Economics, Investing & Personal Finance Zone

My Stock Portfolio as at 29 May 2009

2009-06-03T17:28:00.004+08:00

My Stock Portfolio:

#	Stock	Weight	WAC	Current Price	Returns
1	Keppel Corp	26.3%	S$3.90	S$7.20	+84.6%
2	Sembcorp Marine	18.6%	S$2.792	S$3.05	+9.2%
3	Ascendas Reit	13.0%	S$1.224	S$1.34	+21.2%
4	SGX	9.0%	S$4.30	S$7.35	+70.9%
5	CapitaMall Trust	4.9%	S$1.60	S$1.33	-16.9%
6	CapitaLand	4.6%	S$2.20	S$3.80	+72.7%
7	SingTel	3.7%	S$3.74	S$3.01	-19.5%
8	Keppel Land	2.1%	S$2.32	S$2.46	+6.0%
9	SingPost	2.1%	S$0.775	S$0.85	+9.7%
10	SMRT	1.9%	S$1.68	S$1.59	-5.4%
11	Noble Group	1.9%	S$1.60	S$1.58	-1.3%
12	M1	1.5%	S$1.49	S$1.48	-0.5%
13	Ascendas India Trust	0.9%	S$1.18	S$0.70	-40.7%
14	DBSbnpECW100205	0.3%	S$0.36	S$0.07	-80.6%
15	Yongnam W121214	0.2%	S$0.03	S$0.075	+150%
16	Investable Cash	6.5%

Notes to above table:
1) Weight: Weightage of stock in my stock portfolio.
2) WAC: Weighted average cost
3) Current Price: Price as at 29th May 2009.

My Comments:

My portfolio underperformed the STI Index for the month of May 2009 (+19.80% vs +21.29%), and YTD performance is also in-line (Portfolio +33.64% vs STI +32.22%).

During May, I've sold off most of Noble Group and bought Keppel Land early in the month. In the middle of May, I've bought Sembcorp Marine for trading pruposes and also added more to Ascendas Reit on price weaknesss on 22 May.

Subsequent events: I've subscribed to the Keppel Land rights issue (including excess rights) on the 2 Jun and also took profit on my entire Sembcorp Marine stake today 3 Jun (realising a 3.5% gain).

My Stock Portfolio as at 30 April 2009

2009-05-10T17:50:00.004+08:00

My Stock Portfolio:

#	Stock	Weight	WAC	Current Price	Returns
1	Keppel Corp	26.8%	S$3.90	S$5.98	+53.3%
2	Noble Group	17.5%	S$1.14	S$1.30	+13.9%
3	Ascendas Reit	10.0%	S$1.224	S$1.34	+9.5%
4	SGX	9.4%	S$4.30	S$6.27	+45.8%
5	CapitaMall Trust	5.6%	S$1.60	S$1.25	-21.9%
6	CapitaLand	4.1%	S$2.20	S$2.76	+25.5%
7	SingTel	3.8%	S$3.74	S$2.56	-31.6%
8	SMRT	2.3%	S$1.68	S$1.55	-7.7%
9	SingPost	2.3%	S$0.775	S$0.76	-1.9%
10	M1	1.8%	S$1.49	S$1.47	-1.2%
11	Ascendas India Trust	0.8%	S$1.18	S$0.54	-54.2%
12	DBSbnpECW100205	0.1%	S$0.36	S$0.02	-94.4%
13	Yongnam W121214	0.1%	S$0.03	S$0.03	0%
14	Investable Cash	15.3%

Notes to above table:
1) Weight: Weightage of stock in my stock portfolio.
2) WAC: Weighted average cost
3) Current Price: Price as at 30th April 2009.

My Comments:

My portfolio performed in-line with the STI Index for the month of April 2009 (+12.90% vs +12.96%), thus outperformance was sustained YTD (Portfolio +13.25% vs STI +9.01%).

During April, I bought SingPost and sold off ST Engineering prior to earnings announcement.

My Stock Portfolio as at 31st March 2009

2009-04-03T23:00:00.004+08:00

My Stock Portfolio:

#	Stock	Weight	WAC	Current Price	Returns
1	Keppel Corp	28.9%	S$3.90	S$5.01	+28.5%
2	Noble Group	20.6%	S$1.14	S$1.19	+4.3%
3	Ascendas Reit	11.7%	S$1.224	S$1.22	-0.3%
4	SGX	9.8%	S$4.30	S$5.10	+18.6%
5	Singtel	4.8%	S$3.74	S$2.53	-32.4%
6	ST Engineering	4.7%	S$2.45	S$2.46	+0.4%
7	CapitaLand	4.5%	S$2.20	S$2.33	+5.9%
8	SMRT	2.9%	S$1.68	S$1.53	-8.9%
9	CapitaMall Trust	2.5%	S$3.16	S$1.32	-58.2%
10	M1	2.4%	S$1.49	S$1.49	+0.1%
11	Ascendas India Trust	1.0%	S$1.18	S$0.525	-55.5%
12	DBSbnpECW100205	0.2%	S$0.36	S$0.02	-94.4%
13	Yongnam W121214	0.1%	S$0.03	S$0.015	-50.0%
14	Investable Cash	4.8%

Notes to above table:
1) Weight: Weightage of stock in my stock portfolio.
2) WAC: Weighted average cost
3) Current Price: Price as at 31st March 2009.

My Comments:

My portfolio underperformed against the STI Index for the month of March 2009 (+3.81% vs +6.59%), but year-to-date was still favourable. YTD: Portfolio +0.81% vs STI -3.50%.

I've made quite a few transactions this month. Firstly, I've switched from OCBC to SGX in the financial portion of my portfolio. Secondly, I've disposed of Hupsteel at a hefty loss. Thirdly, I've added CapitaLand for the property section of my portfolio. Lastly, I've trimmed a big portion of Ascendas Reit and used the proceeds to participate in the CapitaMall rights issue. But unfortunately, just found out today that I only got around 10% of the total excess rights that I applied for. Very disappointed!

I've still yet to add SingPost as the "Consumer staple" portion of my portfolio, and was also considering adding to SMRT on weakness. Target to add at between $1.40-$1.45 for SMRT and $0.74 for SingPost (Yes! I've increased my target buy price for SingPost).

My Stock Portfolio as at 27th February 2009

2009-02-28T17:20:00.006+08:00

My Stock Portfolio:

#	Stock	Weight	WAC	Current Price	Returns
1	Ascendas Reit	26.8%	S$1.52	S$1.26	-17.0%
2	Keppel Corp	25.3%	S$3.90	S$4.37	+12.1%
3	Noble Group	18.8%	S$1.14	S$1.08	-5.4%
4	OCBC	8.7%	S$5.02	S$4.48	-10.8%
5	Singtel	4.8%	S$3.74	S$2.46	-34.2%
6	ST Engineering	4.5%	S$2.45	S$2.31	-5.7%
7	SMRT	3.1%	S$1.68	S$1.60	-4.8%
8	CapitaMall Trust	2.8%	S$3.16	S$1.43	-54.7%
9	M1	2.5%	S$1.49	S$1.56	+4.8%
10	HupSteel	1.7%	S$0.305	S$0.11	-63.9%
11	Ascendas India Trust	1.0%	S$1.18	S$0.52	-55.9%
12	DBSbnpECW100205	0.2%	S$0.36	S$0.02	-94.4%
13	Yongnam W121214	0.0%	S$0.03	S$0.01	-66.7%

Notes to above table:
1) Weight: Weightage of stock in my stock portfolio.
2) WAC: Weighted average cost
3) Current Price: Price as at 27th February 2009.

My Comments:

My portfolio extended its outperformance against the STI Index for the month of February 2009 (-2.89% vs -8.68%). YTD: Portfolio -3.14% vs STI -9.46%. The only transactions I've made in February was to participate in Ascendas Reit's rights issue. I've successfully gotten all the lots I've applied for.

My portfolio was lifted by Keppel Corp (+7.9%)& Noble Group's (+2.9%) positive performance during the month. On the other hand, OCBC is the significant underperformer, down 13.0% for Feb.

My Stock Portfolio as at 30th January 2009

2009-02-07T00:49:00.002+08:00

My Stock Portfolio:

#	Stock	Weight	WAC	Current Price	Returns
1	Keppel Corp	24.4%	S$3.90	S$4.05	+3.8%
2	Ascendas Reit	23.4%	S$1.65	S$1.46	-11.6%
3	Noble Group	19.0%	S$1.14	S$1.05	-8.0%
4	OCBC	10.3%	S$5.02	S$5.15	+2.6%
5	Singtel	5.3%	S$3.74	S$2.66	-28.9%
6	ST Engineering	4.6%	S$2.45	S$2.28	-6.9%
7	CapitaMall Trust	3.2%	S$3.16	S$1.60	-49.4%
8	SMRT	3.2%	S$1.68	S$1.59	-5.4%
9	M1	2.7%	S$1.49	S$1.62	+8.9%
10	HupSteel	2.5%	S$0.305	S$0.155	-49.2%
11	Ascendas India Trust	1.0%	S$1.18	S$0.515	-56.4%
12	DBSbnpECW100205	0.2%	S$0.36	S$0.03	-91.7%
13	Yongnam W121214	0.1%	S$0.03	S$0.015	-50.0%

Notes to above table:
1) Weight: Weightage of stock in my stock portfolio.
2) WAC: Weighted average cost
3) Current Price: Price as at 30th January 2009.

My Comments:

My portfolio performed slightly better than my benchmark of the STI Index for the month of January 2009 (-0.16% vs -0.86%). Best performing stocks that are lifting up my portfolio are Ascendas Reit (+10.1% MTD div adjusted), Noble Group (+2.9% MTD), OCBC (+3.2% MTD) and SingTel (+4.3% MTD). Underperforming is Keppel Corp (-6.5%), dragged down by concerns over order cancellations.

I'm very comfortable with my portfolio allocation and am also looking to add Capitaland & SingPost to it. Target buy price is $2.00 for Capitaland and $0.70 for SingPost.

MAS gives Reits a New Year gift

2009-01-22T00:33:00.000+08:00

Refinancing of maturing debt facilitated; clarity on leverage ratios

By KALPANA RASHIWALA

(SINGAPORE) Reit managers here have been given more breathing space on borrowing limits by the Monetary Authority of Singapore (MAS), which has clarified how downward revaluations of properties should be treated.

Basically, MAS has said that Reits need not worry if their leverage has increased because properties have been revalued and are now worth less.

Under MAS's Property Fund Guidelines, an S-Reit's total borrowings and deferred payments (the 'aggregate leverage') should not exceed 35 per cent of its deposited property. This maximum limit is set at a higher 60 per cent if the Reit obtains a credit rating and publicises it.

In a circular to Reit managers and trustees earlier this month, MAS confirmed that if the aggregate leverage has gone up because of a decline in property values, it will not amount to a breach of leverage limits. MAS also made the important point that refinancing of existing debt by a Reit is not to be construed as incurring additional borrowings.

'So if at the point of refinancing, a Reit has to revalue its assets (which lenders will require), and so long as the refinancing is of existing debt, MAS will not consider this as additional borrowing and hence the Reit will not be in breach of the statutory leverage limit,' says Giam Lay Hoon, group general counsel of Oxley Capital Group, which owns a stake in the manager of Cambridge Industrial Trust.

MAS also said that it will permit Reits to raise debt for refinancing purposes earlier than the actual maturity of the debt to be refinanced, without having to include such funds raised in the aggregate leverage limit. However, this is 'provided that the funds are set aside solely for the purpose of repaying the maturing debt'.

'The trustee must place these funds in a separate trust account which shall be drawn on only to repay the maturing debt,' MAS said in its circular.

Oxley Capital's Ms Giam welcomed MAS's responsiveness to tight credit market conditions. The CFO of a Reit manager told BT that the MAS clarifications would 'give some breathing space for some Reit managers with high gearing and with properties in danger of being substantially depreciated'.

This, he said, would ease the pressure on these Reits to recapitalise through raising fresh equity and reduce pressure on the unit price of these Reits.

'However, ratings agencies will continue to be nervous about property depreciation as that may reflect sliding rents and occupancies and a rise in tenant-default rates,' he added.

Stan Ho, Fitch Ratings' senior director and head of Non-Japan Asia structured finance, stressed that 'any downward revaluation of the underlying property would raise the loan-to-valuation ratios as far as banks lending to Reits are concerned, and this would need to be considered in our ratings for Singapore Reits'.

Kathleen Lee, vice-president and senior analyst at Moody's Singapore, also pointed out that while a downward revaluation may not breach MAS's statutory aggregate leverage limit for S-Reits, 'lenders to Reits can set their own covenants and a downward revaluation could trigger a breach of some of these covenants and that could also lead to a re-rating of the Reit'.

In a separate development, MAS is understood to have sought feedback recently on whether the current minimum distribution payout ratio for S-Reits should be lowered, from 90 per cent of distributable income currently to, say, 75-80 per cent. Some Reit managers are lobbying for the cut. 'Cash is a premium today and Reits may want to conserve their cash for a host of reasons, including servicing loans, reducing debt or just as general ammunition,' an industry player said.

However, a rival disagreed, arguing 'this would go against the fundamentals of why the S-Reit market was created'.

Reits have a high degree of transparency and investors have a high level of certainty of distributions from Reits. 'So when you give more flexibility to the Reit manager in terms of how much of distributable income it has to pay to unit holders, it creates more uncertainty for the investor. Investors like clarity,' he added.

Reit model under pressure

2009-01-06T00:04:00.000+08:00

SINGAPORE-listed real estate investment trusts (Reits) are now victims of their own success.

Over the past three years, most Reits here have taken an aggressive growth path, snapping up expensive properties and pushing up rentals in their properties as they took advantage of the property boom. This has allowed them to increase net property incomes and deliver good dividends to their unitholders.

But now, the good times have come to an end, and it is unclear how these Reits will deliver the kind of returns shareholders have gotten used to.

When reporting their Q3 results, the Reits admitted that growth through acquisitions will slow, what with the current credit squeeze making merger and acquisitions (M&As) more difficult and expensive across all sectors. The Reits said they will look to organic growth, such as enhancing their existing lettable space in search of higher rents.

But how much organic growth there can be under these conditions is debatable.

Retail Reits, for example, increase their property incomes in three ways - from acquisitions, through rental increases after they enhance their properties, and increased sales from their tenants, which they typically take a cut of.

But now, all three avenues for property income growth appear to be blocked. Acquisition growth, as mentioned, is no longer as viable. Retail sales are expected to take a beating this year as consumers cut back on spending as concerns over job and wage security take hold. Because of this, landlords, who typically take a percentage of turnover as part of the rent, will also see takings fall.

And rents will fall, as tenants try to bring landlords back to the negotiating table to ask for more manageable rates. 'A prolonged depression in consumer spending could affect retailers' ability to service their rents and we think it is possible that more retailers would renegotiate for lower rental rates, and retail mall managers may have to give in to avoid a high turnover in tenants,' noted OCBC Investment Research in a recent report. As one market observer put it, 'Reits can't really squeeze the tenants anymore or they will just simply close shop.'

In 2009, CB Richard Ellis reckons that prime Orchard Road rents could contract 5-10 per cent in just the first half of the year. At prime suburban malls, a 2-3 per cent decline is likely, the property consultancy said. Prime Orchard Road rents fell 1.9 per cent quarter-on-quarter in Q4 2008, while prime suburban rents shed one per cent, the firm's data showed.

The same trend holds true for the office and industrial sectors. CBRE's data showed that average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in Q4 2008. More falls are expected this year. Likewise, rents for industrial space could see double-digit percentage falls, analysts have said.

With retail, office, and - to a lesser extent - industrial Reits, having raised rentals quickly over the last few years, tenants are finding themselves in a tough spot during these trying times. Office rents, for example, nearly doubled in 2007, rising 96 per cent in the Grade A category and 92 per cent for prime space. That was on top of gains of 53 and 50 per cent respectively posted in 2006.

What this means is that tenants, who have been paying jacked-up rentals over the past two years, will in some cases lack the reserves to withstand the current crisis. They are also more likely to push for substantial rental decreases, which could affect the Reit model.

Jannie Tay, president of the Singapore Retailers Association, called for a drop in retail rents - in light of weaker sales - as early as September last year. Recently, she again asked retail landlords to cut rents by between 30 and 50 per cent. Reits are going to face pressure to give in.

Commencement of sale of the NEW CEPAS-Compliant ez-link card

2008-12-28T09:15:00.000+08:00

EZ-Link will start selling its new ez-link cards which are CEPAS compliant on Monday 29th December 2008 , making them the first company to adopt the new Singapore Standard for Contactless ePurse Application. Being CEPAS-compliant, the new ez-link card can also be used with any other systems built on CEPAS across the transit and non-transit space giving their customers more payment options in 2009. Cardholders will be able to distinguish the new card from the existing ez-link card by the new card face design as well as the CEPAS logo which appears on the reverse of the card.

Starting with its anchor application - payment for public transport fares, EZ-Link together with its partner QB will progressively extend its payment services of the new card to all its current non-transit and retail payment applications like McDonalds, 7-Eleven and SMRT Taxis. The new ez-link cards can eventually be used in the next generation In-vehicle Unit for Electronic Road Pricing transactions and parking payments at Electronic Parking System (EPS) carparks. In preparation for the expected increased usage, the new card can store a value of up to $500.00, as compared to the maximum $100.00 stored value for the existing card. The increase in capacity for the stored value component of the new card enables users to have a multi-purpose card for use in the sectors of public transport, retail, ERP and parking at EPS carparks.

Population grew to 4.84 million, boosted by strong non-resident growth

2008-09-27T11:59:00.000+08:00

Singapore's population hit 4.84 million in June this year, marking a 5.5 per cent increase from a year before. The figure is buoyed by an increasing number of foreigners in the country, boosted by strong economic growth over the past few years.

The number of non-residents grew by 19 per cent, while the resident population went up by a mere one per cent.

The National Population Secretariat said foreigners increasingly view Singapore as an attractive place to relocate.

Most come from neighbouring Asian countries.

There are also more new Permanent Residents (PRs) and citizens. In the first half of this year, 34,800 were granted PRs. That's up by some 20 per cent from the same period last year.

Meanwhile, 9,600 were granted citizenship, up by some 30 per cent, compared to the year before.

And nearly seven in 10 new PRs aged 20 and above had post-secondary qualifications.

Moving forward, the Secretariat said integration would be a key challenge.

It added that the government will also continue to exercise discretion and facilitate the naturalisation of foreigners who can add value and contribute to Singapore socially and economically.

Roy Quek, director, National Population Secretariat, said: "Integration is not just about what the government can do because the government is limited in terms of its ability to reach out to everyone. Integration happens all the time, in our schools at the workplace, in our local community, in the neighbourhoods."

Mr Quek added that a strong non-resident presence in Singapore is also testament to the country's good growth.

"In a way it's a compliment to Singapore that we have a place where others want to come to, that we have economic opportunities, we have enough jobs not just for locals but also for people who are willing to come in to spend time here.

"So the key is not to look at it as competition for jobs but adding value to Singapore's economy and ultimately contributing to a better life for all of us in Singapore," he said.

The number of Singaporeans grew to 3.16 million due to the higher number of citizen babies and more PRs taking up citizenship.

There were some 18,000 births registered in the first half of this year, slightly higher than the numbers registered the same period last year.

So while Singapore is on track for another historic high fertility rate, the biggest concern is still about making babies.

The country's total fertility rate was 1.29 in 2007, far below the replacement level of 2.1.

Mr Quek said: "Of course, it's going to be an uphill task but we are hopeful at least of crossing the 1.3 level at some point in the future."

As for overseas Singaporeans, more are making their homes abroad either for work or study.

As of June 2008, there're about 153,500 overseas Singaporeans compared to 147,500 a year ago.

The countries with a high concentration of overseas Singaporeans are Australia, the UK, US and China.

Bus and train fares up on October 1

2008-09-12T20:50:00.001+08:00

SINGAPORE - Most bus and train journeys except those for children, students and national servicemen, will see fare changes from 1 October 2008.

The Public Transport Council (PTC) has given the green light for an overall net fare adjustment that will result in fare changes that will range from a 7-cent reduction to a 4-cent increase per journey.

Adult EZ-Link fares on buses and trains and the senior citizen concession EZ-Link fare, will see a flat increase of 4 cents per ride.

However, this will be offset by the 15-cent increase in transfer rebate from the current 25 cents to 40 cents.

Public transport operators have also decided that they will bear 10 cents out of the 15-cent increase in the transfer rebate.

Therefore, fares for most adult or senior citizen concession journeys will see a range of adjustments, from an increase of 4 cents for a direct journey with no transfer, to a reduction of 7 cents for a journey with one transfer.

According to the PTC, journeys with more transfers will see a greater fare reduction, ranging from 18 cents for a journey with two transfers and 29 cents if there are two transfers.

To fund the higher transfer rebate, transport operators will give up more than $30 million in fare revenues annually. As for the remaining 5-cent increase in the transfer rebate, the PTC said it will be redistributed amongst commuters, as they will benefit from it.

Chairman of the PTC, Gerard Ee said "by raising the transfer rebate this year and making the operators absorb a larger part of the cost, we managed to strike a balance and keep the overall net fare adjustment to just 0.7%, much lower than the fare cap of 3%."

“This decision comes after careful deliberation, testing many permutations and scrutinising the impact on both operators and commuters."

In a news release, the PTC also announced a new maximum EZ-Link fare-band, with an additional 5-cent increase for long-distance rides on buses and trains.

As for cash fares for adult bus and train rides, which have not been adjusted since 2005, they will increase by 10 cents across the board.

The PTC said that it considered during its deliberations, Singapore’s economic outlook, the affordability of public transport and the fare review mechanism adopted since 2005.

It noted that the public transport affordability indicator had been on a down-trend over the past five years, indicating that fares have remained affordable for most commuters.

To further safeguard commuters’ interests, the PTC said it checked on the ROTA (Return-On-Total-Assets) of transport operators and was satisfied that their profit levels were not excessive compared to other industries with similar risk profiles.

The PTC believes that the changes to distance-based fares with transfer rebates will impact 64 percent of commuters based on the current pattern of public transport journeys made using EZ-Link cards.

Most public transport users should see an adjustment in their weekly public transport expenditure that could range from an average increase of 18 cents per week, or about $10 a year; to even a reduction in expenditure.

As for the rest of commuters who typically make direct journeys, they should see an average increase of 23 cents a week, or $12 a year.

Safety in Reits? Don't count on it: analysts

2008-08-04T21:21:00.001+08:00

Yields are attractive but they are subject to movements in cyclical property market

By EMILYN YAP

(SINGAPORE) High yields and strong results are making real estate investment trusts (Reits) stand out in a volatile market. But there is debate over their potential as defensive plays, with some market watchers cautioning that Reits are not necessarily safer bets because of their link to the cyclical property sector.

Most Reits turned in impressive results for the quarter ended June 30, 2008. The 18 which reported their performance before last Friday all achieved higher distributable income and distribution per unit (DPU) over the same period last year.

Distribution yields reported by the Reits, based on annualised DPUs and last Friday's closing prices, ranged from 4.8 per cent to 11 per cent. Reits which offered yields above 10 per cent included MapleTree Logistics Trust, healthcare-related First Reit and Lippo- MapleTree Indonesia Retail Trust.

Overall, the Reits had an average distribution yield of around 7.8 per cent, offering a spread of over 4.6 percentage points above the 10-year Singapore government bond yield of 3.14 per cent on Friday. Compared with one-year fixed deposit rates which start from around 0.8 per cent, the Reits offered an even wider spread.

Analysts say Reits have largely performed in line with expectations. Their good performances have won them fans - with many trading at discounts to net asset values and thus offering relatively high yields, OCBC Investment Research said in a recent report that investors could 'take a fresh look at S-Reits as defensive vehicles offering stable cash flows and high yields'.

However, others pointed out that Reits still may not match up to traditional defensive plays, including high-yielding blue chips like telcos and banks. While Reits do offer high distribution yields, the sector is influenced by movements in the property market, which tends to be more cyclical compared with, for instance, the telecommunications industry, or even banking, they say.

Distribution yields are also a function of Reits' unit prices, so yields may look high simply because unit prices have dropped, explained one analyst. Considering both capital gains and distributions to investors, Reits have not done as well compared to around a year ago, he added. The FTSE ST Reit Index has fallen by more than 10 per cent since it was launched on Jan 10 this year.

Reit fans, on the other hand, argue that few sectors are completely resistant to economic slowdowns. Also, some Reits may be more resilient because they can lock in leases over several years, which helps stabilise earnings.

Where there is agreement among most of the market watchers BT spoke to is that Reits will continue to generate steady operating results. For those which have locked in leases or are able to gain from higher rental reversions on lease renewal, 'there is a lot of predictability in terms of their earnings and distributions,' said Daiwa Institute of Research analyst David Lum.

With credit conditions staying tough, however, much of the earnings growth will have to come organically. Reits may still acquire properties but they will have to be more selective, analysts say.

Analysts' top Reit picks include Suntec Reit. 'With 32.6 per cent of total office net lettable area up for renewal in FY09, we believe Suntec is well-positioned for rental reversion with current $14 psf signing rents versus passing rent of around $6.30 psf,' said a Citi Investment Research report last week.

CapitaCommercial Trust was another popular choice. Goldman Sachs reiterated its 'buy' call on the Reit, favouring its strong organic growth and 'leadership among office Reits'.

HDB rents still well on the rise

2008-08-03T09:03:00.001+08:00

Demand still there with expats on smaller housing allowances and those priced out of condo market

By Fiona Chan, PROPERTY CORRESPONDENT

Rents at many condominiums in Singapore appear to be peaking, but landlords of Housing Board flats are still riding the cash wave.

HDB rents continued their steady rise in the second quarter of this year, increasing across all flat types and most towns as renters sought cheaper alternatives to increasingly costly condos.

Owners of four-room flats benefited the most, with average monthly rents climbing almost 10 per cent to $1,750, from $1,600 in the previous three months, according to the latest data from HDB.

In terms of towns, Bukit Batok, Central, Serangoon and Hougang saw major rent rises across all flat types.

Generally, HDB rents have been increasing because rents of private apartments 'have hit a level too high for many to afford', said Mr Chris Koh, director of real estate agency Dennis Wee Properties.

'Those who used to be renting a condo at $2,000 to $2,500 a month find they have very few options when they want to renew their lease because their landlords have increased rents to $3,000 to $3,500.'

Many of these displaced tenants work for smaller firms and do not have the flexibility of higher rent budgets, so they turn to HDB flats, Mr Koh said.

Some new tenants are also S-pass holders with smaller budgets that can only fit HDB flats rather than condos, added Dr Tan Tee Khoon, head of KF Property Network, a subsidiary of Knight Frank.

He also noted that the stock of HDB flats for rent remains fairly constant, unlike that of condos. Supply of HDB flats is also limited because of the conditions imposed on owners who want to lease out their flats.

Rising across the board

Between April and June, eight out of every 10 towns saw higher rents for four-room flats, with Jurong East experiencing jumps of up to 21 per cent.

The priciest place to rent a four-room flat is now Bukit Merah, where the average monthly rent is $2,300. Close behind are flats in the Central area, Toa Payoh and Bishan, which command $2,000 or more.

'Bukit Merah has become popular with foreign nurses who work at Singapore General Hospital, and Jurong East is getting a lot of foreign students from Nanyang Technological University and foreign factory workers working in the west,' explained Mr Koh.

He added that Toa Payoh seems to attract expatriates working in the city as well as foreign nurses from Thomson Medical Centre and Mt Alvernia Hospital.

Landlords of other types of HDB flats are also seeing a tidy profit. Monthly rents of three-room and five-room flats went up by $100 on average to $1,500 and $1,900 respectively.

For three-room flats, the biggest growth was in Hougang, where rents soared 40 per cent to $1,400 a month. They also saw sizeable increases of more than 10 per cent in Geylang, Bukit Batok, Ang Mo Kio, Serangoon and the Central area.

For five-room flats, Bukit Timah, Jurong West and Hougang were especially in demand. But the most expensive five-room flats are still in Marine Parade and Central, where they go for $2,550 and $2,400 a month, respectively.

Steady in the short term

Rentals for HDB flats are likely to hold steady or even rise for the rest of the year as they remain much more affordable than condos, predicted Mr Koh.

KF's Dr Tan also believes HDB rents will rise a further 10 to 15 per cent in the next six months.

'As more new condos are completed next year and the year after, rents of condos will ease and then only will we see HDB rents easing off as tenants will have more choices,' Mr Koh said.

Transport operators to press for fare hikes

2008-08-01T09:00:00.001+08:00

But increase is expected to be smaller than last year's.
By Christopher Tan

TRANSPORT operators SBS Transit and SMRT Corp on Friday submitted applications for fare hikes, but insiders are not holding their breath for any measurable increase this year.

This is because the Public Transport Council declared last month that the fare adjustments were likely to be far smaller than last year's average 1.8 per cent increase.

PTC chairman Gerard Ee said the council would aim to keep any rise 'below one per cent'.

In a statement on Friday, SBS Transit said it is applying to raise bus and train fares because of fuel and energy costs have 'increased significantly in the last year''.

But it would keep concession, children and student fares unchanged.

SMRT explained that even if fares were raised by 3 per cent, it 'will not fully mitigate cost increases due to an inflationary and higher operating cost environment.'.

The company which posted record net profit of $150 million last year added that 'the operating environment continues to be challenging'.

While the PTC's decision will only be announced next month, indications are that commuters who make transfers, say, from train to bus or bus to train or bus to bus, will see their travel expenses fall when new fares kick in on Oct 1.

This is because the Government has decided that fares should be purely distance-based, regardless of whether a journey involves transfers. Currently, a journey with transfers costs more than a similar one without transfers.

SMRT said it supports this move.

But commuters who enjoy direct services may end up paying more.

Four in 10 commuters today make at least one transfer a day.

As before, any fare adjustment is likely to hit commuters who pay in cash hardest. For one, the fare system can only 'recognise' transfer trips via the ez-link fare card.

That is, if a commuter transfers from a bus to a train within a specified time, the system considers it a transfer trip and charges him less for it. For cash payments, the system has no way of knowing.

But on the whole, the PTC has committed to keeping the average fare hike to one per cent or less.

SMRT Taxis to introduce 30-cent fuel surcharge

2008-07-19T18:18:00.000+08:00

Singapore's second largest cab operator, SMRT Taxis, will introduce a 30-cent fuel surcharge for all diesel taxi rides from July 26.

SMRT Taxis, which has a fleet of 3,000 cabs, says the surcharge will apply to all flag-down trips, as well as call centre and advanced bookings.

The company says it will continue to help the taxi drivers cope with rising operating costs, by offering diesel subsidies and low rental packages.

SMRT Taxis says it will remove the surcharge when diesel price drops to S$1.19 per litre, which was the market rate in December last year.

It is the third taxi company to announce the fuel surcharge.

Singapore's biggest taxi operator, Comfort DelGro, was the first to implement the surcharge on July 17.

SMART Automobile will start the surcharge from August 1.

Reits get downgrade on financing fears

2008-07-19T00:19:00.001+08:00

REAL estate investment trusts (Reits), once an investors' darling, are feeling the heat of the credit crunch and the expected rise in bond yields.

A number of analysts have downgraded the sector on concern over the funds' ability to secure future financing, whether through the structured debt or equity markets or through asset sales.

A rise in bond yields, widely expected thanks to rising inflation, will raise the risk free rate which is used to value the securities, pulling the fair value prices lower.

Yields of about 20 Reits have risen to an average of nearly 8 per cent on forecasted 2008 distributions, based on consensus estimates captured by Bloomberg. That offers a spread of about 4.6 percentage points over the 10-year Singapore government bond yield, which currently stands at about 3.379 per cent.

While that sounds very attractive, yields do not tell the full story. A source who declines to be named points to 'macro' risks, including that of valuation.

'There is a risk of slowing demand for office and industrial space, so there is a possibility of (more) downgrades over the next few months. It's all very fluid and we need to be very conscious of the macro risks.'

He adds: 'There has been a rapid decline in the amount of (property) transactions in the physical market . . . If the asset price drops, you are dealing with a portfolio whose value is at risk.'

In a July report, Merrill Lynch said that it was cutting its price targets for Reits by about 16 per cent. It also reduced distribution per unit estimates by 5.3 per cent for fiscal year 2009 and 6.4 per cent for FY2010. 'While valuations are undemanding by historical standards we believe the availability and cost of debt and equity continue to present challenges for the S-Reit sector. We remain cautious on the medium-term outlook for the sector which is highly reliant on capital markets for growth and is sensitive to interest rate movements.'

In Merrill's analysis, the average debt expiry profiles for the Reits is about 2.6 years, which is half that of developed markets. This suggests earnings would suffer a hit as early as 2009, as expiring debt is rolled over at higher rates. It expects the average cost of debt to rise from 3.6 per cent currently to 4.9 per cent in 2010.

In its valuation assumptions, Merrill has raised its cost of debt and risk free rates by more than 100 basis points to 5.5 and 5.4 per cent, respectively. It has, however, a 'buy' rating on a number of Reits, including Macquarie Prime, Capitamall, Capitacommercial Trust and Ascott Residential.

Rating agency Moody's sounded a warning bell on Reits in May when it gave a negative rating outlook for Reits over the next 12 to 18 months, due to concern over 'short-term refinancing risks', among other factors. The sector, it said, retains little cash and tends to use a relatively high proportion of short-dated bank facilities instead of committed long-term funds. They often do not have committed facilities in place for capital expenditure or acquisitions, said Moody's.

This type of funding structure 'can introduce elements of instability and uncertainty into the capital structure of those S-Reits with a lot of short- term debt, which is unusual for investment grade issuers'.

Moody's pointed out that in the past, S-Reits did not spend enough time cultivating strong bank relationships as they had easy access to equity and CMBS (collateralised mortgage-backed securities) funding.

Moody's senior analyst Kathleen Lee and her team wrote that they had talked to banks on their appetite for lending to the S-Reit sector. 'Our impression from these discussions is that funding remains available, but that the banks have become more selective about borrowers, the maturity of such lending and the price charged.' In the first quarter, the team reckons that banks raised their pricing by 50 to 100 basis points for short term loans and refinancing.

On a more positive note, a Deutsche Bank July 1 report by strategist Gregory Lui and analyst Elaine Khoo points out that valuations look attractive at a 6.8 per cent forecast 2008 yield and 18 per cent discount to net tangible assets.

The report said that Reits have retreated by about 35 per cent from mid-2007 despite a less volatile business model. At the time of writing the sector was traded at a 321 basis point spread over the nominal 10-year government bond yield, which then stood at 3.9 per cent. On a real yield basis, the spread was even more attractive at more than 11 per cent. Three-quarters of the funds were trading below book NTA, and up to 50 per cent discount.

Inflation, in any case, is expected to feed through to rental costs, say the analysts. 'Current supply/demand pricing dynamics . . . suggest that the industrial and retail sectors are better positioned to pass on inflation. Industrial rents are only starting to recover from a low base and are still 26 per cent below peak levels, while both the manufacturing and services sectors have continued to expand over the past 10 years.'

Industrial rents trended upwards at a 15-16 per cent annualised rent this year. Retail rents could also benefit from inflation as a larger proportion of leases now include a step-up component, said the report.

Mr Lui and Ms Khoo wrote that borrowing rates are set to rise, based on the swap offer rate which has risen by 30-143 basis points. 'The Reits by and large have exercised prudent interest rate risk management and have more than 75 per cent of total debt fixed or hedged, which also means that the impact of higher rates will be moderated.' They added that for most Reits, balance sheets are generally robust with gearing 'below or at optimal levels'.

ComfortDelGro taxis to impose 30-cent surcharge from July 17

2008-07-11T18:20:00.000+08:00

From July 17, passengers on Comfort and CityCab taxis will have to pay a 30-cent surcharge per journey.

Singapore's largest taxi group, ComfortDelGro, said this is to help its cabbies cope with increases in diesel costs.

Open market pump prices for diesel have risen by more than 50 per cent in the last six months, and ComfortDelGro said it has been subsidising the cost so that its cabbies can enjoy diesel prices at S$1.19 per litre.

But despite these subsidies, cabbies still have to cough up an average of S$15 a day extra for fuel.

So with the new surcharge, cabbies making at least 30 trips can make S$9 or more each day. But some cabbies said it is still not enough.

One of them said, "(If we get about) S$17, S$18... extra, (then) it's okay."

Others do not think the surcharge will benefit them. One cabbie said, "(It) doesn't help. (It will) frighten people from taking a taxi."

Passengers also had mixed views. One said, "I'm already taking a cab during the peak hour, so 30 cents doesn't matter actually."

Another said, "I'm not all right with that. Because basically we already have the 35 per cent surcharge for peak hour."

A third noted, "I think it's quite reasonable. At least you pay the cabbie, because I think the other surcharges, what we pay, I don't think it reaches them."

Some passengers, however, worry this will set a precedent. One passenger said, "What happens if the petrol price increases again? Are you going to increase the surcharge?"

ComfortDelGro said the surcharge will be removed when pump prices fall back to S$1.19 per litre - the market price last December.

For now, there has been no word from other taxi operators on whether they will introduce a similar surcharge.

CPF, Medisave minimum sums raised from July 1

2008-06-16T18:27:00.000+08:00

There will be changes to the CPF Minimum Sum, the Medisave Minimum Sum and the Medisave contribution ceiling from July 1.

The CPF Board said the new CPF Minimum Sum will be S$106,000 – up from S$99,600 currently. CPF Members who set aside this amount will get a monthly payout of S$910 from age 64 for about 20 years.

The new Medisave Minimum Sum will be S$29,500, up from S$28,500.

The Medisave contribution ceiling, which is the maximum balance a CPF member may have in his Medisave account, will be raised from the current S$33,500 to S$34,500.

Any amount in excess of this will be transferred to the Special Account if the member is below 55 years old.

The CPF Board said these revisions are to ensure that Singaporeans have sufficient savings for their retirement and to meet their hospitalisation expenses.

The amounts have also been adjusted for inflation.

Japan's Economy Grew 4% in Q1

2008-06-11T08:50:00.001+08:00

Japan's first-quarter economic growth was faster than the government initially reported after figures showed businesses spent more than estimated.

Gross domestic product expanded an annualized 4 percent in the three months ended March 31, the Cabinet Office said today in Tokyo, quicker than the 3.3 percent estimated last month. The median estimate of 22 economists surveyed by Bloomberg News was for 3.8 percent growth.

Figures since the first quarter suggest growth has slowed as rising oil and raw materials costs erode profits. Japan's soaring import bill caused the current account to narrow more than economists estimated in April and producer prices to climb at the fastest pace in 27 years in May, reports showed today.

"The economy's going to have problems from now on,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. "Japan will teeter on the verge of a recession this year because of the rise in oil and material costs along with the U.S. slowdown.''

The yen traded at 107.32 per dollar as of 9:17 a.m. in Tokyo compared with 107.42 before the reports were published.

Japan expanded 1 percent from the fourth quarter, today's figures showed, more than the 0.8 percent reported last month.

Business Spending

Business spending increased 0.2 percent, compared with a 0.9 percent decline initially estimated, reflecting figures published by the Finance Ministry last week that showed companies increased capital spending by 1.3 percent in the quarter. The ministry's report accounts for about 60 percent of the business investment component of revised GDP.

The same survey showed corporate profits fell 17.5 percent from a year earlier, the steepest decline since the most recent recession in 2001. Reports for April showed household spending fell the most in 19 months, factory production dropped and unemployment climbed.

"The economy may already be in a downturn,'' said Kenichi Kawasaki, an economist at Lehman Brothers Inc. in Tokyo. "Falling profits are likely to stifle corporate appetite for capital spending. Exports are likely to start softening.''

The Cabinet Office this week said the world's second- largest economy has probably peaked, and companies including Advantest Corp. and Nissan Motor Co. expect conditions to worsen. The risk of a shrinking economy will keep the Bank of Japan from raising its key interest rate from 0.5 percent until next year, according to economists surveyed.

Advantest, Nissan

Advantest, the world's biggest maker of memory-chip testers, may report lower earnings this fiscal year as chipmakers scale back investment in factories. "Our business is very slow,'' President Toshio Maruyama said last week.

Nissan, Japan's third-largest carmaker, last month forecast the biggest drop in profit in nine years because of a stronger yen and weaker demand in the U.S., its most profitable market.

"Take a look at all the headwinds we're facing in 2008,'' Nissan's Chief Executive Officer Carlos Ghosn said last week. "We're not being pessimistic, we're being prudent.''

All eight Japanese passenger carmakers have said operating profit will fall this fiscal year.

Sales to Asia and commodity-exporting regions such as the Middle East have been keeping the economy afloat as the U.S. slows. Exports, the main driver of Japan's growth in the past three quarters, have expanded each month since November 2003.

"Japan is obviously at risk of a lagged impact from the U.S. hitting Europe and Asia a bit more,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``If that happens you'll get slower growth in the second half of the year, but you'll still get trend growth overall.''

Japan's economy has grown an average of about 2 percent in each year of the current expansion, which began in February 2002.

Singapore Interest Rates: The only way is up?

2008-06-06T21:16:00.001+08:00

THE period of rock-bottom interest rates may be over, with some experts tipping that levels in Singapore are set to head north - but at a gentle pace.

The three-month Singapore Interbank Offered Rate (Sibor) - the level at which banks lend to each other - is at 1.3 per cent. That is still a remarkably modest rate, but it is up from the 12-month low of 1.25 per cent a few days ago.

It is also dramatically lower than the 3.1875 per cent in March last year, before rates began plunging.

Economists expect rate rises to be tiny, but home owners might think it smart to refinance mortgages before rates creep up.

The rates pressure is coming from the United States. The Sibor tends to track US rates, which are tipped to rise by 50 basis points by year end.

Dr Chua Hak Bin, Asian strategist at Deutsche Bank Private Wealth Management, said: 'I believe the short- term interest rate has bottomed out. Our rates track the US rates quite closely, and there is a sense that the Fed, after a 325 basis point cut, is due to raise rates soon.'

He expects rates to rise to 1.4 per cent in 12 months and to go back to above 2 per cent in three years.

OCBC Bank economist Selena Ling said: 'We would expect the short-term interest rate to rise to 1.5 per cent by year end. It won't rise sharply because the Monetary Authority of Singapore (MAS) is still on a tight monetary policy to combat inflation.'

But HSBC economist Robert Prior-Wandesforde sees things differently: 'We are not expecting a Fed hike before the end of this year, and I'm still looking for the three-month Sibor to fall to 1 per cent over the next few months. With the MAS thought to keep the Singapore dollar strong, this is encouraging foreign inflows, which in turn is depressing interest rates.'

One indicator of where short-term rates might be headed lies in the bond market, where long-term interest rates seem to have spiked.

The 10-year Singapore Government Securities bond yield was 2.73 per cent in the middle of last month, but has now risen to 3.6 per cent.

United Overseas Bank's treasury research head, Mr Jimmy Koh, said: 'We have inflation climbing in the region, making long-term rates move up. Over time, this could drag up short- term rates.'

He also noted that central banks in Indonesia and the Philippines have already started raising short-term interest rates.

Deutsche Bank's Dr Chua said: 'Long-term interest rates are determined by long-term views on growth and inflation. As risk appetite returns, these might move up faster than the short-term rates because of inflation risks, and the Fed may not be able to move as fast as we hope.'

Whatever the cause, rising interest rates affect everyone, from bank savers to homebuyers and retirees looking for a good return on their cash.

If the Sibor rises, so might bank deposit rates in time to come. A DBS Bank spokesman said: 'Our rates will move in tandem with market forces.'

Home owners might also think it prudent to switch to a fixed-term mortgage now as rates are linked to the Sibor.

Mr Prior-Wandesforde said 'it is worth thinking seriously about shifting to a fixed rate'.

He added: 'Although fixed-term mortgage rates haven't come down that much during the recent decline in short-term market rates, they also didn't rise as much as one would have expected during the period of rising short-term rates from 2005 to 2006.'

India's Inflation Jumps to 8.24%; Fastest Since 2004

2008-06-06T21:08:00.000+08:00

India's inflation jumped to 8.24 percent, the fastest since August 2004, adding pressure on the central bank to raise interest rates.

Wholesale-price gains accelerated for a seventh straight week through May 24, after increasing 8.1 percent in the previous week, the commerce ministry said in a statement in New Delhi today. Analysts had forecast inflation at 8.29 percent.

Lehman Brothers Holdings, Standard Chartered Bank and ICICI Securities Ltd. expect the inflation rate to rise to a 13-year high of 9.5 percent after the government increased fuel costs this week. Prices are rising amid slowing economic growth, making it harder for central bank governor Yaga Venugopal Reddy to decide whether to increase borrowing costs.

"While the central bank has shown reluctance to touch policy rates, this may change soon,'' said Prasanna Ananthasubramaniam, a Mumbai-based fixed-income analyst at ICICI Securities, a unit of India's biggest bank by market value. "The bank will be worried about worsening inflation expectations on the back of this week's fuel price hikes.''

Reddy said yesterday that prospects of more food output this year and curbs on farm exports will boost supplies and help tame inflation, playing down chances of higher interest rates.

Still, India's benchmark 10-year bond yield was unchanged at 8.23 percent, the highest in a year, after the inflation data. Inflation was mainly driven by higher costs of fuel, power and light, basic metals including steel and food grains in the week ended May 24.

Fuel Prices

India, which imports 70 percent of its oil, increased prices for gasoline by 11 percent, diesel by 9 percent and cooking gas by 17 percent after oil reached a record $135.09 a barrel in New York on May 22. India previously raised fuel prices in February, the first time since June 2006.

The changes in fuel prices announced on June 4 will be reflected in the inflation data due for release on June 20. The commerce ministry today raised its inflation estimate for the week ended March 29 to 7.75 percent from 7.41 percent.

Reddy, who has kept the benchmark interest rate unchanged at a six-year high of 7.75 percent since March 2007 and relied on forcing lenders to set aside more reserves to check consumer demand, said yesterday the central bank is ready to use its full range of instruments to curb inflation.

Reddy said the outlook for India's sugar production appeared bright and that for wheat output was positive.

To boost agriculture supplies, the government has scrapped import duties on edible oils and banned the export of pulses and rice in the past six months.

India's food grain production may increase to a record 227.3 million tons in the year ending June, helped by bumper rice, wheat and lentils output, the agriculture ministry said in April. It may receive an additional boost as rainfall in the four-month monsoon season that started last week is forecast to be adequate.

India's economy, Asia's third-largest, expanded 9 percent in the year ended March 31, the weakest pace in three years.

Europe's Expansion Accelerates More Than Estimated

2008-06-04T00:13:00.000+08:00

European economic growth accelerated more than initially estimated in the first quarter as investment and construction spending in Germany helped the region weather record oil prices, the euro's gains and market turmoil.

Gross domestic product in the 15 countries that use the euro increased 0.8 percent from the fourth quarter, compared with an earlier estimate of 0.7 percent, the European Union's statistics office in Luxembourg said today. Investment jumped 1.6 percent in the first three months of this year, the most since the second quarter of 2006.

Both the German and European economies are set to slow in the current quarter as oil prices boost costs for consumers and companies and the euro's advance makes exports less competitive. The slowdown, signaled by declining measures for manufacturing and services activity and consumer confidence, may not be as sharp as in the U.S., reinforcing the European Central Bank's case for holding off lowering interest rates as it tries to tame inflation.

"When it comes to growth, the past has shown that the ECB a clear preference for hard numbers,'' said Carsten Brzeski, an economist at ING Group in Belgium. "Confidence indicators have not plunged enough to justify a rate cut at the current juncture. The ECB has still time and room to focus on high inflation.''

The euro rose 0.3 percent to $1.5589 as of 12:12 p.m. in Brussels. The currency has risen 16 percent against the dollar in the last 12 months and reached an all-time high above $1.60 in April. The Dow Jones Stoxx 600 gained 0.1 percent to 318.72 and the Stoxx 50 index was little changed.

First Quarter

From a year earlier, the economy expanded 2.2 percent in the first quarter. Fourth-quarter growth was revised down to 0.3 percent from 0.4 percent compared with the prior three months.

Exports rose 1.9 percent and government spending increased 0.4 percent from the prior quarter, the statistics office said in today's report, the first detailed look at the first-quarter GDP data. Consumer spending gained 0.2 percent after contracting 0.1 percent in the previous three months.

In the first quarter, Germany's economy expanded at the fastest pace in 12 years as construction spending jumped 4.5 percent. German builders benefited from an exceptionally mild winter, according to the German weather service, while orders from Asia boosted sales.

Hochtief, Volkswagen

Hochtief AG, Germany's largest construction company, last month said first-quarter profit more than tripled on mining projects in Asia and construction in the Middle East and Australia. Sales at Volkswagen AG rose almost 8 percent in the four months through April as growth in China and Brazil offset a decline in North America.

"The first quarter was an outlier and shouldn't be read as where the economy is going,'' said Michael Hume, chief European economist at Lehman Brothers International in London. He forecast that the German economy will shrink in the current quarter due partly to a fading construction effect. The euro area as a whole may record zero growth this quarter, he said before today's report was published.

Data since the end of the first quarter have signaled growth across Europe is slowing. Retail sales in Germany unexpectedly dropped for a second month in April as faster inflation left consumers with less purchasing power, while unemployment rose for the first time in more than two years. In France, business confidence declined to the weakest in more than two years last month as rising energy prices and the euro's advance hurt the outlook for corporate profits.

Ifo Index

Other data suggest a more benign outlook. Germany's Ifo index of business sentiment rose in May, while European retail sales rose for the first time in three months, according to a survey of more than 1,000 executives by NTC Economics Ltd.

Still, adding to pressure on Europe's companies and households is easing demand in the U.S. amid the fallout from the housing slump there, which pushed up credit costs worldwide. ECB council member Nout Wellink said yesterday the euro-area economy hasn't felt the full effect yet of the U.S. slowdown and this will become visible with a certain time lag.

While economic growth is cooling, the ECB is focused on price stability. That job has become more difficult in the last 12 months as food and oil prices soar. Crude oil rose to a record $135.09 a barrel on May 22 and consumer-price inflation accelerated to 3.6 percent last month, the fastest pace since the ECB's inception 10 years ago.

Timely Reminder

"The present price hikes are a timely reminder that, when it comes to inflation, complacency is out of place,'' ECB council member Axel Weber said on May 30 "We cannot rest on our laurels where credibility is concerned.''

Producer-price inflation accelerated to 6.1 percent in April, the most in more than seven years, from 5.8 percent in March, according to separate figures published today.

ECB policy makers hold their next rate-setting meeting in two days, when the central bank will publish new staff forecasts on inflation and growth. The ECB will probably hold its key rate at 4 percent this week and leave it there until at until at least February, according to economists surveyed by Bloomberg.

"The ECB's response will be to tolerate slower growth and leave rates unchanged for a while,'' said Silvia Pepino, an economist at JPMorgan Chase & Co. in London. "That said, the central bank's rhetoric is likely to be tough on inflation, leaning towards a tightening bias.''

Swiss Inflation Rate Rises to 15-Year High on Oil

2008-06-04T00:09:00.001+08:00

Swiss inflation accelerated more than economists forecast to the fastest pace in almost 15 years in May, led by rising energy costs.

Swiss consumer prices rose 2.9 percent from a year earlier after increasing 2.3 percent in April, the Federal Statistics Office in Neuchatel said today. That's the highest rate since October 1993. Economists forecast inflation of 2.4 percent, according to the median of 19 estimates in a Bloomberg survey.

A surge in oil prices to a record $135.09 a barrel on May 22 is pushing up inflation and draining consumers' purchasing power just as economic growth cools. Central bank President Jean-Pierre Roth said May 23 that inflation could pose a real problem if it becomes entrenched in the economy.

"We're already working on revising up our inflation forecast for this year,'' said Patrick Muhl, a senior economist at Credit Suisse Group AG in Zurich. "We still expect the Swiss National Bank to keep interest rates on hold, but there are increasing risks that they'll raise the benchmark further.''

Crude oil prices have gained 33 percent this year, adding to pressure on companies to pass on higher costs to shore up earnings. Ciba Specialty Chemicals AG, the maker of Ferrari red car-paint pigment, cut its annual earnings forecast in April partly because of rising raw-material costs.

Franc Gain

From April, consumer prices increased 0.8 percent, the largest month-on-month gain since October 2007. Heating oil prices rose 58 percent from a year earlier and gasoline was 7.5 percent more expensive. Diesel prices rose 21 percent from May 2007. The cost of beef increased 5.5 percent.

Excluding prices of food, beverages, seasonal goods, energy and fuel, consumer prices rose 0.3 percent in the month and 1.4 percent from a year earlier, the statistics office said.

The Swiss franc gained against the euro after the inflation report, rising to 1.6068 from 1.6119 yesterday.

The currency's 8.9 percent gain against the dollar this year has helped shield the economy from surging energy costs by taking the sting out of higher import prices. Against the euro, the franc has appreciated 2.8 percent since January.

Foreign Pressure

Still, the increase in Swiss consumer prices is due more to foreign than domestic pressures. Imported goods were 1.8 percent more expensive than in April and cost 6 percent more than in May last year, today's report showed. Prices of Swiss-made products rose 0.4 percent from April and 1.6 percent in the year.

The Zurich-based SNB aims to keep annual gains in consumer prices just below 2 percent. Its next meeting to decide interest rates is on June 19.

At its last meeting in March, the SNB left its key rate at a six-year high of 2.75 percent and forecast inflation will average about 2 percent this year. Roth said last month the bank faces the challenges of bolstering growth and containing inflation. Vice President Philipp Hildebrand said May 22 that the room to maneuver with respect to interest rates has decreased.

"Concerns about higher inflation have emerged as the main worry for the Swiss National Bank,'' Allan Monks, an economist at JPMorgan Chase & Co. in London, said before today's report.

With the economy losing momentum, companies may find it more difficult to pass on higher costs. Swiss leading economic indicators declined to the lowest in five years in May and manufacturing slowed for a third month.

Investors have already raised expectations of the SNB raising borrowing costs this year, futures trading shows. The implied rate on the three-month Liffe contract expiring in December traded at 3.03 percent today, up from 2.87 percent on May 1.

Thai Inflation Quickens to Fastest Pace in a Decade

2008-06-02T20:09:00.002+08:00

Thailand's inflation rate was the highest in close to a decade in May amid record oil prices. A slowing economy and anti-government protests may keep the central bank from raising interest rates until later this year.

Consumer prices gained 7.6 percent last month from a year earlier, the Commerce Ministry said today in Bangkok. The pace was the highest since August 1998 and exceeded all 16 economists' estimates in a Bloomberg News survey.

Surging oil prices are slowing growth in the $206 billion economy, Finance Minister Surapong Suebwonglee said May 28. Thai Prime Minister Samak Sundaravej yesterday backed down from a threat to forcibly disband street protests in Bangkok. Record fuel costs are fanning inflation across Asia. Indonesia today said consumer prices rose the most in 20 months in May.

"The inflation risk has intensified but the central bank may need to tolerate this for a while as local demand remains fragile,'' said Thanomsri Fongarunrung, an economist at Phatra Securities in Bangkok. "Raising the rate now may backfire.''

The Bank of Thailand has held its one-day bond repurchase rate at 3.25 percent since August. Policy makers, who said May 21 they are ready to adjust monetary policy should inflation accelerate, next meet on July 16.

Protests

Higher interest rates may not help cool inflation since import costs are pushing consumer prices higher, Surapong said today in Bangkok.

"The interest rate policy may be less effective,'' he said. "We will use fiscal policies, and other measures to boost incomes and economic growth to counter inflation.''

An anti-government protest, which started May 25, is being led by an activist group that spearheaded demonstrations contributing to the overthrow of former prime minister Thaksin Shinawatra in a 2006 coup. About 1,500 people are at the protest today, down from a peak of 13,000 on May 31, Surapol Thuanthong, a deputy Royal Thai Police spokesman, said today by telephone.

The benchmark SET Index of stocks fell 2.8 percent today after last week dropping the most since August. The Thai brokerage unit of DBS Group Holdings Ltd. today downgraded its SET Index rating to neutral from outperform, citing renewed political tension.

"Faster inflation and the higher cost of living because of oil prices makes people more cautious about spending money,'' said Prasarn Trairatvorakul, president of Kasikornbank Pcl, the nation's fourth-largest lender. "Political uncertainties have started to hurt investors' confidence. These are risks to economic growth.''

Core inflation, which excludes fresh food and fuel prices, accelerated to 2.8 percent in May from a year earlier, from 2.1 percent a month earlier, the Commerce Ministry said today. Economists in the Bloomberg survey estimated core inflation would be 2.5 percent.

The central bank uses core inflation to help set monetary policy and aims to keep the pace of price increases within a zero-to-3.5 percent range this year.

Confidence Falls

Consumer confidence, which fell for the first time in six months in April, may decline further in coming months as oil prices increase, Thanavath Phonvichai, an economist at the University of the Thai Chamber of Commerce said May 15.

Indonesia's consumer prices rose 10.4 percent in May from a year ago, the Central Statistics Bureau said today. India's inflation has accelerated to its fastest pace in more than 3 1/2 years.

Thailand's government on May 30 told four refineries controlled by state-owned PTT Pcl to cut diesel prices for six months to ease inflation. The measures, costing the companies about 2.2 billion baht ($67.5 million), will give cheaper fuel to buses in Bangkok. The price of diesel, widely used for transportation and manufacturing, jumped 17 percent last month, according to PTT's Web site.

``The ministry will look at all products to see what we can do to reduce the public's burden,'' Siripol Yodmuangcharoen, permanent secretary for commerce told a press briefing today.

The inflation rate in Southeast Asia's second-largest economy may be as high as 5.8 percent this year from 2.3 percent in 2007, the state planning agency forecast May 26.

European Inflation Accelerates More Than Forecast

2008-05-30T22:36:00.000+08:00

European inflation accelerated faster than economists forecast this month as oil prices jumped to a record, adding to what European Central Bank President Jean-Claude Trichet has called policy makers' biggest challenge.

The inflation rate in the euro area rose to 3.6 percent, matching a 16-year high, from 3.3 percent in April, the European Union statistics office in Luxembourg said in a statement today. Economists had forecast a 3.5 percent rate, according to the median of 36 estimates in a Bloomberg survey.

The ECB, which aims to keep consumer-price growth below 2 percent, said yesterday there are signs inflation expectations have been trending up recently and it's imperative that they remain contained. The Frankfurt-based bank celebrates its 10th anniversary this weekend, having failed to meet its target for the last eight years, and holds its next policy meeting June 5.

"This will probably encourage speculation that the ECB may pull the rate trigger later this year, the growth slowdown notwithstanding,'' said Martin van Vliet, an economist at ING Group in Amsterdam. "Investors better brace themselves for an ultra-hawkish statement from the ECB president at next week's press conference.''

Separate figures published by the statistics office today show that unemployment in the euro area remained at a record low of 7.1 percent in April.

The euro pared declines after the inflation report. It was down 0.2 percent to $1.5496 as of 11:17 a.m. in Brussels, after earlier dropping to as low as $1.5461.

Crude Oil

Crude oil prices have doubled in the last 12 months and reached a record $135.09 May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat has gained 45 percent in the past year and corn has surged 51 percent.

Retail sales in Germany, Europe's largest economy, unexpectedly dropped for a second consecutive month in April, according to figures published today, as faster inflation left consumers with less money.

Companies and households expect prices to continue to rise. A European Commission index of manufacturers' selling price expectations increased this month, while consumers' outlook for their personal finances deteriorated. Greencore Group Plc, the world's biggest maker of prepared sandwiches, this week said it's been passing on cost increases to customers.

Fed Concerns

In the U.S., Federal Reserve bank presidents also have expressed growing concern about rising prices.

"If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic'' economy, Bank of Dallas President Richard Fisher said on May 28.

The ECB has kept its key rate at a six-year high of 4 percent to counter inflation even as the economy of the 15 euro nations cools. The central bank is concerned that wages will increase to compensate for the higher cost of living, threatening a wage-price spiral.

"There has been a sharp deterioration in the inflation picture,'' said Simon Barry, an economist at Ulster Bank in Dublin. "Our base case is the ECB is on hold for now, but the inflation risk has increased and there's no room for complacency.''

The inflation figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on June 16.

India's GDP Growth Holds at Slowest Pace Since 2005

2008-05-30T22:34:00.000+08:00

India's economic growth held at the weakest pace since 2005 as the highest interest rates in six years discouraged consumer spending and investment.

Asia's third-largest economy expanded 8.8 percent in the three months to March 31 from a year earlier, matching the revised gain of the previous quarter, the statistics office said in a statement in New Delhi today.

Finance Minister Palaniappan Chidambaram today urged policy makers to ensure they don't damp economic growth as they try to slow inflation, which has doubled in the past four months to 8.1 percent. India's central bank has twice forced lenders to set aside more reserves in 2008, after raising its key interest rate seven times in the past 2 1/2 years to 7.75 percent.

"The dilemma between rising inflation and slowing growth will continue and we expect the central bank to tighten monetary policy,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers LLC. "The growth momentum is slowing.''

Lehman cut India's growth forecast to 7.3 percent for this year from 7.6 percent.

The Sensitive index, which has declined 20 percent this year, rose 0.8 percent to 16452.90. The benchmark 10-year government bond fell, pushing the yield close to a one-month of 8.11 percent. The rupee climbed to the highest in more than two weeks, gaining 0.7 percent to 42.49 a dollar.

India's economy expanded 9 percent in the year ended March 31, the least since 2005, today's report said. Growth may slow further to about 8.5 percent in the current financial year, Chidambaram told reporters in New Delhi today.

Manufacturing Slows

Manufacturing growth almost halved to 5.8 percent in the three months to March 31, while farm production slowed to 2.9 percent. Growth is holding up as construction gained 12.6 percent, the fastest pace in almost two years, as the government stepped up efforts to build new airports, roads and power plants.

Still, India is unwilling to risk higher inflation ahead of national elections due by May 2009, analysts said. Prime Minister Manmohan Singh's Congress party has already lost ground in nine of 11 provincial polls held since January 2007 as rising prices of rice, lentils and other staples hurt the 52 percent of India's 1.1 billion people who live on less than $2 a day.

Growth is important to reduce poverty in India, said Sanjay Peters, an economics professor at ESADE Business School in Barcelona. Reining in inflation at the cost of growth is an unviable justification, he added.

Overseas Borrowings

"We must ensure that the instrument of interest rates moderate inflation and at the same time does not dampen growth,'' Chidambaram said today. "We have to ensure industrial growth does not slacken.''

To boost growth, the finance ministry yesterday raised the limit on overseas borrowing by companies for domestic spending. Infrastructure companies can borrow as much as $100 million overseas, up from a previous limit of $20 million, while other companies can borrow as much as $50 million, compared with an earlier cap of $20 million.

India's expansion, to be sure, is still the second-fastest after China among the world's major economies, spurred by rising incomes. The South Asian country is growing at more than three times the pace of the U.S. and the nations sharing the euro.

The Reserve Bank of India, whose priority is to keep prices in check, has increased the cash reserve ratio, or the proportion of deposits lenders must set aside, seven times since December 2006 to slow money supply and cool inflation.

All Options

That's yet to put a dent in India's inflation rate, which is now the highest in more than 3 1/2 years. The Federation of Indian Chambers of Commerce and Industry say relying on monetary tools isn't the correct way to tackle inflation, which is largely driven by supply-side factors.

Inflation may accelerate further as Oil Minister Murli Deora yesterday said the government will consider all options, including an increase in fuel prices, to cut losses at state-run refiners that have risen to more than $1 billion a week as crude oil costs soar.

"It is supply shortage that is aggravating inflation in the case of food products, and the inflationary pressure in the case of manufactured products is the result of continuous cost buildups of raw materials and oil products,'' the trade body said in a report on May 24. "Rising interest rates, besides curtailing demand, are also adding to the cost of companies.''

Cars, Motorcycles

Tata Motors Ltd.'s profit in the year ended March 31 gained at the slowest pace in at least five years as steel and other input costs increased and consumer demand diminished. Bajaj Auto Ltd., India's second-biggest motorcycle maker, expects sales to remain sluggish this year. Industry accounts for a quarter of India's $912 billion economy.

"The year ahead is a challenging year,'' said C. Ramakrishnan, chief financial officer at Tata Motors, the Indian automaker that's buying Ford Motor Co.'s Jaguar and Land Rover units. "High interest rates, raw material costs and credit availability continue to be challenges.''

As industry slows, demand for services such as travel and banking, which make up 55 percent of the economy, may also wane. Airbus SAS, the world's largest planemaker, said this week that India is among the weakest airliner markets right now and the country's carriers may cancel or delay plane orders in the next 12 months.

Japan Inflation Slows to 0.9% as Gasoline Tax Expires

2008-05-30T08:43:00.000+08:00

Japan's consumer-price inflation slowed from a decade high as the temporary expiry of a gasoline tax helped ease the pressure from rising food and energy costs.

Core consumer prices, which exclude fruit, fish and vegetables, climbed 0.9 percent in April from a year earlier after rising 1.2 percent in March, the fastest pace since 1998, the statistics bureau said today in Tokyo. The median estimate of 35 economists surveyed by Bloomberg was for a 1 percent gain.

Gasoline prices nationwide fell by about 15 percent last month after the government failed to renew a tax bill that expired April 1. The tax was reinstated this month, and surging costs of food and energy will keep squeezing households and companies, presenting the central bank with the challenge of supporting growth while keeping prices under control.

"The Bank of Japan seems to be carefully monitoring whether recent food and oil price increases will become a trigger for inflationary expectations, which could induce further rounds of price increases,'' said Hideo Kumano, a former central bank official and now chief economist at Dai-Ichi Life Research Institute. "The central bank can neither raise rates nor cut them for the time being because the economy has slipped into a something that looks a bit like stagflation.''

Other reports today showed the unemployment rate rose to a seven-month high of 4 percent and household spending plunged 2.7 percent, the fastest pace since September 2006. The ratio of jobs available to each applicant fell to a three-year low.

The yen traded at 105.57 per dollar as of 8:45 a.m. in Tokyo from 105.54 before the reports were published.

Oil, Wheat

Crude oil exceeded $135 a barrel for the first time last week and gasoline in Japan surged to a record 160.3 yen a liter ($5.75 a gallon) this week. Wheat has soared more than 50 percent in the past year, prompting Japan's government to raise prices of the grain 30 percent last month.

McDonald's Holding Co. Japan Ltd. and Ajinomoto Co. announced plans this month to raise prices to make up for higher energy and grain costs.

McDonald's will raise prices of cheese burgers and Big Macs by about a fifth from today. Ajinomoto's mayonnaise will increase for the second time in a year in July.

Inflation in Tokyo quickened in May, today's report showed, signaling nationwide prices may have risen at a faster pace this month. Tokyo's core prices, a harbinger of the nationwide index, rose 0.9 percent this month from a year earlier, following a 0.7 percent gain in April.

Costlier daily necessities pushed consumer sentiment to a six-year low in April and caused retail sales to grow at the slowest pace since July. Most Japanese households expect prices to keep rising.

Inflation Expectations

The central bank is monitoring how recent price increases may affect consumers' inflationary expectations and companies' price-setting, BOJ Governor Masaaki Shirakawa said this month.

"The Bank of Japan's caution against inflation is accompanied by concerns about an economic slowdown so it's not warranting policy tightening at the moment,'' said Hiromichi Shirakawa, a former central bank official and now chief economist at Credit Suisse Group in Tokyo. "Still, Governor Shirakawa seems to realize that stabilizing inflationary expectations is very important in setting the bank's policy.''

Inflation may exceed the upper limit of the central bank's zero to 2 percent guideline for price stability next quarter, according to Ryutaro Kono, chief economist at BNP Paribas in Tokyo.

"Even if that happens, the Bank of Japan won't be prompted to raise interest rates because of its concern about the effect on economy's growth,'' Kono said.

Japan Production Falls for a Second Month, Signaling Slowdown

2008-05-30T08:42:00.001+08:00

Japan's factory production fell in April for a second month as the U.S. slowdown spread, signaling the nation's export-led expansion may have peaked.

Output declined 0.3 percent from March, when it slid 3.4 percent, the biggest drop in five years, the Trade Ministry said today in Tokyo. The median estimate of 35 economists surveyed by Bloomberg News was for a 0.5 percent drop.

Today's report is more evidence that the world's second- largest economy is slowing after exports and consumer spending drove annualized growth of 3.3 percent last quarter. Central bank Governor Masaaki Shirakawa said this week that the U.S. slump, coupled with record oil and commodity prices, has made the outlook extremely uncertain.

"It looks like exports and manufacturing activity peaked out last quarter,'' Seiji Shiraishi, chief economist at HSBC Securities in Tokyo, said before the report. Slumps in output have coincided with each of Japan's three recessions since 1991.

Exports are showing signs of slowing. Overseas shipments in the first four months of 2008 rose at less than half the pace of the same period a year ago.

Crude oil exceeded $135 a barrel for the first time last week. Toyota Motor Corp., Japan's biggest company, says the higher prices of energy and raw materials, along with the yen's 6 percent rise against the dollar this year, will cause profit to fall for the first time in seven years.

Toyota isn't alone in facing a profit squeeze. Japanese companies' pretax earnings will fall 5 percent in the year ending March 2009, the first decline since 2001, according to a report last week by Shinko Research Institute.

That may mean smaller summer bonuses for Japanese workers and less spending by companies on new plant and equipment.

The higher cost of commodities isn't all bad news for Japan's exporters. It's increasing the wealth of resource-rich countries such as Russia, spurring demand for Japanese products in those markets. Demand from emerging economies has so far made up for a slump in shipments to the U.S., Japan's largest market.

U.S. Economy: First-Quarter Growth Estimate Raised

2008-05-29T20:39:00.002+08:00

The U.S. economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to a record.

The 0.9 percent gain at an annual pace in gross domestic product compares with an advance estimate of 0.6 percent, the Commerce Department said today in Washington. Fourth-quarter growth was 0.6 percent. Separate figures today showed the number of Americans continuing to receive jobless benefits rose to a four-year high this month.

"It's basically like an airplane at stall speed, just skimming above the water,'' Jeffrey Frankel, an economist at Harvard University who is a member of the panel that dates U.S. economic cycles, said in a Bloomberg Radio interview. "I wouldn't rule out going into a recession later in the year."

Trade remains the bright spot for an economy that is likely to slow this quarter as surging fuel and food bills and falling home values force consumers to cut back. The economy will expand just 0.1 percent this quarter as spending slows further, according to economists surveyed by Bloomberg this month.

"We are somewhere in the twilight zone between an expansion and a recession,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. "We will have a poor pace of growth through the year.''

First-time claims for unemployment insurance rose to 372,000 last week, higher than economists had forecast, from 368,000 the previous period, the Labor Department reported. Those continuing to receive benefits jumped to 3.104 million in the week ended May 17, the highest level since February 2004.

Stocks, Treasuries

Stocks rose, with the Standard & Poor's 500 index up 0.5 percent to close at 1398.26. Treasuries slid after benchmark 10- year note yields yesterday climbed above 4 percent for the first time since January. The yields were at 4.08 percent at 4:33 p.m. in New York, from 4 percent late yesterday. The dollar rose 0.9 percent to $1.5503 per euro.

Honeywell International Inc., the world's largest maker of airplane controls, said last week it is confident in its full- year forecasts as demand outside the U.S. remained robust. Record oil prices have boosted orders for refining equipment and building projects in the Middle East, India and China has pushed up sales of its energy conservation devices.

"This year is going to be another strong year in a more difficult environment,'' Honeywell's Chief Executive Officer David Cote said on May 19 at a conference in Florida.

Gains Abroad

Eaton Corp., the world's second-largest maker of hydraulic equipment, reaffirmed its full-year profit forecast on May 28 and projected international markets will grow as much as 6 percent. The company's U.S. markets will expand 2 percent to 3 percent this year.

Procter & Gamble Co., the world's largest consumer-products company, said last month that third-quarter profit rose on increased sales overseas and higher prices.

While a recession is often described as consecutive declines in GDP, the National Bureau of Economic Research, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.

The group says that in a recession, decreases would be visible in payrolls, production, sales and incomes, in addition to GDP.

"For that reason, the U.S. is probably already in a mild recession,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "The economy will be pretty flat on its back through much of this year.''

Feldstein on Recession

Harvard University economist Martin Feldstein, president of the NBER, today said the economy probably shrank last quarter.

"Virtually every indicator is heading down,'' Feldstein said in a Bloomberg Television interview. Still, there's ``a chance'' the U.S. won't go into a recession.

The Bush administration is betting the U.S. will keep growing as the economy benefits from the impact of tax rebates and seven interest-rate cuts by the Federal Reserve since September.

"We think that it will avoid a recession, Keith Hennessey, director of the White House National Economic Council, said in an interview with Bloomberg Television. "We think that growth is continuing in the second quarter'' and will strengthen in the second half of the year, he said.

Today's GDP report is the second of three estimates. The median forecast of 74 economists surveyed by Bloomberg News was for a 0.9 percent pace. Projections ranged from gains of 0.6 percent to 1.3 percent.

Growth Slowing

Following a 0.6 percent growth rate in the fourth quarter, the reading was the smallest six-month expansion rate in five years.

The trade deficit shrank to an annual pace of $480.2 billion, the smallest since the third quarter of 2002. Trade's contribution to growth jumped to 0.8 percentage point, four times more than previously estimated.

Consumer spending, which accounts for more than two-thirds of the economy, rose at a 1 percent annual rate in the first quarter, the same as estimated last month. The gain was the smallest since the 2001 recession.

The revisions also showed bigger gains in incomes than previously estimated, easing concern that spending will collapse.

Personal income increased at a 5.1 percent annual pace from October through December, compared with an initial projection of 4.2 percent. For the first quarter, income growth was revised up to 4.7 percent from 4.4 percent.

Income growth may slow in coming months as the labor market softens. The U.S. has lost jobs for four consecutive months this year, and payrolls may post another decline for May, according to the Bloomberg survey.

Inventories Drop

The gain in growth last quarter would have been even larger if not for a reduction in estimates for inventories. Companies cut stockpiles at a $14.4 billion annual rate, compared with an initial estimate of a $1.8 billion gain. The figures added 0.2 percentage point to growth, less than the previously estimated contribution of 0.8 percentage point.

A measure of total sales, which strips out stockpiles, was revised to a gain of 0.7 percent at an annual rate rather than a 0.2 percent drop. Sales rose at a 2.4 percent pace in the fourth quarter.

There are signs that demand is slowing even more. Auto sales in April slid to a 14.4 million annual rate, the lowest level since 1998, industry figures show. Spending this quarter will grow at a 0.5 percent pace, the smallest gain since 1991, according to the median estimate in a monthly Bloomberg survey.

Fed Forecasts

Fed policy makers last month trimmed their economic growth projections for this year by about 1 percentage point to 0.3 percent to 1.2 percent.

"A number of participants were of the view that financial headwinds would probably continue to restrain economic activity through much of next year,'' minutes of the Fed's April meeting showed last week.

Residential construction decreased at a 25.5 percent pace, less than previously estimated, though still the biggest drop since 1981.

Reports this month showed declines in home building will remain a drag on growth. Builders began work in April on the fewest single-family houses in 17 years.

The figures today also included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, increased 0.3 percent to an annual rate of $1.57 trillion.

Norges Bank Leaves Key Rate at Five-Year High of 5.5%

2008-05-28T23:46:00.002+08:00

Norway's central bank left its benchmark interest rate unchanged as a slowdown in economic growth tempered policy makers' concern that inflation is set to accelerate.

Norges Bank held the deposit rate at 5.5 percent, according to a statement on the bank's Web site, after lifting it by 2 percentage points since the beginning of 2007. Unchanged rates were forecast by all 18 economist surveyed by Bloomberg.

The economy grew at its slowest pace in more than four years in the first quarter as interest rates at a five-year high and a mounting labor shortage crimped demand and production. The central bank has signaled it may lift its benchmark rate by another quarter point this year to prevent rising wages from pushing the inflation rate above the 2.5 percent target.

"Eventually the need to fight inflation will take the upper hand versus the need to sustain growth,'' Davide Stroppa, an economist at UniCredit Markets & Investment Banking, wrote in a note. A statement by the central bank today is quite explicit in recognizing the need of further tightening on the back of higher than envisaged inflation.

The krone jumped as much as 0.3 percent to 7.8494 per euro, before trading at 7.8692 by 4:28 p.m. in Oslo. The yield of Norway's 6 percent note maturing May 2011 gained 3 basis points to 5.15 percent.

Further Increase

"Underlying inflation is now somewhat higher than 2.5 percent,'' Norges Bank Governor Svein Gjedrem said in the statement. "The increase in inflation and the prospects of higher inflation suggest a further increase in the key policy rate.''

Growth in the mainland economy, which excludes oil and shipping, waned to 0.2 percent in the first three months of 2008, slower than expected by economists, yet adjusted for tax distortions and electricity production, in line with the central bank's expectations, according to Gjedrem.

Higher funding costs in money markets are also aiding Norges Bank's attempts to slow growth and ease pressure in the labor market. The three-month Norwegian interbank rate touched a six- year high of 6.52 percent on May 19, which is spilling over to consumers as higher mortgage costs.

The economy expanded 6 percent last year, the fastest pace since 1971, while underlying inflation, excluding tax changes and electricity, quickened to a five-year high of 2.4 percent in April.

Exceptionally Demanding

"Rate setting will be exceptionally demanding in the months to come, with significant inflationary pressures weighed against slower growth,'' Svenska Handelsbanken AB chief Norwegian economist Knut Anton Mork wrote in a client note. Handelsbanken now forecasts two quarter point rate increases from Norges Bank this year, up from a previous forecast of one rate increase.

UniCredit SpA have also revised their forecast to predict a rate increase to 5.75 percent, with the June 25 meeting the preferred option, Stroppa said.

The central bank has forecast that rates will peak at 5.63 percent in the third quarter, indicating a 50 percent chance of a quarter point increase.

Citigroup and Nordesa Bank AB, Scandinavia's biggest bank, revised up their rate forecasts ahead of the meeting, to a peak of 5.75 percent and 6 percent respectively.

Norway's unemployment rate has held at a record low of 2.4 percent for four months running, pushing up wages as companies compete for workers. Supported by soaring oil prices, Norway's OBX stock index, dominated by petroleum companies, has recovered losses from the first quarter to touch a record on May 22.

"With an economy characterized by continued strong growth, albeit slowing, and accelerating domestic inflation risks, it is difficult to foresee changes in the picture large enough to prevent the bank from continuing tightening monetary policy,'' Tina Mortensen, an economist at Citigroup Inc., said in a client note.

German May Inflation Accelerates More Than Forecast

2008-05-28T23:46:00.001+08:00

Inflation in Germany, Europe's largest economy, accelerated more than economists forecast in May as the cost of oil surged.

Consumer prices rose 3 percent from a year earlier after increasing 2.6 percent in April, when measured using a harmonized European Union method, the Federal Statistics Office in Wiesbaden said today. Economists expected inflation to quicken to 2.9 percent, according to the median of 25 forecasts in a Bloomberg News survey. In the month, prices increased 0.6 percent.

A jump in crude-oil prices to a record $135.09 a barrel on May 22 is pushing up inflation in Germany and across the economy of the 15 euro nations, hurting consumers' purchasing power. The European Central Bank this month left its key interest rate at a six-year high of 4 percent to counter inflation pressures.

"Oil prices are really holding inflation hostage,'' said Nick Matthews, an economist at Barclays Capital in London. "Stronger German data will probably push this month's euro-area inflation back to March's record level of 3.6 percent. That will stay the ECB's hand.''

Adding to the ECB's inflation concerns, German import prices rose more than economists expected in April, gaining 0.9 percent from March, the statistics office said today. Economists forecast a 0.7 percent increase.

The price of heating oil rose as much as 13.3 percent and diesel was up to 8.7 percent more expensive in May from a month earlier, the statistics office said.

ECB's Limit

German inflation has exceeded the ECB's limit of just under 2 percent for more than a year as the euro's appreciation fails to offset higher oil and food costs. Germany's ECB council member, Axel Weber, has said the bank may need to raise interest rates to contain inflation.

The ECB shelved a planned increase in September after the U.S. housing slump caused money and credit markets to seize up.

Investors have increased bets that faster inflation will force the ECB to raise its key lending rate. EONIA swap contracts, a widely used market gauge of interest-rate expectations, rose as high as 4.25 percent yesterday from 3.99 percent two weeks ago.

Malaysia's Economy Grows 7.1% on Commodity Shipments

2008-05-28T23:43:00.000+08:00

Malaysia's economy expanded faster than expected in the first quarter as surging prices boosted palm oil and petroleum exports and higher salaries for civil servants spurred consumer spending.

Southeast Asia's third-largest economy grew 7.1 percent in the first three months from a year earlier, down from a 7.3 percent gain in the fourth quarter, the central bank said in Kuala Lumpur today. That was more than the median estimate of a 6.5 percent increase in a Bloomberg News survey of 17 economists.

Bank Negara Malaysia expects a modest easing in growth in the second half due to a slowdown in major economies. Public expenditure may slow as surging costs force Prime Minister Abdullah Ahmad Badawi's government to delay projects, while inflation may crimp consumer spending.

"The following quarters may see slower growth as exports and related sectors like manufacturing decelerate,'' said Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd. Delays in implementing infrastructure projects after the recent elections will also have an impact on construction, he added.

Abdullah's ruling coalition, which lost its two-thirds majority in parliament for the first time in 34 years in March 8 elections, may find it difficult to push through increases in pump fuel prices needed to cap government subsidy costs, said Lee Heng Guie, an economist at CIMB Investment Bank Bhd.

Fuel Subsidies

Bank Negara today also removed limits on the amount of funds that local companies and individuals can borrow in foreign currencies to provide greater access to finance and reduce the cost of doing business.

Malaysia will announce measures to revise fuel subsidies, which may balloon to 53 billion-ringgit ($16.4 billion) this year amid record crude prices, after a Cabinet meeting on May 30, Prime Minister Abdullah said today.

"Rising food and fuel subsidies together with accelerating building-material costs have warranted a critical review of fiscal spending priorities,'' Lee said. "Still, any price- sensitive policy changes are best pushed through when the economy is in a position of strength.''

Malaysia last month said it is reviewing many state projects because of rising costs, as surging global prices of steel, cement and other building materials threaten construction planned under Abdullah's 200 billion-ringgit ($62 billion) development budget for the five years to 2010.

Political Uncertainty

Abdullah also faces calls to step down from former Premier Mahathir Mohamad and some members of his own party amid claims by the opposition it can convince enough ruling coalition lawmakers to defect and form a new government by mid-September.

"Higher food costs and potential hikes in fuel prices could weigh on consumption, and business investment could weaken in the current political uncertainty,'' said Lee at CIMB. "With the still-tough external environment ahead, and cautious domestic sentiment post general elections, we expect the pace of growth to turn relatively weaker in the second half.''

Malaysia's $151 billion economy is still expected to grow between 5 percent and 6 percent this year, Governor Zeti Akhtar Aziz said today, maintaining the central bank's March forecast.

"Uncertainties in the global environment will remain,'' Zeti told reporters in Kuala Lumpur. "Still, the Malaysian economy is expected to remain resilient.''

Monetary Policy

Malaysia's monetary policy stance remains consistent with the outlook for inflation and economic growth, Zeti said. The central bank will assess its outlook for consumer prices in 2008 after the government's review of fuel subsidy costs, she added.

Construction grew 5.3 percent in the first quarter, after a 4.7 percent gain in the previous three months, according to today's report. Services climbed 8 percent, after a revised 9.3 percent increase in the fourth quarter.

Private consumption increased 11.8 percent, compared with a previous rise of 10.2 percent. Public consumption rose 10.5 percent, after a 4.2 percent gain earlier. Domestic demand expanded 10.1 percent, accelerating from 9.1 percent.

Exports of goods and services in the last quarter increased 6 percent, compared with 7.8 percent in the previous three months. Sales of palm oil, crude oil and liquefied natural gas gained, while electronics shipments declined.

Malaysia is a producer of Intel Corp. chips and Dell Inc. computers, and Southeast Asia's second-largest producer of oil, gas and palm oil.

Manufacturing grew 6.9 percent, compared to 5.6 percent in the last quarter of 2007.

Agriculture expanded 6.3 percent, from 4.7 percent in the fourth quarter. Mining grew 3.7 percent, up from 3.5 percent previously.

Vietnam inflation hits 25.2% in May

2008-05-28T23:41:00.000+08:00

Vietnam's annual inflation accelerated to 25.2 per cent this month from 21.4 per cent last month, its seventh consecutive double-digit reading and one of the highest in Asia.

The government's General Statistics Office estimated yesterday that the average inflation in the first five months of this year would rise to 19.1 per cent compared with the same period last year, from the 17.6 per cent in January-April.

Monthly inflation data are not fully available but the inflation rate this month could be the highest since 1991 when Vietnam reported its annual inflation at 67.5 per cent.

Imports have soared, pushing the trade deficit to an estimated US$14.4 billion in the first five months, more than three times higher than in the same period of last year, the government said on Monday.

The government has sought approval from the one-party National Assembly, or parliament, to cut the 2008 growth target to 7 per cent from between 8.5 per cent and 9 per cent previously.

The Asian Development Bank forecast Vietnam's growth slipping to 7 per cent from 8.3 per cent in 2007 and estimated inflation of 18.3 per cent for all of this year.

Hanoi estimated food prices this month jumped 67.8 per cent from last May. Food accounts for 42.8 per cent of the goods and services basket that Vietnam uses to calculate consumer inflation.

Rice prices, which have nearly tripled on the international market this year, have nearly doubled in Vietnam since last May.

Last week Prime Minister Nguyen Tan Dung told the central bank to adjust interest rates in line with market moves and urged a better management of the base rate used for deposits and lending to help control credit growth and overall inflation.

The reminder came after Vietnamese banks started raising interest rates as the central bank removed a 12 per cent ceiling on dong deposit rates and raised three other key rates to fight a surge in inflation.

Thai Economic Growth Accelerates on Consumer Spending

2008-05-26T21:19:00.000+08:00

Thailand's economic growth accelerated in the first quarter as the first elected government since a coup in 2006 took office, underpinning a rebound in consumer confidence and spending.

Gross domestic product in Southeast Asia's second-biggest economy expanded 6 percent in the three months to March 31 from a year earlier, the government said today in Bangkok. That was faster than the 5.7 percent in the fourth quarter.

Prime Minister Samak Sundaravej's government came to power in February, pledging to spur economic growth by spending on trains and buses traffic clogged Bangkok and on irrigation to boost farm production in rural areas. Templeton Asset Management Ltd.'s Mark Mobius said increased government spending this year will buoy Thailand's economy and boost stocks.

"We are starting to see accelerated investment and consumption,'' Ampon Kittiampon, secretary general of the government's National Economic and Social Development Board, said today. "The government's economic stimulus measures are taking effect.''

The quarterly expansion from last year matched the median estimate of 15 economists in a Bloomberg survey.

Consumption Climbs

Private consumption rose 2.6 percent from a year earlier, after gaining a revised 1.8 percent in the fourth quarter. Consumer confidence started rising in November from a five-year low amid anticipation that a democratically elected government would pursue policies more designed to promote growth than those of the military junta it replaced.

Total investment in the first quarter rose 5.4 percent from a year earlier, accelerating from 4 percent in the previous three months, today's report showed.

The baht gained about 7 percent against the dollar in the first three months of this year and Thailand's SET Index of stocks fell 4.8 percent.

"The new government has policies which are very positive toward businesses,'' Mobius, who oversees about $47 billion of emerging-market equities at Templeton in Singapore, said in an interview on May 24 in Bangkok.

GDP expanded 1.4 percent in the first quarter from the previous three months, when it grew a revised 1.7 percent, seasonally adjusted.

Manufacturing expanded 9.7 percent following a revised 8 percent pace in the previous three months. Private construction expanded 0.4 percent after contracting 8.5 percent in the fourth quarter.

Boosting Spending

Finance Minister Surapong Suebwonglee said May 20 that the government will increase spending to counter cooling economic growth as rising oil prices spur inflation and constrain consumer spending. Consumer prices gained 6.2 percent in April from a year earlier, the fastest pace since 2005.

"Higher fuel prices will increase inflation,'' said Mobius. "That in turn will dampen growth and consumption.''

The government plans to spend 1.84 trillion baht ($57 billion) in its fiscal year starting Oct. 1, a 12 percent increase from the forecast 1.64 trillion baht expenditure this year, it said on May 20. The spending will help the government meet its target of expanding the economy by 6 percent this year from 4.8 percent in 2007, Surapong said.

Surging Imports

Imports grew 34.5 percent in the first quarter, more than double the prior three months. Overseas purchases will surge 25.5 percent this year, compared with 9.6 percent in 2007 the central bank forecasts.

Exports, which make up 70 percent of the economy, slowed to 21 percent in the first quarter from 24 percent in the previous three months, according the Bank of Thailand. Still, soaring rice prices, which breached $1,000 a metric ton for the first time this month, helped buoy the value of shipments to a record in March.

"Thailand is a very vibrant exporter of agricultural commodities and manufacturing products,'' Mobius said at a Thai stock market conference in Bangkok on May 24. "This is another reason why we want to invest in Thailand.''

Spain April Producer Prices Accelerate on Higher Oil

2008-05-26T21:18:00.000+08:00

Producer prices in Spain accelerated more than economists expected in April to the fastest pace in 13 years as higher oil increased cost pressures for manufacturers.

The price of goods leaving Spain's factories, farms and mines rose 7.2 percent from the year earlier period after a 6.9 percent increase in March, the National Statistics Institute in Madrid said in an e-mailed statement today. That exceeded the 6.9 percent median forecast in a Bloomberg survey of four economists. Prices rose 0.8 percent on the month.

The price of crude has more than doubled in the past year and touched a record $135.09 a barrel in New York last week. Surging energy prices helped push euro-region consumer-price inflation to 3.3 percent in April, exceeding the European Central Bank's 2 percent ceiling for a eighth straight month.

"Energy prices saw the biggest increase,'' Jose Luis Martinez, a strategist at Citigroup Inc. in Madrid, said. "There is a sense of pessimism in looking at the economic data out of Spain.''

The price of gasoline leaving refineries in Spain increased 29 percent on the year while food prices were up 11 percent.

Spain's consumer price inflation, measured according to EU standards, rose 4.2 percent on the year in April.

Hungarian Central Bank Raises Benchmark Rate to 8.5%

2008-05-26T21:17:00.000+08:00

Hungary's central bank raised the benchmark interest rate for a third consecutive month to stop rising food and energy prices from accelerating inflation, which is already twice the bank's target.

The Magyar Nemzeti Bank in Budapest raised the two-week deposit rate by a quarter of a percentage point to 8.5 percent, the second-highest in the European Union after Romania. It matched the expectation of 16 of 21 economists in a Bloomberg poll. The bank said it is ``ready'' to lift rates more.

Hungarian consumer prices have been rising more than twice as fast as the central bank target for 19 months. The bank, in its quarterly update of its inflation forecast published today, raised predictions for price increases this year and next, which forced policy makers' hands, analysts said.

"Interest rates are close to the peak, if not at the peak,'' Anders Svendsen, an economist at Nordea Markets in Copenhagen, wrote in a note to clients. "In the absence of'' food or energy price ``shocks, we expect today's rate hike to be the last in this cycle.''

The forint strengthened to 244.09 per euro by 2:24 p.m. in Budapest from 244.35 late yesterday. The yield on the benchmark five-year bond rose to 8.86 percent from 8.80 percent.

Forecasts Raised

The inflation rate was 6.6 percent in April, compared with the central bank's 3 percent target. The bank raised its forecast for average inflation this year to 6.3 percent from 5.2 percent and for 2009 to 4.2 percent from 3.6 percent. It expects a 3 percent rate in 2010.

"Inflation is expected to remain above the long-term target on the 5-8 quarter horizon of monetary policy,'' the bank said in its inflation report.

Policy makers last month voted 7-4 to raise the benchmark rate to a three-year high of 8.25 percent, from 8 percent, and said they may lift it again as rising food and oil prices threaten to push up other costs.

Core inflation, which strips out some volatile food and energy prices and is one of the central bank's most closely watched figures, rose in April to an annual 5.6 percent from 5.3 percent in March.

Accelerating core inflation strengthens our previously held position of being ready to lift the benchmark rate to fight consumer prices in case they threaten the bank's targets, bank Vice President Julia Kiraly said on May 14.

Producer prices, an early indicator of inflation, also rose at a faster pace in March than the month before, rising to an annual 5.7 percent from 4.9 percent in February.

Malaysia Keeps Benchmark Interest Rate Unchanged

2008-05-26T21:15:00.001+08:00

Malaysia's central bank kept its benchmark interest rate unchanged for a 17th straight meeting, avoiding an inflation-fighting increase in borrowing costs that may further weaken economic growth.

Bank Negara Malaysia maintained its overnight policy rate at 3.5 percent, according to a statement in Kuala Lumpur today. The decision was expected by all 14 economists in a Bloomberg News survey.

"Going forward, the risks to inflation are on the upside, while the risks to growth are on the downside,'' the central bank said. "Should the balance of risks shift towards higher inflation, the bank will undertake the appropriate monetary policy measures. At this stage the risks are assessed to be about balanced.''

Asian central banks have become more inclined to raise interest rates as record food and fuel costs stoke inflation. Malaysia, seeking to sustain growth after the government's worst electoral performance in March, is favoring other measures to curb prices even as inflation reached a 14-month high in April.

"The decision to some extent is influenced by politically induced domestic and fiscal policy uncertainties,'' said Suhaimi Ilias, chief economist at Aseambankers Malaysia Bhd in Kuala Lumpur. "Hence the need for interest-rate policy to do its bit to sustain domestic activities amid external headwinds in terms of a sluggish U.S. economy.''

Southeast Asia's third-largest economy is expected to grow 5 percent to 6 percent in 2008, easing from 6.3 percent last year as global trade slows, Bank Negara said in March.

'Clearer Evidence'

"There is now clearer evidence of the slowing growth in the major economies,'' the bank said. "This moderation in growth is expected to be felt by the regional economies, including Malaysia, during the second half of the year.''

Still, strong domestic demand helped the Malaysian economy perform well in the first quarter, the central bank said. Shipments of commodities shored up net exports, countering declining electronics sales, it said.

"There are strong upside risks to global inflation due to sustained high food and energy prices,'' Bank Negara said today. "While such pressures are likely to ease should global growth moderate, in the more immediate term, domestic price pressures are likely to be sustained.''

The government is trying to rein in inflation by lifting spending on agriculture to boost food supply, extending some price controls and delaying government workers' retirement age to raise incomes, Suhaimi said.

Angry Voters

Prime Minister Abdullah Ahmad Badawi, whose ruling coalition lost its two-thirds majority in parliament in March 8 elections after higher living costs angered voters, this month eased import restrictions on steel and capped the price of more types of rice to contain inflation.

Governor Zeti Akhtar Aziz, who has kept the central bank's benchmark interest rate unchanged at 3.5 percent since April 2006, has said raising borrowing costs is ``not the answer'' to check inflation in an environment where prices are spurred by supply shortfalls.

Surging Prices

Surging food and fuel prices have hurt consumers in Asia, where about 600 million people survive on less than $1 a day, prompting Indonesia this month to unexpectedly raise interest rates for the first time in more than two years. The Bank of Thailand, which kept its interest rate unchanged on May 21, said it may raise borrowing costs if inflation accelerates.

Malaysia's consumer prices rose 3 percent from a year earlier in April. The central bank forecasts inflation may average as much as 3 percent this year, accelerating from 2 percent in 2007.

Malaysia's key interest rate is at the highest since its introduction in April 2004, after policy makers lifted it three times from November 2005 to April 2006 to curb inflation.

Saudi Arabia inflation rises 10.5% in April on rents, food

2008-05-26T21:14:00.000+08:00

Annual inflation in the world's top oil exporter Saudi Arabia rose to 10.5 per cent in April, its highest level in at least 27 years, fuelled mainly by rents and food prices.

Inflation is a challenge across the Gulf Arab region, where governments which peg their currencies to the ailing US dollar are raising wages and subsidies, bringing in price controls and tightening lending curbs to dampen the impact of price rises.

In Saudi Arabia, the cost of living index rose to 115.2 points in April from 104.3 points a year earlier, the economy and planning ministry's statistics unit said on Saturday.

The index however clocked its weakest monthly rise this year, adding 0.9 per cent from March. Annual inflation, as measured by the index, was 9.6 per cent in March.

'Inflation is not on an abating pattern despite a decline in money supply growth. It has more to do with rents and food than with money supply,' said John Sfakianakis, chief economist at SABB bank, HSBC's affiliate in Saudi Arabia.

April rents soared 20.4 per cent from a year ago, while food and beverages costs added 16 per cent, according to the data.

'Rents inflationary pressures are continuing to rise. It is an issue that has to be addressed in terms of both supply and demand for housing and commercial space and of the real estate speculation,' Mr Sfakianakis added.

Food prices account for about 26 per cent of the cost of living index while rents account for 18 per cent of the index.

Price rises are plaguing the world's biggest oil-exporting region, where economies are surging on a near sevenfold increase in oil prices during the last six years.

European Services, Manufacturing Growth Slowed in May

2008-05-23T22:08:00.002+08:00

Europe's service and manufacturing industries expanded at the slowest pace in five years in May after oil prices surged, the euro appreciated to a record and banks became more reluctant to lend.

A preliminary estimate of Royal Bank of Scotland Group Plc's composite index fell to 51.1 from April's 51.9, NTC Economics Ltd, which carries out the survey, reported today. Economists expected a decline to 51.5, according to the median of 16 forecasts in a Bloomberg News survey. A reading above 50 indicates expansion.

Oil reached a record $135.09 a barrel yesterday, raising costs for consumers and companies alike. Europeans are also having to cope with higher credit costs resulting from the U.S. housing slump and the euro's 17 percent appreciation against the dollar in the past year.

"All forward-looking indicators are very weak,'' said Sunil Kapadia, an economist at UBS Ltd. in London. "The economy will continue to deteriorate. Banks will continue to tighten credit. We expect real disposable income to shrink in 2008.''

The European Central Bank has refused to follow the U.S. Federal Reserve and Bank of England in paring interest rates after record food and energy prices drove inflation above 3 percent in the 15-nation euro region. The bank aims to keep inflation just below 2 percent.

"It would take a major sustained drop, or a major rise, in the index to shift the ECB away from its de facto neutral stance,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London.

Stock Markets

The ECB's stance has been partly responsible for benchmark stock indexes in Germany and France underperforming shares in the U.S. and U.K. in the past six months. Banks and consumer-related companies have led the declines.

Germany's DAX Index has lost 7.1 percent since Nov. 23, while France CAC 40 slid 8.9 percent. The U.K.'s FTSE 100 is only down 1.3 percent in the same period, while the Standard & Poor's 500 Index in the U.S. slipped 3.2 percent.

Today's decline was led by services. RBS's gauge of growth in services industries such as banking and telecommunications slumped to 50.6 from 52.0, matching a 4 1/2-year low reached in January. A measure of business expectations fell to 56.1 from 58.7, the lowest since November 2001.

In the U.K., first-quarter growth in services industries was revised down to 0.5 percent from an original estimate of 0.6 percent, the country's statistics office said today.

Banks, Airlines

Credit Agricole, the French bank hardest hit by the subprime crisis, said last week it plans to raise 5.9 billion euros ($9.3 billion) in a rights offer to replenish capital after first- quarter profit fell 66 percent. Deutsche Bank AG, Germany's biggest lender, reported its first quarterly loss in five years last month.

Air France-KLM Group, Europe's largest airline, yesterday posted its first quarterly loss since 2003 and said earnings this year will drop almost 30 percent as fuel prices soar and an economic slowdown dents demand for travel.

"The change in the economic context and a doubling of fuel prices will make the current year challenging,'' Air France Chief Financial Officer Philippe Calavia said.

RBS's index of manufacturing activity declined to 50.5, the lowest since August 2005, from April's 50.7. French consumer spending on manufactured goods unexpectedly fell for a second month in April as shoppers curbed purchases of cars and clothes, a report by France's statistics office showed today.

Credit Squeeze

The U.S. housing slump has driven up the cost of credit globally. The world's biggest financial companies have posted at least $383 billion in writedowns and credit losses since the start of last year after the subprime mortgage market collapsed.

The resulting economic slowdown has prompted the Fed to lower its benchmark rate 3.25 percentage points since September to 2 percent. The Bank of England has lowered rates three times since early December, taking its benchmark to 5 percent.

The rate cuts contributed to the euro's appreciation to records against the dollar and the pound.

Profit at Infineon Technologies AG, Europe's second-largest semiconductor maker, would be cut by 120 million euros if the dollar stayed at current levels against the euro in fiscal 2009, Chief Executive Officer Wolfgang Ziebart said last month.

ECB Bank Lending Survey

The impact of the financial turmoil on credit standards in the first quarter was especially strong for loans financing mergers and acquisitions and corporate restructuring, the ECB said on May 9, citing its quarterly bank lending survey.

The effect was more limited for loans financing fixed investment or inventories and working capital, the bank said.

Business confidence in Germany, Europe's biggest economy, increased as companies stepped up spending on machinery and construction, the Munich-based Ifo Institute said on May 21. The country's economy expanded 1.5 percent in the first quarter, the fastest pace in 12 years.

"I still expect the European economy to grow over the rest of the year, supported by the German economy, which is holding up well,'' said Natascha Gewaltig, a London-based economist at Action Economics.

German companies have improved efficiency and benefited from booming demand for their goods in emerging economies. Private- sector labor costs rose 1 percent last year, the smallest increase in the 27-member European Union. That has helped companies remain competitive even after the euro reached a record $1.60 last month and oil prices doubled in the past year.

Not all euro-region countries are faring as well as Germany. Growth in Spain slowed to 0.3 percent in the first quarter, the worst performance in almost 13 years.

Italy avoided the fourth recession in a decade, even as a slump in consumer spending clouds the outlook for the rest of the year. Europe's fourth-biggest economy expanded 0.4 percent after contracting the same amount in the fourth quarter, Rome-based statistics office Istat said today.

ECB President Jean-Claude Trichet has said economic growth in the second quarter will be less flattering than the 0.7 percent expansion achieved in the first three months.

U.K. Economy Grows the Least Since 2005 on Investment

2008-05-23T22:05:00.000+08:00

The U.K. economy grew at the slowest pace since 2005 in the first quarter after higher credit costs hurt construction and business services slowed.

Gross domestic product rose 0.4 percent in the three months through March, the Office for National Statistics said in London today. The result matched the agency's original estimate and the median forecast of 31 economists in a Bloomberg News survey. Business services including accountancy and advertising expanded at the weakest pace since 2003.

"Firms have cut back on investment sharply, and that's only natural when you have the biggest financial shock since the Great Depression,'' said Dominic White, an economist at ABN Amro Holding NV in London and a former U.K. Treasury official. "We're looking at a weak picture, and the odds of a negative second quarter are fairly high.''

The Bank of England is trying to steer an economy threatened by slowing growth and faster gains in consumer prices. While inflation jumped the most since 2002 last month, optimism among U.K. households fell to the lowest in more than 15 years and billionaire investor George Soros said this week the U.K. may fall into a recession.

The pound was little changed after the release and traded at $1.9812 at 12:08 p.m. in London. Against the euro, it traded at 79.45 pence.

Political Fortunes

Slowing growth will make it harder for Prime Minister Gordon Brown to revive the fortunes of his Labour Party, which yesterday lost a by-election in Crewe and Nantwich in northern England. That was the opposition Conservative Party's first such victory in more than quarter of a century.

"People are worried after 10 years standards of living rising, we have a problem with rising food prices,'' Brown told reporters today in London. "They want us to address these challenges and I believe that I can do so.''

Investment dropped 1.6 percent in the first quarter from the previous three month after economists in a Bloomberg survey forecast a gain of 0.2 percent. The business services and finance category grew 0.4 percent and consumer spending rose 1.3 percent on the quarter, the statistics office said.

GDP growth slowed from 0.6 percent in the fourth quarter, and expanded 2.5 percent from a year earlier.

Recession Risk

Today's report adds to evidence the slowdown in the economy is worsening and may spread to consumer spending in coming months. Bank of England Governor Mervyn King said last week that Britain may have an odd quarter or two of negative growth. Consumer confidence fell to the lowest in more than 15 years in April, GfK NOP Ltd said April 30, and unemployment rose for a third month.

"The central bank expects quite a significant slowdown,'' Bank of England policy maker Andrew Sentance said in a radio interview with a university radio station in Warwick, England.

British Land Co. Plc, the biggest developer in London, on May 20 reported its first annual loss in at least 20 years after writing down the value of office buildings and malls.

U.K. homebuilders will cut tens of thousands of jobs as the 19 billion-pound ($37 billion) industry grapples with the housing slump, Stewart Baseley, chairman of the Home Builders Federation, said in an interview this week.

"Business investment looks soft,'' said James Shugg, an economist at Westpac Banking Corp. in London. "Growth should be pretty sluggish for the rest of the year.''

Growth in services industries was revised down to 0.5 percent in the quarter from an original estimate of 0.6 percent.

Production

Overall industrial production, which includes oil and gas extraction and utilities, contracted 0.2 percent from the final three months of 2007, more than an April 25 estimate of 0.1 percent.

"The U.S. is slipping quickly into recession and I think this recession is on its way over the Atlantic,'' said former Financial Services Authority Chairman Howard Davies in an interview on May 21.

Exports were unchanged and imports fell 0.6 percent, the statistics office said.

The Bank of England has cut the benchmark interest rates three times since December to 5 percent to kick-start the economy. Still, the nine-member Monetary Policy committee voted 8-1 to keep rates unchanged this month as concerns about faster consumer-price increases outweigh those about economic growth, minutes from the May 8 meeting showed May 21.

Inflation accelerated to 3 percent in April from 2.5 percent the month before. King said May 14 that inflation may exceed the government's 3 percent ceiling for several quarters.

Italy Economy Grows, Dodges First-Quarter Recession

2008-05-23T22:04:00.000+08:00

Italy's economy grew in the first quarter, avoiding a fourth recession in a decade, even as a slump in consumer spending clouds the outlook for the rest of the year.

The $2 trillion economy, Europe's fourth-biggest, expanded 0.4 percent after contracting the same amount in the fourth quarter when consumer spending fell 0.2 percent, Rome-based statistics office Istat said today. The first-quarter expansion was twice the median forecast of 22 economists surveyed by Bloomberg.

Record oil prices and food costs have pushed the inflation rate to the highest in more than a decade, sapping confidence among consumers who are also facing increased borrowing costs. Newly-elected Prime Minister Silvio Berlusconi's first act after taking office this month was to pass tax cuts on property and overtime pay and offer to freeze mortgage payments for homeowners at risk of default.

"A relatively good figure for the first quarter doesn't mean the trend will be positive,'' said Paolo Pizzoli, senior economist at ING Bank NV in an interview with Bloomberg television today. He expects growth of 0.1 percent in the second and third quarters.

Finance Minister Giulio Tremonti said this week 2008 growth will be almost zero.

Germany, France

The economies of Italy's biggest trading partners, Germany and France, so far have appeared more resilient. Gross domestic product in Germany rose 1.5 percent from the fourth quarter, the fastest pace in 12 years. French GDP rose 0.6 percent, twice the rate of the fourth-quarter.

Still, there are signs that the stronger euro and the slowdown in the U.S. economy triggered by the collapse of the subprime mortgage market is beginning to weigh on growth in the second quarter. French consumer spending unexpectedly fell for a second month in April, a report by Insee, the Paris-based statistics office said today.

The price of crude has doubled in the past year, reaching a record $135.09 a barrel yesterday, and Italian drivers are now set to pay more than 1.5 euros a liter for gas, or more than $9 dollars a gallon. Companies are also feeling the pain. State- controlled airline Alitalia SpA had 215 million euros ($338 million) of pretax losses in the first quarter, more than 2 million euros a day, partly from the surge in fuel costs.

Italy's growth prospects are being further dimmed by the euro's gain against the dollar, which makes its exports more expensive in the U.S., its third-biggest market. The single currency has gained 6 percent in the past six months and trades for about $1.57. Italian exports plunged 1.3 percent in the fourth quarter, Istat said today.

Sales Decline

Bulgari SpA, the world's third-largest jeweler, reported this month first-quarter earnings that missed analysts' estimates. Exchange-rate fluctuations sliced about 4 percentage points off sales in the quarter, mainly because of the dollar, the company said.

"A euro that is overvalued against the dollar creates an unsustainable penalty for our exports,'' Emma Marcegaglia, president of Italy's employers lobby Confindustria, said in a speech yesterday in Rome. "The ECB shouldn't underestimate the slowdown.''

Berlusconi's return to power, and his implementation of the tax cuts and mortgage relief appear to have had an impact on consumer confidence. Optimism among Italians jumped in May to the highest level this year.

The new government on May 21 announced the elimination of the country's main property tax and a reduction in levies on overtime pay, in an effort to increase spending and productivity.

Italy slipped to 46th in the World Economic Forum's 2007-2008 competitiveness ranking, trailing Latvia and Bahrain. The country came last in terms of labor productivity -- a key measure of economic growth and competitiveness -- among the 30-member Organization for Economic Cooperation and Development. No other European country has been through three recessions in five years.

The International Monetary Fund in April cut its Italian growth forecast to 0.3 percent for this year and the next, which would make Italy the worst-performing economy among the Group of Seven nations and the 15 countries sharing the euro. Italy, will grow at half the pace of the U.S. and a fraction of the 1.2 percent growth rate for the euro region, the IMF said.

The Italian statistics office didn't provide a breakdown of the GDP figure in the preliminary estimate for the first-quarter. Istat will release its final report on Italian GDP on June 10.

Chile Posts Slowest First-Quarter Growth Since 2003

2008-05-23T22:02:00.000+08:00

Chile's gross domestic product expanded at the slowest pace since 2003 in the first quarter as mining output slumped and a drought cut hydroelectricity supplies.

Chile's economy expanded 3 percent in the first quarter from the year-earlier period, slower than a 4 percent rise in the previous quarter and less than the 3.2 percent median estimate in a Bloomberg survey of 20 economists.

The worst drought in 50 years in Chile lowered hydropower reserves as shortages of natural gas curtailed output by generators, resulting in a slowdown in economic activity and industrial production. Chile's President Michelle Bachelet this week promised to solve energy problems after the central bank cut its growth forecast for the year to as low as 4 percent.

"Economic activity is facing supply restrictions in sectors like manufacturing, mining and electricity generation because of gas shortages, bad weather and strikes,'' said Alfredo Coutino at Moody's Economy.com Inc. in West Chester, Pennsylvania. "Those things should be transitory, so we could see a rebound of economic activity in the second quarter.''

Mining output declined 2.7 percent because of labor disputes and lower yields from mines. Copper output fell 8.4 percent in March from a year earlier, the National Statistics Institute said. Chile is the world's biggest copper producer.

Output from the utility industry dropped 16 percent, the central bank said. Electricity generation fell 2.2 percent in March because of the drought and gas shortages.

Recent Rainfall

Energy Minister Marcelo Tokman today said recent rainfall will help replenish reservoirs, reducing the risk of power shortages. Shares of Santiago-based hydroelectricity generator Colbun SA rose 12 percent this week as dams filled.

"If this process continues, if we have more water, that's good news for the cost of energy,'' Finance Minister Andres Velasco said today. "As we've seen, if the energy sector is running better, the whole economy runs better.''

In central and southern Chile, where Codelco, Antofagasta Plc, Anglo American Plc and Freeport-McMoRan Copper & Gold Inc. have mines, between 45 percent and 70 percent of the electricity comes from water-driven turbines.

In an annual address to lawmakers, Bachelet said Chile will develop ethanol from woodlands, consider plans for solar power plants in the desert and encourage hydroelectric development. The government will increase spending on infrastructure such as roads, ports and dams by 60 percent this year, and set up a $6 billion fund abroad to finance overseas study for postgraduate students, she said.

Public Holidays

The economy grew 5.8 percent in the first three months, taking into account public holidays, and should accelerate in the second quarter, Velasco said today. Investment rose 15 percent in the first three months of the year, and foreign direct investment reached almost 10 percent of quarterly GDP, he said.

"For all the respect I have for Velasco, he'll find the bright spot in anything,'' said Luis Arcentales, a New York- based economist at Morgan Stanley.

U.S. Economy: Home Resales Decline, Inventories Jump

2008-05-23T10:10:00.001+08:00

Sales of previously owned homes in the U.S. fell in April and the supply of unsold properties reached a record, signaling no let-up in the 27-month housing slump.

Purchases declined 1 percent to an annual rate of 4.89 million, higher than forecast, the National Association of Realtors said today in Washington. The median price fell 8 percent from April last year, the second-biggest drop.

"There is no indication that things are improving,'' said Christopher Low, chief economist at FTN Financial in New York, who forecast sales would drop to a 4.9 million pace. "Inventories will stay out of balance at least until the end of 2009 and prices will keep falling.''

Defaults on subprime mortgages have prompted lenders to restrict credit, while falling property values have given buyers who are still able to get financing reason to delay purchases. The slide in home values may hurt consumer spending, which accounts for more than two-thirds of the economy.

Treasury securities, which had risen before the report, stayed higher. Benchmark 10-year note yields fell to 3.84 percent at 4:20 p.m. in New York, from 3.92 percent late yesterday. The Standard & Poor's 500 stock index slid 1.2 percent to 1,375.93.

Resales were forecast to fall 1.6 percent to a 4.85 million annual rate, according to the median forecast of 67 economists in a Bloomberg News survey.

Sales were down 18 percent compared with April 2007.

Glut of Homes

The number of previously owned unsold homes on the market at the end of April jumped to 4.55 million from 4.12 million in March. The total represented 11.2 months' supply at the current sales pace, the highest on record and up from 10 months at the end of the prior month.

The median price of an existing home fell to $202,300 from $219,900 in April 2007.

"We had an unrealistic run-up of prices and the faster they come back down to the real world the better,'' William Cheney, chief economist at John Hancock Financial Services in Boston, said in an interview with Bloomberg Television. "The faster prices come down, the quicker we can get back to an equilibrium where we actually have transactions.''

Property values may drop more than 30 percent from their peak in 2006, Robert Shiller, an economics professor at Yale University and co-creator of a housing-price index, said in an interview with the London-based Times last month.

Shiller Index

The S&P/Case-Shiller March home-price index covering 20 metropolitan regions is due May 27. Through February, the measure was down 15 percent from the record set in July 2006. Shiller was unavailable for comment today.

Existing home sales account for about 85 percent of the U.S. housing market while new home sales make up the rest. Monthly figures on resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier.

Purchases of new homes, which are recorded when a contract is signed, are considered a more timely barometer of the market. The Commerce Department's report is due next week.

Today's report showed resales of single-family homes dropped 0.5 percent to an annual rate of 4.34 million. Sales of condos and co-ops declined 5.2 percent to a 550,000 rate.

Purchases decreased in two of four regions, led by a 6 percent decline in the Midwest.

Fed View

Federal Reserve policy makers, who cut their 2008 growth estimate by almost 1 percentage point, said tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters, according to minutes of their April meeting released on May 21.

The economy will expand by 0.3 percent to 1.2 percent this year, policy makers estimated. Their efforts to support growth include 2.25 percentage points of reductions in the benchmark interest rate this year, the most in almost two decades.

Recent reports signal little relief for the housing market. The number of banks reporting tighter lending standards approached a record in April, a Fed survey showed. Builders broke ground on single-family homes last month at the slowest pace in 17 years, Commerce figures showed.

Residential construction, which has subtracted from economic growth since the first three months of 2006, will remain a drag through most of this year.

Less Credit

Restricted access to credit will continue to depress property values, eroding household wealth as home equity shrinks. The declines are likely to weaken consumer spending further.

Housing-related firms have faced the brunt of the economic slump. Home Depot Inc., the largest home-improvement retailer, this week said full-year earnings may be at the low end of its prior forecast. Rival Lowe's Cos. said 2008 sales won't meet its estimates. First-quarter profit plunged 66 percent at Home Depot and 18 percent at Lowe's as consumers cut back on remodeling.

"The housing and home-improvement markets remain very difficult,'' Home Depot Chief Executive Officer Frank Blake said on a May 20 conference call. "There will be more risks than opportunities through the remainder of the year.''

The worsening housing market signals that the Bush administration's efforts to contain the slump aren't working.

The U.S. Senate Banking Committee this week approved housing legislation to stem foreclosures by insuring as much as $300 billion in mortgages. The plan, yet to be approved by the full Senate, also would create a new regulator for Fannie Mae and Freddie Mac, the two largest U.S. mortgage-finance companies.

HDB revises flat application rules

2008-05-23T08:55:00.000+08:00

The Housing & Development Board (HDB) has revised the application process for its Build-to-Order (BTO) and Balloting Exercise (BE) modes of sale to address recent increases in non-selection of new HDB flats. The changes will take effect from the May 2008 BTO exercise.

Under the revision, first-timer applicants who reject two chances to select a flat will have their first-timer priorities removed for a one-year period in HDB's sales exercises.

This means that they will be treated like second-timer applicants, and will no longer be able to ballot for the 90% of publicly available flats which HDB safeguards for first-timers. They will also not be eligible for the Married Child Priority Scheme which gives them two additional tries.

Additional chances for repeatedly unsuccessful first-timers - that is those not invited to select a flat - will be limited to only BTO exercises in non-mature estates. No additional chance will be accorded if they participate in the BE or the Quarterly/Half-Yearly Sales Exercise, where the supply of flats is limited.

The additional chances will be accorded to first-timer applicants who had been unsuccessful twice (that is, starting from the third try), instead of the existing practice where additional chances are only given starting from the fifth try.

HDB said the above measures will encourage applicants to consider their options carefully before participating in an HDB sale exercise. The measures will also help to minimize non-selection of HDB flats by applicants who repeatedly participate in sales exercises and thus divert HDB's time and resources from those with urgent housing needs.

Recent launches of Build-to-Order flats have seen an overwhelming number of applications, especially those in mature estates, leading to speculation that there is a shortage of new flats. But HDB said, on the contrary, the bulk of applicants often do not end up making a purchase.

The recent Coral Spring project, for instance, saw about 30% of flats not taken up even after all applicants had been invited to book a flat.

HDB said in the last four Build-to-Order exercises, about 50 to 70 percent of applicants rejected their chance to book a flat, citing reasons like location and cost. However, HDB said such information was readily available to applicants when the projects were first announced.

It said it had considered other options - such as raising the administration fee and reverting to the old queue system. However, these measures are not necessarily effective deterrents, and in the case of the latter, may in fact lead to an over-supply.

Reactions to the changes were mixed, with most first-timers cheering the increased priority.

"For a first-time buyer, to get a flat is very important. For second-time buyers, maybe they already have a flat... but (for first-time buyers like us), we are just starting to build a family, so we should have more priority," said a flat applicant.

For those who have rejected the allocated flats, some said the HDB should consider such applicants on a case-by-case basis.

Eric Chong, a first-time flat buyer, said: "There must be a reason why people want to reject, because they might not like a second-floor flat, or other reasons. I must purchase the one that I like most, because it's a big investment."

The new rules kick in with HDB's latest BTO projects - Compassvale Pearl in Sengkang, and Punggol Sapphire. These will add another 1,485 new flats to the market.

Including upcoming projects in Punggol, Sengkang, Woodlands and Bukit Panjang, to be launched in the second half of this year, the total planned supply for 2008 is 8,000 flats. The number is more than the 6,000 in 2007 and 2,400 in 2006.

Singapore GDP Grows Less Than Initial Estimate; Inflation Rises

2008-05-23T08:51:00.002+08:00

Singapore's economy expanded less than initially estimated in the first quarter, adding to concerns growth may ease in the coming months as global demand weakens and inflation accelerates.

Gross domestic product increased an annualized 14.6 percent in the first three months of the year, less than the government's April 10 estimate of 16.9 percent, the trade ministry said in a statement today. The economy shrank 4.8 percent in the previous quarter.

Asian countries including Singapore are expecting growth to slow in the coming quarters as surging consumer prices hurt spending and demand for exports weaken. Malaysia and the Philippines, which will be releasing first-quarter economic numbers next week, are expected to report slowing expansion.

"In an environment where oil and food prices are at very high levels, the outlook is cloudy for Singapore and the rest of Asia as we head into the second half,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. "Inflation is a big worry and the top priority for most governments.''

Singapore's inflation rate is quickening at the fastest pace in 26 years, prompting the central bank's decision last month to allow the currency to strengthen further.

Consumer prices rose 7.5 percent in April from a year earlier, after gaining 6.7 percent in March, the government said today. It now expects 2008 inflation to average between 5 percent and 6 percent, from a previous forecast of range of 4.5 percent to 5.5 percent.

Malaysia, Philippines

Economists surveyed by Bloomberg News expect Malaysia's growth to have slowed to 6.4 percent in the first quarter from 7.3 percent in the previous three months. Philippine growth may have eased to 5.9 percent from 7.4 percent, a separate survey showed. Malaysia will release its first-quarter data on May 28, and the Philippines the next day.

Asia is almost twice as reliant on exports as the rest of the world, with 60 percent of shipments abroad ultimately destined for the U.S., Europe and Japan. The Japanese government yesterday cut its view on exports for the first time in three months and maintained its assessment that a recovery in the world's second-largest economy is pausing.

Some Asian governments and central banks are predicting growth will be at the lower end of their targets this year, or are cutting their forecasts even as they raise estimates for inflation.

Philippine growth may have slowed to as little as 5.2 percent in the first quarter as accelerating inflation dented consumer spending, Economic Planning Chief Augusto Santos said yesterday.

Oil Prices

Rising energy and food prices are also stoking inflationary pressures and crimping domestic consumption across the region. Oil has more than doubled in the past year, and prices of grains such as rice and wheat reached unprecedented levels in 2008.

From a year earlier, Singapore's economy expanded 6.7 percent in the first quarter after growing 5.4 percent in the previous three months, the government said.

The island's manufacturing industry grew 12.4 percent last quarter from a year earlier, accelerating from a 0.2 percent gain in the fourth quarter.

Pharmaceutical production by companies such as Merck & Co. rose almost 52 percent in the first quarter from a year earlier, government figures show, offsetting faltering electronics output.

'Remain Weak'

Singapore's electronics exports have declined for 15 consecutive months and the island's central bank in April said it expects the industry to remain weak. Electronics account for about 30 percent of Singapore's manufacturing and drugs make up around 22 percent.

Singapore's trade promotion body today lowered its forecast for export growth this year to between 2 percent and 4 percent, from an earlier range of 4 percent to 6 percent. Overseas shipments rose 0.6 percent last quarter.

Services climbed 7.5 percent in the first quarter from a year earlier, while the construction industry grew 14.7 percent, according to today's report.

City Developments Ltd., Singapore's second-largest real estate company, this month said it will delay sales of new residential projects. Confidence among prospective home buyers has been eroded by the subprime-mortgage crisis in the U.S. and the contraction in global credit markets, the company said.

Singapore home sales totaled 787 units in the first quarter, about half of the 1,449 sold in the previous three months, according to the city state's Urban Redevelopment Authority. Prices rose 3.7 percent, the smallest gain in a year.

U.S. Producer Prices, Minus Food, Energy, Rise 0.4%

2008-05-20T21:37:00.001+08:00

Prices paid to U.S. producers, excluding food and fuel, rose more than forecast in April, reflecting increases in automobile and furniture costs.

The 0.4 percent gain in so-called core prices was twice as big as anticipated and followed a 0.2 percent increase in March, the Labor Department said today in Washington. A drop in energy costs and unchanged food expenses held the total price measure to a 0.2 percent gain.

Soaring raw material costs may force companies to raise prices to protect profits. The increases may heighten concern among Federal Reserve policy makers that prior increases in food and energy costs will filter through to inflation even as growth slows.

"Businesses have considerable pipeline cost pressures,'' said Aaron Smith, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. While companies may find it tough to pass the costs on to consumers given the economic slowdown, today's figures are a reminder that inflation pressures reside even as we have slower growth,'' he said.

Treasury securities rallied, with benchmark 10-year notes yielding 3.80 percent at 8:53 a.m. in New York, down from 3.83 percent late yesterday.

Economists' Forecasts

Economists forecast producer prices would rise 0.4 percent, according to the median of 70 projections in a Bloomberg News survey. Estimates ranged from no change to a 1 percent gain. Excluding food and energy costs, producer prices were expected to rise 0.2 percent, according to the Bloomberg survey.

Factories, farmers and other producers were paid 6.5 percent more in April than a year earlier. That compares with a 6.9 percent gain for the 12 months ended in March.

The core index was up 3 percent in April from a year earlier, the biggest gain since December 1991.

Rising costs for metals, chemicals and fuel propelled the increases in raw materials, the report showed. The price of steel-mill products jumped 5.5 percent in April and agricultural chemicals surged 5.6 percent. Further down the pipeline, prices for scrap steel and iron soared 32 percent, the most since July 2004, and scrap copper costs jumped 5.3 percent.

So far this year, wholesale costs are up 8.5 percent at an annual pace compared with 8.4 percent for the same time last year. The core rate has increased at a 5.2 percent annual pace, compared with 2.1 percent in the first four months of 2007.

Food, Fuel

Food prices were unchanged and fuel costs dropped 0.2 percent, the first decline this year.

The increases in fuel costs last month were less than the gains recorded for April of prior years and may have lead to the government reporting that energy costs were lower on a seasonally adjusted basis.

Crude oil and other energy products prices have continued to rise this month and may elevate inflation figures in coming months. The price of a barrel of crude on the New York Mercantile Exchange closed at a record $127.05 a barrel yesterday.

The cost of passenger cars climbed 0.4 percent, light trucks were up 1.3 percent and commercial furniture jumped 1.8 percent, the most since February 1981.

Costs of intermediate goods, those used in earlier stages of production, increased 0.9 percent, after a 2.3 percent gain the prior month. They rose 11 percent from a year ago.

Excluding food and energy, intermediate prices increased 1.2 percent. Prices for raw materials, or so-called crude goods, increased 3.2 percent.

Impact on Deere

Deere & Co., the world's largest maker of tractors and combines, is among companies being constrained by rising costs. The Moline, Illinois-based company said last week that profit this quarter will fall short of analysts' estimates as U.S. construction slows and material prices jump.

Materials, which represent as much as 20 percent of Deere's costs, and freight expenses will rise as much as $500 million this year, twice as much as the company's earlier forecast. It spent $60 million more than in the year-earlier quarter.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The government said last week that prices of imported goods jumped 1.8 percent in April, pushed up by higher energy and metals costs.

The consumer price index, the government's broadest measure of inflation, increased a less-than-forecast 0.2 percent last month, as cheaper costs for cars and hotel rooms offset the biggest jump in food in 18 years.

Rate Expectations

Concern over inflation has led investors to project Fed policy makers will keep the benchmark interest rate unchanged at 2 percent at least through September. It would be the first pause since the central bank started cutting rates in September.

While uncertainty is high, inflation is likely to moderate as the economic slowdown continues, policy makers said last month in announcing a reduction in the benchmark rate. Even so, some officials are expressing greater concern.

Other companies have said they are likely to pass on price increases to customers. Dr. Pepper Snapple Group Inc., a beverage maker, may raise prices this year to counter higher transportation and ingredient costs, Chief Executive Officer Larry Young said May 7.

"We took pricing last year, we'll be looking at probably taking some pricing again this year,'' Young said in a Bloomberg television interview. The company is working on 23 cost-cutting projects, he said.

BOJ Keeps Key Rate at 0.5% on Slowing Growth Outlook

2008-05-20T21:35:00.001+08:00

The Bank of Japan kept interest rates on hold at the first meeting after slashing its growth estimate and shelving a two-year policy of seeking higher borrowing costs.

Governor Masaaki Shirakawa and his six colleagues unanimously voted to leave the overnight lending rate at 0.5 percent in the quickest decision in three years, the central bank said in Tokyo. The rate is the lowest among major economies.

Shirakawa said the world's second-largest economy is clearly slowing and the central bank will implement policy in a flexible manner. Board members are focusing on the risk that record oil and raw-materials costs will cause companies and consumers to pare spending, he told reporters.

"Shirakawa's comments suggest the BOJ probably won't be able to either raise or cut rates for a while,'' said Koji Shimamoto, chief strategist at BNP Paribas in Tokyo. "Global central bankers, including the BOJ, are concerned about slower growth at the same time of inflation risk.''

The yield on Japan's 10-year bond fell 1.5 basis points to 1.645 percent as of 6:03 p.m. in Tokyo. Today's meeting ended at noon, the earliest conclusion since Feb. 17, 2005.

"Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices,'' the central bank said, keeping its assessment of the economy unchanged even after a report last week showed gross domestic product expanded 3.3 percent last quarter, the fastest pace in a year.

Exports, Production

Exports rose at the slowest pace in almost three years in March. Production fell the most in at least five years. Machine orders, an indicator of business investment in the next three to six months, also declined, and are forecast to drop this quarter.

Costlier oil and raw materials are squeezing profits and eroding household incomes. Japanese companies' pretax profits will decline 5 percent in the year ending March 2009, ending a seven-year streak of growth, Shinko Research Institute data showed this week.

"Corporate profits have been leveling off, albeit at a high level, and the pace of increase in fixed investment has become slower,'' the bank said.

The Bank of Japan dropped a call for gradual rate increases in its twice-yearly outlook on April 30 and cut its estimate for this fiscal year's expansion to 1.5 percent from 2.1 percent. It said consumer prices excluding fresh food will climb 1.1 percent, raising its inflation projection from 0.4 percent.

Finance Minister Fukushiro Nukaga said today that rising oil and food prices are making monetary and macroeconomic policies more difficult.

Global Inflation Risks

The risk of quicker inflation is rising globally as crude oil prices soar, Shirakawa said. Australia's central bank said it spent considerable time discussing the case for a rate increase this month, minutes today showed, as costs of fuel and food drove consumer-price gains to a 17-year high.

Shirakawa said the Bank of Japan needs to watch how consumers' rising inflation expectations affect the way companies set prices. Core consumer prices rose 1.2 percent in March from a year earlier, the fastest pace in a decade.

Some 86.2 percent of households predict prices will rise a year from now, the second-highest proportion on record, a government report showed last week.

"Bank of Japan policy makers are talking about two risks. One is higher inflation,'' said Takashi Omori, chief economist at UBS AG in Tokyo. "The other is the risk of a recession because of higher energy and food prices.''

The detailed version of the outlook report on May 1 said Japan will avoid a recession because of relatively high growth in overseas economies, low rates, and companies having already trimmed inventories, production capacity and workers.

No Change This Year

Only two of 31 economists who gave predictions through December said the bank will raise rates this year. The remaining 29 expect no change.

Before dropping language in April that said the bank would pursue higher interest rates, policy makers had for two years repeated that borrowing costs need to rise gradually as long as the economy keeps growing and prices remain stable. The report retained a warning that keeping rates low could cause excessive investment and hamper growth in the long run.

"Policy makers are currently paying more attention to the downside risks,'' said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. "We expect a 25-basis point hike in the third quarter of 2009 at the earliest.''

NODX surprises with 5.4% gain

2008-05-17T18:10:00.000+08:00

NON-electronic shipments came to the rescue, lifting non-oil domestic exports (NODX) to a surprising 5.4 per cent year-on-year gain in April, against market expectations of a 0.5 per cent dip.

Led by higher domestic exports of petrochemicals, pumps, metal manufactures and parts for tractors and motor vehicles, domestic shipments of non-electronic products bounced back from a 4.3 per cent drop to register a 9.8 per cent gain.

Exports of pharmaceutical items continued to fall last month, though not so sharply - they were down 11.7 per cent after tumbling 34.1 per cent in March, according to the latest figures released yesterday by the Government's trade promotion arm, International Enterprise Singapore.

Left to electronic exports alone, NODX, which declined 5.9 per cent in March, would have continued to head south in April.

Electronic shipments, which have been on the descent since February 2007, slipped 0.4 per cent last month.

'The contraction of electronic domestic exports was due mainly to lower domestic exports of telecommunications equipment, consumer electronics and bare PCB,' IE Singapore said.

Month on month, NODX also staged a recovery in April to post a seasonally-adjusted 1.6 per cent increase, against market expectations of a 0.5 per cent slide and after a 2.6 per cent drop in March.

But the prospects for NODX look less sunny than in March, when non-oil retained imports of intermediate goods (NORI) - a leading indicator - jumped 5.7 pert cent year on year. NORI rose just 1.9 per cent last month.

Month on month, NORI fell a seasonally-adjusted 6.6 per cent, following a 1.9 per cent rise in March.

Total trade continued to rise, up 21 per cent to $82 billion after putting on an 11 per cent gain in the previous month.

While domestic exports to Thailand and the US fell, shipments to the rest of Singapore's top 10 markets rose in April.

'The largest contributors to NODX growth were the European Union, China and Indonesia,' IE Singapore said.

Thanks to gains in electronic and non-electronic shipments, domestic exports to the EU jumped 27 per cent year on year, recovering from a 24 per cent drop in March.

Domestic electronics shipments to the EU, falling since December 2006, increased 8.7 per cent. Non-electronic exports to the EU - Singapore's biggest market - expanded 22 per cent, against 32 per cent in March.

Domestic exports to China swelled 19 per cent last month, springing back from a 6.3 per cent fall in March. Domestic shipments to Indonesia rose 20 per cent, following a 1.4 per cent dip the previous month.

Domestic exports to the US dropped 17 per cent in April, after falling 28 per cent in March. Shipments to Thailand also continued to fall, by 6.5 per cent. They declined 5.9 per cent the previous month.

European Exports Drop as Euro Erodes Competitiveness

2008-05-16T23:14:00.001+08:00

European exports declined in March as the euro's advance to a record against the dollar made the region's products less competitive abroad.

Euro-area exports fell 2.9 percent from February, when they gained 0.6 percent, the European Union's statistics office in Luxembourg said today using seasonally adjusted data. Imports were unchanged in March, giving the euro region a trade deficit of 2.4 billion euros ($3.7 billion) compared with a 1.6 billion- euro surplus the month before.

The euro's 15 percent gain against the dollar in the past year is making products from the 15 nations that use the currency less competitive. Exporters may rely more on shipments to emerging markets as the U.S. economy weakens.

"There's some slowdown in demand from the U.S., but demand from Asia is still solid,'' said Mitul Kotecha, head of foreign- exchange research at Calyon in London. "The stronger euro will become a growing burden for Europe, and that will imply slower growth for Europe as a whole.''

Rhodia SA, France's biggest specialty-chemicals maker, said May 7 that first-quarter profit fell 29 percent, hurt by the advance of the euro and increasing raw-materials costs. Chairman Jean-Pierre Clamadieu said currency effects may cut full-year earnings by 100 million euros.

While the euro has fallen 3 percent against the dollar after reaching a record $1.6019 on April 22, the European currency still is more than 6 percent higher since the start of the year. The euro traded at $1.5501 at 11:45 a.m. in Brussels, up 0.3 percent on the day.

Significant Retreat

'The significant retreat March exports reinforces belief that euro-zone exports are now being hit increasingly by the very strong euro and significantly softer domestic demand in key foreign markets,'' Howard Archer, chief European and U.K economist at Global Insight in London, said in a note to clients. "Even previously very resilient German exports and foreign orders appear to be faltering now.''

Shipments from Germany, Europe's largest economy, declined 1 percent in March, while those from France fell 2.8 percent, according to today's report.

Exports to the U.S., which dropped in 2007 for the first time in four years, increased 1 percent in the first two months of this year, while shipments to the U.K., the euro area's biggest market, advanced 5 percent, today's release showed.

The detailed data on trading partners, which are published with a one-month lag, also showed that exports to China jumped 21 percent in the January-February period, while those to Poland increased 24 percent and shipments to Russia rose 28 percent.

Mexico Bank Holds Rate, Signals Concern on Inflation

2008-05-16T22:11:00.001+08:00

Mexico's central bank kept its benchmark interest rate unchanged for a seventh month and added language to its policy statement that indicates heightened unease about the outlook for inflation.

"Inflation pressures will rise considerably, a growing reason for concern,'' the bank said in a statement today announcing the decision to keep rates at 7.5 percent.

The comments indicate that rising consumer prices will prevent the bank from lowering the benchmark rate and may force an increase later this year, said Gray Newman, chief Latin America economist at Morgan Stanley in New York.

"While I still don't think Banxico wants to raise rates, they seem to be preparing the market that the risks to a hike are growing,'' Newman said.

The decision by Banco de Mexico's five-member board to keep the rate steady matched the forecast of all 21 economists surveyed by Bloomberg.

Mexico's annual inflation accelerated the most in almost three years last month to 4.55 percent, led by costs for housing and foods such as tomatoes and chicken. In April, the bank raised its 2008 inflation forecast, saying prices will climb 4.5 percent to 5 percent on an annual basis in the second and third quarters, and as much as 4.75 percent in the fourth quarter.

The bank targets inflation of no more than 4 percent.

Peso Record

Mexico's peso strengthened to its highest in almost five years on speculation central bankers will raise interest rates later this year to stem inflation.

The peso advanced 0.5 percent to 10.3969 per dollar at 4:47 p.m. New York time. Earlier the currency touched 10.3912, the strongest since July 2003.

Rafael Camarena, an economist in Mexico City at Banco Santander SA, the biggest trader of peso-denominated bonds, estimates central bankers will increase the key rate to 7.75 percent at their June 20 meeting. Policy makers last raised borrowing costs, by a quarter-percentage-point, in October.

The risk of contagion from the U.S. economic downturn has also increased, the bank said in its statement today. Banco de Mexico last month cut its economic growth outlook for this year to no more than 2.9 percent. The central bank expects first- quarter growth was 3 percent.

Alfredo Thorne, head of Latin America research for JPMorgan Chase & Co. in Mexico City, said the bank's statement today was balanced and didn't give a clear signal as to monetary policy in the coming months.

"I don't think they want to push the market into the dovish camp,'' Thorne said. "They would like the market to come to a midpoint.''

Slump in U.S.

Mexico is less affected by a slumping U.S. economy than it was during the U.S. recession of 2001 because of growing exports to other countries, greater domestic consumption and increased investment and public spending, Deputy Finance Minister Alejandro Werner said May 8.

The bank's board may believe increasing rates won't significantly affect inflation because consumer prices are mostly rising due to global food and energy costs, said Rodolfo Navarrete, head of research at brokerage Vector Casa de Bolsa in Mexico City.

"It looks to me like there's no agreement within the Banco de Mexico on which direction to take,'' Navarrete said. "Some are probably saying it's time to act now. Others are advising to wait.''

The median forecast of 25 economists polled by Citigroup Inc.'s Banamex unit in Mexico City on May 6 was for the central bank to not change its benchmark rate until 2009.

Japan's GDP Grew More-Than-Estimated 3.3% on Exports

2008-05-16T08:26:00.001+08:00

Japan's economy grew faster than economists estimated last quarter as exports to Asia and emerging markets helped the nation weather the U.S. slowdown.

Gross domestic product expanded an annualized 3.3 percent in the three months ended March 31, better than the 2.5 percent median estimate of 32 economists surveyed by Bloomberg News, the Cabinet office said today in Tokyo. Japan's fourth-quarter GDP growth was revised to 2.6 percent from 3.5 percent.

A surge in shipments to emerging markets kept last quarter's growth above the average 2.1 percent of the past five years, even as exports to the U.S. fell for the quarter. Demand from commodity-producing countries also helped Japan grow quicker than the U.S.'s 0.6 percent expansion in the same period.

"A lot of the forward-looking indicators suggest that growth is going to slow sharply over the remainder of the year,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. "Even if that's right, growth for the year as a whole will be still pretty good.''

The yen traded at 104.74 against the dollar at 9:13 a.m. in Tokyo, from 104.87 before the report.

From the fourth quarter, the economy grew 0.8 percent. In nominal terms, which don't take into account price changes, Japan expanded at half that pace. The GDP deflator, used to measure the effect of prices on growth, fell 1.4 percent, reflecting higher import costs.

Imported Inflation

"Imported inflation is squeezing domestic profit margins and wages,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. "What that means is, the country is suffering a real loss in purchasing power.''

Net exports -- the difference between exports and imports -- accounted for most of Japan's growth, contributing 0.5 percentage point to the quarterly increase. Shipments overseas rose 4.5 percent and imports climbed 2 percent.

Domestic demand added 0.3 percentage point to the expansion last quarter, led by household spending and construction. Economists expected a 0.2 percentage point contribution. A 0.9 percent decline in business investment limited the gains.

Residential investment rose 4.6 percent from the previous three months, more than the 3.4 percent expected by economists. Housing starts are recovering after plunging since June because of a permit logjam caused by government regulations designed to stop building fraud.

Consumer Spending

Although consumer spending in the first quarter grew a more-than-expected 0.8 percent from the previous three months, higher prices and wage stagnation have made households the most pessimistic in five years. Economists said consumer spending would rise 0.6 percent.

The price of everyday goods rose at more than twice the pace of wages in March. Japanese workers are likely to see summer bonuses increase by the smallest amount since 2002, the Nikkei newspaper reported this week.

"Real income is declining'' and households may tighten their purse strings, said HSBC's Shiraishi. ``Inflation in prices of necessities has a negative impact on psychology.''

Economists expect demand from resource-rich countries will keep the economy from stalling in coming quarters. Goldman Sachs and Morgan Stanley last month dropped predictions the world's second-largest economy would slip into a recession, ending the nation's longest postwar expansion.

Exports to Asia, Europe

"Even if the U.S. goes into recession, demand from Europe and Asia should hold up reasonably well,'' said Capital Economics' Jessop. "Growth will do fine this year.''

Still, companies including Toyota Motor Corp. expect conditions to worsen as falling U.S. sales, higher commodity prices and a stronger yen erode earnings. Companies plan to pare orders of machinery, a key indicator of future capital outlays, by 10.3 percent this quarter.

"The negative effect of the U.S. slowdown is going to hit after a time lag,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. "Both households and the corporate sector could be in pretty bad shape, at least through summer.''

The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates in its twice-yearly outlook. Central bank Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5 percent, the lowest among major economies, at the end of the next policy meeting on May 20.

Spending Cuts

Toyota last week forecast its first profit decline in seven years and said it would cut spending on research and development. The automaker's U.S. sales fell for four consecutive months to March and soaring steel and energy costs, along with the yen's 6.5 percent gain against the dollar this year, have made each sale less profitable.

Toyota, Japan's largest company, isn't the only one facing a profit squeeze. Goldman Sachs Group Inc. says annual earnings at Japanese companies will fall for the first time in seven years. That could stifle investment and hiring.

The higher cost of imports probably means that the real GDP growth rate overstates the strength of the economy. Today's numbers may have also exaggerated growth because some components don't adjust for the extra day in February from the leap year, Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo, said before the report was released.

German Economic Growth Quickened in First Quarter

2008-05-15T20:15:00.001+08:00

Economic growth in Germany, Europe's largest economy, accelerated to the fastest pace in 12 years in the first quarter as companies stepped up spending on machinery and construction.

Gross domestic product rose 1.5 percent from the fourth quarter, when it increased 0.3 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast 0.7 percent expansion, according to the median of 33 estimates in a Bloomberg News survey.

Germany's resilience is giving the European Central Bank room to leave interest rates at a six-year high to fight inflation. By contrast, the U.S. Federal Reserve has cut rates seven times to stave off a possible recession. Evidence suggests German growth was boosted by a milder-than-usual winter and has since slowed. Higher credit costs, faster inflation and a stronger euro are eroding consumer spending and export competitiveness.

"The surprisingly strong performance was almost entirely driven by the absence of a winter and masks a much weaker trend,'' said Holger Schmieding, chief European economist at Bank of America Corp. in London. "From now on, German growth will stagnate.''

The euro rose half a cent after the report to $1.5535 at 9:35 a.m. in Frankfurt.

Consumer Spending

The statistics office said investment was the main driver of first-quarter growth and consumer spending also contributed. While exports aided annual growth, they didn't contribute to expansion in the quarter.

In the year, the economy grew 2.6 percent when adjusted for the number of working days, the office said. It is due to publish a detailed breakdown of the data on May 27.

The European Union's statistics office in Luxembourg will publish first-quarter growth figures for the euro area at 11 a.m. today. Economists expected 0.5 percent expansion before today's national figures were released, according to the median estimate in a Bloomberg survey.

Julian Callow, chief European economist at Barclays Capital in London, said he now expects 0.7 percent first-quarter growth in the euro area after the surprisingly strong German numbers.

French first-quarter GDP growth, at 0.6 percent, also exceeded forecasts, while the Austrian economy expanded 0.8 percent. In Spain, growth slowed to 0.3 percent from 0.8 percent and in the Netherlands to 0.2 percent from 1.2 percent.

Exceptionally Mild

UniCredit Markets & Investment Banking today raised its forecast for German growth this year to 2.5 percent from 1.9 percent, citing the stronger-than-expected expansion in the first quarter. The economy grew 2.5 percent last year.

This year's winter was exceptionally mild and sunny, with temperatures 2.7 degrees Celsius above the long-term average, making it the sixth warmest since 1901, according to the German weather service.

Hochtief AG, Germany's largest construction company, said today that first-quarter profit more than tripled. While it expects higher sales in 2008, full-year pretax profit will be flat as the euro's appreciation hampers orders, the company said.

The currency hit a record $1.6019 on April 22 and is 14 percent higher than it was a year ago.

Export growth may also slow as global demand wanes after the collapse of the U.S. subprime mortgage market, which has triggered about $335 billion in losses and writedowns so far and pushed up credit costs.

German exports and manufacturing orders both fell in March and business confidence declined for the first time in four months in April.

Soaring Prices

At the same time, rising oil and commodity prices have stoked inflation. Consumer prices rose 2.6 percent in April from a year earlier after gaining 3.3 percent in March, the statistics office said in a separate report today.

"Inflation will be the big brake on growth from now on as it damps consumer demand, both domestically and in Germany's main export markets,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt.

German growth will slow to 1.4 percent in 2009, less than the economy's long-term average growth rate of 1.5 percent, the country's government-sponsored research institutes said April 17.

The ECB may start cutting borrowing costs in September to shore up the euro-region economy, a Bloomberg survey of economists shows.

French GDP Growth Accelerates More Than Expected

2008-05-15T20:14:00.000+08:00

France's economic growth accelerated more than economists forecast in the first quarter as stronger exports more than offset weaker consumer spending.

Gross domestic product in the euro region's second-largest economy expanded 0.6 percent from the previous quarter, when it grew 0.3 percent, national statistics office Insee said today in Paris. Economists expected growth of 0.4 percent, according to the median of 15 estimates in a Bloomberg News survey.

Europe's economy has shown resilience in the face of a U.S. housing recession that pushed up borrowing costs globally. German growth also accelerated to the fastest pace in 12 years in the first quarter. Growth may ease as the euro's 14 percent gain against the dollar in the past year takes a toll on exports just as companies face oil costs close to $125 a barrel.

"For now the international crisis hasn't weighed on French growth,'' said Mathilde Lemoine, chief economist at HSBC France. "But trade and corporate investment are set to slow down, because global demand is getting less dynamic.''

The U.S.-led slowdown prompted the French government to reduce in March its GDP growth forecast for 2008 to 1.7 percent to 1.9 percent, compared with a prediction of ``close to'' 2 percent.

Bonds fell after the French and German reports, with the yield on the 4 percent bond due April 2018 gaining 3 basis points to 4.39 percent. The euro rose 0.3 percent to $1.5526 at 10:00 a.m. in Paris.

Exports Gain

In the quarter, exports rose 3.1 percent, after slipping 0.2 percent in the last three months of 2007. Imports climbed 1.9 percent, meaning that net trade added 0.3 percentage point to GDP growth in the period, Insee said.

Schneider Electric SA, the world's biggest maker of circuit breakers, said last month that emerging-market expansion helped first-quarter revenue gain 11 percent.

"Our performance is fueled by our two engines for growth: broad exposure in emerging countries and unique positioning in energy efficiency,'' Chief Executive Officer Jean-Pascal Tricoire said in the April 21 statement.

Consumer spending growth slowed to 0.1 percent from 0.6 percent in the fourth quarter. Stocks were unchanged after a drop the preceding quarter. Corporate investment climbed 1.8 percent, after 1.2 percent in the last quarter.

Still, growth is already showing signs of a slowdown as the inflation rate hovers near a 12-year high. French retail sales fell in April by the most in more than two years and consumer confidence reached a record low that month. Exports slumped in March, when industrial production slipped.

"The quarter's rebound was mainly due to overproduction, which is going to get corrected,'' said Sylvain Broyer, an economist with Natixis in Frankfurt. "We should expect a slowdown and growth around 1.5 percent to 1.8 percent.''

Swelling Deficit

Fourth-quarter growth was revised lower from the previous estimate of 0.4 percent. From a year earlier, the economy expanded by 2.2 percent in the first quarter, Insee said.

Separately, the institute said the economy grew 2.2 percent in 2007, the same pace as 2006, as corporate investment rose and households gained purchasing power and increased their savings. Adjusted for working days, GDP expanded 2.1 percent in 2007, down from 2.4 percent in 2006.

Hurt by deteriorating finances of local governments, the country's total public deficit swelled by 7.7 billion euros to 50.3 billion euros, representing 2.7 percent of GDP in 2007 from 2.4 percent in 2006. Public debt amounted to 1.21 trillion euros at the end of last year, amounting to 63.9 percent of GDP, up from 63.6 percent at the end of 2006.

Public spending amounted to 52.4 percent of GDP in 2007, down from 52.7 percent the previous year. The tax burden fell to 43.3 percent of GDP in 2007 from 43.9 percent in 2006.

Indonesia's GDP Growth Exceeds 6% for Sixth Quarter

2008-05-15T20:12:00.001+08:00

Indonesia's economy grew more than 6 percent for a sixth quarter as the lowest borrowing costs in three years spurred demand for homes and exports advanced on higher prices of coal and palm oil.

Gross domestic product in Southeast Asia's biggest economy expanded 6.28 percent in the three months ended March 31 from a year earlier, compared with 6.25 percent in the fourth quarter, the statistics bureau said today in Jakarta. The median forecast of 17 economists surveyed by Bloomberg News was 6.20 percent.

Private consumption, which accounts for about 70 percent of the economy, may cool amid plans by the government to raise fuel prices by as much as 30 percent to cut government outlays. Spending may also drop after Bank Indonesia raised borrowing costs for the first time in more than two years to tame the fastest inflation in 19 months.

"Companies in the consumer sector will be hit,'' Destry Damayanti, chief economist at PT Mandiri Sekuritas in Jakarta. "Higher inflationary pressures have dampened people's purchasing power.'' She expects growth to slow to 5.9 percent this year after a 6.3 percent expansion in 2007.

Welfare Minister Aburizal Bakrie said yesterday that fuel prices will probably be increased 30 percent after the government completes a plan to compensate 19.1 million poor families for lost income on May 23.

President Susilo Bambang Yudhoyono, facing elections next year, wants to thwart protests from the poor, who are already paying more for staples such as noodles and cooking oil.

Rising prices of coal, palm oil and tin helped boost exports by 15 percent, the fastest pace since the last quarter of 2004. Prices of power-station coal shipped from Newcastle, Australia, the world's biggest export harbor for the fuel, reached an 11- week high in the week ended May 9 at $133.6 a metric ton.

Private Spending

Private consumption expanded 5.5 percent in the first quarter, almost matching the previous period's 5.62 percent, which was the fastest since the first quarter of 2004. Government spending grew 3.6 percent in the quarter, and investment rose 13.3 percent, the statistics bureau said.

"Six quarters of above 6 percent growth is comfortably the longest period of strength since the Asian crisis and enough we think to be contributing to the sharp pickup in inflation,'' said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. "It's not impossible that inflation will hit 15 percent or so in the next few months.''

Lehman Brothers Holdings Inc. expects higher fuel prices to drive year-on-year inflation to 12 percent in June from 8.2 percent in April.

Accelerating inflation and the proposed fuel price increase may slow sales of cement and motorcycles this year.

Cement, Autos

"We expect there will be a decline in cement sales in the second half of the year as the impact of the fuel price increase is felt" said Urip Timuryono, chairman of the Indonesian Cement Producers Association in Jakarta. "Companies will finish ongoing construction projects but they are unlikely to start new ones.''

Cement, auto and consumer-related companies were among those to benefit most from Bank Indonesia's 4.75 percentage points of rate cuts from May 2006.

Indonesia's construction industry expanded 8.3 percent in the quarter from a year earlier. Manufacturing grew 4.3 percent in the period.

Car sales increased 47 percent to a three-year high last month. Revenue at HeidelbergCement AG's unit PT Indocement Tunggal Prakarsa rose to a record 7.3 trillion rupiah last year.

"People are more cautious now in buying homes,'' said Hendra Sugandi, a director at PT Lippo Karawaci, Indonesia's biggest publicly traded real estate developer by assets.

Indonesia is raising fuel prices to lower a subsidy bill estimated at about 14 percent of total government revenue.

Budget Deficit

Crude oil prices have risen 30 percent this year, increasing the burden on the government, which has kept local gasoline, diesel and kerosene prices steady for almost three years.

Concern the deficit would widen partly explains why Indonesian bonds have handed holders a loss of 8.8 percent this year, the worst performance of 10 Asian local-currency debt markets, according to indexes compiled by HSBC Holdings Plc.

The last time investors lost faith in the government's ability to curtail its budget deficit in the face of rising fuel costs, investors dumped Indonesian assets, causing the rupiah to tumble 7 percent to a four-year low in August 2005.

The government more than doubled fuel prices a month later that year and Bank Indonesia increased borrowing costs to 12.75 percent to stem inflation.

Gross domestic product rose 2.15 percent in the three months ended March 31 from the fourth quarter. Economic growth may slow to 6 percent in 2008 from 6.3 percent last year as private consumption will decline, Finance Minister Sri Mulyani Indrawati said on May 6.

Consumers continue to spend at stores in March

2008-05-15T16:10:00.000+08:00

Consumers continued to spend at department stores, supermarkets and petrol stations in March, but held back on buying cars.

Sales at petrol stations rose 39 per cent on year in March, according to latest data by the Department of Statistics.

Supermarkets saw 16.7 per cent more sales, while sales at department stores rose 14.4 per cent compared with the year before.

Other segments that saw healthy sales included furniture and household equipment, telecoms apparatus and computers, and optical goods and books.

However, sales of motor vehicles fell 8.1 per cent in March compared with the same month last year.

Overall, retail sales rose 5.6 per cent in March from a year ago, following a 1.3 per cent fall in February.

But when adjusted for seasonal variations, retail sales actually fell 6.6 per cent in March compared with February. The decline reversed an 8.8 per cent rise in the previous month.

Excluding cars, which have more than a third weighting on the index, retail sales rose 12.5 per cent in March from a year earlier.

U.S. Retail Sales Fall 0.2%; Rise Excluding Autos

2008-05-13T21:28:00.000+08:00

Retail sales in the U.S. fell in April, led by a slump in auto purchases that masked stronger- than-forecast gains elsewhere, indicating rising energy bills and a faltering labor market haven't stopped Americans from shopping.

Purchases dropped 0.2 percent last month after a 0.2 percent increase in March, the Commerce Department said. Purchases excluding automobiles increased 0.5 percent, more than twice as much as anticipated.

The gains may raise expectations that consumers will spend their tax rebate checks at malls and restaurants in coming months, cushioning the economic slowdown. Still, tougher lending rules and declines in payrolls and property values indicate any rebound may be short-lived.

"Excluding autos, core retail sales were quite strong,'' said Julia Coronado, senior U.S. economist at Barclays Capital in New York. "It's an indication that consumers are more resilient than anticipated.''

Import Prices Rise

Another government report showed prices of goods imported into the U.S. increased 1.8 percent in April, led by a jump in fuel costs and metals. Prices excluding petroleum increased 1.1 percent on higher costs for capital goods, industrial supplies and auto parts.

Treasuries fell, pushing yields higher. The benchmark 10- year note yielded 3.84 percent as of 8:45 a.m. in New York, up 4 basis points from yesterday.

On retail sales, the median forecast of 76 economists surveyed by Bloomberg News projected a 0.2 percent decline. Estimates ranged from a drop of 0.9 percent to a 0.6 percent increase.

Excluding automobiles, sales were projected to increase 0.2 percent.

Today's report showed purchases at automobile dealerships and parts stores dropped 2.8 percent, the most since June, after a 0.5 percent decrease in March.

Industry figures last week showed cars and light trucks sold at an annual pace of 14.4 million in April, the fewest in almost a decade.

Gasoline Sales

Filling station sales also dropped, even as gasoline prices surged. The 0.4 percent decrease last month followed a 1.6 percent gain in March.

The report showed strength in housing-related areas, such as building materials, furniture and appliances. The 1.9 percent jump in demand at suppliers of building materials was the biggest since May 2007. Restaurant sales also improved by 0.9 percent, the most this year.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product, sales climbed 0.4 percent, matching the previous month's gain that was larger than estimated last month. The government uses data from other sources to calculate the contribution from the three categories excluded.

Today's report may prompt some economists to boost expectations. Consumer spending is forecast to grow at an annual rate of 0.5 percent this quarter, down from a 1 percent pace in the first three months of 2008 and the smallest gain in almost 17 years, according to the median estimate of economists surveyed by Bloomberg News from May 2 to May 8.

Stimulus Checks

Spending will rebound to a 2.3 percent growth rate in the third quarter as the bulk of the $117 billion in tax-rebate checks included in a government stimulus plan are spent, the survey showed. That will be followed by a deceleration to a 1.6 percent pace at the end the year.

In the two weeks since the payments started, the government sent out $27.2 billion in rebates, the Treasury Department said May 9.

The stimulus probably won't be enough to keep the economy from stagnating in the second quarter. The economists surveyed by Bloomberg forecast overall growth this quarter at a 0.1 percent pace, the weakest since 2001.

Shoppers have been flocking to discount stores to stretch their paychecks and stock up on staples and gasoline. Costco Wholesale Corp., the largest U.S. warehouse-club chain, last week said April sales at stores open at least a year rose 8 percent as customers sought less-expensive clothing and discounted fuel.

Wal-Mart Stores Inc., the world's largest retailer, said sales at stores open at least a year climbed 3.2 percent last month. The Bentonville, Arkansas-based company today announced a higher first-quarter profit and forecast second-quarter earnings that may trail analysts' estimates.

Fed's Meeting

Continuing price gains as oil, corn and other commodity prices soar, may prompt the Fed to keep its benchmark rate at 2 percent at its June 25 meeting, according to trading in the futures market.

Housing is likely to continue to be the economy's weakest component for the rest of the year. That indicates demand for building materials, furniture and appliances may not keep growing.

China Retail Sales Rise at Fastest Pace Since 1999

2008-05-13T21:27:00.001+08:00

China's retail sales climbed at the fastest pace since at least 1999, signaling that domestic consumption may help to buffer the world's fourth-biggest economy against an export slowdown.

Sales rose 22 percent to a record 814.2 billion yuan ($116 billion) in April after gaining 21.5 percent in March, the statistics bureau said today. That was more than the 21 percent median estimate of 27 economists surveyed by Bloomberg News.

China needs to save less and boost consumption to rebalance an economy skewed toward investment and overseas sales, central bank Governor Zhou Xiaochuan said May 10. The 27 percent jump in sales of household electronics was a boost for Suning Appliance Co., a home-appliance retailer planning to sell new shares to fund the opening of 250 stores.

"China's retail sales will keep growing strongly,'' said Sumei Tang, a Sydney-based economist at Moody's Economy.com. "Incomes are growing rapidly and the government is very keen to stimulate consumer demand to help offset weaker export growth.''

The yuan traded at 6.9872 versus the dollar as of 3:17 p.m. in Shanghai after closing yesterday at 6.9882.

The sales figures are swelled by inflation close to the fastest pace since 1996. Consumer prices climbed 8.5 percent in April from a year earlier as food costs soared.

The earthquake yesterday that killed almost 10,000 people may further fuel inflationary expectations in some parts of China by disrupting supplies, Ting Lu and T.J. Bond, economists at Merrill Lynch & Co. in Hong Kong, said in a note.

Petrol, Jewelry, Grain

Petroleum sales climbed 45 percent in April, jewelry rose 41 percent, and grain and cooking oil jumped 36 percent, today's report showed.

L'Oreal SA, the world's biggest cosmetics maker, said last month that growth in emerging markets including China propped up revenue in the first quarter as U.S. demand waned. Yum! Brands Inc., the owner of the KFC chain, said sales in the Asian nation drove its 31 percent profit surge.

France's Carrefour SA, targeted by Chinese protesters after the Olympic torch relay was disrupted in Paris, may add 20 supermarkets in China this year, newspaper Journal du Dimanche reported last month.

China's economy expanded 10.6 percent in the first quarter from a year earlier, down from 11.9 percent pace for all of 2007. Export growth slowed in the first four months of this year from the 2007 pace as world economies cooled.

Outpacing U.S.

China's retail sales rose 16.8 percent last year, four times the U.S. growth rate of 4.2 percent.

The government is increasing minimum wages, expanding health care and subsidizing farmers' purchases of televisions and refrigerators to boost consumption and lower savings rates.

China's savings rate as a proportion of gross domestic product climbed over the past five years to about 51 percent from about 40 percent, according to a May 5 report by Jonathan Anderson, an economist with UBS AG.

In his May 10 speech, Zhou acknowledged conflicts between the government targets of boosting consumption and preventing the world's fastest-growing major economy from overheating.

"On the one hand, we need to boost consumption to adjust the economic growth structure, but on the other hand we also need to prevent excessive demand from fueling inflation,'' the central banker said.

Bank Reserve Requirement

The bank's efforts to prevent overheating are focused on cooling lending growth that is fueling investment. The People's Bank of China yesterday raised the proportion of deposits that banks are required to set aside as reserves to a record 16.5 percent to stem the amount of money available for lending.

Rising incomes will help to counter the effects of surging prices, stock market declines, and the scrapping of a seven-day May holiday, State Information Center economists led by Fan Jianping said in a report published this month.

The benchmark CSI 300 Index of stocks has tumbled 28 percent this year.

Urban disposable incomes climbed 11.5 percent in the first quarter from a year earlier to 4,386 yuan ($627). Rural earnings rose 18.5 percent to 1,494 yuan.

Bloomberg's retail sales data began in 1999.

U.S. Import Prices, Led by Fuel, Rise 1.8% in April

2008-05-13T21:26:00.000+08:00

Prices of goods imported into the U.S. increased 1.8 percent in April, led by a jump in fuel costs and metals that threatens to boost inflation.

The larger-than-expected gain followed a revised 2.9 percent rise in March that was higher than previously estimated, the Labor Department said today in Washington. Prices excluding petroleum increased 1.1 percent on higher costs for capital goods, industrial supplies and auto parts.

A decline in the dollar is making foreign goods more expensive, adding to inflation pressures as food and energy prices soar. The increase is one reason investors project Federal Reserve policy makers will hold interest rates unchanged in coming months, even as economic growth slows.

"Inflation remains an issue, especially with rates as low as they are,'' Maxwell Clarke, chief U.S. economist at IDEAGlobal in New York, said before the report.

Economists had forecast import prices would rise 1.6 percent in April, following an originally reported 2.8 percent gain a month earlier, according to the median of 51 projections in a Bloomberg News survey. Estimates ranged from no change to a gain of 2.4 percent.

Compared with a year earlier, costs of imported goods jumped 15.4 percent, the biggest rise since the index was first published in 1982. Excluding all fuels, import costs rose 6.2 percent in the 12 months ended in April, the largest increase since December 1988.

Import-Price Index

The import-price index is the first of three monthly gauges of inflation from the Labor Department. The government is scheduled to issue its report on consumer prices, the broadest measure, tomorrow. The cost of living probably rose 0.3 percent for a second month, according to a survey median.

Retail sales in the U.S. fell in April, led by a slump in auto purchases that masked stronger-than-forecast gains elsewhere, indicating rising energy bills and a faltering labor market haven't stopped Americans from shopping. Purchases dropped 0.2 percent last month after a 0.2 percent increase in March, the Commerce Department said.

The Labor Department's report on wholesale prices is due next week.

Import expenses may keep rising in coming months as fuel continues to climb and the dollar remains weak. The value of the dollar, down 9.6 percent in the 12 months ended in April against a trade-weighted basket of currencies from major trading partners, makes foreign-made goods more expensive.

Imported Petroleum

The cost of imported petroleum and petroleum products increased 4.4 percent after increasing 9.2 percent the prior month. Compared with a year earlier, prices were up 57.2 percent.

Prices of unfinished metals related to durable goods rose 7.1 percent last month, the report showed.

The government measures imported petroleum costs differently than for wholesale prices. The producer price index takes the price reported on the Tuesday of the week that includes the 13th of the month.

The price of imported crude is based on the average cost reported by the Energy Department for the entire month. The data for other imported fuel costs, such as heating oil and natural gas, is based on the average price over the first five days of the month.

The price of crude oil traded on the New York Mercantile Exchange closed at a record $125.96 a barrel on May 9, indicating their will be more pressure from energy costs in coming months.

A Lot of Concern

"There's still going to be a lot of concern about inflation both in financial markets and the Fed until commodity prices turn,'' Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York, said before the report.

Investors project the Fed will not cut the benchmark interest rate at the conclusion of its next Federal Open Market Committee meeting on June 25. That would be the first pause since the central bank started cutting rates in September.

The cost of imported capital goods increased 0.8 percent in April, today's report showed. The price of consumer goods rose 0.2 percent.

Expenses for imported automobiles, parts and engines gained 0.4 percent.

Prices of goods from China rose 0.2 percent, while those from Latin America jumped 2.6 percent and imports from the Middle East increased 3.7 percent.

Export Prices

U.S. export prices gained 0.3 percent after rising 1.5 percent in March. Costs for farm exports dropped 2.2 percent, the first decline since May, while those of non-farm goods increased 0.6 percent.

Some foreign companies are raising U.S. prices to cover higher costs. B&C Speakers SpA, an Italian speaker-components maker, boosted prices by 12 percent in the U.S. to counteract a decline of the dollar against the euro. The increase has been accepted by the market, Chief Executive Officer Lorenzo Coppini said in an interview with Bloomberg Television on May 8.

China's Money-Supply Growth Unexpectedly Accelerates

2008-05-13T21:25:00.001+08:00

China's money-supply expansion unexpectedly accelerated, adding pressure on the central bank to prevent cash fueling inflation already close to the fastest pace since 1996.

M2, the broadest measure, rose 16.9 percent at the end of April from a year earlier to 42.9 trillion yuan ($6.1 trillion), the People's Bank of China said today on its Web site, after gaining 16.3 percent in March. That topped the 16.2 percent median estimate of 22 economists surveyed by Bloomberg News.

The trade surplus, foreign direct investment and inflows of capital from investors betting on currency gains are flooding the world's fastest-growing major economy with cash. The central bank yesterday ordered lenders to set aside a record 16.5 percent of deposits as reserves, a 0.5 percentage point increase, after inflation rebounded to 8.5 percent in April.

"Liquidity is still pretty strong,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. "The government will likely raise the reserve requirement three more times this year to 18 percent -- or even more if the trade surplus continues to be large.''

The trade surplus pumped $58 billion into the banking system in the first four months and foreign direct investment injected $35 billion.

The People's Bank of China has relied this year on reserve requirements, price controls, bill sales and the 4.4 percent gain by the yuan against the U.S. dollar to cool inflation. Interest rates have stayed unchanged.

Lending Growth

Outstanding local-currency loans rose 14.7 percent at the end of April from a year earlier, the central bank said. Lenders extended 463.9 billion yuan of new loans last month, bringing the total to 1.8 trillion yuan for the first four months.

February's 8.7 percent inflation rate was the fastest since May 1996.

Outstanding local-currency deposits rose 17.7 percent at the end of April from a year earlier, the central bank said. Household savings rose 99.2 billion yuan from the previous month.

China's economy, the world's fourth largest, expanded 10.6 percent in the first quarter from a year earlier, down from 11.9 percent for all of 2007, as exports cooled.

Swedish Inflation Rate Rises to 5-Year High of 2.4%

2008-05-13T21:24:00.001+08:00

Sweden's inflation rate rose to 2.4 percent in April, the highest in five years, adding to pressure on the central bank to keep its benchmark interest rate at a six-year high.

The underlying inflation rate, excluding mortgage payments, subsidies and indirect taxes, rose from 2.3 percent in March, Statistics Sweden said today. The rate was forecast to hold unchanged, according to the median estimate of 23 economists surveyed by Bloomberg. Prices increased 0.5 percent in the month.

The Riksbank left its benchmark rate unchanged at 4.25 percent last month, counting on slowing economic growth to help contain inflation, which has accelerated from 0.7 percent in August. The U.S. subprime mortgage market meltdown and ensuing global credit crunch is expected to shackle growth in Sweden, where half the economy consists of exports. The bank forecasts inflation will stay above the 2 percent target until 2011.

"Going forward, we expect inflation to start rising again,'' said strategist Olle Holmgren at SEB Merchant Banking in Stockholm. "The driving forces are the same that kept inflation high today, namely food prices and energy prices.''

The Swedish krona was little changed at 9.2837 to the euro, compared with 9.2821 late yesterday in Stockholm.

The broader consumer price index rose an annual 3.4 percent in April, unchanged from March, the statistics agency also said. Prices climbed 0.5 percent in the month.

Prolonged

"Compared with the Riksbank forecast, this was slightly higher and as the petrol price has continued to climb, it's very likely that the gap compared with the Riksbank forecast will widen in the next couple of months,'' Holmgren said.

The Riksbank estimated on April 23 that its repo rate would remain at 4.25 percent until the first quarter of 2011, and estimated underlying inflation of 2.5 percent in 12 months time.

"The risk is that the inflation process will be more prolonged, abroad and in Sweden,'' Riksbank Deputy Governor Svante Oeberg said in a speech on May 8. "There is a slightly greater probability of an increase in the policy rate during the year than of a cut.''

A median of economists surveyed by Bloomberg expect rates to be cut by the second quarter of 2009, as sluggish international growth spreads to the Nordic region's biggest economy.

Spain's April Core Inflation Slows as Growth Wanes

2008-05-13T21:22:00.002+08:00

Underlying inflation in Spain slowed more than economists expected in April as weaker economic growth eased pressure on prices.

Core consumer prices, which exclude energy and fresh food, rose 3.1 percent from a year earlier after gaining 3.4 percent in March, the National Statistics Institute in Madrid said today in a statement. Economists expected core prices to increase 3.2 percent, according to the median of six estimates in a Bloomberg News survey.

Spain's economic growth slowed to a 2.8 percent annual pace in the first quarter from 3.5 percent in the fourth, the Bank of Spain said April 30. The jump in credit costs stemming from the U.S. housing crash is exacerbating Spain's own property slump which is weighing on spending.

"Spain is undergoing a significant adjustment and this will happen also through prices,'' said Luigi Speranza, an economist at BNP Paribas in London. "You're getting pessimism among consumers and that affects pricing power.''

Spain's headline inflation rate, calculated by European Union standards and including food and energy, fell to 4.2 percent, matching the preliminary estimate published April 29.

Oil, Food

Deputy Finance Minister David Vegara, who forecasts a 2.3 percent expansion this year compared with the International Monetary Fund's prediction of 1.8 percent, said the price slowdown stemmed more from external factors such as the price of oil and food.

"This reduction shows the importance of external factors in recent inflation,'' Vegara said at a press conference in Brussels. "As long as international prices for energy and food stabilize in the next few months, we see inflation slowing to around 3 percent by the end of the year.''

The price of oil doubled in the past year and traded at $123.55 at 12:25 p.m. Madrid time today. Arjun N. Murti, an analyst at Goldman Sachs Group Inc., said in a May 5 report that oil will probably extend gains, reaching $150 or $200 within two years.

Danish Inflation Rate Reaches Eight-Year High of 3.2%

2008-05-13T21:22:00.001+08:00

Denmark's April inflation rate rose to 3.2 percent, the highest since June 2000, as accelerating wage growth adds to pressure from soaring food and fuel prices.

Inflation accelerated from 3.1 percent in March, Copenhagen- based Statistics Denmark said on its Web site today. The median estimate of six economists surveyed by Bloomberg was 3.2 percent. Prices gained 0.3 percent in the month.

"Food prices are continuing their ascent toward the skies and it's also clear that the very high oil prices we're seeing now will contribute to accelerating inflation in May,'' said Anders Matzen, chief analyst at Nordea Bank AB in Copenhagen. "We probably haven't seen the last inflation record in the current cycle.''

Danes have seen prices of agricultural goods soar as global weather extremes hurt supply, while the increasing use of biofuels pushes up demand. Consumers are paying on average 15 percent more for bread than they did at the beginning of last year, 18 percent more for milk and 15 percent more for fuel.

Oil traded in New York jumped to a record $126.40 a barrel yesterday, with Danes now paying more than 11 kroner ($2.29) a liter for gasoline.

The biggest annual gain was in the price of foods and non- alcoholic beverages, which rose 7.7 percent. Transport costs, which include fuel, gained 3.4 percent, the office said.

Labor Shortage

Adding to price pressure is a labor shortage that's forcing companies to pay higher wages. Average pay grew an annual 4.6 percent in the fourth quarter, the fastest pace in six and a half years, according to the Danish Employers Confederation. Unemployment dropped to 1.9 percent in March, the lowest since 1973.

Health-care workers have been striking since April 16 after rejecting the 12.8 percent pay increase over the next three years offered by the state. They want 15 percent.

Growing demands by state workers for higher pay risk feeding through to private industry, spelling a wage-price spiral, Prime Minister Anders Fogh Rasmussen has warned. He says that would hurt the country's exports, which account for almost half of gross domestic product.

Denmark's European harmonized annual inflation rate was 3.4 percent in April, compared with 3.3 in March. Prices gained 0.4 in the month, the office said.

The central bank has raised the benchmark interest rate nine times since December 2005, bringing it to 4.25 percent. The bank doesn't target price stability because its sole mandate is to keep the krone pegged to the euro in a 2.25 percent band, forcing it to track moves by the European Central Bank.

U.K. April Inflation Rate Jumps the Most Since 2002

2008-05-13T21:19:00.000+08:00

Britain's inflation rate jumped the most since 2002 in April, making it harder for the Bank of England to support economic growth by cutting interest rates.

Consumer prices climbed 3 percent from a year earlier, compared with 2.5 percent in March, the Office for National Statistics said today in London. The result was the highest in 13 months and exceeded the 2.6 percent median prediction of 37 economists in a Bloomberg News survey. Prices rose 0.8 percent on the month, the most in almost seven years.

"This puts the cat among the pigeons in the U.K.,'' said Trevor Williams, chief economist at Lloyds TSB Group Plc and a former British government economist. "Interest-rate cuts are totally off the agenda. The underlying problem we face in the real economy is inflation.''

The pound rose and gilts fell after the report showed inflation, stoked by food and energy costs, is now within 0.1 percentage point of the government's upper limit. Policy makers have cut the benchmark interest rate three times since December to 5 percent to avert a recession as house prices fall, with a report today showing the most widespread declines since at least 1978.

The pound rose as much as 0.3 percent against the dollar after the report and traded at $1.9454 as of 10:51 a.m. in London. Yields on two-year government bonds jumped 10 basis points to 4.431 percent.

Inflation Forecasts

Governor Mervyn King will signal whether the central bank has scope for further interest-rate cuts when he presents the bank's quarterly inflation forecasts tomorrow. Policy makers had the details of today's report at their May 8 meeting, when they kept the key rate unchanged.

Inflation has exceeded the central bank's 2 percent target for seven months. The 0.5 percentage-point increase in the rate from March was the biggest jump since July 2002.

The price of oil, which has more than doubled in the past year, rose to a record $126.40 per barrel yesterday. Wheat prices have increased 75 percent in the same period.

Centrica Plc, Britain's biggest energy supplier, said yesterday it may raise household natural gas and power prices for a second time this year on stubbornly high fuel costs. Producer prices rose 7.5 percent in April from a year earlier, the fastest pace since 1986, statistics office said yesterday.

King's View

King said on April 29 that inflation is likely to reach the government's 3 percent limit and may exceed it. British law requires him to write a letter of explanation to the government if inflation strays more than 1 percentage point from the central bank's 2 percent target.

Faster inflation may encourage workers to seek bigger pay increases, risking a spiral of wages and prices. Retail-price inflation, a measure of the cost of living used in salary negotiations rose to 4.2 percent, the most since November.

Excluding mortgage-interest payments, the rate was 4 percent, the most since September 1992. The government used this measure as its official inflation gauge until 2003.

"Higher fuel and utility bills are eating away at people's spare cash,'' Stephen Robertson, director general of the British Retail Consortium, said in a statement today. "With the economic fundamentals remaining weak, there seems no reason for these tough trading conditions to improve soon.''

Revenue at shops open at least a year fell from a year earlier for a second month in April, dropping 1.5 percent, the BRC, which represents 80 percent of U.K. stores said today.

Rate Forecasts

Economists predicted before today's report that the bank would reduce rates further to nurture economic growth. The median forecast of 22 economists in a Bloomberg survey was for the central bank to cut its rate to 4.25 percent by the end of 2008.

"Without a modest cut in interest rates, the risk of a severe economic downturn would intensify,'' said David Kern, chief economic adviser to the British Chambers of Commerce, a business lobby group. "The immediate threats to growth remain more serious than the risks of higher inflation.''

Paul Donovan, an economist at UBS AG in London, said that the central bank will still cut interest rates because slowing growth will damp inflation.

"Inflation was always going to go above 3 percent,'' he said in an interview on Bloomberg Television. "It will go higher. But the Bank of England isn't worried about inflation now, it's worried about inflation in the future.''

Turmoil in credit markets prompted the International Monetary Fund to forecast U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago.

The U.K. housing market had the most widespread declines in April since at least 1978, the Royal Institution of Charted Surveyors said today. Banks raised the cost of borrowing for homebuyers with a 5 percent deposit to the highest in more than eight years in April, declining to pass on the central bank's rate cuts.

"Despite the credit crunch, we really are going to have to start thinking about upward risks to interest rates,'' after today's report, said Lloyds TSB's Williams. He predicts the central bank will avoid further rate reductions this year.

India's March industrial output growth at 6-yr low

2008-05-12T20:08:00.000+08:00

India's industrial output growth slowed to its weakest in six years in March, and analysts said that would limit measures the Reserve Bank could take to rein in inflation from 3-year highs.

Industrial production grew 3.0 per cent in March from a year earlier, official data showed on Monday, well below February's 8.6 per cent rise and a market forecast of 6.2 per cent.

It was the slowest annual growth since a 2.4 per cent rise in Feb 2002. Output growth has fallen from double-digit levels seen last year as tighter monetary policy and a strong rupee clipped demand.

'The government is very clear that they are prepared to sacrifice growth to contain inflation,' Axis Bank economist Saugata Bhattacharya said.

'You may not see particular easing of monetary policy, but RBI and other policy makers will be wary of tightening.'

Wholesale price inflation spiked to 7.6 per cent in late April, driven mainly by high prices of commodities and food, and analysts say the actual number could be much higher given deficiencies in data collection.

'The bad news is the industrial output data and the good news is that this will make the government refrain from taking any more aggressive steps to curtail inflation,' said Sujan Hajra, chief economist at Anand Rathi Securities.

'Clearly they have both inflation and growth to worry on their hands, and the government can do little about (inflation) as it is a supply-side problem.'

Industrial output rose 8.1 per cent in the 2007/08 fiscal year (April-March), slowing from 11.6 per cent in 2006/07, the data showed.

Manufacturing production rose 2.9 per cent in March from a year earlier, compared with 8.6 per cent in February.

Last month, the Reserve Bank of India (RBI) announced a total increase of 75 basis points in the cash reserve requirement (CRR) for banks to absorb cash that could otherwise add to inflation pressures.

But the RBI has kept the repo rate unchanged at 7.75 per cent for more than a year, after raising it five times between mid-2006 and March 2007. This is the rate at which the central bank lends short-term cash to banks.

C. Rangarajan, chairman of Prime Minister's Economic Advisory Council, said on Monday that inflation was expected to moderate to 6.0 per cent in the next three to four months.

China to hike bank reserve ratio

2008-05-12T20:07:00.000+08:00

China on Monday announced that it would raise the amount of money banks must keep in reserve by half a percentage point in a bid to curb credit growth and help curb inflation.

The People's Bank of China said in a statement on its website that the commercial banks' reserve ratio would rise 0.5 percentages point to 16.5 per cent from May 20, less than one month after the last hike took effect.

The rise, the fourth so far this year, is 'in order to strengthen the management of liquidity in the banking system and to guide the rational growth in money supply and credit', the bank said.

Reserve ratio hike works by reducing the amount of money flowing through the economy, in turn limiting the funding available for purposes such as investment.

China is taking a tight monetary policy in order to rein in an inflation that has lingered at near 12-year highs.

The National Statistics Bureau said earlier on Monday that inflation rebounded to 8.5 per cent in April. It had weakened to 8.3 per cent in March from 8.7 per cent in February.

China's April consumer inflation stays near 12-year high

2008-05-12T20:05:00.000+08:00

China's consumer price inflation clung near a 12-year high in April, maintaining pressure on the government to stick to its tight policy stance despite softening global growth.

For authorities who have insisted their priority is to tackle price rises, the quickening of annual inflation to 8.5 per cent from 8.3 per cent in March will be frustrating, while there is also a glimmer of optimism.

'This isn't something the government will necessarily panic about, particularly as food prices are now beginning to fall,' said Paul Cavey, economist at Macquarie Securities in Hong Kong.

Apart from February's reading of 8.7 per cent, inflation was last higher in May 1996, when the rate was 8.9 per cent.

Food prices, which make up a third of the consumer basket, have been the overwhelming driver of inflation.

They rose 22.1 per cent in April from a year earlier, though weekly government reports on fresh food prices have showed a slight dip in May.

Non-food prices rose 1.8 per cent in April from a year earlier, the same as in March.

'Greater prominence needs to be given to curbing inflation and controlling price rises,' the National Bureau of Statistics said in a statement accompanying the inflation data.

A torrent of money has gushed into China from record trade surpluses, threatening to push inflation still higher, but the latest trade data, also published on Monday, showed the global downturn was offering it a respite.

China recorded a trade surplus of US$16.7 billion in April, fractionally lower than the same month last year, though the slowdown was sharper in local currency terms.

Imports grew faster than exports, as they have done every month since October, apart from March.

'The rest of the world is slowing and of course it should be reflected in China's export growth. This should help China's economy cool off,' Qing Wang, Morgan Stanley economist in Hong Kong, said.

Focus on inflation
Zhou Xiaochuan, China's central bank governor, said on Saturday that the country would give precedence to tackling inflation over targeting growth or employment.

Even as easing food prices give some grounds for hope, pipeline pressures have built up with the producer price index, or factory-gate inflation, hitting a three-and-a-half year high of 8.1 per cent in April.

'As underlying inflationary pressures remain undiminished, it is vital for the government to keep its tightening policy stance to anchor inflationary expectations,' Hong Liang and Yu Song, Goldman Sachs economists in Hong Kong, said in a client note.

The government declared it would tighten monetary policy this year to fight inflation, but it has yet to raise interest rates after six increases in 2007.

Instead, it has drawn on an array of tools, from bank lending curbs to faster yuan appreciation - the central bank on Monday set the highest daily reference rate for the yuan , 6.8920 per dollar, since it ended a fixed peg to the US currency in July 2005.

'Many had expected the CPI to ease in April, but the figure is not so terrible because it's still mainly caused by food items,' said Feng Yuming, an analyst with Orient Securities in Shanghai. 'I don't think the government will tighten monetary policy further simply because of the figure.'

The 8.5 per cent reading was in line with a Reuters report last Thursday based on information from sources familiar with the data. Economists had expected a rate of 8.3 per cent.

The government set a target of 4.8 per cent for average inflation in 2008, but in recent weeks a series of officials have said the real number would very likely top that.

Jan-April FDI rises 59.3%
China drew US$35.02 billion in foreign direct investment (FDI) in the first four months, 59.3 per cent more than a year earlier, the Commerce Ministry said on Monday.

In April alone, China attracted US$7.6 billion in FDI, up about69 per cent from a year earlier, according to calculations basedon the year-to-date data published on the ministry's website.

China attracted US$74.77 billion in non-financial FDI in 2007, an increase of 13.6 per cent from 2006.

Inflows have surged since the country joined the World Trade Organisation in late 2001, despite increasingly stringent rules governing foreign investment.

U.S. Economy: Trade Deficit Narrows as Imports Fall

2008-05-09T23:42:00.001+08:00

U.S. demand for imported goods slumped in March, overwhelming the impact of the first export decline in more than a year and causing the American trade deficit to shrink more than forecast.

"Consumers have cut back significantly in just about every area but necessities, and we're seeing clear evidence of this'' in imports, said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. "Weakness in our economy also seems to be affecting growth in other areas of the globe, thus slowing demand for our exports as well.''

The gap narrowed to $58.2 billion, the lowest this year, from $61.7 billion in February, the Commerce Department said today in Washington. The shortfall with China was the smallest since 2006.

Imports dropped the most in six years as purchases of furniture, cars and telecommunications gear fell, reflecting the weakest growth since 2001 and a falling dollar that makes overseas goods more costly. Economists anticipate the U.S. expansion will stall this quarter as households struggle to cope with soaring food and fuel bills, a monthly survey by Bloomberg News published today showed.

The dollar, which fell earlier today, remained lower after the report. The U.S. currency was at $1.5444 per euro at 11:11 a.m. in New York, from $1.5393 late yesterday.

Economists forecast the trade gap would narrow to $61 billion from a previously reported $62.3 billion, according to the median of 71 economists surveyed by Bloomberg News. Forecasts ranged from $59 billion to $64.9 billion.

Recession Forecast

While a diminishing trade deficit adds to gross domestic product, the impact won't be enough to keep the economy out of a recession, Meny Grauman, an economist at CIBC World Markets in Toronto, said in a Bloomberg Radio interview.

"We still see a little bit more weakness on the consumer side,'' which makes up more than two-thirds of GDP, Grauman said. "And where that goes, the economy goes.''

Lehman Brothers Holdings Inc. economists said the smaller- than-forecast trade gap will probably lift the estimate for first-quarter growth by as much as 1 percentage point.

"The data suggest a boost to the first quarter, but do little to alter our overall view of U.S. growth,'' Drew Matus, a Lehman economist in New York, wrote in a note to clients.

Eliminating the influence of prices, which are the trade numbers used to calculate gross domestic product, the deficit shrank to $47.2 billion, the lowest since November 2003, from $50.9 billion.

Oil Imports

Imports decreased 2.9 percent, the most since December 2001, to $206.7 billion. Purchases of crude oil dropped, even as the average price for the month jumped to a record $89.85. The quantity of petroleum bought from overseas was the lowest since February 2007.

The trade gap may not be able to keep narrowing as oil prices continue to surge. Crude oil prices jumped to over $125 a barrel today, the highest ever.

Receding demand for goods from China helped narrow the trade gap with that nation to $16.1 billion, the smallest in two years. At the same time, exports to China were the second-highest ever.

Total exports fell 1.7 percent to $148.5 billion, driven by a decline in sales of commercial aircraft, autos and petroleum products. Even with the drop, the first since February 2007, exports were still the second-highest on record.

Demand for American goods from the European Union and from South and Central America set records in March.

Emerging Markets

Growth in emerging economies is boosting demand and prices for commodities such as oil. This in turn is leading to increased sales of American-made oil-drilling rigs and construction equipment as countries seek to tap natural resources and modernize highways and factories.

Brazil is preparing to tap the biggest crude-oil discovery in the Western Hemisphere in three decades, which lies just off its Atlantic coast. Petroleo Brasileiro SA, Brazil's state oil company, is in talks with Houston-based Transocean Inc. to extend offshore drilling contracts.

A lower dollar, by making American goods cheaper to overseas buyers, is also boosting exports. The dollar was down 9 percent against a trade-weighted basket of currencies from the U.S.'s biggest trading partners in the 12 months ended in March.

Cisco Systems Inc., the world's biggest maker of networking equipment, is among the companies benefiting from gains abroad. The San Jose, California-based company posted sales growth of 10 percent in the third quarter, even as U.S. sales grew only 5 percent.

"Asia-Pacific was very strong,'' Cisco's Chief Executive Officer John Chambers said in a Bloomberg Television interview May 7. "China and India are on fire.''

Still, record exports alone won't prevent the economy from shrinking. Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said May 6 in an interview with Bloomberg Television that the U.S. economy is sliding into a recession.'

Egypt Raises Key Interest Rate to 10% on Inflation

2008-05-09T22:40:00.000+08:00

Egypt's central bank raised its overnight deposit and lending rates by half a percentage point after inflation accelerated to a three-year high.

The overnight deposit rate was increased to 10 percent, while the overnight lending rate was raised to 12 percent, the central bank said in a statement on its Web site today. The Cairo-based bank boosted rates in its previous two meetings by a total of three-quarters of a point in response to accelerating inflation.

"The balance of risks to the inflation outlook continues to be on the upside,'' Rania Al-Mashat, division chief of the monetary policy unit at the central bank, said in the statement. "Authorities will not hesitate to adjust the key central bank rates to ensure price stability over the medium term.''

Urban inflation accelerated to 16.4 percent in April, exceeding the government's target range for a fourth consecutive month. The rate rose from 14.4 percent in March. Inflation in April was driven by a 22 percent increase in food and beverage prices.

"Unfortunately what the central bank can do to impact inflation is limited at the moment because most of the price hikes come from imported materials,'' said Reham El-Desoki, a senior economist at Beltone Financial, a Cairo-based investment bank.

Egypt imports about half of its grain.

Price Increases

Parliament approved price increases for several products on May 5, including fuel and cigarettes, and boosted taxes on vehicles to fund a 30 percent pay raise for state workers, amid growing public discontent over inflation.

"These price adjustments pose an upside risk to the inflation prospects,'' Al-Mashat said.

Falling U.S. dollar interest rates have prompted Egyptian depositors to change their U.S. currency-denominated deposits to Egyptian pounds, adding to money supply, Mohamed Abu Basha, an analyst at investment bank EFG-Hermes Holding SAE, wrote in a report.

Liquidity supply has grown 26 percent since March, the highest since 1999, according to the central bank.

"The central bank is trying to withdraw as much liquidity as possible from the system but the banks are not responding,'' el- Desoki said. "It is going to be useless at the end.''

Inflation rises again in India

2008-05-09T19:05:00.001+08:00

India's annual inflation rose marginally to a near four-year high at 7.61 per cent on the back of rising food prices, official data released on Friday showed.

Inflation moved up for the week ended April 26 from 7.57 per cent for the previous week, according to the Wholesale Price Index, India's most closely watched cost monitor.

The latest figures came a day after the government halted futures trading in key staple foods such as chickpeas, soybean oil and potatoes for four months to try and tame surging prices.

The government had already suspended futures trading in other basic foods such as rice and wheat.

Futures contracts involve betting on future price movements of such items as commodities, bonds, currencies and shares.

India also tightened its monetary policy last month to curb spending, as the government battles discontent over rising prices ahead of national elections next year.

S Korea April producer inflation at over 9-yr high

2008-05-09T19:04:00.001+08:00

South Korean producer inflation in April picked up for the eighth consecutive month to set a near decade high, data showed on Friday, supporting the central bank's decision to resist pressure to cut interest rates.

The producer price index in April jumped 9.7 per cent over a year earlier, accelerating from an 8.0 per cent annual gain in March and marking the fastest rise since 11.0 per cent growth in November 1998, the Bank of Korea's (BOK) data showed.

The data came a day after the BOK held interest rates steady for a ninth month in a row, bucking government pressure for a cut to bolster faltering economic growth, and warned that inflation was likely to stay high.

'This shows why the BOK was so firmly against the finance ministry's pressure and at the same time provides it with strong backing to keep resisting for the time being,' said Kim Jae-eun, an economist at Hana Daetoo Securities.

The producer price index gained 2.6 per cent in April over a month earlier, setting the biggest monthly gain in more than 10 years since January 1998, the data showed.

The government argues that inflation is currently led by global oil and raw materials prices over which it has little control and therefore the central bank should lower interest rates to lift domestic demand.

But BOK Governor Lee Seong-tae told a news conference on Thursday the annual rate of consumer inflation would probably stay above its target set at between 2.5 per cent and 3.5 per cent for several more months.

Ms Kim at Hana called the government's argument misplaced.

'It's wrong to say that we can simply ignore a cost-push inflation and so many countries are already adjusting their policy to fight inflation,' she said.

Australia's central bank hiked interest rates twice this year to curb inflation.

Mr Lee's inflation warnings and expectations that US rates will stay on hold for some time convinced markets the central bank would also keep its base rate steady at 5.0 per cent next month.

June treasury bond futures fell 74 ticks on Thursday and dipped an additional 23 ticks at one point on Friday to hit a six-week low of 107.18.

Resources-poor South Korea imports most of energy and raw materials to feed Asia's fourth-largest economy, while relying heavily on exports by manufacturers such as Samsung Electronics Co and Hyundai Motor Co..

The BOK lifted rates by a combined 1.75 percentage points in seven steps between late 2005 and August last year but has since kept them unchanged to assess the effect of the past tightening and the impact from a US sub-prime mortgage crisis.

Australian Central Bank Raises Inflation Forecast

2008-05-09T18:59:00.001+08:00

Australia's central bank raised its inflation forecast and said economic growth will slow as consumers reduce spending amid record gasoline prices and the highest borrowing costs in 12 years.

"There is evidence that demand has slowed, but it will take some time for this to have a substantial impact on inflation,'' the Reserve Bank of Australia said in its quarterly policy statement released in Sydney today. Inflation will peak late this year at 4.5 percent before falling below the bank's 3 percent limit in 2010.

The nation's currency fell on speculation Governor Glenn Stevens will refrain from interest rates again this year, after boosting its benchmark to 7.25 percent in March, the fourth increase in seven months. The government has said it will cut spending in next week's budget to ease pressure on prices, which surged at the fastest pace in 17 years in the first quarter.

"The Reserve Bank remains on hold for a prolonged period,'' said Rory Robertson, an interest-rate strategist at Macquarie Group Ltd. in Sydney. "Right now they've got reasons to think they have done enough, but obviously there are risks, particularly with the commodity price boom being so large.''

The Australian dollar pared earlier gains, falling to 94.03 U.S. cents at 4:34 p.m. in Sydney from 94.41 cents immediately before the report. The two-year government bond yield declined 5 basis points, or 0.08 percentage point, to 6.37 percent.

China Demand

Rising demand from China for resources including iron-ore and coal may offset the impact of slower domestic spending on the $1 trillion economy, now in its 17th year of expansion.

"It is possible that the recent weakness in consumer sentiment and domestic spending will prove to be mostly temporary, especially in light of the large boost to national income from exports" the bank said today.

The nation's terms of trade, a measure of export income, will rise by around 20 percent this year as new coal and iron ore contracts take effect, well above the average increase over the past four years, and higher than appeared likely a few months ago,'' the central bank said.

Demand for exports is prompting companies including Rio Tinto Group to spend A$57.9 billion ($54 billion) developing mines and oil fields, stoking a record 18-month employment boom that has generated 456,000 new jobs.

Skills Shortage

Australia's labor market conditions remained strong, today's report said, reinforcing figures published yesterday showing employment rose in April by twice as much as economists forecast. The jobless rate was 4.2 percent last month, close to the lowest in more than three decades.

Concern that a shortage of skilled workers is driving up wages and stoking inflation was a key reason Stevens and his board raised borrowing costs in March, February, November and August.

There is a risk that expectations for higher inflation may become entrenched at higher than acceptable levels,'' driving up wages and prices, the bank said today.

Core annual inflation surged to 4.4 percent in the first quarter from 3.8 percent in the previous three months, a report showed on April 23. The bank aims to keep annual prices increases between 2 percent and 3 percent on average.

"The high rate of underlying inflation in the March quarter indicates that demand pressures that have been evident for some time are continuing to have a significant effect on pricing, and are allowing increases in input costs to be passed through into final prices,'' today's report said.

Growth Forecast

"The jump in consumer prices has occurred in an environment of limited spare capacity and earlier strong demand,'' the bank said. "A significant slowing in the growth of demand from the rapid pace of 2007 will be needed in order to return inflation to the target over time. There are signs that such moderation is now occurring.''

The central bank cut its forecast today for growth in June 2009 to 2.75 percent from the 3 percent predicted in February. Gross domestic product will expand 2.5 percent in June 2010, compared with a previous outlook of 3 percent.

Recent reports support the central bank's view that the nation's economy is losing momentum. March home-building approvals fell six times as much as economists forecast, sales of newly built houses dropped for a second month, consumer confidence plunged in April to the lowest since 1993, and companies remained pessimistic for a third month in March.

Mortgage Rates

GDP slowed to 0.6 percent in the fourth quarter from the previous three months, when it expanded 1.1 percent. The first- quarter GDP report will be released on June 4.

Households, grappling with higher gasoline and food costs, are also facing extra increases in mortgage rates by commercial banks. The nation's five largest lenders, led by Commonwealth Bank of Australia, have added an average of almost 90 basis points, or 0.9 percentage point, to home-loan interest rates this year. The Reserve Bank has added only 50 basis points in that time.

"A noticeable restraining impact is being exerted on household and business borrowing and on all overall domestic demand,'' today's report said. Borrowing by companies has slowed significantly, it said.

China's Export Growth Slows, Easing Pressure on Yuan

2008-05-09T18:56:00.001+08:00

China's export growth cooled in April and the trade surplus was little changed as economies around the world weakened, giving the government room to maintain a slower pace of yuan gains.

Overseas sales rose about 21.8 percent from a year earlier, after gaining 30.6 percent in March, according to figures derived from Ministry of Commerce data. The trade surplus was about $16.8 billion compared with $16.7 billion a year earlier.

Central bank Governor Zhou Xiaochuan said on May 4 that weaker export growth has been a factor in the yuan's failure to appreciate versus the dollar after a 4.2 percent jump in the first quarter. Smaller gains in shipments reduce the risk that inflows of cash from overseas sales will fuel 11-year high inflation and overheat the world's fastest-growing major economy.

"Exports will slow further in the second half as the weaker demand in the U.S. and other markets becomes more pronounced,'' said Liao Qun, chief economist at Citic Ka Wah Bank in Hong Kong. "China won't want the yuan to appreciate too fast for this reason.''

The trade surplus was more than the $15.5 billion median forecast of 19 economists in a Bloomberg News survey. Economists expected exports to rise 20.3 percent. The gain in overseas shipments compares with the 21.4 percent pace in the first quarter and the 26 percent increase for all of last year.

Import Growth

Imports grew about 26.1 percent in April from a year earlier after gaining 24.6 in March, the calculations showed. The increase partly reflects rising commodity prices.

The yuan gained 0.2 percent to 6.9918 as of the 5:30 p.m. close of trading in Shanghai.

The world's fourth-biggest economy expanded 10.6 percent in the first quarter from a year earlier and inflation accelerated to 8 percent, the fastest pace since 1996. The yuan had its biggest gain since a fixed-exchange rate ended in 2005.

China's currency has climbed 18 percent versus the dollar since the peg to the U.S. currency was scrapped, making the nation's products more expensive in overseas markets and cutting import costs. Since April, it has gained only 0.3 percent.

U.S. Treasury Undersecretary David McCormick urged China to maintain an ``accelerated'' pace of yuan appreciation in a speech today in Shanghai.

Global Slowdown

Growth in shipments from China to the U.S. has cooled this year as a housing slump threatens to trigger a recession in the world's biggest economy. A weaker global expansion has dimmed the outlook for the rest of the year.

"Export growth will continue to trend down in months to come as the global economic downturn unfolds,'' said Sun Mingchun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. "It could even fall below 10 percent in the fourth quarter.''

Inflation, driven by food costs, climbed to an 11-year high of 8.7 percent in February, more than the central bank's target for the year of 4.8 percent. Consumer prices rose 8.2 percent in April, according to a Bloomberg News survey of economists. That number will be released on May 12.

Producer prices rose 8.1 percent in April, the fastest pace in more than three years, the statistics bureau said today.

China will maintain a tight monetary policy to prevent economic overheating, Vice Premier Wang Qishan told a financial conference in Shanghai today.

Facing Challenges'

"China's economy is still facing challenges this year including high inflation, investment growth that hasn't yet come down to a normal level and the global economic slowdown,'' Wang said.

The Ministry of Commerce released data for shipments of mechanical and electrical products for the first four months on a ministry Web site today. It gave the value of exports of those products, $251.3 billion, and said they represented 59.2 percent of total exports. It also gave the value for imports, $173.3 billion, said they were 47.3 percent of total imports.

The April trade figures were derived by calculating the total export and import figures for the first four months and subtracting the amounts previously announced for the first quarter.

German economy feels the pinch from global headwinds

2008-05-09T07:32:00.001+08:00

German industrial output and exports fell in March, data showed on Thursday, as a stronger euro, weaker global demand and high raw material prices left their mark on Europe's largest economy.

Until recently, economic data and sentiment indicators suggested that Germany was weathering well the prevailing headwinds in the world economy but Thursday's data added to growing evidence that this may not be the case.

Figures from the economy ministry for example showed that output from German factories dipped 0.5 percent from February, the first monthly fall since November, while February's rise was adjusted downwards to mere 0.2 percent.

The main culprit was a 12.3 percent slump in construction activity as a result of a mild winter which meant that the usual spring bounce in building activity was not forthcoming, the ministry said.

On a two-monthly basis - comparing February and March to December and January - production rose a more respectable 0.6 percent, and for the whole of the first quarter output was up 2.3 percent.

Commerzbank economist Matthias Rubisch said the quarterly output number was the best result for more than a year and that as a result he expects the German economy to have grown 0.8 percent in the first three months of 2008.

But the weak end to the quarter is a sign that there are tougher times ahead.

Manufacturing output taken on its own fell 0.2 percent in March, "below the average of the first quarter and the decline in order intake in recent months suggest only a slight increase in the coming months at best," Rubisch said.

"In the second quarter a stagnation of GDP (Gross Domestic Product growth) is likely," he said.

Analysts at Moody's agreed, saying the data was a sign that demand for German goods is falling, forecasting industrial output growth will slow from 6.9 percent last year to just 3.0 percent this year.

The economy ministry shared the downbeat assessment.

"Falling orders in recent months and the clear worsening of sentiment of late are signals that there will be a somewhat weaker production dynamic in the coming months."

Exports are the motor of the German economy but another set of numbers released on Thursday suggested that weaker demand abroad and a stronger euro - which makes eurozone goods less competitive - are taking their toll.

Data from the statistics agency showed that German exports fell 0.5 percent in March from February.

Again, for the first quarter as a whole the numbers were respectable, with exports for the first three months up 2.4 percent, which "can hardly be described as weak," Commerzbank's Rubisch said.

"Nevertheless, export growth can be expected to slow down over the months ahead as the economy in Western Europe shifts down a gear and the euro gained in strength recently," Rubisch said.

Chile Central Bank Keeps Lending Rate at 6.25 Percent

2008-05-08T23:29:00.001+08:00

Chile's central bank kept the country's overnight lending rate unchanged as policy makers bet that inflation has peaked.

Bank President Jose de Gregorio held the benchmark rate at 6.25 percent, the highest since January 2002, matching forecasts from all 20 economists surveyed by Bloomberg. Future rate changes will depend on new information, the bank said today in the policy statement on its Web site.

Inflation slowed to 8.3 percent in April from 8.5 percent in March, the biggest jump since 1996, as costs for energy and commodities such as corn and wheat rose worldwide. It was the second time annual inflation slowed in the past 12 months.

"The balance of risks has shifted away from inflation and to growth,'' said Vladimir Werning, a New York-based economist at JPMorgan Chase & Co. "This economic slowdown will eventually lead the central bank to consider cuts. At the moment the inflationary risk still makes it difficult to act.''

Growth expectations for this year have fallen to 4 percent from 5.4 percent in August 2007, according to forecasts compiled by the central bank. The bank will publish its own growth prediction for this year in a monetary policy report on May 12.

"The most recent data reaffirms the idea that annual consumer price inflation will keep falling in the course of coming months,'' the bank said.

Fuel Costs

Long-term expectations for annual inflation ``remain anchored around 3 percent,'' it said in the communique published after the policy meeting.

Annual inflation will slow to 4.7 percent at the end of this year and to 3.3 percent by April 2010, within the bank's target range of 2 percent to 4 percent, according to the median estimate of 26 economists in a central bank survey taken May 6.

Annual inflation has accelerated from 2.5 percent a year ago as frosts and drought made fresh food more expensive. High fuel prices have exacerbated an energy shortage, leading to higher electricity costs.

"The central bank is powerless to control price shocks,'' De Gregorio told a conference in Geneva on May 6. Instead, it seeks to prevent swings from rippling through the economy and leading to so-called second-round inflation. At its last meeting on April 10, the bank changed the bias on its policy statement to neutral, removing a sentence from its previous statement that said it couldn't rule out raising rates again.

Policy makers have kept the rate at 6.25 percent since January after raising it five times starting in June 2007. De Gregorio became president of the central bank in December.

The central bank last month agreed to buy $8 billion of U.S. dollars this year, increasing the bank's international reserves and curbing the appreciation of the peso.

"Today's decision was the most logical considering last month's decision to intervene in the market and the change to the bias,''' said Miguel Cardoso, chief economist at BBVA Chile in Santiago. "That's quite a strong signal about how they see monetary policy in the next few months.''

ECB Keeps Rates at Six-Year High to Fight Inflation

2008-05-08T20:19:00.000+08:00

The European Central Bank kept interest rates at a six-year high today to fight inflation, even as the euro's appreciation and fallout from the U.S. housing slump curb economic growth.

The Frankfurt-based ECB left its benchmark refinancing rate at 4 percent, as predicted by all 53 economists surveyed by Bloomberg News. The Bank of England kept its key rate unchanged at 5 percent after three cuts since December. The ECB won't lower borrowing costs before September, according to a separate survey.

With soaring food and energy prices pushing inflation above 3 percent in the 15-nation euro region, the ECB is reluctant to follow the U.S. Federal Reserve in cutting interest rates to shore up economic growth. The International Monetary Fund estimates expansion will weaken to 1.4 percent this year from 2.6 percent in 2007 as the stronger euro hurts exports and the U.S. housing slump triggers a global slowdown.

"Recent data point to significantly lower growth in the second quarter, but the ECB is still in a wait-and-see mode,'' said Juergen Michels, an economist at Citigroup in London. "Before the ECB can cut its benchmark rate, inflation has to drop below 3 percent.''

ECB President Jean-Claude Trichet will hold a press conference in Athens at 2:30 p.m. Frankfurt time to explain the bank's decision. Policy makers meet outside Frankfurt twice a year.

Contrast With Fed

Euro-region consumer prices rose 3.3 percent in April from a year earlier after increasing 3.6 percent in March, the most in almost 16 years. The ECB, which aims to keep inflation just below 2 percent, has left interest rates unchanged since June last year.

By contrast, the Fed has reduced its main lending rate seven times since mid-September, to 2 percent from 5.25 percent, attempting to fend off a recession. Federal Reserve Bank of Kansas City President Thomas Hoenig said May 6 that serious inflation pressures may compel the Fed to increase rates again.

The ECB is concerned that companies will raise prices to pass on record raw-material costs and unions will push through bigger wage increases to compensate workers for the higher cost of living, leading to more persistent inflation.

Wages in Germany, Europe's largest economy, rose 3.3 percent in January from a year earlier, the biggest increase in 12 years. Worldwide, food prices in March were 57 percent higher than a year earlier, according to the United Nations, and oil prices breached $120 a barrel for the first time this week.

Inflation Risks

"Inflation could stay at an elevated level for a longer time than previously forecast,'' said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt. "There's clearly a risk that the ECB will cut interest rates later than forecast and less aggressively.''

Policy makers including Axel Weber and Juergen Stark have said they're not sure rates are high enough to contain inflation.

"We'll monitor very closely all developments in the coming weeks and decide whether the current level of interest rates ensures we'll meet our objective'' of taming inflation, Weber said on April 21.

Since then, economic data have suggested Europe's economy is cooling. Executive and consumer confidence declined to the lowest level in more than two years in April and European retail sales dropped 1.6 percent in March from a year earlier, the most since at least 1995.

Exports from Germany, Europe's largest economy, unexpectedly fell for a second month in March, the country's statistics office said today.

Credit Squeeze

The IMF last month cut its global growth forecast and said the world economy faces a 25 percent chance of a recession.

The world's biggest financial companies have posted at least $319 billion in writedowns and credit losses since the start of last year after the U.S. market for subprime mortgages, aimed at people with poor credit histories, collapsed. That has made banks reluctant to lend, pushing up the cost of credit and roiling financial markets.

Still, Trichet this week said there are indications that some markets are improving. The current level of ECB interest rates will contribute to achieving our objective, which is price stability,'' he said on April 24, indicating the ECB may keep rates unchanged.

Eonia swap contracts, a widely used market gauge of interest- rate expectations, rose as high as 3.99 percent this week from around 3.2 percent in mid-March.

"First signs are appearing that the worst of the global financial turmoil may soon be over,'' said Holger Schmieding, head of European economics at Bank of America Corp. in London. "For now, the ECB is firmly on hold.''

Bank of England Keeps Rate at 5% to Gauge Inflation

2008-05-08T20:17:00.000+08:00

The Bank of England kept the benchmark interest rate unchanged, guarding against inflation after three cuts in borrowing costs since December.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5 percent, as forecast by all except five of the 61 economists in a Bloomberg News survey. The rest predicted a quarter-point reduction.

U.K. house prices had the first annual decline since 1996 last month, growth in service industries slowed to a five-year low, and manufacturing weakened. Concern that a recession is looming may deepen the disagreement among policy makers, who split three ways last month on how fast to cut the benchmark rate as higher oil and food prices stoke inflation.

"They know that growth is weaker,'' said Steven Bell, chief economist at GLC Ltd. in London and a former U.K. Treasury official. "The issue is how long they're willing to wait given that inflation is high. They'll cut at the next meeting.''

The central bank, which last cut the benchmark rate in April, will lower it to 4.75 percent by June, according to the forecasts of all but 10 of the 51 economists surveyed by Bloomberg News. The pound fell as much as 0.3 percent against the dollar after the decision, and traded at $1.9575 as of 12:44 p.m. in London.

Britain's rate is the highest of the Group of Seven nations. The U.S. Federal Reserve cut its main rate on April 30 to 2 percent, the lowest since 2004. The European Central Bank kept its rate unchanged at 4 percent today, as predicted by all 53 economists in a Bloomberg survey.

Election Woe

Prime Minister Gordon Brown's government is trying to extend the economy's 63 consecutive quarters of growth and rebuild support after his ruling Labour Party suffered its worst local- election performance in four decades on May 1.

The International Monetary Fund forecasts U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago. The economy expanded 0.4 percent in the three months through April, matching the three-year low of the first quarter, the National Institute of Economic and Social Research said today.

"If the slowing in economic activity is interpreted as supporting lower inflation, a further rate cut could be on the cards, possibly as soon as next month,'' said Barry Naisbitt, chief economist at Abbey, a mortgage lender.

Housing Slump

House prices fell 0.9 percent in April from a year earlier, the first annual drop in more than a decade, HBOS Plc said on May 2. An index of growth at services companies from banks to hotels fell to the lowest since March 2003 last month, the Chartered Institute of Purchasing and Supply said on May 6. Factory production dropped 0.5 percent in March, data showed yesterday.

Next Plc, the U.K.'s third-largest clothes retailer, said today that a sales decline worsened in the fiscal first quarter through April 26 as Britons had less money to spend in its stores.

"We need lower interest rates to underpin consumer confidence,'' Michael Coogan, director general of the Council of Mortgage Lenders, which represents U.K. home-loan providers, told Bloomberg Television before the decision. "What we need today is a cut and there's no need for them to delay until next month.''

The Bank of England offered on April 21 to swap government bonds for mortgage securities to kick-start lending between banks. They are struggling to fund their businesses after credit markets froze up following the collapse of the U.S. subprime mortgage market, leading to $319 billion in writedowns and losses at financial companies.

Bank Writedowns

Lloyds TSB Group Plc, the U.K.'s largest provider of checking accounts, said on May 6 that first-quarter profit was held back by asset writedowns and slowing insurance sales. Finance Director Tim Tookey predicted a marked slowdown for the British economy.

"The data has been weak,'' said George Buckley, an economist at Deutsche Bank AG in London. "But they're still worried about inflation and they don't like surprising the market.''

Policy maker David Blanchflower said on April 29 that the economy risks a recession unless the central bank takes aggressive action. His vote for a half-point rate reduction last month was defeated in the first three-way split for almost two years. The majority wanted a quarter-point cut and Timothy Besley and Andrew Sentance favored no change.

Inflation, at 2.5 percent in March, is likely to reach the government's upper limit of 3 percent because of higher commodity costs and the pound's weakness, King said April 29. The bank will release forecasts for growth and inflation on May 14.

Crude oil breached $120 for the first time, and United Nations figures showed food was 57 percent more expensive globally in March than a year earlier. The U.K. currency has fallen 10 percent in the past year on a trade-weighted basis, making imports more expensive.

"Inflation concerns are not abating,'' said Amit Kara, an economist at UBS AG in London who formerly worked at the Bank of England. "We will get weaker growth and the question is how weak it will be. It's really a balancing act.''

South Korea Keeps Key Rate at 5% on Inflation Concern

2008-05-08T14:09:00.000+08:00

The Bank of Korea kept interest rates unchanged at the highest in almost seven years, saying rising commodity prices and a declining currency are stoking inflation. Bonds declined.

Governor Lee Seong Tae and his board left the seven-day repurchase rate at 5 percent in Seoul today, as predicted by 13 of 20 economists in a Bloomberg News survey. Seven forecast a cut.

Asian policy makers are battling to balance fallout from the global financial crisis against record prices for food and fuel that have stoked inflation across the region. Indonesia unexpectedly raised borrowing costs this week, while South Korea and Japan have refrained from following U.S., English and Canadian central bankers in cutting rates this year as growth slows.

"The inflation risk is too great to ignore,'' said Oh Suk Tae, an economist at Citibank Korea Inc. in Seoul. ``Policy makers need more time to justify a rate cut.''

Crude oil reached a record $123.93 a barrel in New York yesterday. Global prices for corn, wheat and soybeans have climbed to all-time highs in 2008, and rice prices have more than doubled in the past year.

Rising food and energy costs propelled South Korea's inflation to a four-year high of 4.1 percent in April, breaching the central bank's target for the sixth straight month. Consumer prices in Singapore are rising at the fastest pace in a quarter century and China's inflation rate is close to an 11-year high.

Target Breach

"Oil prices, coupled with a weaker won, are contributing a lot to inflation, which remains above our target ceiling of 3.5 percent,'' Governor Lee told reporters today. "Inflation will likely remain above the target ceiling for months ahead.''

The yield on the five-year South Korean government bond climbed 16 basis points to 5.21 percent. The Kospi index of shares slipped 0.3 percent to 1,848.22 at 2:26 p.m. in Seoul.

Adding to the central bank's inflation concerns, the Korean won has dropped 12 percent this year, the most among the world's 16 most active currencies. The won fell 2.3 percent to 1,049.50 against the dollar today, the lowest level since November 2005.

A weaker won has boosted the cost of imported goods, exacerbating the increases in commodity prices. South Korea is the world's fifth-largest importer of crude oil.

"The dilemma between growth and inflation has heightened even further,'' said Kwon Young Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. "The Bank of Korea's policy outlook looks heavily dependent on oil prices and the currency, the key factors for the near-term inflation outlook.''

Government Pressure

Lee has resisted pressure from the government to lower borrowing costs as the U.S. financial crisis cools the global expansion. South Korea's economy grew at the slowest quarterly pace in more than three years in the first three months of 2008 as consumers and companies curtailed spending.

Inflation in South Korea is inevitable as global food and energy costs climb, and the government should pursue policies to drive growth, Finance Minister Kang Man Soo said in an interview in Madrid this week.

The government is targeting growth of 6 percent this year after the economy advanced 5 percent in 2007.

"The political pressure is on for a cut of 25 basis points to help the economy hit an ambitious growth target,'' said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong.

Lee said today that the Bank of Korea will forecast the 2008 economic growth rate slowing to 4.5 percent or below when it releases updated estimates in July. The bank in December predicted the economy would expand 4.7 percent this year.

Exports Climb

As well as stoking inflation, the won's drop versus the dollar this year has helped Samsung Electronics Co. and other exporters by making their products cheaper abroad and increasing the value of their overseas sales translated into the local currency.

Exports jumped 27 percent in April from a year earlier. Overseas shipments were the engine of more than half of the economy's 0.7 percent expansion in the first quarter.

"The case for any easing at all for the remainder of the year is entirely data dependent,'' Neumann said. ``Rate cuts this year in Korea? No longer a slam dunk.''

Malaysia's trade surplus shrinks on US economy

2008-05-07T12:35:00.001+08:00

Malaysia's trade surplus continued to shrink in March as exports to this country's top trading partner, the United States, fell in line with a weakening economy, figures released on Tuesday showed.

The surplus in March hit 7.98 billion ringgit (2.6 billion dollars), 22 percent higher from the same period last year on modest exports.

But the March trade surplus was down 12 percent from February and fell 17.9 percent from January due to a slowdown in exports of electronic and electrical goods to the United States.

Exports totalled 51.57 billion ringgit, a 5.3 percent increase from March 2007 but rose 9.5 percent from February 2008.

"Major product sectors which contributed to the increase in exports were palm oil, crude petroleum, refined petroleum products, manufacturers of metal and liquefied natural gas," the Ministry of International Trade and Industry said.

March imports expanded by 2.6 percent from last year to 43.59 billion ringgit and were 14.8 percent higher against imports in February.

Malaysia's exports to the United States, its main trading partner, fell to 6.33 billion ringgit in March compared to1 8.1 billion ringgit in the same period last year on lower exports of electrical and electronic products, the ministry said.

Exports to the United States in February was 6.04 billion ringgit down from 7.17 billion ringgit in January.

Australia Keeps Key Rate Unchanged at 12-Year High

2008-05-06T13:48:00.001+08:00

Australia's central bank left interest rates unchanged for a second month, saying there is mounting evidence the highest borrowing costs in 12 years will slow the economy enough to cool the fastest inflation since 1991.

Governor Glenn Stevens kept the overnight cash rate target at 7.25 percent in Sydney today, as forecast by 24 of 25 economists surveyed by Bloomberg News.

Today's decision indicates policy makers judged four interest rate increases in seven months will bring inflation back under the bank's 3 percent limit after reports in the past month showed consumer and business confidence have slumped, retail sales have slowed and home building has fallen. Evidence is accumulating that growth in demand will slow this year, Stevens said.

"Stevens wants to see domestic demand continue to slow, and if it doesn't he will increase rates again," said Adam Carr, senior economist at UBS AG in Sydney.

The Australian dollar fell to 94.45 U.S. cents at 3:05 p.m. in Sydney from 94.75 cents just before the decision was released. The two-year government bond yield fell 7 basis points to 6.51 percent. A basis point is 0.01 percentage point.

"Given the opposing forces at work, considerable uncertainty remains about the outlook for demand and inflation," Stevens said in a statement released on the central bank's Web site. "On balance, the board's current assessment is that demand growth will remain moderate this year."

Global Rates

If the economy doesn't slow as expected, or ``expectations about high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed,'' Stevens added.

The Reserve Bank has raised borrowing costs 12 times since May 2002, when the rate was 4.25 percent. By contrast, Federal Reserve Chairman Ben S. Bernanke lowered the benchmark U.S. interest rate by a quarter point to 2 percent last week, the seventh cut since September. The U.K. and Canada have also reduced rates this year to cushion their economies against fallout from the global credit squeeze.

Most economists surveyed by Bloomberg News before today's decision say Stevens will leave the benchmark rate unchanged for the rest of this year as slower household and business spending bring annual inflation back within his target range of between 2 percent and 3 percent. He increased the rate in March, February, November and August.

Core Inflation

Surging gasoline, food and housing costs helped push core annual inflation to 4.4 percent in the first quarter, the highest rate in almost 17 years, a report showed on April 23.

Another index measuring inflation rose at a record pace in April as costs for gasoline, health services and rent surged. Consumer prices climbed 4.3 percent from a year earlier, according to a gauge published by TD Securities Ltd. yesterday.

"In the short term, inflation is likely to remain relatively high, but it should decline over time provided demand evolves as expected," Stevens said today.

The Reserve Bank will lower its forecasts for economic growth and inflation when its quarterly policy statement is released on May 9, Stevens told a parliamentary committee in Sydney on April 4.

Recent reports suggest the $1 trillion economy is losing momentum in its 17th straight year of expansion. March home- building approvals fell six times as much as economists forecast, sales of newly built houses dropped for a second month, consumer confidence plunged in April to the lowest since 1993, and companies remained pessimistic for a third month in March.

Economic Growth

Gross domestic product slowed to 0.6 percent in the fourth quarter from the previous three months, when it expanded 1.1 percent. The first-quarter GDP report will be released on June 4.

Investors expect the central bank will leave the benchmark lending rate unchanged in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps. At the start of last month, traders forecast more than half a percentage point of reductions.

Households, grappling with higher gasoline and food costs, are also facing extra increases in mortgage rates by commercial banks. The nation's five largest lenders, led by Commonwealth Bank of Australia, have added an average of almost 90 basis points, or 0.9 percentage point, to home-loan interest rates this year. The Reserve Bank has added only 50 basis points in that time.

Retail sales excluding food slid 0.3 percent in March from February, according to Helen Kevans, an economist at JPMorgan in Sydney.

Jobs, Wages

Concern that the lowest unemployment rate in 33 years is driving up wages was a key reason the Reserve Bank raised borrowing costs in March.

The bank forecast in March that inflation will remain above 3 percent until 2010 as Chinese demand for coal and iron ore prompts companies such as miner Rio Tinto Group to expand and hire more workers in Australia.

"The last thing the Reserve Bank wants is for people to assume that the inflation battle is over and the next move in interest rates is down," said Craig James, chief equities economist at Commonwealth Bank.

"The Australian economy remains in good shape. If rates are likely to move over the coming year, they are still more likely to rise."

Philippines inflation hits three-year high at 8.3% in April

2008-05-06T13:46:00.001+08:00

Surging food and energy prices in the Philippines pushed the inflation rate in April to 8.3 percent, the highest level in three years, the government said on Tuesday.

The National Statistics Office said "all the commodity groups at the national level continued to record higher annual price increases," with the food sector alone incurring a 12 percent inflation rate.

The April 2008 figure was the highest inflation rate recorded since May 2005 when inflation hit 8.5 percent, it said in a statement.

April's rate far exceeded central bank forecasts of between 6.4 and 7.0 percent and economists' previous estimates of about 6.8 percent.

Inflation rose 6.4 percent in March.

The April figure brought the average inflation for the first four months of 2008 to 6.2 percent, far above the central bank's full-year target range of between 3.0 and 5.0 percent.

Rice, the national staple saw a 24.6-percent price rise in April with corn, other cereals and dairy products also incurring double-digit rates.

Excluding selected food and energy items, core inflation rose to 5.9 percent in April compared to 4.8 percent in March.

The Philippines, one of the world's largest rice importers, has been hit hard by worldwide rise in the price of rice.

The government has been planning to import up to 2.7 million tonnes of rice this year but on Monday, it rejected an offer for 675,000 tonnes from Vietnam.

"The central bank will be obliged to hike interest rates by the second half to head off second-round inflation that may come from wages,'' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.

Interest rates at a 16-year low and the fastest growth in three decades are fueling demand and adding to price pressures from soaring commodity costs. The central bank, which cut rates five times between July and January, will act decisively on inflation expectations, Governor Amando Tetangco said today.

Last month's inflation rate was more than the 6.4 percent to 7 percent forecast by Tetangco on April 30 and exceeded the highest estimate of 7.8 percent among economists surveyed. Philippine debt, stocks and the peso fell.

Ten-year government bond yields surged 77 basis points to 9.19 percent, a level last seen in August 2006, according to the Philippine Dealing & Exchange Corp.

In Shock

"The market is in shock,'' said Yvette Marquez, who helps manage 290 billion pesos ($6.9 billion) at BPI Asset Management in Manila. "This is not the worst inflation can go."

Bangko Sentral ng Pilipinas policy-makers, who kept the benchmark interest rate unchanged at 5 percent on April 24, may raise borrowing costs as early as their next meeting on June 5, according to HSBC Holdings Plc. The central bank hasn't increased its key rate since October 2005.

"The magnitude was higher than expected,'' Tetangco said in a mobile-phone text message today from Madrid, where he is attending the annual Asian Development Bank meeting. "The elevated prices of oil and non-oil goods continue to pose challenges for policy makers.''

"Still, higher production should eventually temper price increases in some commodities, returning price movements to manageable levels,'' he said.

"We will, however, continue to closely monitor developments for any second-round pricing pressures and will act decisively to ensure that inflation expectations would remain well anchored,'' Tetangco said.

Food, Fuel

Food, beverage and tobacco prices surged 11.4 percent last month after gaining 8.2 percent in March. Fuel, electricity and water inflation accelerated to 8 percent from 6.2 percent. Services costs climbed 6.9 percent, up from 6.4 percent. Food prices account for half of the price index.

The central bank's targeted inflation rate of 3 percent to 5 percent this year is at risk from rising energy and commodity costs, and prices may be further aggravated by higher wages and transport fares, Tetangco said earlier.

"We will not hesitate to make any necessary refinements to the current stance of monetary policy once we perceive any changes,'' he said in a May 4 e-mail.

President Gloria Arroyo has told wage-setting boards to adjust pay levels to help workers cope with rising prices.

Local retail prices of rice, the nation's staple food, have climbed almost 19 percent in the past month and 35 percent from a year ago, according to Bureau of Agricultural Statistics data. The cost of meat, poultry, fish and vegetables has also risen.

Gasoline Prices

Prices of diesel and gasoline rose one peso a liter on May 3, the ninth increase this year. Manila Electric Co., the nation's biggest power retailer, passed on higher costs to consumers last month.

"I think inflation has peaked and so the central bank should hold off unless there's evidence of second-round effects,'' said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila. "Consumers are already squeezed by high prices and raising rates would make it worse.'"

A Clear Look At EBITDA

2008-05-06T10:27:00.001+08:00

Normally, investors focus on cash flow, net income and revenue as the basic measures of corporate health and value. But in recent years, another measure has crept into quarterly reports and accounts: earnings before interest, taxes, depreciation and amortization (EBITDA). While EBITDA can be used to analyze and compare profitability between companies and industries, investors should understand that there are serious limits to what the metric can tell them about a company. Here we look at why this measure has become so popular and why, in many cases, it should be treated with caution.

EBITDA is a measure of profits. While there is no legal requirement, according to generally accepted accounting principles (GAAP), for companies to disclose EBITDA, it can be worked out and reported using information found in a company's financial statements.

The earnings, tax and interest figures are found on the income statement, while the depreciation and amortization figures are normally found in the notes to operating profit or on the cash flow statement. The usual shortcut to calculate EBITDA is to start with operating profit, also called earnings before interest and tax (EBIT), and then add back depreciation and amortization.

EBITDA Rationale
EBITDA first came to prominence in the mid-1980s as leveraged buyout investors examined distressed companies that needed financial restructuring. They used EBITDA to calculate quickly whether these companies could pay back the interest on these financed deals.

Leveraged buyout bankers promoted EBITDA as a tool to determine whether a company could service its debt in the near term, say over a year or two. At least in theory, looking at the company's EBITDA-to-interest coverage ratio would give investors a sense of whether a company could meet the heavier interest payments it would face after restructuring. For instance, bankers might argue that a company with EBITDA of $5 million and interest charges of $2.5 million had interest coverage of 2 - more than enough to pay off debt.

The use of EBITDA has since spread to a wide range of businesses. Its proponents argue that EBITDA offers a clearer reflection of operations by stripping out expenses that can obscure how the company is really performing.

Interest, which is largely a function of management's choice of financing, is ignored. Taxes are left out because they can vary widely depending on acquisitions and losses in prior years; this variation can distort net income. Finally, EBITDA removes the arbitrary and subjective judgments that can go into calculating depreciation and amortization, such as useful lives, residual values and various depreciation methods.

By eliminating these items, EBITDA makes it easier to compare the financial health of various companies. It is also useful for evaluating firms with different capital structures, tax rates and depreciation policies. At the same time, EBITDA gives investors a sense of how much money a young or restructured company might generate before it has to hand over payments to creditors and the taxman.

All the same, one of the biggest reasons for EBITDA's popularity is that it shows more profit than just operating profits. It has become the metric of choice for highly leveraged companies in capital-intensive industries such as cable and telecommunications, where bona fide profits are sometimes hard to come by. A company can make its financial picture more attractive by touting its EBITDA performance, shifting investors' attention away from high debt levels and unsightly expenses against earnings.

Be Careful
While EBITDA may be a widely accepted indicator of performance, using it as a single measure of earnings or cash flow can be very misleading. In the absence of other considerations, EBITDA provides an incomplete and dangerous picture of financial health. Here are four good reasons to be wary of EBITDA:

1. No Substitute for Cash Flow
Some analysts and journalists urge investors to use EBITDA as a measure of cash flow. This advice is illogical and hazardous for investors: for starters, taxation and interest are real cash items and, therefore, they're not at all optional. A company that does not pay its government taxes or service its loans will not stay in business for long.

Unlike proper measures of cash flow, EBITDA ignores changes in working capital, the cash needed to cover day-to-day operations. This is most problematic in cases of fast-growing companies, which require increased investment in receivables and inventory to convert their growth into sales. Those working capital investments consume cash, but they are neglected by EBITDA.

For example, Emergis, an information technology solutions company, highlighted $28.4 million EBITDA for the fiscal year 2005. But if you turn to the company's cash flow statement, you'll see that it consumed $48.8 million in additional working capital, which largely accounts for Emergis' negative cash flow from operations. Clearly, EBITDA paints a rosier financial picture than other measures.

Furthermore, while capital expenditures are a critical, ongoing cash outlay for almost every company, EBITDA neglects capital expenditures. Consider US LEC, a small communications service provider. In its Q4 2005 earnings release, the company reported $14.3 million EBITDA. That represents a 30% improvement from Q4 2004, when it reported EBITDA of $11 million. But this measure disregards the company's sky-high capital expenditures. Looking at US LEC's 8-K filing, we see that the company spent $46.9 million on network capital equipment in Q4 2005; in order to grow, it will need to continue spending annually to upgrade and expand its networks. This number is significant, but it is not part of the EBITDA mix.

Clearly, EBITDA does not take all of the aspects of business into account, and by ignoring important cash items, EBITDA actually overstates cash flow. Even if a company just breaks even on an EBITDA basis, it will not generate enough cash to replace the basic capital assets used in the business. Treating EBITDA as a substitute for cash flow can be dangerous because it gives investors incomplete information about cash expenses. If you want to know the cash from operations, just flip to the company's cash flow statement.

2. Skews Interest Coverage
EBITDA can easily make a company look like it has more money to make interest payments. Consider a company with $10 million in operating profits and $15 million in interest charges. By adding back depreciation and amortization expenses of $8 million, the company suddenly has EBITDA of $18 million and appears to have enough money to cover its interest payments.

Depreciation and amortization are added back based on the flawed assumption that these expenses are avoidable. Even though depreciation and amortization are non-cash items, they can't be postponed indefinitely. Equipment inevitably wears out, and funds will be needed to replace or upgrade it.

3. Ignores Quality of Earnings
While subtracting interest payments, tax charges, depreciation and amortization from earnings may seem simple enough, different companies use different earnings figures as the starting point for EBITDA. In other words, EBITDA is susceptible to the earnings accounting games found on the income statement. Even if we account for the distortions that result from interest, taxation, depreciation and amortization, the earnings figure in EBITDA is still unreliable.

Let's say, for example, that a company has over- or under-reserved for warranty cost, bad debt or restructuring expenses. If this is the case, its earnings will be skewed and, as a result, EBITDA will be misleading. Furthermore, if the company has recognized revenues prematurely or disguised ordinary costs as capital investments, EBITDA will provide little information to investors. Remember, EBITDA is only as reliable as the earnings that go into it.

4. Makes Companies Look Cheaper Than They Really Are
Worst of all, EBITDA can make a company look less expensive than it really is. When analysts look at stock price multiples of EBITDA rather than bottom-line earnings, they produce lower multiples. Consider the wireless telecom operator Sprint Nextel. On April 1, 2006, the stock was trading at 7.3 times its forecast EBITDA. That might sound like a low multiple, but it doesn't mean the company is a bargain. As a multiple of forecast operating profits, Sprint Nextel traded at a much higher 20 times. The company traded at 48 times its estimated net income. Investors need to consider other price multiples besides EBITDA when assessing a company's value.

Conclusion
Despite its widespread use, EBITDA isn't defined in GAAP - as a result, companies can report EBITDA as they wish. The problem with doing this is that EBITDA doesn't give a complete picture of a company's performance. In many cases, investors may be better off avoiding EBITDA or using it in conjunction with other, more meaningful metrics.

EV: Enterprise Value

2008-05-06T01:37:00.002+08:00

The enterprise value - or EV for short - is an indicator of how the market attributes value to a firm as a whole. Enterprise value is a term coined by analysts to discuss the aggregate value of a company as an enterprise rather than just focus on its current market capitalization. It measures how much you need to fork out to buy an entire public company. When sizing up a company, investors get a clearer picture of real value with EV than with market capitalization.

Why doesn't market capitalization properly represent a firm's value? It leaves a lot of important factors out, such as a company's debt on the one hand and its cash reserves on the other. Enterprise value is basically a modification of market cap, as it incorporates debt and cash for determining a company's valuation.

The Calculation
Simply put, EV is the sum of a company's market cap and its net debt. To compute the EV, first calculate the company's market cap, add total debt (including long and short-term debt reported in the balance sheet), and subtract cash and investments (also reported in the balance sheet).

Market capitalization is the share price multiplied by the number of outstanding shares. So, if a company has 10 shares and each share currently sells for $25, the market capitalization is $250. This number tells you what you would have to pay to buy every share of the company. Therefore, rather than telling you the company's value, market cap simply represents the company's price tag.

The Role of Debt and Cash
Why are debt and cash considered in valuing a firm? If the firm is sold to a new owner, the buyer has to pay the equity value (in acquisitions price is typically set higher than the market price) and must also repay the firm's debts. Of course, the buyer gets to keep the cash available with the firm, which is why cash needs to be deducted from the firm's price as represented by market cap.

Think of two companies that have equal market caps. One has no debt on its balance sheet while the other one is debt heavy. The debt-laden company will be making interest payments on debt over the years. (Preferred stock and convertibles that pay interest should also be considered debt for purposes of calculating value.) So, even though the two companies have equal market caps, the company with debt is worth more.

By the same token, imagine two companies with equal market caps of $250 and no debt. One has negligible cash and cash equivalents on hand, and the other has $250 in cash. If you bought the first company for $250, you will have a company worth, presumably, $250. But if you bought the second company for $500, it would have cost you just $250, since you instantly get $250 in cash.

If a company with a market cap of $250 carries $150 as long-term debt, an acquirer would ultimately pay a lot more than $250 if he or she were to buy the company's entire stock. The buyer has to assume $150 in debt, which brings the total acquisition price to $400. Long-term debt serves effectively to increase the value of a company, making any assessments that take only the stock into account preliminary at best.

Cash and short-term investments, by contrast, have the opposite effect. They decrease the effective price an acquirer has to pay. Let's say a company with a market cap of $25 has $5 of cash in the bank. Although an acquirer would still need to fork out $25 to get the equity, it would immediately recoup $5 from the cash reserve, making the effective price only $20.

Ratio Matters
Frankly, knowing a company's EV alone is not all that useful. You can learn more about a company by comparing EV to a measure of the company's cash flow or EBIT. Comparative ratios demonstrate nicely how EV works better than market cap for assessing companies with differing debt or cash levels or, in other words, differing capital structures.

It is important to use EBIT - earnings before interest and tax - in the comparative ratio because EV assumes that, upon the acquisition of a company, its acquirer immediately pays debt and consumes cash, not accounting for interest costs or interest income. Even better is free cash flow, which helps avoid other accounting distortions.

For a good example, go back to 2003 and look at the price of two comparable stocks: Sears and JC Penney. At $45 per share, Sears had a market cap of $13.5 billion and P/E (market cap/earnings) ratio of 10. But its balance sheet was burdened with nearly $30 billion in net debt. So Sears' EV was $43.5 billion, or about 14 its $3.4 billion in EBIT.

By contrast, JC Penney enjoyed a share price of $23 per share and a market cap of $6.1 billion and P/E ratio of 20, twice that of Sears. But because JC Penney owed a lot less - its net debt stood at $3.5 billion, its EV was $9.6 billion and its EV/EBIT ratio was only 10, compared to Sears' EV/EBIT of 14.

By market cap (P/E) alone, Sears looked like it was half the price of JC Penney. But on the basis of EV, which takes into account important things like debt and cash levels, JC Penney was priced much less per share. As the market gradually discovered, JC Penney represented a better buy, offering more value for its price.

Conclusion
The value of EV lies in its ability to compare companies with different capital structures. By using enterprise value instead of market capitalization to look at the value of a company, investors get a more accurate sense of whether or not a company is truly undervalued.

Philippines lowers 2008 growth target

2008-05-05T12:38:00.000+08:00

The Philippines has lowered its 2008 growth target to between 6.0 and 6.7 percent from the original range of 6.3 to 7.0 percent, a cabinet secretary was quoted on Monday as saying.

Socioeconomic Planning Secretary Augusto Santos said the new figures reflected the global economic slowdown, particularly in the United States, and the sharp rise in food and fuel prices, the Philippine Daily Inquirer reported.

"We have to revise because there will be slower growth as production is affected by increasing oil and food prices," Santos said, according to the paper.

The inflation rate forecast for 2008 has also been raised from 3.0-4.0 percent to 4.0-5.0 percent, said Santos.

Last year, Philippine gross domestic product (GDP) grew by 7.3 percent, the highest level here in more than three decades, while inflation slowed to a 20-year low of 2.8 percent.

The International Monetary Fund last month forecast Philippine growth for 2008 at 6.0 percent unless key reforms were implemented. The Asian Development Bank has put it at six percent while the World Bank forecast was 5.9 percent.

Understanding The Subtleties Of ROA Vs ROE

2008-05-05T10:55:00.000+08:00

With all the ratios that investors toss around, it's easy to get confused. Consider return on equity (ROE) and return on assets (ROA). Because they both measure a kind of return, at first glance, these two metrics seem pretty similar. Both gauge a company's ability to generate earnings from its investments. But they don't exactly represent the same thing. A closer look at these two ratios reveals some key differences. Together, however, they provide a clearer representation of a company's performance. Here we look at each ratio and what separates them.

ROE
Of all the fundamental ratios that investors look at, one of the most important is return on equity. It's a basic test of how effectively a company's management uses investors' money - ROE shows whether management is growing the company's value at an acceptable rate. ROE is calculated as:

Return on Equity = (Annual Net Income/Average Shareholders' Equity)

You can find net income on the income statement, and shareholders' equity appears at the bottom of the company's balance sheet.

Let's calculate ROE for the automotive giant General Motors for 2003. To get the necessary data, go to the GM's Investor Information website and look for the 2003 Annual Report. You'll see on GM's 2003 Income Statement that its net income totaled $3.822 billion. On GM's 2003 Balance Sheet, you'll find total stockholder equity for 2003 was $25.268bn and in 2002 it was $6.814bn.

To calculate ROE, average shareholders' equity for 2003 and 2002 ($25.268bn + $6.814bn / 2 = $16.041 bn), and divide net income for 2003 ($3.822bn) by that average. You will arrive at a return on equity of 0.23, or 23%. This tells us that in 2003 GM generated a 23% profit on every dollar invested by shareholders.

Many professional investors look for a ROE of at least 15%. So, by that standard alone, GM managements' ability to squeeze profits from shareholders' money appears rather impressive.

ROA
Now, let's turn to return on assets, which, offering a different take on management's effectiveness, reveals how much profit a company earns for every dollar of its assets. Assets include things like cash in the bank, accounts receivable, property, equipment, inventory and furniture. ROA is calculated like this:

Return on Assets = (Annual Net Income/Total Assets)

Let's look at GM again. You already know that it earned $3.822bn in 2003, and you can find total assets on the balance sheet. In 2003, GM's total assets amounted to $448.507bn. GM's net income divided by total assets gives a return on assets of 0.0085, or 0.85%. This tells us that in 2003 GM earned less than 1% profit on the resources it owned.

This is an extremely low number. In other words, GM's ROA tells a very different story about the company's performance than its ROE. Few professional money managers will consider stocks with an ROA of less than 5%.

The Difference is All about Liabilities
The big factor that separates ROE and ROA is financial leverage, or debt. The balance sheet's fundamental equation shows how this is true: assets = liabilities + shareholders' equity. This equation tells us that if a company carried no debt, its shareholders' equity and its total assets would be the same. It follows then that their ROE and ROA would also be the same.

But if that company took on financial leverage, ROE would rise above ROA. The balance sheet equation - if expressed differently - can help us see the reason for this: shareholders' equity = assets - liabilities. By taking on debt, a company increases its assets thanks to the cash that comes in. But since equity equals assets minus total debt, a company decreases its equity by increasing debt. In other words, when debt increases, equity shrinks, and since equity is the ROE's denominator, ROE, in turn, gets a boost. At the same time, when a company takes on debt, the total assets - the denominator of ROA - increase. So, debt amplifies ROE in relation to ROA.

Look again at GM's balance sheet and you will see why the company's return on equity and return on assets were so different. The car-maker carried an enormous amount of debt - which kept its assets high while reducing shareholders' equity. In 2003, GM had total liabilities that exceeded $422bn - more than 16 times its total shareholders' equity of $25.268bn.

Because ROE weighs net income only against owners' equity, it doesn't say much about how well a company uses its financing from borrowing and bonds. Such a company may deliver an impressive ROE without actually being more effective at using the shareholders' equity to grow the company. ROA - because its denominator includes both debt and equity - can help you see how well a company puts both these forms of financing to use.

Conclusion
So, be sure to look at ROA as well as ROE. They are different, but together they provide a clear picture of management effectiveness. If ROA is sound and debt levels are reasonable, a strong ROE is a solid signal that managers are doing a good job of generating returns from shareholders' investments. ROE is certainly a “hint” that management is giving shareholders more for their money. On the other hand, if ROA is low or the company is carrying a lot of debt, a high ROE can give investors a false impression about the company's fortunes.

India: Exports grow 23% but fall short of annual target

2008-05-03T21:36:00.000+08:00

India's exports grew by 23 per cent to US$155.5 billion in the fiscal year ended March, missing an annual target, and analysts said shipments would face headwinds in the current year due to a possible global slowdown.

Data released by the government on Thursday showed exports grew a robust 26.6 per cent in March to US$16.28 billion, up from February's US$14.24 billion, but it was not enough for India to attain the annual target of US$160 billion.

Firm oil prices and robust domestic demand boosted imports by 27 per cent to US$235.91 billion in 2007-2008, and widened the trade deficit for the fiscal year by 35.5 per cent to US$80.4 billion, from US$59.32 billion the year before.

'This trend shows that the rupee appreciation has not really affected the export performance and missing the target is a minor blip which one can ignore,' said T K Bhaumik, chief economist at Reliance Industries Ltd. 'But 2008-2009 would be the most difficult year for India's exports because of the global slowdown and exports will have to face the challenge of falling global demand.'

Mr Bhaumik said the trade gap could widen to US$100 billion in 2008-2009 but that should not be a cause for worry as India had comfortable foreign exchange reserves.

Exports account for nearly 15 per cent of India's gross domestic product.

The World Trade Organization said last week global trade growth would slow to a six-year low in 2008 although financial market turbulence and slowdowns in some developed economies have so far had little effect.

Last year, the Indian government raised tax refund rates and offered interest subsidies on bank loans to ease the pain of exporters hit by a rise of 12 per cent in the value of the local currency against the dollar.

Imports rose 35.24 per cent to US$23.17 billion in March while non-oil imports, a key gauge of domestic economic activity, were up 18.7 per cent to US$14.5 billion. Non-oil imports in 2007-2008 were 23.4 per cent to US$158.9 billion while oil imports during the fiscal year were up 35.3 per cent at US$77 billion from a year ago.

India hopes to grab a 5 per cent share of global trade by 2020.

India's inflation rate highest in 3 1/2 years

2008-05-03T21:34:00.000+08:00

India's inflation accelerated at the fastest pace in more than three years, vindicating the central bank's decision to order commercial lenders to increase reserves twice last month.

Wholesale prices rose 7.57 per cent in the week ended April 19 from a year earlier, after gaining 7.33 per cent in the previous week, the government said in a statement here yesterday. Economists had expected a 7.42 per cent increase.

Prime Minister Manmohan Singh, seeking to stay in power in elections due next year, has adopted a series of measures to tame inflation that has doubled in the last five months.

Faster gains in prices prompted the Reserve Bank of India to raise its cash reserve ratio to a seven-year high.

'The government may take more fiscal measures as inflation will remain elevated for the next few months,' said Rajeev Malik, senior economist at JPMorgan Chase & Co in Singapore.

'Additionally, more monetary tightening cannot be ruled out.'

The government on April 29 scrapped import duties on steel products including pig iron, hot-rolled coils, ferrous alloys and zinc and imposed an export tax on the overseas sales of some other steel products to augment local stocks.

To add to Mr Singh's efforts to rein in inflation, the central bank on April 29 unexpectedly ordered lenders to set aside more reserves, raising the cash reserve ratio to 8.25 per cent from 8 per cent the highest since March 2001.

Finance Minister Palaniappan Chidambaram yesterday said the inflation will be curbed, with food prices being the first to ease.

The government will take further measures to contain prices, he said speaking to reporters in the southern Indian city of Bangalore.

The yield on the benchmark 8.24 per cent note due in April 2018 was little changed at 7.88 per cent as of 12:05pm in Mumbai, according to the central bank's trading system.

The monetary and fiscal steps will help moderate inflation in the next two to three months, central bank governor Yaga Venugopal Reddy said after last month's policy statement.

The central bank said it expects inflation of as much as 5.5 per cent in the year to March 31, higher than its previous year's target of 5 per cent.

The Reserve Bank may raise the so-called cash reserve ratio for the third time this year to as high as 8.75 per cent, according to a Bloomberg News survey of nine economists.

Mr Chidambaram yesterday said he doesn't expect commercial lenders to raise interest rates after the central bank asked lenders to set aside more money.

Banks are 'quite happy that only the cash reserve ratio has been hiked and policy rates have been untouched', Mr Chidambaram said after meeting the chief executives of state- owned banks here.

Indonesia's April inflation at 19-mth high

2008-05-03T21:31:00.000+08:00

Indonesia's inflation accelerated to a 19-month high in April, reducing the central bank's scope to cut interest rates to boost economic growth.

Consumer prices rose 9 per cent from a year earlier, after gaining 8.2 per cent in March, the Central Statistics Bureau said in Jakarta yesterday. Economists expected an 8.7 per cent increase.

Soaring global prices of wheat and soybean have pushed up costs for Indonesian food manufacturers and forced them to charge more for noodles, snack-food and other processed products. The lowest consumer confidence in two years may prevent the central bank from raising borrowing costs to slow inflation.

'Bank Indonesia will say inflation has been cost-pushed' and therefore doesn't warrant an increase in interest rates this month, said Fauzi Ichsan, chief economist at Standard Chartered Plc in Jakarta. 'As long as the rupiah is stable and rising, they can cap imported inflation.' Mr Ichsan forecasts the central bank to raise its benchmark interest rate to 8.5 per cent by year-end from 8 per cent.

PT Indofood Sukses Makmur, the world's biggest instant-noodle maker, increased prices for a fifth time in ten months in March to recover record wheat and palm oil costs.

The government last month cut its 2008 economic growth estimate to 6.4 per cent from its previous forecast of 6.8 per cent. Finance Minister Sri Mulyani Indrawati on April 30 said that the government may cut its growth estimate to 6.3 per cent, matching last year's expansion.

'I'd like to be honest and frank that the problem that we are facing is not light,' President Susilo Bambang Yudhoyono said in a televised speech in Jakarta on April 30. 'Problems relating to our economy are serious.' Indonesia is considering raising fuel prices to reduce the government's burden of capping pump costs for consumers in Asia's third most populous nation.

Saudi Lowers Rates a Quarter Point

2008-05-03T19:57:00.000+08:00

Saudi Arabia, which pegs its currency to the dollar, cut its key interest rate by a quarter of a percentage point to 2 percent, following a reduction by the U.S. Federal Reserve.

The central bank left its benchmark repo rate unchanged and raised banks' reserves requirement with the aim of slowing credit growth, said John Sfakianakis, chief economist at Saudi British Bank. The Saudi Arabian Monetary Agency, the central bank, does not communicate rate decisions directly to the media.

"Increasing the reserves requirements for banks means that they have to keep more money in their vaults,'' Sfakianakis said by telephone from Riyadh today. "So banks have less money to lend, which is an attempt to curb inflation.''

Inflation is running close to 10 percent in Saudi Arabia after the U.S. currency lost 13 percent of its value against the euro in the last 12 months, stoking record inflation in the region. Central banks that fix their currencies to the dollar need to follow U.S. monetary policy to prevent currency inflows or outflows from upsetting the peg. The Saudi riyal jumped to a 20-year high against the dollar in September after the Saudi Arabian Monetary Agency chose not to follow a Fed rate cut.

Saudi Arabia reduced the so-called reverse repo rate by 25 basis points, curtailing any speculation about its commitment to the dollar after the United Arab Emirates, Bahrain and Qatar cut their key rates May 1. The Fed lowered its benchmark interest rate April 30 to 2 percent, its seventh cut since September.

The kingdom left its benchmark repo rate unchanged at 5.5 percent, raised banks' reserves requirement by one percentage point to 13 percent, and doubled the rate on the reserve requirements of time deposits to 4 percent from 2 percent, the banker said.

S&P's 'AAA' rating affirms Singapore's stable outlook

2008-05-02T20:06:00.000+08:00

Standard & Poor's Ratings Services affirmed on Friday its 'AAA/A-1+' sovereign credit ratings on Singapore.

In a statement, Standard & Poor's said the outlook is stable.

The ratings reflect Singapore's enduring fiscal and external strengths and competitive economy, while taking into account the challenges it faces as a small and open economy.

Singapore's general government surplus is estimated at 8.8 percent of GDP in fiscal 2007 and averaged 8.0 percent of GDP between 2003 and 2007.

Standard & Poor's added that this level of surplus – one of the highest in the world – provides strong fiscal flexibility, which is needed for structural reforms such as the ongoing efforts to diversify the economy so that it would be less reliant on electronics exports and be more cost competitive.

Fare evaders will be fined from 1 July

2008-05-02T19:32:00.001+08:00

Commuters who are caught not paying or under-paying bus and MRT fares will face a S$20 fine, starting this July. Those who misuse concession cards will also face a S$50 penalty.

The Public Transport Council (PTC) said this move is to stop dishonest passengers from getting away with free rides.

Unlike bus services, train services already have existing regulations to deal with passengers who evade fares.

Some passengers said they have witnessed how others try to avoid paying bus fares.

One said: "He cut a one-dollar note into two, rolled half of it and used it to pay for a ticket. He would then use the other half another time."

"They just board the bus without tapping their EZ-link cards," another said.

Some adult train passengers have also resorted to using their children's cards.

The PTC said it will launch an awareness programme later this month to inform commuters of the penalty fee for fare evasion before it kicks in on July 1.

Under this programme, posters and brochures will be displayed at bus interchanges.

While most Singaporeans agree that the fines imposed are reasonable, some want to know what happens to those who have made a genuine mistake.

The PTC said commuters may seek recourse on the penalty fee if they feel they have been wrongly penalised.

They can fill up an appeal form which can be downloaded from www.ptc.gov.sg and submit it to the PTC within 14 days from the date of the imposition of the penalty fee.

Fees can be paid on-the-spot to Public Transport officials or at top-up machines in bus interchanges and MRT stations, as well as at the TransitLink Ticket offices.