Greece’s next aid package may include incentives for bondholders to roll over maturing debt without triggering a credit-rating downgrade that would roil Europe’s banking system, two people with knowledge of the talks said.
Investors may be offered preferred status, higher coupon payments or collateral as inducements to buy bonds replacing Greek debt maturing between 2012 and 2014, said the people, who declined to be identified because the talks are in progress.
Wednesday, June 1, 2011
Rehn Sees Greek Solution in Belgian-Style Cuts, Vienna-Plan Bond Rollovers
The European Union’s top economic official said a solution to keeping Greece solvent is combining bold deficit cuts reminiscent of Belgian sacrifices in the 1990s and willingness by lenders to roll over expiring bonds, adapting what was done in Eastern Europe two years ago.
“Belgium is a relevant example” in showing Greece what is “feasible and doable” in primary surplus goals, and the “Vienna initiative has mostly given us positive lessons,” Olli Rehn, the EU’s economic and monetary affairs commissioner, said in an interview yesterday at Bloomberg headquarters in New York. “The basic idea would be that banks maintain their exposure on a voluntary basis.”
“Belgium is a relevant example” in showing Greece what is “feasible and doable” in primary surplus goals, and the “Vienna initiative has mostly given us positive lessons,” Olli Rehn, the EU’s economic and monetary affairs commissioner, said in an interview yesterday at Bloomberg headquarters in New York. “The basic idea would be that banks maintain their exposure on a voluntary basis.”
China Manufacturing Grows at Slowest Pace in Nine Months on Cooling Effort
China’s manufacturing expanded at the slowest pace in nine months in May as the government extended a campaign to cool inflation and the property market, a survey of companies indicated.
The Purchasing Managers’ Index was at 52 from 52.9 in April, the China Federation of Logistics and Purchasing said in an e-mailed statement. The number was higher than the median forecast of 51.6 in a Bloomberg News survey of 16 economists. The index has a seasonal pattern of falling in May, economists said before the release.
The Purchasing Managers’ Index was at 52 from 52.9 in April, the China Federation of Logistics and Purchasing said in an e-mailed statement. The number was higher than the median forecast of 51.6 in a Bloomberg News survey of 16 economists. The index has a seasonal pattern of falling in May, economists said before the release.
Taiwan Prepares for Chinese Tourist Influx Seen Boosting Economic Growth
Chu Shuang-te is scrambling to finish building a restaurant in Taipei 101, the world’s second-tallest skyscraper, for Michelin-starred chain Din Tai Fung. He aims to open in time for Taiwan’s next wave of Chinese tourists.
“We’ve been working overtime since March,” said Chu, a manager at the dumpling specialist, as a 30-strong construction crew clattered drills behind him. Taiwan is about to permit more Chinese visitors and the restaurant wants to open in July to make the most of the opportunity, Din Tai Fung said.
Taiwan is preparing to allow individual tourists from China for the first time since a civil war ended in 1949, hoping they will throng attractions such as the 106-story tower. The move, due as early as this month, may take Chinese arrivals to 4 million next year from less than 200,000 in 2008, when a ban on group trips was lifted, according to Barclays Capital estimates.
“Resurgent tourist spending as millions more Chinese visit Taiwan will boost consumption and real-estate investment, similar to the pattern seen in Singapore since 2004,” said Wai Ho Leong, an economist at Barclays Capital in Singapore. “The island’s pursuit of closer commercial ties with China is crucial to raising its long-term economic growth potential.”
Taiwanese President Ma Ying-jeou, aiming for re-election in January on a platform of improved economic links that opponents view as a threat to autonomy, has said tourism is booming since he let Chinese visit in organized groups. Allowing individuals will spur $4 billon of investment into the industry in the next five years, said Chiang Pin-kung, Taiwan’s top China negotiator.
Shares to Gain
Formosa International Hotels Corp. (2707) and Ambassador Hotel (2704) are among the companies that will gain and their shares are worth buying, Fubon Securities Co. Ltd. said.
Taipei-based Formosa, Taiwan’s biggest listed hotel company, will climb about 8 percent to NT$630 ($22) over the next six months, while Ambassador will jump 12 percent to NT$54, according to Fubon.
Enmity between Taiwan and China has eased since Ma took office in May 2008, dropping his predecessor’s pro-independence stance and improving commercial ties with the world’s fastest- growing major economy.
The two sides on Jan. 1 cut import taxes on more than 800 products under their first trade treaty, and will meet in Taipei on June 8 to review the 15 agreements signed since Ma came to power, according to Taiwan’s Mainland Affairs Council.
Overtaking Japan
China, which views Taiwan as part of its territory, overtook Japan last year as the island’s largest source of tourist arrivals with 1.63 million visitors, up 68 percent from 2009. The daily quota for Chinese traveling in groups is 4,000, and the Taipei-based United Daily News reported May 18 the initial limit for individuals will be 500.
“We believe that once the individual visitor scheme starts, the daily limit and other conditions will be loosened, benefiting the Taiwan hotel sector and retailers in the long term,” Yoshihiko Kawashima, an analyst at Daiwa-Cathay Capital Markets Co. Ltd., wrote in a research note in April.
Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. (HOT) are among global hoteliers increasing capacity in Taiwan. Marriott, the largest publicly traded U.S. lodging chain, is working with Taiwanese businessman B. V. Riu on a NT$6.2 billion, 352-room franchise agreement.
Taiwan’s Taiex Tourist Index, which tracks eight companies, has surged 42 percent in the past year, according to data compiled by Bloomberg. The benchmark Taiex stock index has jumped 24 percent in the same period.
Economic Growth
Taiwan’s export-led economic growth quickened to a 24-year high of 10.88 percent in 2010 after a recession the previous year. Officials have raised interest rates and approved property and luxury taxes to curb price pressures, while increasing wages to help people cope with higher costs.
The more than 2 million Chinese visitors to Taiwan since 2008 have delivered an NT$100 billion economic benefit, said Chiang, chairman of the Straits Exchange Foundation.
Building on such gains depends on sustaining the thaw in ties. China has more than 1,000 missiles deployed at locations opposite Taiwan, according to the U.S. Department of Defense, and has threatened to invade if the island declares independence.
“There are political and military risks,” said Chang Wu- ueh, a professor of political science at Taipei’s Tamkang University. “Ma needs to assure Taiwanese people that he is improving ties with China and protecting Taiwan’s autonomy.”
Political Risk
The opposition Democratic Progressive Party candidate for president, Tsai Ing-wen, has accused Ma of selling Taiwan short with a policy of rapprochement “boxed in a frame set by China.”
The pro-independence DPP governed from 2000 until Ma’s Kuomintang took power in 2008. The DPP rallied tens of thousands of people in Taipei last year to protest the trade accord, saying it risked giving China too much sway over Taiwan.
Companies are betting tourism growth will weather political risks. China is Taiwan’s biggest trading partner and investment destination, adding pressure for detente.
Taipei-based Ambassador, Taiwan’s second-largest listed lodging company, plans to open a 162-room hotel in the capital this year and another with 220 rooms in 2013.
“Chinese tourists are going to help retailers and boost domestic consumption,” said Bill Chen, a vice president at Ambassador. “They will benefit everyone, not just hotels.”
“We’ve been working overtime since March,” said Chu, a manager at the dumpling specialist, as a 30-strong construction crew clattered drills behind him. Taiwan is about to permit more Chinese visitors and the restaurant wants to open in July to make the most of the opportunity, Din Tai Fung said.
Taiwan is preparing to allow individual tourists from China for the first time since a civil war ended in 1949, hoping they will throng attractions such as the 106-story tower. The move, due as early as this month, may take Chinese arrivals to 4 million next year from less than 200,000 in 2008, when a ban on group trips was lifted, according to Barclays Capital estimates.
“Resurgent tourist spending as millions more Chinese visit Taiwan will boost consumption and real-estate investment, similar to the pattern seen in Singapore since 2004,” said Wai Ho Leong, an economist at Barclays Capital in Singapore. “The island’s pursuit of closer commercial ties with China is crucial to raising its long-term economic growth potential.”
Taiwanese President Ma Ying-jeou, aiming for re-election in January on a platform of improved economic links that opponents view as a threat to autonomy, has said tourism is booming since he let Chinese visit in organized groups. Allowing individuals will spur $4 billon of investment into the industry in the next five years, said Chiang Pin-kung, Taiwan’s top China negotiator.
Shares to Gain
Formosa International Hotels Corp. (2707) and Ambassador Hotel (2704) are among the companies that will gain and their shares are worth buying, Fubon Securities Co. Ltd. said.
Taipei-based Formosa, Taiwan’s biggest listed hotel company, will climb about 8 percent to NT$630 ($22) over the next six months, while Ambassador will jump 12 percent to NT$54, according to Fubon.
Enmity between Taiwan and China has eased since Ma took office in May 2008, dropping his predecessor’s pro-independence stance and improving commercial ties with the world’s fastest- growing major economy.
The two sides on Jan. 1 cut import taxes on more than 800 products under their first trade treaty, and will meet in Taipei on June 8 to review the 15 agreements signed since Ma came to power, according to Taiwan’s Mainland Affairs Council.
Overtaking Japan
China, which views Taiwan as part of its territory, overtook Japan last year as the island’s largest source of tourist arrivals with 1.63 million visitors, up 68 percent from 2009. The daily quota for Chinese traveling in groups is 4,000, and the Taipei-based United Daily News reported May 18 the initial limit for individuals will be 500.
“We believe that once the individual visitor scheme starts, the daily limit and other conditions will be loosened, benefiting the Taiwan hotel sector and retailers in the long term,” Yoshihiko Kawashima, an analyst at Daiwa-Cathay Capital Markets Co. Ltd., wrote in a research note in April.
Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. (HOT) are among global hoteliers increasing capacity in Taiwan. Marriott, the largest publicly traded U.S. lodging chain, is working with Taiwanese businessman B. V. Riu on a NT$6.2 billion, 352-room franchise agreement.
Taiwan’s Taiex Tourist Index, which tracks eight companies, has surged 42 percent in the past year, according to data compiled by Bloomberg. The benchmark Taiex stock index has jumped 24 percent in the same period.
Economic Growth
Taiwan’s export-led economic growth quickened to a 24-year high of 10.88 percent in 2010 after a recession the previous year. Officials have raised interest rates and approved property and luxury taxes to curb price pressures, while increasing wages to help people cope with higher costs.
The more than 2 million Chinese visitors to Taiwan since 2008 have delivered an NT$100 billion economic benefit, said Chiang, chairman of the Straits Exchange Foundation.
Building on such gains depends on sustaining the thaw in ties. China has more than 1,000 missiles deployed at locations opposite Taiwan, according to the U.S. Department of Defense, and has threatened to invade if the island declares independence.
“There are political and military risks,” said Chang Wu- ueh, a professor of political science at Taipei’s Tamkang University. “Ma needs to assure Taiwanese people that he is improving ties with China and protecting Taiwan’s autonomy.”
Political Risk
The opposition Democratic Progressive Party candidate for president, Tsai Ing-wen, has accused Ma of selling Taiwan short with a policy of rapprochement “boxed in a frame set by China.”
The pro-independence DPP governed from 2000 until Ma’s Kuomintang took power in 2008. The DPP rallied tens of thousands of people in Taipei last year to protest the trade accord, saying it risked giving China too much sway over Taiwan.
Companies are betting tourism growth will weather political risks. China is Taiwan’s biggest trading partner and investment destination, adding pressure for detente.
Taipei-based Ambassador, Taiwan’s second-largest listed lodging company, plans to open a 162-room hotel in the capital this year and another with 220 rooms in 2013.
“Chinese tourists are going to help retailers and boost domestic consumption,” said Bill Chen, a vice president at Ambassador. “They will benefit everyone, not just hotels.”
Spaniards’ Anger at Bankers Spills Over as Protests Spread to City Centers
After losing 8,000 euros ($11,500) on an interest-rate swap sold with her mortgage, Maria Jesus del Rio joined demonstrators in her home town of Soria as protests against politicians and bankers spilled onto Spanish streets.
“There’s a growing feeling that the banks have played a big part in the problems now facing Spain,” said del Rio, 37, who gathered with a throng of people in the town’s main square last week as protests that began May 15 swelled across the country. “There’s real anger with banks that got out of control.”
A five-fold surge in bank lending in the decade up to 2007 has left its scars on customers as Spain’s property-fueled boom turned to bust, pushing unemployment above 21 percent and driving companies and consumers into default.
At least 28,000 people gathered in Madrid’s Puerta del Sol central square in the run-up to Spanish regional elections on May 22, according to organizers including the 15-M Movement, which says it’s protesting against “the way bankers and politicians have mismanaged the socio-economical crisis.” An assembly of demonstrators agreed on May 29 to continue the protest camp in Puerta del Sol this week after the movement also formed committees to take their message into city neighborhoods, Dante Scherma, a 15-M spokesman, said by phone.
Many Spaniards, asked by the government to sacrifice living standards and years in retirement to help fix public finances, have been incensed by Spain bailing out savings banks that were crippled by bad loans linked to real estate, said Luis Garicano, a professor at the London School of Economics.
Bailout Costs
“The anger of the youth is real because there’s this feeling that the system is rigged so that bankers make mistakes and don’t suffer the consequences -- while they do,” he said in a phone interview. “Anti-banker sentiment is serious because it risks clouding the judgment of politicians when it comes to taking serious decisions.”
The cost of succoring Spanish savings banks with loans from a government rescue fund has risen to about 11 billion euros. The Bank of Spain has identified a further capital shortfall of about 14 billion euros, some of which will be covered by the rescue fund, known as FROB.
So far, that amount pales in comparison with the money spent in countries such as the U.K., where Royal Bank of Scotland Group Plc alone needed a 45 billion-pound government bailout. At about 1 percent of gross domestic product, the cost of Spain’s rescue in the form of loans from a government fund compares with as much as 100 billion euros to be spent by Ireland on cleaning up its banks, a bill that’s about two-thirds the size of the country’s economy.
‘Banco Sintander’
To be fair, Spaniards need to consider their own role in the country’s economic story of the past decade before singling out people such as bankers or politicians for blame, said Aleix Salo, a cartoonist who has published a short film and comic book called “Espanistan” that satirizes modern Spain.
His comic book tells the story of Fredo, a 20-something without work and his quest to cancel his mortgage that takes him to regions of the fictional country including the sinister “Financial District” where business lobbies dictate the country’s future.
There, a character named “Amalio Botin,” who runs a lender called “Banco Sintander,” transforms into a troll when Fredo and friends ask him to annul the loan. In real life, Emilio Botin is chairman of Banco Santander SA, Spain’s biggest bank. Botin faced protests from about 60 placard-wielding students on a May 30 visit to Madrid’s Carlos III University, El Pais reported.
‘Played Their Part’
A spokesman for Santander declined to comment in a phone interview. Santander, which hasn’t tapped any rescue funds, employs about 34,000 people in Spain and earned 8.18 billion euros last year.
“All sectors of Spanish society have played their part in what has happened in this country,” said Salo, adding that he was still glad people were demonstrating because that meant they were participating in politics. “I’m quite sure that just about everyone who’s out there on the streets protesting still has a bank account.”
The 15-M movement and other organizers of street protests are calling for action against banks among demands that include cuts in military spending and closure of nuclear power plants.
Proposals approved May 20 at a general assembly called in Puerta del Sol included demands for “multiple measures” to stem banking abuses and immediate nationalization of lenders rescued by the state. From 17 percent in 2007, unemployment among Spaniards aged under 25 stands above 44 percent, a rate that compares with 7.9 percent for Germany, according to European Central Bank data.
Interest-Rate Swap
The protesters also asked for changes to Spain’s mortgage laws so that people who take out home loans can cancel the debt by handing over their house to the bank in the event of non- payment. At present, lenders can seize not just the house but all the assets of its owner that it needs to cover an unpaid mortgage debt.
Del Rio said she felt compelled to join the protest in Soria after her experience in 2008, when she bought an interest- rate swap from Caja Rural de Soria at the same time as she took out a mortgage for a new apartment.
She said the bank, which told her the product was to protect her against rising interest rates, saddled her with rising costs when 12-month Euribor, the benchmark rate for most Spanish mortgages, plunged to 1.2 percent by March 2010 from as high as 5.5 percent in October 2008.
Court Rulings
Judges across Spain have been ruling against banks in cases brought by individuals and companies who claimed they were sold swaps without being informed of the risks. So far, 247 cases have been resolved in favor of clients against 55 for banks, according to the Association of Users Affected by Swaps and Financial Derivatives.
“I think there’s been an explosion of rage against the banks,” said del Rio, an electrical engineer. “In my case it comes from personal experience of being sold what turned out to be a complex derivative.”
Six calls seeking comment from Caja Rural in Soria, including one to the chairman’s office, were unanswered.
While many people blame banks for the “easy credit” policies that helped stir the credit boom, the fact that they are now lending less and at higher cost is also fueling anger, according to Garicano. Alfredo Saenz, chief executive officer of Banco Santander, said in April that public and private debt would have to shrink by 100 billion euros a year through 2012.
In Puerta del Sol in Madrid, Jose Luis Garcia, an unemployed electrician who has mortgage payments of 600 euros out of a family income of 1,000 euros a month, admired a scarecrow-type sculpture called “Scare-Banker” built from plastic bottles with a black crow-like bird on its shoulder and fish-like skeleton made from coat hangers.
“I think it’s great,” he said. “It perfectly captures what I think about bankers.”
“There’s a growing feeling that the banks have played a big part in the problems now facing Spain,” said del Rio, 37, who gathered with a throng of people in the town’s main square last week as protests that began May 15 swelled across the country. “There’s real anger with banks that got out of control.”
A five-fold surge in bank lending in the decade up to 2007 has left its scars on customers as Spain’s property-fueled boom turned to bust, pushing unemployment above 21 percent and driving companies and consumers into default.
At least 28,000 people gathered in Madrid’s Puerta del Sol central square in the run-up to Spanish regional elections on May 22, according to organizers including the 15-M Movement, which says it’s protesting against “the way bankers and politicians have mismanaged the socio-economical crisis.” An assembly of demonstrators agreed on May 29 to continue the protest camp in Puerta del Sol this week after the movement also formed committees to take their message into city neighborhoods, Dante Scherma, a 15-M spokesman, said by phone.
Many Spaniards, asked by the government to sacrifice living standards and years in retirement to help fix public finances, have been incensed by Spain bailing out savings banks that were crippled by bad loans linked to real estate, said Luis Garicano, a professor at the London School of Economics.
Bailout Costs
“The anger of the youth is real because there’s this feeling that the system is rigged so that bankers make mistakes and don’t suffer the consequences -- while they do,” he said in a phone interview. “Anti-banker sentiment is serious because it risks clouding the judgment of politicians when it comes to taking serious decisions.”
The cost of succoring Spanish savings banks with loans from a government rescue fund has risen to about 11 billion euros. The Bank of Spain has identified a further capital shortfall of about 14 billion euros, some of which will be covered by the rescue fund, known as FROB.
So far, that amount pales in comparison with the money spent in countries such as the U.K., where Royal Bank of Scotland Group Plc alone needed a 45 billion-pound government bailout. At about 1 percent of gross domestic product, the cost of Spain’s rescue in the form of loans from a government fund compares with as much as 100 billion euros to be spent by Ireland on cleaning up its banks, a bill that’s about two-thirds the size of the country’s economy.
‘Banco Sintander’
To be fair, Spaniards need to consider their own role in the country’s economic story of the past decade before singling out people such as bankers or politicians for blame, said Aleix Salo, a cartoonist who has published a short film and comic book called “Espanistan” that satirizes modern Spain.
His comic book tells the story of Fredo, a 20-something without work and his quest to cancel his mortgage that takes him to regions of the fictional country including the sinister “Financial District” where business lobbies dictate the country’s future.
There, a character named “Amalio Botin,” who runs a lender called “Banco Sintander,” transforms into a troll when Fredo and friends ask him to annul the loan. In real life, Emilio Botin is chairman of Banco Santander SA, Spain’s biggest bank. Botin faced protests from about 60 placard-wielding students on a May 30 visit to Madrid’s Carlos III University, El Pais reported.
‘Played Their Part’
A spokesman for Santander declined to comment in a phone interview. Santander, which hasn’t tapped any rescue funds, employs about 34,000 people in Spain and earned 8.18 billion euros last year.
“All sectors of Spanish society have played their part in what has happened in this country,” said Salo, adding that he was still glad people were demonstrating because that meant they were participating in politics. “I’m quite sure that just about everyone who’s out there on the streets protesting still has a bank account.”
The 15-M movement and other organizers of street protests are calling for action against banks among demands that include cuts in military spending and closure of nuclear power plants.
Proposals approved May 20 at a general assembly called in Puerta del Sol included demands for “multiple measures” to stem banking abuses and immediate nationalization of lenders rescued by the state. From 17 percent in 2007, unemployment among Spaniards aged under 25 stands above 44 percent, a rate that compares with 7.9 percent for Germany, according to European Central Bank data.
Interest-Rate Swap
The protesters also asked for changes to Spain’s mortgage laws so that people who take out home loans can cancel the debt by handing over their house to the bank in the event of non- payment. At present, lenders can seize not just the house but all the assets of its owner that it needs to cover an unpaid mortgage debt.
Del Rio said she felt compelled to join the protest in Soria after her experience in 2008, when she bought an interest- rate swap from Caja Rural de Soria at the same time as she took out a mortgage for a new apartment.
She said the bank, which told her the product was to protect her against rising interest rates, saddled her with rising costs when 12-month Euribor, the benchmark rate for most Spanish mortgages, plunged to 1.2 percent by March 2010 from as high as 5.5 percent in October 2008.
Court Rulings
Judges across Spain have been ruling against banks in cases brought by individuals and companies who claimed they were sold swaps without being informed of the risks. So far, 247 cases have been resolved in favor of clients against 55 for banks, according to the Association of Users Affected by Swaps and Financial Derivatives.
“I think there’s been an explosion of rage against the banks,” said del Rio, an electrical engineer. “In my case it comes from personal experience of being sold what turned out to be a complex derivative.”
Six calls seeking comment from Caja Rural in Soria, including one to the chairman’s office, were unanswered.
While many people blame banks for the “easy credit” policies that helped stir the credit boom, the fact that they are now lending less and at higher cost is also fueling anger, according to Garicano. Alfredo Saenz, chief executive officer of Banco Santander, said in April that public and private debt would have to shrink by 100 billion euros a year through 2012.
In Puerta del Sol in Madrid, Jose Luis Garcia, an unemployed electrician who has mortgage payments of 600 euros out of a family income of 1,000 euros a month, admired a scarecrow-type sculpture called “Scare-Banker” built from plastic bottles with a black crow-like bird on its shoulder and fish-like skeleton made from coat hangers.
“I think it’s great,” he said. “It perfectly captures what I think about bankers.”
Chrysler Vanishes From Europe
Fiat SpA (F), the Italian automaker that controls Chrysler, ended Paolo Mazzali’s American dream.
The car dealer near Milan spent the last 10 years selling customers “American lifestyle” as embodied in Chrysler cars and minivans. Now, he’ll need to convince them to buy Italian after Fiat’s decision to convert Chrysler dealers to Lancia.
“We used to sell an emotional American brand, as American as a Harley Davidson motorcycle,” said Mazzali, whose company owns three Chrysler showrooms. “It’s like giving up a piece of your heart to pitch something new.”
Sergio Marchionne, chief executive officer of Fiat and Chrysler, ceased sales of the U.S. brand in continental Europe today after four decades. The combination of Chrysler and Lancia is part of his plan to end losses in Europe and cut costs by 1.5 billion euros ($2.2 billion) by 2014. Under Fiat, Chrysler’s sales slumped to about a quarter of their total with Daimler AG.
“We couldn’t maintain the two brands everywhere so we had to decide,” Olivier Francois, the Fiat executive who heads the Lancia and Chrysler brands, said in an interview. “Lancia has a higher awareness in Europe, while for the U.S. and the rest of the world, Chrysler is a more global brand.”
The Turin, Italy-based automaker will consolidate Chrysler Group LLC’s results starting this month, a sign of the rapid integration of the two carmakers since the Auburn Hills, Michigan-based manufacturer exited bankruptcy in June 2009. Fiat, which was initially granted a 20 percent stake by the U.S. government, aims to acquire 57 percent of the third-biggest U.S. automaker by the end of 2011.
Sales Slump
Europe is a weak link for Fiat, where it struggles to compete with Volkswagen AG and PSA Peugeot Citroen. The company, which doesn’t breakdown results by region, lost about 1 billion euros last year on its home continent, according to Max Warburton, a London-based analyst at Sanford C. Bernstein.
“Fiat is unlikely to ever make Europe profitable,” said Warburton, who has a “market perform” rating on Fiat. “There’s little new product. In the next two years, market share will likely slide further.”
Fiat’s deliveries in Europe fell 17 percent in the first fourth months of 2011, while industry-wide sales slipped 2.4 percent and VW rose 5.3 percent. General Motors Co. (GM), which is expanding the Chevrolet brand in Europe, increased sales 2.1 percent in the January-April period. Marchionne acknowledges that European operations suffered as he focused on the U.S.
Global Jeep
Fiat will continue to sell Jeep models in Europe alongside Lancia. Marchionne aims to expand Chrysler’s Jeep and Fiat’s Alfa Romeo into global upscale brands as he forges an auto- making group to compete with GM and VW. Lancia will be a local European brand bolstered by Chrysler vehicles.
Chrysler failed to win over European customers, unlike GM and Ford Motor Co. (F), which both outsell Fiat in the region. The U.S. carmaker bought a stake in France’s Simca in 1958 and then sold its European operations to Peugeot in 1978. Under Stuttgart, Germany-based Daimler, the brand renewed its effort in Europe, with sales peaking at about 120,000 cars in 2007.
Last year, Chrysler’s European deliveries slumped 27 percent to 36,900 vehicles, including Dodge and Jeep models. In the U.S., the group’s sales rose 17 percent to 1.09 million.
Lancia’s takeover of Chrysler’s distribution network will boost the Italian brand’s locations by 40 percent to 650 dealers. Chrysler will also provide more than sales outlets. The 300 sedan will be sold as the Lancia Thema starting in the fourth quarter, and other Chrysler models will be re-badged to give Lancia a broader lineup, including a version of the Grand Voyager minivan. The 200 may be renamed as the Flavia.
‘Right Direction’
The goal is to more than double Lancia’s sales to about 250,000 cars by 2014 from 99,400 last year. Overall, Marchionne aims to boost Fiat-Chrysler’s combined sales to 104 billion euros by 2014 from about 66 billion euros last year. The combination with Chrysler is critical for Lancia, which is too small to survive on its own, Marchionne has said.
“It’s going to be very difficult for Lancia to double sales as competition is very heavy,” said Massimiliano Romano, head of research at brokerage Concentric Italy in Milan. “Marchionne is moving in the right direction. Margins are tiny, so you need to optimize resources.”
Lancia was founded in Turin in 1906 by Vincenzo Lancia, a Fiat race car driver. It has vacillated between luxury and mass market over the years. In the 1950s and 1960s, Lancia went head- to-head against Jaguar and Maserati with luxurious coupes such as the Flamina and Flavia. After being acquired by Fiat in 1969, its models veered between race-bred sedans such as the Delta and big-box sedans such as the Thema. In the 1990s, the brand dipped down market, with the compact Y.
Ypsilon Model
Part of Lancia’s makeover is the revamped Ypsilon compact, which will become a five-door hatchback in a bid to widen its appeal compared with the previous three-door-only version. The model, the brand’s best seller, is one of only three current Lancia products and marks a rare new offering.
Fiat postponed the introduction of new models until the second half of 2011 in hopes of a recovery in European car demand. That tactic led to a loss of market share to 7.2 percent from 8.4 percent. Fiat plans to introduce five new cars this year, compared with nine in 2012 and 11 in 2013.
The Poland-built Ypsilon goes on sale today at a starting price of 12,400 euros. The target is to sell 120,000 Ypsilons a year, Francois said in a May 25 interview.
Italian Leather
For Chrysler, the cooperation with Lancia isn’t just a one- way street. The brand will still exist in the U.K. and Ireland and will sell a version of Lancia’s sporty Delta hatchback as well as the Ypsilon. Chrysler may also sell Ypsilons in Japan, South Korea, South Africa and Australia, the company said.
Even as it re-badges Chrysler and Lancia products, Fiat tries to account for regional sensibilities, such as Italian leather made by Poltrona Frau SpA (PFG) in the Lancia version of the Chrysler 300. It’s also bridging cultures with ads featuring Elisabetta Canalis, the Italian girlfriend of George Clooney, with the tagline, “Italian character meets American glamor.”
For auto dealer Mazzali, he’s spent more than 2 million euros to prepare his shops for Lancia. “We’re ready for the change,” he said.
The car dealer near Milan spent the last 10 years selling customers “American lifestyle” as embodied in Chrysler cars and minivans. Now, he’ll need to convince them to buy Italian after Fiat’s decision to convert Chrysler dealers to Lancia.
“We used to sell an emotional American brand, as American as a Harley Davidson motorcycle,” said Mazzali, whose company owns three Chrysler showrooms. “It’s like giving up a piece of your heart to pitch something new.”
Sergio Marchionne, chief executive officer of Fiat and Chrysler, ceased sales of the U.S. brand in continental Europe today after four decades. The combination of Chrysler and Lancia is part of his plan to end losses in Europe and cut costs by 1.5 billion euros ($2.2 billion) by 2014. Under Fiat, Chrysler’s sales slumped to about a quarter of their total with Daimler AG.
“We couldn’t maintain the two brands everywhere so we had to decide,” Olivier Francois, the Fiat executive who heads the Lancia and Chrysler brands, said in an interview. “Lancia has a higher awareness in Europe, while for the U.S. and the rest of the world, Chrysler is a more global brand.”
The Turin, Italy-based automaker will consolidate Chrysler Group LLC’s results starting this month, a sign of the rapid integration of the two carmakers since the Auburn Hills, Michigan-based manufacturer exited bankruptcy in June 2009. Fiat, which was initially granted a 20 percent stake by the U.S. government, aims to acquire 57 percent of the third-biggest U.S. automaker by the end of 2011.
Sales Slump
Europe is a weak link for Fiat, where it struggles to compete with Volkswagen AG and PSA Peugeot Citroen. The company, which doesn’t breakdown results by region, lost about 1 billion euros last year on its home continent, according to Max Warburton, a London-based analyst at Sanford C. Bernstein.
“Fiat is unlikely to ever make Europe profitable,” said Warburton, who has a “market perform” rating on Fiat. “There’s little new product. In the next two years, market share will likely slide further.”
Fiat’s deliveries in Europe fell 17 percent in the first fourth months of 2011, while industry-wide sales slipped 2.4 percent and VW rose 5.3 percent. General Motors Co. (GM), which is expanding the Chevrolet brand in Europe, increased sales 2.1 percent in the January-April period. Marchionne acknowledges that European operations suffered as he focused on the U.S.
Global Jeep
Fiat will continue to sell Jeep models in Europe alongside Lancia. Marchionne aims to expand Chrysler’s Jeep and Fiat’s Alfa Romeo into global upscale brands as he forges an auto- making group to compete with GM and VW. Lancia will be a local European brand bolstered by Chrysler vehicles.
Chrysler failed to win over European customers, unlike GM and Ford Motor Co. (F), which both outsell Fiat in the region. The U.S. carmaker bought a stake in France’s Simca in 1958 and then sold its European operations to Peugeot in 1978. Under Stuttgart, Germany-based Daimler, the brand renewed its effort in Europe, with sales peaking at about 120,000 cars in 2007.
Last year, Chrysler’s European deliveries slumped 27 percent to 36,900 vehicles, including Dodge and Jeep models. In the U.S., the group’s sales rose 17 percent to 1.09 million.
Lancia’s takeover of Chrysler’s distribution network will boost the Italian brand’s locations by 40 percent to 650 dealers. Chrysler will also provide more than sales outlets. The 300 sedan will be sold as the Lancia Thema starting in the fourth quarter, and other Chrysler models will be re-badged to give Lancia a broader lineup, including a version of the Grand Voyager minivan. The 200 may be renamed as the Flavia.
‘Right Direction’
The goal is to more than double Lancia’s sales to about 250,000 cars by 2014 from 99,400 last year. Overall, Marchionne aims to boost Fiat-Chrysler’s combined sales to 104 billion euros by 2014 from about 66 billion euros last year. The combination with Chrysler is critical for Lancia, which is too small to survive on its own, Marchionne has said.
“It’s going to be very difficult for Lancia to double sales as competition is very heavy,” said Massimiliano Romano, head of research at brokerage Concentric Italy in Milan. “Marchionne is moving in the right direction. Margins are tiny, so you need to optimize resources.”
Lancia was founded in Turin in 1906 by Vincenzo Lancia, a Fiat race car driver. It has vacillated between luxury and mass market over the years. In the 1950s and 1960s, Lancia went head- to-head against Jaguar and Maserati with luxurious coupes such as the Flamina and Flavia. After being acquired by Fiat in 1969, its models veered between race-bred sedans such as the Delta and big-box sedans such as the Thema. In the 1990s, the brand dipped down market, with the compact Y.
Ypsilon Model
Part of Lancia’s makeover is the revamped Ypsilon compact, which will become a five-door hatchback in a bid to widen its appeal compared with the previous three-door-only version. The model, the brand’s best seller, is one of only three current Lancia products and marks a rare new offering.
Fiat postponed the introduction of new models until the second half of 2011 in hopes of a recovery in European car demand. That tactic led to a loss of market share to 7.2 percent from 8.4 percent. Fiat plans to introduce five new cars this year, compared with nine in 2012 and 11 in 2013.
The Poland-built Ypsilon goes on sale today at a starting price of 12,400 euros. The target is to sell 120,000 Ypsilons a year, Francois said in a May 25 interview.
Italian Leather
For Chrysler, the cooperation with Lancia isn’t just a one- way street. The brand will still exist in the U.K. and Ireland and will sell a version of Lancia’s sporty Delta hatchback as well as the Ypsilon. Chrysler may also sell Ypsilons in Japan, South Korea, South Africa and Australia, the company said.
Even as it re-badges Chrysler and Lancia products, Fiat tries to account for regional sensibilities, such as Italian leather made by Poltrona Frau SpA (PFG) in the Lancia version of the Chrysler 300. It’s also bridging cultures with ads featuring Elisabetta Canalis, the Italian girlfriend of George Clooney, with the tagline, “Italian character meets American glamor.”
For auto dealer Mazzali, he’s spent more than 2 million euros to prepare his shops for Lancia. “We’re ready for the change,” he said.
Thailand Raises Rate for Fourth Time This Year After Inflation Accelerated
Thailand raised interest rates for the fourth time this year to damp accelerating inflation, as parties contesting the general election next month pledge to counter the impact of higher costs.
The Bank of Thailand voted unanimously to boost the one-day bond repurchase rate by a quarter of a percentage point to 3 percent, it said in Bangkok today, adding to increases of the same amount each in January, March and April. All 16 economists surveyed by Bloomberg News predicted the move.
Prime Minister Abhisit Vejjajiva’s Democrats and the main opposition party have promised to raise wages and extend caps on food and diesel costs as they vie for votes. The central bank said it will continue raising rates at a “gradual pace” and that core inflation may exceed its 3 percent ceiling in the second half, as the economy weathers disruption from Japan’s earthquake.
“Market players think that we still need to increase rates further,” said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl. “Domestic demand remains on an upward trend.”
The Thai baht rose 0.2 percent to 30.27 against the dollar as of 3:27 p.m. local time, while the benchmark SET Index of stocks declined 0.9 percent. The baht has fallen 1 percent this year, the worst performer in a basket of 10 most-traded Asian currencies tracked by Bloomberg, aiding exports while providing less of a buffer against global oil and food costs.
Accelerating Inflation
Borrowing costs remain “low” and “supportive of economic growth,” while the pace of rate increases is “sill appropriate,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said. The central bank is concerned that “populist policies” in the election will affect inflation and economic growth, he said.
Thailand’s consumer prices climbed 4.19 percent in May from a year earlier, the fastest pace since September 2008, a separate report showed today. Core inflation, which excludes fresh food and fuel prices, accelerated to 2.48 percent. The central bank uses core inflation to guide monetary policy.
Asian neighbors from India to China facing price pressures have responded with rate rises. Some have permitted currency gains, with the baht this year lagging behind the 5.2 percent jump in Indonesia’s rupiah, the 1.9 percent rise in Malaysia’s ringgit and the 1.6 percent climb in the Philippine peso.
Higher meat and prepared-food prices boosted inflation last month, while the cost of vegetables and oil eased, Permanent Secretary for Commerce Yanyong Phuangrach said today. He reiterated the government’s forecast for inflation of 3.2 percent to 3.7 percent in 2011.
Thailand’s gross domestic product climbed 2 percent in the first quarter from the previous three months, the fastest pace in a year. Growth in 2011 may exceed the central bank’s 4.1 percent forecast, Paiboon said.
General Election
The government has capped diesel tariffs at under 30 baht (99 U.S. cents) per liter and controlled prices of goods such as eggs to shield Thailand’s 67 million people from price gains.
The July 3 election in Southeast Asia’s second-largest economy will pit Abhisit’s ruling Democrat party against allies of fugitive ex-Premier Thaksin Shinawatra, who was ousted in a 2006 coup and lives overseas. About 100 people have been killed following disputes over the last election in 2007.
The main opposition Pheu Thai Party, led by Thaksin’s sister, Yingluck Shinawatra, has used billboard advertisements to blame Abhisit for rising costs. The prime minister pledged in February to boost the minimum wage by 25 percent over two years, while Pheu Thai has promised a larger increase.
Industrial Output
Political uncertainty could affect the economy going forward, Paiboon said. Election campaigning may lead to as much as 40 billion baht of spending, adding to price pressures, according to Bank of America Merrill Lynch.
Thai industrial output fell the most in 20 months in April after the March 11 earthquake in Japan, Thailand’s largest trading partner, disrupted supply chains.
Local companies such as Aapico Hitech Pcl (AH), an auto parts maker, have cut revenue forecasts as the interruptions reduce vehicle production in Southeast Asia’s second-largest economy.
“Slower growth is inevitable in the second quarter because of Japan’s disaster, but any harm will prove temporary,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. “The central bank has plenty of work to do to keep inflation in check.”
The Bank of Thailand voted unanimously to boost the one-day bond repurchase rate by a quarter of a percentage point to 3 percent, it said in Bangkok today, adding to increases of the same amount each in January, March and April. All 16 economists surveyed by Bloomberg News predicted the move.
Prime Minister Abhisit Vejjajiva’s Democrats and the main opposition party have promised to raise wages and extend caps on food and diesel costs as they vie for votes. The central bank said it will continue raising rates at a “gradual pace” and that core inflation may exceed its 3 percent ceiling in the second half, as the economy weathers disruption from Japan’s earthquake.
“Market players think that we still need to increase rates further,” said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl. “Domestic demand remains on an upward trend.”
The Thai baht rose 0.2 percent to 30.27 against the dollar as of 3:27 p.m. local time, while the benchmark SET Index of stocks declined 0.9 percent. The baht has fallen 1 percent this year, the worst performer in a basket of 10 most-traded Asian currencies tracked by Bloomberg, aiding exports while providing less of a buffer against global oil and food costs.
Accelerating Inflation
Borrowing costs remain “low” and “supportive of economic growth,” while the pace of rate increases is “sill appropriate,” Bank of Thailand Assistant Governor Paiboon Kittisrikangwan said. The central bank is concerned that “populist policies” in the election will affect inflation and economic growth, he said.
Thailand’s consumer prices climbed 4.19 percent in May from a year earlier, the fastest pace since September 2008, a separate report showed today. Core inflation, which excludes fresh food and fuel prices, accelerated to 2.48 percent. The central bank uses core inflation to guide monetary policy.
Asian neighbors from India to China facing price pressures have responded with rate rises. Some have permitted currency gains, with the baht this year lagging behind the 5.2 percent jump in Indonesia’s rupiah, the 1.9 percent rise in Malaysia’s ringgit and the 1.6 percent climb in the Philippine peso.
Higher meat and prepared-food prices boosted inflation last month, while the cost of vegetables and oil eased, Permanent Secretary for Commerce Yanyong Phuangrach said today. He reiterated the government’s forecast for inflation of 3.2 percent to 3.7 percent in 2011.
Thailand’s gross domestic product climbed 2 percent in the first quarter from the previous three months, the fastest pace in a year. Growth in 2011 may exceed the central bank’s 4.1 percent forecast, Paiboon said.
General Election
The government has capped diesel tariffs at under 30 baht (99 U.S. cents) per liter and controlled prices of goods such as eggs to shield Thailand’s 67 million people from price gains.
The July 3 election in Southeast Asia’s second-largest economy will pit Abhisit’s ruling Democrat party against allies of fugitive ex-Premier Thaksin Shinawatra, who was ousted in a 2006 coup and lives overseas. About 100 people have been killed following disputes over the last election in 2007.
The main opposition Pheu Thai Party, led by Thaksin’s sister, Yingluck Shinawatra, has used billboard advertisements to blame Abhisit for rising costs. The prime minister pledged in February to boost the minimum wage by 25 percent over two years, while Pheu Thai has promised a larger increase.
Industrial Output
Political uncertainty could affect the economy going forward, Paiboon said. Election campaigning may lead to as much as 40 billion baht of spending, adding to price pressures, according to Bank of America Merrill Lynch.
Thai industrial output fell the most in 20 months in April after the March 11 earthquake in Japan, Thailand’s largest trading partner, disrupted supply chains.
Local companies such as Aapico Hitech Pcl (AH), an auto parts maker, have cut revenue forecasts as the interruptions reduce vehicle production in Southeast Asia’s second-largest economy.
“Slower growth is inevitable in the second quarter because of Japan’s disaster, but any harm will prove temporary,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. “The central bank has plenty of work to do to keep inflation in check.”
India’s Manufacturing Growth Slows as Higher Borrowing Costs Crimp Output
India’s manufacturing grew at the slowest pace in four months as inflation above 8 percent and nine interest-rate increases since mid-March 2010 crimped output.
The Purchasing Managers’ Index fell to 57.5 in May from 58 in April, HSBC Holdings Plc and Markit Economics said in an e- mail statement today. A number above 50 indicates expansion.
Rising borrowing costs may have begun to hurt demand, reflected in slowing sales at Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, and Ashok Leyland Ltd. The $1.4 trillion economy grew 7.8 percent in the three months through March, the slowest pace in five quarters, a government report showed yesterday.
“Even though the economy is showing signs of moderation, inflation running above 8 percent is a key problem that won’t allow the Reserve Bank of India to let its guard down,” said Sonal Varma, a Mumbai-based economist at Nomura Holdings Inc.
She expects the central bank to raise interest rates by half a percentage point by the end of December. Reserve Bank Governor Duvvuri Subbarao increased the repurchase rate by half a percentage point to 7.25 percent on May 3, the biggest move since July 2008, and indicated he is ready to step up the battle against inflation even at the risk of sacrificing growth.
While inflation slowed to 8.66 percent in April from 9.02 percent in March, the central bank said the rate probably won’t decline much further until September.
Orders Ease
The yield on the 7.8 percent note due April 2021 fell four basis points to 8.37 percent as of 10:56 a.m. The Bombay Stock Exchange’s Sensitive Index rose 0.3 percent while the rupee strengthened 0.3 percent to 44.93 per dollar.
Factory output eased in May due to slower expansion in domestic and overseas orders, Leif Eskesen, Singapore-based chief economist at HSBC, said in today’s statement.
“While the momentum slowed a bit and is set to ease going ahead, growth will be strong enough keep inflation pressures simmering and the Reserve Bank of India in tightening mode,” Eskesen said.
Overseas sales from India rose 34.4 percent in April from a year earlier to $23.8 billion, the commerce ministry said today. Imports rose 14.1 percent to $32.8 billion. The trade deficit was $8.99 billion.
Growth in Asia’s third-biggest economy slowed last quarter as manufacturing grew 5.5 percent in the three months through March from a year earlier, the slowest pace in at least seven quarters, and investment growth eased to a 1 1/2-year low, according to a statistics office report yesterday.
Consumer demand is starting to wane due to higher interest rates. Sales at Maruti Suzuki rose 1.9 percent in May, the least in 29 months, the company said today. Ashok Leyland, India’s second-biggest commercial vehicle maker, said last month sales dropped 15 percent in April.
The Purchasing Managers’ Index fell to 57.5 in May from 58 in April, HSBC Holdings Plc and Markit Economics said in an e- mail statement today. A number above 50 indicates expansion.
Rising borrowing costs may have begun to hurt demand, reflected in slowing sales at Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, and Ashok Leyland Ltd. The $1.4 trillion economy grew 7.8 percent in the three months through March, the slowest pace in five quarters, a government report showed yesterday.
“Even though the economy is showing signs of moderation, inflation running above 8 percent is a key problem that won’t allow the Reserve Bank of India to let its guard down,” said Sonal Varma, a Mumbai-based economist at Nomura Holdings Inc.
She expects the central bank to raise interest rates by half a percentage point by the end of December. Reserve Bank Governor Duvvuri Subbarao increased the repurchase rate by half a percentage point to 7.25 percent on May 3, the biggest move since July 2008, and indicated he is ready to step up the battle against inflation even at the risk of sacrificing growth.
While inflation slowed to 8.66 percent in April from 9.02 percent in March, the central bank said the rate probably won’t decline much further until September.
Orders Ease
The yield on the 7.8 percent note due April 2021 fell four basis points to 8.37 percent as of 10:56 a.m. The Bombay Stock Exchange’s Sensitive Index rose 0.3 percent while the rupee strengthened 0.3 percent to 44.93 per dollar.
Factory output eased in May due to slower expansion in domestic and overseas orders, Leif Eskesen, Singapore-based chief economist at HSBC, said in today’s statement.
“While the momentum slowed a bit and is set to ease going ahead, growth will be strong enough keep inflation pressures simmering and the Reserve Bank of India in tightening mode,” Eskesen said.
Overseas sales from India rose 34.4 percent in April from a year earlier to $23.8 billion, the commerce ministry said today. Imports rose 14.1 percent to $32.8 billion. The trade deficit was $8.99 billion.
Growth in Asia’s third-biggest economy slowed last quarter as manufacturing grew 5.5 percent in the three months through March from a year earlier, the slowest pace in at least seven quarters, and investment growth eased to a 1 1/2-year low, according to a statistics office report yesterday.
Consumer demand is starting to wane due to higher interest rates. Sales at Maruti Suzuki rose 1.9 percent in May, the least in 29 months, the company said today. Ashok Leyland, India’s second-biggest commercial vehicle maker, said last month sales dropped 15 percent in April.
Manufacturing Grows at Slowest Pace in Almost Two Years as New Orders Fall
U.K. manufacturing grew at the slowest pace in almost two years in May as weak domestic demand led to a drop in production and new orders, a survey showed.
A gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply declined to 52.1, the lowest since September 2009, from a downwardly revised 54.4 in April, according to an e-mailed report in London today. Output and new orders fell for the first time since the middle of 2009, and producers of consumer goods and smaller manufacturers were hit hardest.
The biggest government spending cuts since World War II are hurting consumer confidence, while accelerating inflation is squeezing incomes. Holidays for Easter and the royal wedding at the end of April and the impact of the Japanese earthquake and tsunami also hurt company orders.
“The fact that the output and new orders fell for the first time in two years does raise questions about where economic growth will come from,” Hetal Mehta, an economist at Daiwa Capital Markets Europe in London, said in an e-mailed note. “With that in mind, it is difficult to see how the Bank of England will be able to increase interest rates this year.”
The pound erased its gain against the dollar after the report and traded at $1.6415 as of 10:34 a.m., down 0.2 percent from yesterday. The yield on the 10-year gilt was little changed at 3.30 percent after earlier rising to 3.31 percent.
Price Pressure
The decline in the manufacturing index last month was bigger than economists had forecast in May. They had predicted a reading of 54.1, according to the median of 26 estimates in a Bloomberg News survey. A measure above 50 indicates expansion. Still, employment rose for a 14th month.
Higher commodity prices are squeezing companies’ profit margins. Prices at factory gates rose to a near-record due to higher costs for raw materials such as chemicals, energy, food, fuel, metals, paper, plastics and timber, the report showed.
Separate reports today showed factory growth in the euro area slowed more than initially estimated in May, while in China, it expanded at the weakest pace in nine months.
The Bank of England kept its benchmark interest rate at a record low of 0.5 percent last month and Governor Mervyn King said on May 11 the U.K. faces a “difficult time ahead.” Britain’s economy expanded 0.5 percent in the first quarter, barely enough to erase the contraction in the final three months of last year.
“Domestic market weakness was the main drag on order books and output,” Rob Dobson, senior economist at Markit, said in the statement. “This was exacerbated by the additional bank holidays in late April, which fell during the early part of the latest survey period, and ongoing supply-chain disruption following the Japanese earthquake.”
A gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply declined to 52.1, the lowest since September 2009, from a downwardly revised 54.4 in April, according to an e-mailed report in London today. Output and new orders fell for the first time since the middle of 2009, and producers of consumer goods and smaller manufacturers were hit hardest.
The biggest government spending cuts since World War II are hurting consumer confidence, while accelerating inflation is squeezing incomes. Holidays for Easter and the royal wedding at the end of April and the impact of the Japanese earthquake and tsunami also hurt company orders.
“The fact that the output and new orders fell for the first time in two years does raise questions about where economic growth will come from,” Hetal Mehta, an economist at Daiwa Capital Markets Europe in London, said in an e-mailed note. “With that in mind, it is difficult to see how the Bank of England will be able to increase interest rates this year.”
The pound erased its gain against the dollar after the report and traded at $1.6415 as of 10:34 a.m., down 0.2 percent from yesterday. The yield on the 10-year gilt was little changed at 3.30 percent after earlier rising to 3.31 percent.
Price Pressure
The decline in the manufacturing index last month was bigger than economists had forecast in May. They had predicted a reading of 54.1, according to the median of 26 estimates in a Bloomberg News survey. A measure above 50 indicates expansion. Still, employment rose for a 14th month.
Higher commodity prices are squeezing companies’ profit margins. Prices at factory gates rose to a near-record due to higher costs for raw materials such as chemicals, energy, food, fuel, metals, paper, plastics and timber, the report showed.
Separate reports today showed factory growth in the euro area slowed more than initially estimated in May, while in China, it expanded at the weakest pace in nine months.
The Bank of England kept its benchmark interest rate at a record low of 0.5 percent last month and Governor Mervyn King said on May 11 the U.K. faces a “difficult time ahead.” Britain’s economy expanded 0.5 percent in the first quarter, barely enough to erase the contraction in the final three months of last year.
“Domestic market weakness was the main drag on order books and output,” Rob Dobson, senior economist at Markit, said in the statement. “This was exacerbated by the additional bank holidays in late April, which fell during the early part of the latest survey period, and ongoing supply-chain disruption following the Japanese earthquake.”
Indonesia’s Inflation Slows, Easing Pressure to Raise Policy Interest Rate
Indonesia’s inflation slowed for a fourth straight month as a strengthening currency capped import costs, easing pressure on policy makers to raise interest rates.
Consumer prices in Southeast Asia’s biggest economy rose 5.98 percent last month from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with the 6.16 percent gain reported earlier for April, and the 5.94 percent median forecast in a Bloomberg News survey of 19 economists.
Bank Indonesia, which will release its next monetary policy statement on June 9, kept its benchmark rate at 6.75 percent for a third straight month in May to bolster slowing economic growth. President Susilo Bambang Yudhoyono’s policy makers have extended fuel subsidies and let the rupiah climb more than 5 percent this year to contain inflation amid rising food and oil costs.
“Inflation in May was influenced core inflation rather than volatile foods, Djamal, deputy chairman of the statistics office, said at the inflation announcement. “However, rice prices tend to rise in late May, and the government needs to be aware of the possibility of inflation in the months ahead because the harvest is over.”
Indonesia’s rupiah rose 0.1 percent to 8,538 per dollar as at 2:18 pm in Jakarta, according to Bloomberg data. The currency has gained 5.2 percent this year
Holding Interest Rates
The central bank has refrained from boosting borrowing costs since its first rate increase in more than two years in February, in contrast with neighbors from Malaysia to India where officials have accelerated monetary tightening. While the country’s policy measures have helped ease inflation, authorities “can’t be complacent,” Deputy Governor Hartadi Sarwono said in May.
Inflationary pressure will be higher in June, July and August due to seasonal factors, Andry Asmoro, an economist at PT Bank CIMB Niaga in Jakarta, said after the announcement.
“We expect BI would raise their benchmark rate next month,” Asmoro said.
Indonesia’s inflation this year may be below 5.5 percent if the government delays scrapping fuel subsidies, Sarwono said last week. Consumer prices may rise as much as 6.5 percent should the government decide to raise fuel prices, he said.
Consumer prices climbed 0.12 percent in May from the previous month. Core inflation accelerated to 4.64 percent from the 4.62 percent pace reported earlier for April.
Indonesia’s exports rose 37.3 percent in April from a year earlier, the statistics department said. That compares with the 27.5 percent pace reported earlier for March.
Consumer prices in Southeast Asia’s biggest economy rose 5.98 percent last month from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with the 6.16 percent gain reported earlier for April, and the 5.94 percent median forecast in a Bloomberg News survey of 19 economists.
Bank Indonesia, which will release its next monetary policy statement on June 9, kept its benchmark rate at 6.75 percent for a third straight month in May to bolster slowing economic growth. President Susilo Bambang Yudhoyono’s policy makers have extended fuel subsidies and let the rupiah climb more than 5 percent this year to contain inflation amid rising food and oil costs.
“Inflation in May was influenced core inflation rather than volatile foods, Djamal, deputy chairman of the statistics office, said at the inflation announcement. “However, rice prices tend to rise in late May, and the government needs to be aware of the possibility of inflation in the months ahead because the harvest is over.”
Indonesia’s rupiah rose 0.1 percent to 8,538 per dollar as at 2:18 pm in Jakarta, according to Bloomberg data. The currency has gained 5.2 percent this year
Holding Interest Rates
The central bank has refrained from boosting borrowing costs since its first rate increase in more than two years in February, in contrast with neighbors from Malaysia to India where officials have accelerated monetary tightening. While the country’s policy measures have helped ease inflation, authorities “can’t be complacent,” Deputy Governor Hartadi Sarwono said in May.
Inflationary pressure will be higher in June, July and August due to seasonal factors, Andry Asmoro, an economist at PT Bank CIMB Niaga in Jakarta, said after the announcement.
“We expect BI would raise their benchmark rate next month,” Asmoro said.
Indonesia’s inflation this year may be below 5.5 percent if the government delays scrapping fuel subsidies, Sarwono said last week. Consumer prices may rise as much as 6.5 percent should the government decide to raise fuel prices, he said.
Consumer prices climbed 0.12 percent in May from the previous month. Core inflation accelerated to 4.64 percent from the 4.62 percent pace reported earlier for April.
Indonesia’s exports rose 37.3 percent in April from a year earlier, the statistics department said. That compares with the 27.5 percent pace reported earlier for March.
Australia GDP Falls Most Since 1991
Australia’s economy shrank in the first quarter by the most in 20 years as floods hurt exports, even as stronger business investment underscored the central bank’s forecast for a rebound in the second half of the year.
Gross domestic product fell 1.2 percent from the previous three months, when it rose a revised 0.8 percent, the Bureau of Statistics said in Sydney today. Exports slumped 8.7 percent, subtracting 2.1 percentage points from GDP growth, today’s report showed, while machinery and equipment spending jumped 6 percent, adding 0.4 point.
The nation’s dollar rose after the report showed the contraction was smaller than a drop of as much as 2 percent that economists including Goldman Sachs & Partners Australia Pty had forecast. While Reserve Bank of Australia Governor Glenn Stevens has held interest rates at 4.75 percent for the past five meetings to help Queensland state recover, investors today boosted bets he’ll raise borrowing costs by August.
“The market was braced for a really big negative so it’s a bit of a relief,” said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney. “The report looks mostly to be reflecting the impact of the Queensland floods on exports; outside of exports, domestic demand is actually pretty resilient.”
RBA Outlook
The local currency rose to as high as $1.0752 before trading at $1.0732 at 4:35 p.m. in Sydney from $1.0672 yesterday in New York. The RBA has pledged to look past data distorted by the natural disasters and said rates will need to rise “at some point” to contain inflation.
Household spending, which accounts for 55 percent of GDP, increased 0.6 percent in the first quarter, adding 0.3 percentage point to growth, today’s report showed. Dwellings rose 4.6 percent, adding 0.3 point.
Compared with a year earlier, the economy expanded 1 percent in the first quarter, today’s report showed, matching economists’ median forecast.
Traders bet there’s an 12 percent chance Stevens will boost the benchmark rate by a quarter of a percentage point to 5 percent at a meeting June 7, a 32 percent chance in July and 50 percent in August, interbank cash-rate futures showed.
The quarterly decline was the biggest drop since Australia’s last recession in 1991 and compared with the median of 25 estimates in a Bloomberg News survey for a 1.1 percent fall in GDP.
Regional Slowdown
Global growth, including the economies of some of Australia’s biggest trading partners, shows signs of weakening.
China’s manufacturing expanded at the slowest pace in nine months in May, a survey of companies released today showed. India’s growth in three months to March 31 was the weakest in five quarters, and Japan’s industrial production rose less than economists forecast in April, reports showed this week. Those three countries accounted for 51 percent of Australia’s total exports so far this year.
Today’s GDP data showed Australia’s household savings ratio climbed to 11.5 percent from 9.7 percent in the previous quarter, the highest level since 2009. Insurance payouts following the January floods contributed to the rise, said Bill Evans, Westpac Banking Corp. (WBC)’s chief economist.
The report, coupled with Australia’s government budget released last month that aims to cool inflation and return to a surplus by 2013, will make it difficult for the RBA to raise rates next week, economists said. “However, the RBA is almost certain to maintain the strong hawkish rhetoric to ensure that markets and the community ‘have been warned,’” Evans said.
Aussie’s Advance
The nation’s currency has risen 29 percent in the past year as companies including BHP Billiton Ltd. (BHP) increase hiring to meet Chinese and Indian demand for iron ore and coal, pushing unemployment below 5 percent.
Driving the economy is mining investment the government estimates will be A$76 billion ($82 billion) next fiscal year. BHP, the world’s biggest mining company, is expanding its iron ore operations in Western Australia state’s Pilbara region.
The local dollar reached $1.1012 on May 2, the highest level since it was freely floated in 1983. The currency’s strength is hurting exporters including Henderson, Western Australia-based shipbuilder Austal Ltd. (ASB)
The RBA’s benchmark interest rate of 4.75 percent is the developed world’s highest, raising debt payments for homeowners. Myer Holdings Ltd. (MYR) and David Jones Ltd. (DJS), Australia’s biggest department store chains, reported declines in quarterly sales on May 11.
Rebound Predicted
In a quarterly review released last month, the RBA forecast growth will be 4.25 percent this year, unchanged from its February estimate. Consumer prices will rise 3.25 percent over the period, from a previous prediction of 3 percent, and core inflation will quicken to 3 percent from 2.75 percent, it said.
Disrupting trade were floods in Queensland in January that Prime Minister Julia Gillard called the nation’s most expensive natural disaster. Queensland produces 80 percent of steel-making coal exports from Australia, the world’s biggest supplier, and grows more than 30 percent of the country’s fruit and vegetables.
The impact was reflected in the GDP breakdown in states at the center of Australia’s biggest resources boom. Queensland’s economy contracted 0.6 percent in the three months through March from the previous quarter, while Western Australia’s GDP surged 3.2 percent.
Expanding resource projects helped Australia post record employment growth last year before hiring cooled in the first four months of 2011. Still, the number of unemployed Australians in April fell to the lowest level since January 2009.
“The economy will rebound in the second quarter, but it will take some time before the coal industry, in particular, is back up to full speed,” said Stephen Walters, chief economist for Australia at JPMorgan Chase & Co. (JPM) in Sydney.
Gross domestic product fell 1.2 percent from the previous three months, when it rose a revised 0.8 percent, the Bureau of Statistics said in Sydney today. Exports slumped 8.7 percent, subtracting 2.1 percentage points from GDP growth, today’s report showed, while machinery and equipment spending jumped 6 percent, adding 0.4 point.
The nation’s dollar rose after the report showed the contraction was smaller than a drop of as much as 2 percent that economists including Goldman Sachs & Partners Australia Pty had forecast. While Reserve Bank of Australia Governor Glenn Stevens has held interest rates at 4.75 percent for the past five meetings to help Queensland state recover, investors today boosted bets he’ll raise borrowing costs by August.
“The market was braced for a really big negative so it’s a bit of a relief,” said Su-Lin Ong, senior economist at RBC Capital Markets in Sydney. “The report looks mostly to be reflecting the impact of the Queensland floods on exports; outside of exports, domestic demand is actually pretty resilient.”
RBA Outlook
The local currency rose to as high as $1.0752 before trading at $1.0732 at 4:35 p.m. in Sydney from $1.0672 yesterday in New York. The RBA has pledged to look past data distorted by the natural disasters and said rates will need to rise “at some point” to contain inflation.
Household spending, which accounts for 55 percent of GDP, increased 0.6 percent in the first quarter, adding 0.3 percentage point to growth, today’s report showed. Dwellings rose 4.6 percent, adding 0.3 point.
Compared with a year earlier, the economy expanded 1 percent in the first quarter, today’s report showed, matching economists’ median forecast.
Traders bet there’s an 12 percent chance Stevens will boost the benchmark rate by a quarter of a percentage point to 5 percent at a meeting June 7, a 32 percent chance in July and 50 percent in August, interbank cash-rate futures showed.
The quarterly decline was the biggest drop since Australia’s last recession in 1991 and compared with the median of 25 estimates in a Bloomberg News survey for a 1.1 percent fall in GDP.
Regional Slowdown
Global growth, including the economies of some of Australia’s biggest trading partners, shows signs of weakening.
China’s manufacturing expanded at the slowest pace in nine months in May, a survey of companies released today showed. India’s growth in three months to March 31 was the weakest in five quarters, and Japan’s industrial production rose less than economists forecast in April, reports showed this week. Those three countries accounted for 51 percent of Australia’s total exports so far this year.
Today’s GDP data showed Australia’s household savings ratio climbed to 11.5 percent from 9.7 percent in the previous quarter, the highest level since 2009. Insurance payouts following the January floods contributed to the rise, said Bill Evans, Westpac Banking Corp. (WBC)’s chief economist.
The report, coupled with Australia’s government budget released last month that aims to cool inflation and return to a surplus by 2013, will make it difficult for the RBA to raise rates next week, economists said. “However, the RBA is almost certain to maintain the strong hawkish rhetoric to ensure that markets and the community ‘have been warned,’” Evans said.
Aussie’s Advance
The nation’s currency has risen 29 percent in the past year as companies including BHP Billiton Ltd. (BHP) increase hiring to meet Chinese and Indian demand for iron ore and coal, pushing unemployment below 5 percent.
Driving the economy is mining investment the government estimates will be A$76 billion ($82 billion) next fiscal year. BHP, the world’s biggest mining company, is expanding its iron ore operations in Western Australia state’s Pilbara region.
The local dollar reached $1.1012 on May 2, the highest level since it was freely floated in 1983. The currency’s strength is hurting exporters including Henderson, Western Australia-based shipbuilder Austal Ltd. (ASB)
The RBA’s benchmark interest rate of 4.75 percent is the developed world’s highest, raising debt payments for homeowners. Myer Holdings Ltd. (MYR) and David Jones Ltd. (DJS), Australia’s biggest department store chains, reported declines in quarterly sales on May 11.
Rebound Predicted
In a quarterly review released last month, the RBA forecast growth will be 4.25 percent this year, unchanged from its February estimate. Consumer prices will rise 3.25 percent over the period, from a previous prediction of 3 percent, and core inflation will quicken to 3 percent from 2.75 percent, it said.
Disrupting trade were floods in Queensland in January that Prime Minister Julia Gillard called the nation’s most expensive natural disaster. Queensland produces 80 percent of steel-making coal exports from Australia, the world’s biggest supplier, and grows more than 30 percent of the country’s fruit and vegetables.
The impact was reflected in the GDP breakdown in states at the center of Australia’s biggest resources boom. Queensland’s economy contracted 0.6 percent in the three months through March from the previous quarter, while Western Australia’s GDP surged 3.2 percent.
Expanding resource projects helped Australia post record employment growth last year before hiring cooled in the first four months of 2011. Still, the number of unemployed Australians in April fell to the lowest level since January 2009.
“The economy will rebound in the second quarter, but it will take some time before the coal industry, in particular, is back up to full speed,” said Stephen Walters, chief economist for Australia at JPMorgan Chase & Co. (JPM) in Sydney.
Polish Economy Set to Slow as Private Investment Falls Short of Estimates
Poland’s economic growth, which remained close to the fastest pace since 2008 in the first quarter, will probably slow as private investment lags behind economists’ expectations.
The European Union’s largest eastern economy expanded 4.4 percent from a year earlier in the first three months, boosted by rising private consumption and exports to countries including Germany, the Central Statistical Office in Warsaw said yesterday. Fixed investment rose 6 percent, missing the 10.8 percent median forecast of six economists polled by Bloomberg.
“While headline growth remains strong, its composition suggests this pace is unsustainable,” said Michal Dybula, chief economist at BNP Paribas in Warsaw. “Investment growth was surprisingly weak.”
Poland, the only EU nation to avoid recession in 2009, expects economic growth to accelerate to 4 percent this year from 3.8 percent in 2010, as domestic demand continues to strengthen. Companies such as furniture maker Nowy Styl Sp. z o.o. are less confident, putting off investments while they await signs of a sustained recovery.
Growth slowed for the first time in eight quarters in the first three months of the year. Gross domestic product expanded 4.5 percent in the final quarter of 2010, the fastest pace since the July-September period of 2008.
Government Spending
The government seeks to bolster growth by accelerating spending of EU development funds allocated for 2007-2013. Poland is also upgrading roads, airports, railways and stadiums in preparation for next year’s European soccer championships, which it will host with Ukraine.
It’s “realistic” to expect Poland’s economic expansion will exceed 4 percent in the second quarter, Janusz Witkowski, acting head of the Central Statistical Office, said today in an interview with TVN CNBC television.
“It should be kept in mind that the contribution of first- quarter investments to the annual result is relatively small, and the following quarters will be key for the pace of investment growth,” the Finance Ministry said yesterday in an e-mailed statement. “We don’t know yet how much companies contributed to first-quarter investment growth.”
Poland’s central bank has raised interest rates three times this year as it sought to curb inflation, which has exceeded the target for seven months, while avoiding “excessive” increases that would choke off investment. The bank boosted the benchmark rate by a quarter-point to 4.25 percent on May 11.
‘No Investment Boom’
Jerzy Hausner, a Monetary Policy Council member, said May 23 he expects “no investment boom” and that “the end of the monetary tightening process should be in sight.”
Investors in the derivatives market are betting there will be two more rate increases by the end of the year. The difference between six-month forward-rate agreements, used to fix borrowing costs in the future, and the three-month Warsaw interbank offered rate stands at 57 basis points. It was 45 basis points on May 11, the day of the last increase.
The zloty gained to 3.945 per euro as of 7:30 a.m. today in Warsaw from 3.9489 yesterday.
Polish companies with 10 or more workers increased investments by 2.6 percent in the first quarter. That shows most of the total was generated by public investments, said Monika Kurtek, chief economist at Bank Pocztowy in Warsaw.
“We still aren’t seeing the pickup in private investments” that the central bank is waiting for, she said.
Companies Suspend Projects
Nowy Styl, a Polish furniture maker, halted plans to build a 60 million-zloty ($22 million) production line this year because of “poor market sentiment,” Chief Executive Officer Adam Krzanowski said at a news conference in late April.
ES-System SA (ESS), a Warsaw-listed maker of lighting systems, suspended investment in a new plant in Dobczyce, southern Poland, because of lower-than-expected demand for solar panels in Europe, CEO Boguslaw Pilszeczek said at a news conference on May 12.
While Polish companies are expanding, they don’t want to invest yet, said Slawomir Sikora, chief executive at Bank Handlowy SA, a unit of Citigroup Inc. and Poland’s sixth-biggest bank by assets. Domestic entrepreneurs increased debt by 2.8 percent to 220.6 billion zloty in the first quarter, according to M3 money supply data from the central bank.
“These are mostly revolving loans for current operations,” Sikora said. “There’s no demand for investment loans while global uncertainty and problems in the euro zone are discouraging companies from long-term investments.”
The European Union’s largest eastern economy expanded 4.4 percent from a year earlier in the first three months, boosted by rising private consumption and exports to countries including Germany, the Central Statistical Office in Warsaw said yesterday. Fixed investment rose 6 percent, missing the 10.8 percent median forecast of six economists polled by Bloomberg.
“While headline growth remains strong, its composition suggests this pace is unsustainable,” said Michal Dybula, chief economist at BNP Paribas in Warsaw. “Investment growth was surprisingly weak.”
Poland, the only EU nation to avoid recession in 2009, expects economic growth to accelerate to 4 percent this year from 3.8 percent in 2010, as domestic demand continues to strengthen. Companies such as furniture maker Nowy Styl Sp. z o.o. are less confident, putting off investments while they await signs of a sustained recovery.
Growth slowed for the first time in eight quarters in the first three months of the year. Gross domestic product expanded 4.5 percent in the final quarter of 2010, the fastest pace since the July-September period of 2008.
Government Spending
The government seeks to bolster growth by accelerating spending of EU development funds allocated for 2007-2013. Poland is also upgrading roads, airports, railways and stadiums in preparation for next year’s European soccer championships, which it will host with Ukraine.
It’s “realistic” to expect Poland’s economic expansion will exceed 4 percent in the second quarter, Janusz Witkowski, acting head of the Central Statistical Office, said today in an interview with TVN CNBC television.
“It should be kept in mind that the contribution of first- quarter investments to the annual result is relatively small, and the following quarters will be key for the pace of investment growth,” the Finance Ministry said yesterday in an e-mailed statement. “We don’t know yet how much companies contributed to first-quarter investment growth.”
Poland’s central bank has raised interest rates three times this year as it sought to curb inflation, which has exceeded the target for seven months, while avoiding “excessive” increases that would choke off investment. The bank boosted the benchmark rate by a quarter-point to 4.25 percent on May 11.
‘No Investment Boom’
Jerzy Hausner, a Monetary Policy Council member, said May 23 he expects “no investment boom” and that “the end of the monetary tightening process should be in sight.”
Investors in the derivatives market are betting there will be two more rate increases by the end of the year. The difference between six-month forward-rate agreements, used to fix borrowing costs in the future, and the three-month Warsaw interbank offered rate stands at 57 basis points. It was 45 basis points on May 11, the day of the last increase.
The zloty gained to 3.945 per euro as of 7:30 a.m. today in Warsaw from 3.9489 yesterday.
Polish companies with 10 or more workers increased investments by 2.6 percent in the first quarter. That shows most of the total was generated by public investments, said Monika Kurtek, chief economist at Bank Pocztowy in Warsaw.
“We still aren’t seeing the pickup in private investments” that the central bank is waiting for, she said.
Companies Suspend Projects
Nowy Styl, a Polish furniture maker, halted plans to build a 60 million-zloty ($22 million) production line this year because of “poor market sentiment,” Chief Executive Officer Adam Krzanowski said at a news conference in late April.
ES-System SA (ESS), a Warsaw-listed maker of lighting systems, suspended investment in a new plant in Dobczyce, southern Poland, because of lower-than-expected demand for solar panels in Europe, CEO Boguslaw Pilszeczek said at a news conference on May 12.
While Polish companies are expanding, they don’t want to invest yet, said Slawomir Sikora, chief executive at Bank Handlowy SA, a unit of Citigroup Inc. and Poland’s sixth-biggest bank by assets. Domestic entrepreneurs increased debt by 2.8 percent to 220.6 billion zloty in the first quarter, according to M3 money supply data from the central bank.
“These are mostly revolving loans for current operations,” Sikora said. “There’s no demand for investment loans while global uncertainty and problems in the euro zone are discouraging companies from long-term investments.”
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