be bottoming out,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo. “That that doesn’t necessarily mean overseas demand is already recovering.”
Exports plunged a record 49.4 percent in February from a year earlier as sales of cars and electronics dried up. The World Trade Organization said last week that global commerce will shrink 9 percent this year, the most since World War II.
Companies have been quicker to react to the drop in demand than in previous slumps, economists said. Manufacturers were reluctant to shed workers and shut plants after Japan’s stock and property bubbles burst in the early 1990s, contributing to the so-called lost decade of economic stagnation.
Learned Lesson
“As a result of that experience, Japanese managers have come to believe they need to adjust very quickly in order to avoid the excess inventories, capacity and debt of the past,” said Sugiura at Mizuho Research.
Japanese companies aren’t alone in slashing production to get rid of stockpiles. U.S. factory inventories have fallen every month since September; in December, they dropped by 1.9 percent, the biggest monthly decline in 62 years of record- keeping. A JPMorgan Chase & Co. index of global inventory growth is close to an 11-year low, economist David Hensley said in a March 11 note.
U.S.-based Caterpillar Inc., the world’s largest maker of construction equipment, has been allowing dealers to cancel orders as it cuts production. Renault SA, France’s second- biggest carmaker, said in January that “inventory management and reduction will remain a priority throughout 2009.”
“Companies have succeeded, as you can see in today’s data, at cutting inventories back,” said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. “They’re starting to move production back more into line with demand, which is still depressed but obviously going to be a stronger level than the January-February period.”
Toyota Motor Corp. led a 56 percent decline in Japan’s domestic vehicle production last month, the biggest drop since at least 1967, on slumping U.S. and European demand.
Local production at Japan’s 12 automakers fell to 481,396 vehicles from a year earlier, the Tokyo-based Japan Automobile Manufacturers Association said in a statement today. Exports dropped 64 percent to 212,107 vehicles, with North American shipments falling 66 percent. The output and export drops were the biggest since the group began tracking the data.
Toyota, Japan’s biggest automaker, Nissan Motor Co., Mazda Motor Corp. and Mitsubishi Motors Corp. each cut domestic production by at least 60 percent last month to trim inventory. The worst economic crisis since the Great Depression has sapped demand worldwide, sending February U.S. car sales to the lowest level since December 1981. Japan’s domestic auto production has posted record drops every month since November.
“There are now signs that after the large-scale cuts in production in the first quarter, inventory levels are coming down,” said Ashvin Chotai, managing director of Intelligence Automotive Asia Ltd., an automotive consulting company in London. “This will take pressure off further cuts, and hopefully to a slow recovery in the second half of the year.”
Toyota and Mazda, Japan’s two-biggest car exporters, plan to ease domestic production cuts that started last year after adjusting inventory. Toyota will relax the cutbacks from May, President Katsuaki Watanabe said last week. Mazda will resume production on Fridays at two of its four domestic plants for the first time in three months in April, it said on March 13.
U.S. Demand
If automakers fail to pare production cuts, it may threaten jobs. Nationwide March auto production needs to be half of last year’s rate to raise the fiscal year tally to 10 million, according to the automakers group. Automakers have said that annual production must top this level to safeguard employment. In the 11 months ended February, output totaled 9.44 million vehicles, down 12 percent from a year earlier.
Cars and light trucks sold at an annual pace of 9.12 million last month in the U.S., the biggest market for Japanese carmakers, a drop from 15.4 million a year earlier, according to Autodata Corp.
Toyota Production
Toyota’s domestic production last month plunged 64 percent to 141,127 the lowest level since the company began publishing tallies in 1976, it said March 24. Exports from Japan plunged 69 percent to 72,595.
Honda said production in Japan fell 48 percent to 54,748 vehicles. The drop was the biggest since it began releasing the figure in August 1996. Nissan, Japan’s third-largest automaker, reported a 69 percent fall in domestic production after exports slumped 78 percent. Nissan is cutting output by 64,000 vehicles in February and March.
Mazda, the largest car exporter after Toyota, built 60 percent fewer vehicles in Japan. Mitsubishi Motors, the maker of Pajero sport-utility vehicle, cut domestic production by 77 percent.
Japan’s five-year bonds rose, ending four days of losses, as a government report showing industrial output slid for a fifth month boosted demand for the relative safety of debt.
Five-year yields declined from a one-week high as stocks slipped after real-estate broker Azel Corp. filed for bankruptcy and an Obama administration official said General Motors Corp. and Chrysler LLC may face bankruptcy. The Bank of Japan’s Tankan survey due this week may show business sentiment dropped to the lowest level in 34 years, according to a Bloomberg News survey of economists.
“Incoming economic data will show the poor state of the Japanese economy,” said Akihiko Inoue, chief market analyst at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “Weak economic fundamentals support the bond market.”
The yield on the benchmark five-year note fell half 1.5 basis points to 0.77 percent as of 4:37 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 0.8 percent security due in March 2014 rose 0.072 yen to 100.143 yen. A basis point is 0.01 percentage point.
The yield on the benchmark 10-year note dropped half a basis point to 1.325 percent and 10-year bond futures for June delivery rose 0.09 to 138.30 at the afternoon close on the Tokyo Stock Exchange.
Industrial production slid 9.4 percent in February from the previous month, extending the longest losing streak since 2001, the Trade Ministry said in Tokyo. The Tankan sentiment index for large manufacturers slid to minus 55 in March, from minus 24 in December, according to the Bloomberg survey of 23 economists before the April 1 report.
‘More Tailwinds’
“If the headline number for large manufacturers slides to below a historical low, the bond market will see more tail- winds,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of the second-largest U.S. bank. “Japanese investors may also try to buy bonds once the new fiscal year starts on April 1.”
The gain in bonds was tempered by concern the supply of debt will keep increasing as the government raises record amounts to fund spending to counter the recession.
Japanese Prime Minister Taro Aso is compiling a third stimulus package to add to the amount pledged since he took office six months ago. The Ministry of Finance said in December it plans to boost bond sales by 7 trillion yen ($71.3 billion) to 113.3 trillion yen in the financial year beginning April 1.
“There is the risk of debt sales increasing by an additional 10 trillion yen stemming from the compilation of new pump-priming measures,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Ltd. “We will maintain a ‘sell on rally’ recommendation for longer-maturity bonds.”
U.S. Carmakers
Japanese bonds are headed for the first quarterly loss since the three months to June 30, and U.S. Treasuries are set for their worst start to the year since 1996, as the governments of the world’s two biggest economies increase debt sales to fund measures to combat the global recession.
Demand for fixed-income assets also rose as the Nikkei 225 Stock Average slid 4.5 percent on concern the global financial turmoil will worsen.
General Motors Corp. and Chrysler LLC must overhaul their recovery plans with deeper concessions to justify further taxpayer aid, and bankruptcy may ultimately be their best chance, the Obama administration official said before details of the plan are released today. The administration also asked GM Chief Executive Officer Rick Wagoner to step down, according to the official who declined to be identified.
“We need to ascertain further developments on this delicate issue carefully, especially how stock markets react to it,” said Katsutoshi Inadome, a Tokyo-based strategist at Mitsubishi UFJ Securities Co., a unit of Japan’s largest banking group. If the Chapter 11 filing “leads to a stock decline, it should support bonds,” he said.
Japanese industrial production fell for a fifth month in February, the longest losing streak since 2001, as exports collapsed.
Factory output declined 9.4 percent from January, when it plummeted a record 10.2 percent, the Trade Ministry said today in Tokyo. Inventories fell an unprecedented 4.2 percent.
Companies surveyed said they will increase production in March and April as they begin to replenish stockpiles they managed to get rid of even as demand evaporated. Manufacturers worldwide are cutting inventories, a sign that output may pick up later this year, providing relief for a global economy that is contracting for the first time in six decades.
“Production cuts may already be bottoming out,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo. “We should remember that that doesn’t necessarily mean overseas demand is already recovering.”
The yen traded at 98.15 per dollar at 10:16 a.m. in Tokyo from 98.08 before the report was published. The currency is heading for its worst quarter since 2001 as the world’s second- largest economy deteriorates faster than the U.S. and Europe. The Nikkei 225 Stock Average fell 1.2 percent.
Japan’s exports plunged a record 49.4 percent in February from a year earlier as sales of cars and electronics dried up. Toyota Motor Corp., forecasting its first net loss in more than five decades, plans to cut thousands of jobs and slash domestic production by half this quarter.
Tankan Survey
Sentiment among the nation’s largest manufacturers has fallen to its lowest level in more than 30 years, economists predict the Bank of Japan’s Tankan survey will show on April 1. The country’s largest firms plan to cut investment by 12 percent next fiscal year, the biggest pullback since at least 1983, economists predict the survey will show.
Prime Minister Taro Aso is preparing his third stimulus package since October to counter the slump. Finance Minister Kaoru Yosano said on March 22 that a plan of as much as 20 trillion yen, double the total amount pledged since October, is “not out of line” as the economy heads for its worst recession since 1945.
“The longer this stretches out, the harder the domestic economy is going to be hit,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “The government really needs to come out with another package.”
Spending Billions
Governments around the world are spending billions of dollars to spur domestic demand as global trade seizes up. Economists say a Japanese recovery hinges on whether a combined $1.4 trillion of spending in the U.S. and China, the country’s two biggest markets, is enough to revive demand for its cars and electronics in the second half of the year.
There are signs a recovery may be stirring in the U.S., Japan’s biggest market. U.S. orders for durable goods rose in February for the first time in seven months. Inventories of long-lasting durable goods fell for a second month and new home sales increased for the first time since July.
In Japan, the drop in inventories adds to evidence that the worst of the manufacturing slump may be over. Companies said they would increase production 2.9 percent this month and 3.1 percent in April, today’s survey showed.
Nippon Steel Corp. said last month output should improve next quarter because customers have used up their stockpiles. Nissan Motor Co., Japan’s third-largest automaker, said on Feb. 26 it will raise domestic production next month.
“Companies have succeeded, as you can see in today’s data, at cutting inventories back,” Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo, said on Bloomberg Television. “They’re starting to move production back more into line with demand, which is still depressed but obviously going to be a stronger level than the January- February period.”
Friday, March 27, 2009
Two Graphs That Tell It All On Spain
The average interest rate in January 2009 was 5.64%, indicating growth of 10.2% in the interannual rate, and of 1.1% as compared with December 2008.
By institution, the average interest rate of Savings Bank mortgage loans was 5.72%, and the average term was 23 years. Regarding Banks, the average interest rate for mortgage loans was 5.63% and the average term was 20 years. 95.4% of the mortgages constituted in January used a variable interest rate, as opposed to the 4.6% that used a fixed rate. Within the variables, the Euribor was the reference interest rate most used in constituting mortgages, specifically in 87.4% of new contracts.
Bancos y cajas incrementan los tipos de interés para compensar la morosidad | El interés medio de las hipotecas es 5,64%, medio punto más que hace un año | La constitución de nuevas hipotecas ha descendido un 43% hasta febrero | La banca está siendo mucho más estricta y sólo concede el 80% del valor del piso.
Los compradores que acudieron en enero de este año a las entidades financieras para firmar una hipoteca nueva pagaron de media de tipo de interés un 10,2% más que los que formalizaron su contrato en el mismo mes hace justamente un año, pese a que el Euribor roza estos días el nivel más bajo de su historia. Previsiblemente, cerrará el mes a 1,91%.
Ese incremento del 10,2% representa medio punto más en el tipo medio del interés de los créditos hipotecarios, al pasar del 5,1% en enero del 2008 al 5,64% del mismo mes este ejercicio, según los datos ofrecidos ayer por el INE, que recogen las hipotecas constituidas a principios de año. Precisamente, el Euribor cerró por esas mismas fechas -el primer mes de este año- en 2,27%.
La clave de esta aparente contradicción radica en que pese a que el tipo de interés que fija el Banco Central Europeo ha descendido, las entidades financieras han incrementado sus márgenes tanto por una mayor prudencia (lo que ellos denominan prima de riesgo) como por el aumento de la morosidad, que compensan a costa de los nuevos clientes.
Por ejemplo, entidades como La Caixa ofrecían en su oficina del distrito de Las Tablas, en Madrid, préstamos a un interés del Euribor más 0,75% hace un año y ahora sus propuestas rondan el Euribor más 1,25%. Con todo, el precio definitivo dependerá del perfil de cada cliente. Es decir, a partir de factores como la edad, los rendimientos netos anuales, si cuenta con otro crédito hipotecario o no, o la vida del préstamo, entre otros. Incluso así, la política puede divergir en cada entidad en función de las ofertas que formulan.
El argumento que esgrime la mayor parte de las entidades financieras para defenderse de las críticas de la opinión pública es que la prima de riesgo de los clientes ahora es mucho más alta. Ayer, Miguel Martín, presidente de la Asociación Española de la Banca (AEB), manifestó que el hecho de que el tipo medio de las hipotecas actuales esté casi en el mismo nivel que hace un año pese a la caída del Euribor se debe al auge de la morosidad yal incremento de las provisiones que debe realizar la banca para cubrirse, informa Lalo Agustina.
Por otra parte, algunos profesionales del sector bancario explican que las entidades financieras están haciendo valoraciones mucho más estrictas del precio real de las viviendas y, por norma, no se arriesgan a financiar más del 80% del precio final, cuando en los años de bonanzas y alegría financiera, que fueron los mismos que los ejercicio del boom inmobiliario, se concedían créditos hipotecarios cuyo valor llegaba hasta el 120% del valor final del piso.
"Los márgenes de la banca son bastante más altos que estos años atrás para compensar las pérdidas por morosidad de clientes que tienen en sus actuales carteras, como créditos al promotor", explica Rafael Pampillón, profesor del Instituto de Empresa. Y pone un ejemplo muy gráfico: "Los bancos son como tiendas de alimentación que tienen algunas patatas podridas en su cesta y para compensar están poniendo precios más caros a la nueva cosecha, donde sí espera ganar y, así, costear las pérdidas de los impagos", sentencia. Para este experto, la banca no se ha convertido en una explotadora o avariciosa, "sino que compensa las patatas podridas con las buenas".
Otro de los temas más controvertidos se produce a la hora de revisar las hipotecas vigentes. "La gente actualiza el tipo de interés variable, en función de su contrato, pero lo normal es cada seis o doce meses", señala José Manuel Campa, profesor del Iese, quién añade: "La banca incrementa su margen cuando baja el Euribor, pero también disminuye su margen cuando sube el Euribor".
Por otra parte, el ritmo de constitución de las hipotecas en enero ha caído un 43,5% respecto a un año antes, hasta las 53.017, y redujo el capital prestado a 6.472,9 millones, un 51,7% menos. Además, el importe medio de las hipotecas constituidas sobre viviendas bajó por duodécimo mes consecutivo y se situó en 122.091 euros, con lo que acumula una caída interanual del 14,5%, según los datos facilitados ayer por el INE. En Catalunya el ritmo de concesión de hipotecas cayó en una proporción que ronda el 49%.
By institution, the average interest rate of Savings Bank mortgage loans was 5.72%, and the average term was 23 years. Regarding Banks, the average interest rate for mortgage loans was 5.63% and the average term was 20 years. 95.4% of the mortgages constituted in January used a variable interest rate, as opposed to the 4.6% that used a fixed rate. Within the variables, the Euribor was the reference interest rate most used in constituting mortgages, specifically in 87.4% of new contracts.
Bancos y cajas incrementan los tipos de interés para compensar la morosidad | El interés medio de las hipotecas es 5,64%, medio punto más que hace un año | La constitución de nuevas hipotecas ha descendido un 43% hasta febrero | La banca está siendo mucho más estricta y sólo concede el 80% del valor del piso.
Los compradores que acudieron en enero de este año a las entidades financieras para firmar una hipoteca nueva pagaron de media de tipo de interés un 10,2% más que los que formalizaron su contrato en el mismo mes hace justamente un año, pese a que el Euribor roza estos días el nivel más bajo de su historia. Previsiblemente, cerrará el mes a 1,91%.
Ese incremento del 10,2% representa medio punto más en el tipo medio del interés de los créditos hipotecarios, al pasar del 5,1% en enero del 2008 al 5,64% del mismo mes este ejercicio, según los datos ofrecidos ayer por el INE, que recogen las hipotecas constituidas a principios de año. Precisamente, el Euribor cerró por esas mismas fechas -el primer mes de este año- en 2,27%.
La clave de esta aparente contradicción radica en que pese a que el tipo de interés que fija el Banco Central Europeo ha descendido, las entidades financieras han incrementado sus márgenes tanto por una mayor prudencia (lo que ellos denominan prima de riesgo) como por el aumento de la morosidad, que compensan a costa de los nuevos clientes.
Por ejemplo, entidades como La Caixa ofrecían en su oficina del distrito de Las Tablas, en Madrid, préstamos a un interés del Euribor más 0,75% hace un año y ahora sus propuestas rondan el Euribor más 1,25%. Con todo, el precio definitivo dependerá del perfil de cada cliente. Es decir, a partir de factores como la edad, los rendimientos netos anuales, si cuenta con otro crédito hipotecario o no, o la vida del préstamo, entre otros. Incluso así, la política puede divergir en cada entidad en función de las ofertas que formulan.
El argumento que esgrime la mayor parte de las entidades financieras para defenderse de las críticas de la opinión pública es que la prima de riesgo de los clientes ahora es mucho más alta. Ayer, Miguel Martín, presidente de la Asociación Española de la Banca (AEB), manifestó que el hecho de que el tipo medio de las hipotecas actuales esté casi en el mismo nivel que hace un año pese a la caída del Euribor se debe al auge de la morosidad yal incremento de las provisiones que debe realizar la banca para cubrirse, informa Lalo Agustina.
Por otra parte, algunos profesionales del sector bancario explican que las entidades financieras están haciendo valoraciones mucho más estrictas del precio real de las viviendas y, por norma, no se arriesgan a financiar más del 80% del precio final, cuando en los años de bonanzas y alegría financiera, que fueron los mismos que los ejercicio del boom inmobiliario, se concedían créditos hipotecarios cuyo valor llegaba hasta el 120% del valor final del piso.
"Los márgenes de la banca son bastante más altos que estos años atrás para compensar las pérdidas por morosidad de clientes que tienen en sus actuales carteras, como créditos al promotor", explica Rafael Pampillón, profesor del Instituto de Empresa. Y pone un ejemplo muy gráfico: "Los bancos son como tiendas de alimentación que tienen algunas patatas podridas en su cesta y para compensar están poniendo precios más caros a la nueva cosecha, donde sí espera ganar y, así, costear las pérdidas de los impagos", sentencia. Para este experto, la banca no se ha convertido en una explotadora o avariciosa, "sino que compensa las patatas podridas con las buenas".
Otro de los temas más controvertidos se produce a la hora de revisar las hipotecas vigentes. "La gente actualiza el tipo de interés variable, en función de su contrato, pero lo normal es cada seis o doce meses", señala José Manuel Campa, profesor del Iese, quién añade: "La banca incrementa su margen cuando baja el Euribor, pero también disminuye su margen cuando sube el Euribor".
Por otra parte, el ritmo de constitución de las hipotecas en enero ha caído un 43,5% respecto a un año antes, hasta las 53.017, y redujo el capital prestado a 6.472,9 millones, un 51,7% menos. Además, el importe medio de las hipotecas constituidas sobre viviendas bajó por duodécimo mes consecutivo y se situó en 122.091 euros, con lo que acumula una caída interanual del 14,5%, según los datos facilitados ayer por el INE. En Catalunya el ritmo de concesión de hipotecas cayó en una proporción que ronda el 49%.
Euro-Zone PMI Holds Near Record-Low In March
The Euro-Zone PMI composite unexpectedly rose to 37.6 in March from a record low of 36.2 in the previous month, while the PMI reading for manufacturing and services rose to 34.0 and 40.1 respectively. Meanwhile, economic activity in German improved during the same period as the manufacturing PMI increased to 32.4 from 32.1
Barring some spectacular (and entirely improbable) turnaround in March it now seems likely that the Q1 GDP contraction will be worse than the Q4 2008 one. If we consider that the eurozone contracted by 0.2% in Q3 2008, and by 1.5% in Q4, then, in my humble opinion, the data we are seeing for this quarter are entirely consistent with a 2% quarterly contraction (or an annualised 8% rate of contraction). Not quite Japan territory yet, but not far behind. And for those who simply don't believe the PMIs can tell you so much, here is Markit's own chart, showing the strong underlying relationship between movements in GDP and the *flash* composite PMI. Pretty impressive I would say.
Barring some spectacular (and entirely improbable) turnaround in March it now seems likely that the Q1 GDP contraction will be worse than the Q4 2008 one. If we consider that the eurozone contracted by 0.2% in Q3 2008, and by 1.5% in Q4, then, in my humble opinion, the data we are seeing for this quarter are entirely consistent with a 2% quarterly contraction (or an annualised 8% rate of contraction). Not quite Japan territory yet, but not far behind. And for those who simply don't believe the PMIs can tell you so much, here is Markit's own chart, showing the strong underlying relationship between movements in GDP and the *flash* composite PMI. Pretty impressive I would say.
ECB explores expansion of economic armoury
From The Financial Times This Morning:
ECB explores expansion of economic armoury
By Ralph Atkins in Frankfurt
Published: March 26 2009 18:56 | Last updated: March 26 2009 18:56
The European Central Bank is actively exploring expanding its armoury to tackle the worst recession seen in continental Europe since the second world war. But it still seems some way from deploying the weapons being used in the US and UK.
ECB policymakers began their pre-meeting purdah on Thursday, a week ahead of their next policy meeting, having made clear there is “room for manoeuvre” to cut interest rates further. That makes possible, but not certain, a 25 or 50 basis point reduction in the main policy interest rate, currently at a record low of 1.5 per cent.
However, the days when central banks used only one instrument to steer an economy are over.
Lucas Papademos, ECB vice-president, heightened expectations that the central bank could soon start buying assets outright after noting in Brussels on Thursday that purchases of private debt securities could “reduce the cost of funding of the real economy, thus helping its recovery”.
Whether and when such a move is taken will depend on the outcome of soul-searching and debate within the ECB’s governing council. Comprising national central bank governors from the 16 eurozone countries and the six ECB executive board members, the council includes nine economic professors, some of whom – such as Athansasios Orphanides of Cyprus – have worked as academics in the US.
One lobby is hesitant to change substantially the way the ECB has operated since the collapse of Lehman Brothers last September paralysed financial markets.
The ECB’s assessment of eurozone prospects has remained broadly unchanged from last month, when it forecast gross domestic product could fall by up to 3.2 per cent this year. Deflation – persistent and general falls in prices – is still seen as unlikely, thanks to the eurozone’s economic rigidities.
Mr Papademos stressed the ECB’s current focus on what it calls “enhanced credit support” – its answer to “quantitative easing” – by which it provides banks with unlimited amounts of liquidity at fixed interest rates.
Banks play a much larger role in supplying finance to the economy than in the US, the argument goes, and the ECB’s assessment is that the “transmission channel” continues to function reasonably well.
A distinct possibility is that the ECB will next week extend the maximum maturity of the funds it lends from the current six months – perhaps to nine or 12 months.
More indicative of the way the debate is going will be what happens to its “deposit facility” interest rate, paid on sums deposited at the ECB overnight, and set at 100 basis points below the main policy rate.
Under “enhanced credit support”, the deposit facility rate has surreptitiously become an important benchmark for market interest rates.
But within the ECB there is resistance to a reduction from the current 0.5 per cent, on the grounds that it would mean, in effect, the ECB was operating a “zero interest rate” policy – a serious taboo for some council members.
Outright asset purchases, as at the US Federal Reserve or Bank of England, would take the ECB still further into new territory.
Conservatives on the council would worry about the political implications. Buying corporate debt could mean it having to favour particular countries or industries – for instance, car manufacturers.
Even worse for some, would be buying government bonds – which would blur the boundaries between central banks and governments and thus threaten the ECB’s cherished independence.
ECB explores expansion of economic armoury
By Ralph Atkins in Frankfurt
Published: March 26 2009 18:56 | Last updated: March 26 2009 18:56
The European Central Bank is actively exploring expanding its armoury to tackle the worst recession seen in continental Europe since the second world war. But it still seems some way from deploying the weapons being used in the US and UK.
ECB policymakers began their pre-meeting purdah on Thursday, a week ahead of their next policy meeting, having made clear there is “room for manoeuvre” to cut interest rates further. That makes possible, but not certain, a 25 or 50 basis point reduction in the main policy interest rate, currently at a record low of 1.5 per cent.
However, the days when central banks used only one instrument to steer an economy are over.
Lucas Papademos, ECB vice-president, heightened expectations that the central bank could soon start buying assets outright after noting in Brussels on Thursday that purchases of private debt securities could “reduce the cost of funding of the real economy, thus helping its recovery”.
Whether and when such a move is taken will depend on the outcome of soul-searching and debate within the ECB’s governing council. Comprising national central bank governors from the 16 eurozone countries and the six ECB executive board members, the council includes nine economic professors, some of whom – such as Athansasios Orphanides of Cyprus – have worked as academics in the US.
One lobby is hesitant to change substantially the way the ECB has operated since the collapse of Lehman Brothers last September paralysed financial markets.
The ECB’s assessment of eurozone prospects has remained broadly unchanged from last month, when it forecast gross domestic product could fall by up to 3.2 per cent this year. Deflation – persistent and general falls in prices – is still seen as unlikely, thanks to the eurozone’s economic rigidities.
Mr Papademos stressed the ECB’s current focus on what it calls “enhanced credit support” – its answer to “quantitative easing” – by which it provides banks with unlimited amounts of liquidity at fixed interest rates.
Banks play a much larger role in supplying finance to the economy than in the US, the argument goes, and the ECB’s assessment is that the “transmission channel” continues to function reasonably well.
A distinct possibility is that the ECB will next week extend the maximum maturity of the funds it lends from the current six months – perhaps to nine or 12 months.
More indicative of the way the debate is going will be what happens to its “deposit facility” interest rate, paid on sums deposited at the ECB overnight, and set at 100 basis points below the main policy rate.
Under “enhanced credit support”, the deposit facility rate has surreptitiously become an important benchmark for market interest rates.
But within the ECB there is resistance to a reduction from the current 0.5 per cent, on the grounds that it would mean, in effect, the ECB was operating a “zero interest rate” policy – a serious taboo for some council members.
Outright asset purchases, as at the US Federal Reserve or Bank of England, would take the ECB still further into new territory.
Conservatives on the council would worry about the political implications. Buying corporate debt could mean it having to favour particular countries or industries – for instance, car manufacturers.
Even worse for some, would be buying government bonds – which would blur the boundaries between central banks and governments and thus threaten the ECB’s cherished independence.
Wednesday, March 25, 2009
Japan's Exports Fall
Japan’s exports plunged a record 49.4 percent in February as deepening recessions in the U.S. and Europe sapped demand for the country’s cars and electronics.
Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.
Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.
Monday, March 23, 2009
Japan - The Lost Quarter Century
Despite the fact that Japanese Finance Minister Kaoru Yosano said Friday that February's fall in the so called "core-core" consumer price index doesn't mean Japan is back in deflation, few are ready to accept his judgement. Data released on Friday showed a 0.1% on-year fall in the core-core index (that is the basic index with food and energy stripped out), while the core consumer price index (which only excludes food) was flat from a year earlier.
The preoccupying inflation news came on the same day we learnt that retail sales had retreated in February by the biggest margin in seven years in February, as growing concerns about jobs and wages had an obvious impact on Japanese shopping habits. Retail sales were down 5.8 percent from a year earlier (to 9.98 billion yen) — the sharpest decline since February 2002. The figure marks the sixth straight month that sales have fallen at retail outlets like department stores and supermarkets.
Business at department stores, which tend to reflect spending on luxury goods and premium items, was especially bleak in February, with sales down 11.5 percent from a year earlier.
And the reason why prices are falling, and workers are fearful for their jobs? Well just look at the export numbers : Japan’s exports plunged a record 49.4 percent in February as deepening recessions elsewhere hit demand for Japanese products. Shipments to the U.S., which is still Japan’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, with automobile exports down a horrific 70.9 percent.
So the massive contraction in industrial output that this decline in export business is producing is sending shock waves through the economy, and it is the pressure form all the excess capacity that is now forcing prices downwards. Nowhere is the process clearer in land and property values, long the key driver of the deflation process in Japan - and we learnt only this week that Japanese residential land prices fell 3.2 percent to a 24-year low last year - their lowest level since 1984. Overall property prices declined 3.5 percent, wiping out completely the recent two years of gain that followed the earlier 15-year slump.
And the decline in residential land values, which are about half of what they were at the height of the bubble in 1991, only looks set to continue as the recession deepens. So in property market terms at least, it isn't the lost decade anymore, we're now moving into the "lost quarter century".
The preoccupying inflation news came on the same day we learnt that retail sales had retreated in February by the biggest margin in seven years in February, as growing concerns about jobs and wages had an obvious impact on Japanese shopping habits. Retail sales were down 5.8 percent from a year earlier (to 9.98 billion yen) — the sharpest decline since February 2002. The figure marks the sixth straight month that sales have fallen at retail outlets like department stores and supermarkets.
Business at department stores, which tend to reflect spending on luxury goods and premium items, was especially bleak in February, with sales down 11.5 percent from a year earlier.
And the reason why prices are falling, and workers are fearful for their jobs? Well just look at the export numbers : Japan’s exports plunged a record 49.4 percent in February as deepening recessions elsewhere hit demand for Japanese products. Shipments to the U.S., which is still Japan’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, with automobile exports down a horrific 70.9 percent.
So the massive contraction in industrial output that this decline in export business is producing is sending shock waves through the economy, and it is the pressure form all the excess capacity that is now forcing prices downwards. Nowhere is the process clearer in land and property values, long the key driver of the deflation process in Japan - and we learnt only this week that Japanese residential land prices fell 3.2 percent to a 24-year low last year - their lowest level since 1984. Overall property prices declined 3.5 percent, wiping out completely the recent two years of gain that followed the earlier 15-year slump.
And the decline in residential land values, which are about half of what they were at the height of the bubble in 1991, only looks set to continue as the recession deepens. So in property market terms at least, it isn't the lost decade anymore, we're now moving into the "lost quarter century".
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