Greek Prime Minister Lucas Papademos plans to convene the nation’s political leaders to seek consensus on the cuts required for a bailout as unions called a strike to protest and European leaders pressed for answers.
While Papademos and the party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for a 130 billion-euro ($171 billion) rescue. German Chancellor Angela Merkel said “time is running out,” while unions derided the conditions as “blackmail.”
Tuesday, February 7, 2012
Americans Gaining Energy Independence
The U.S. is the closest it has been in almost 20 years to achieving energy self-sufficiency, a goal the nation has been pursuing since the 1973 Arab oil embargo triggered a recession and led to lines at gasoline stations.
Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp., the world’s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.
Domestic oil output is the highest in eight years. The U.S. is producing so much natural gas that, where the government warned four years ago of a critical need to boost imports, it now may approve an export terminal. Methanex Corp., the world’s biggest methanol maker, said it will dismantle a factory in Chile and reassemble it in Louisiana to take advantage of low natural gas prices. And higher mileage standards and federally mandated ethanol use, along with slow economic growth, have curbed demand.
Japan Adopts Stealth Intervention as Yen Gains Threaten Exporter Earnings
Japan used so-called stealth intervention in November as the government sought to stem yen gains that hammered earnings at makers of exports ranging from cars to electronics.
Finance Ministry data released today showed Japan conducted 1.02 trillion yen ($13.3 billion) worth of unannounced intervention during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post World War II high of 75.35 against the dollar. The currency’s strength has eroded profits at exporters such as Sharp Corp. and Honda Motor Co., just as faltering global growth undermines demand.
Finance Ministry data released today showed Japan conducted 1.02 trillion yen ($13.3 billion) worth of unannounced intervention during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post World War II high of 75.35 against the dollar. The currency’s strength has eroded profits at exporters such as Sharp Corp. and Honda Motor Co., just as faltering global growth undermines demand.
Australia Pausing Rate Cut on European Progress Spurs Currency: Economy
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Australia unexpectedly kept interest rates unchanged as two cuts late last year help the economy weather Europe’s debt crisis, sending the nation’s currency soaring to a six-month high.
“Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,” Reserve Bank Governor Glenn Stevens said in a statement today announcing the official cash rate target will stay at 4.25 percent, the highest level among the world’s major developed economies. “Financial market sentiment, though remaining skittish, has generally improved since early December.”
Stevens’s first rate decision of the year reflects confidence the U.S. and Chinese economies will withstand a European recession and domestic unemployment will stay close to 5 percent as A$456 billion ($492 billion) in resource projects boost hiring. He signaled today a willingness to lower borrowing costs if conditions warrant an easing of monetary policy.
“The bias is still to cut, that much is clear,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker, who predicted today’s decision. “But they’ve tied it to a weakening in demand, which is appropriate.”
Carr was one of three economists surveyed by Bloomberg News to predict a pause. The other 24 forecast a quarter-percentage- point reduction.
Stocks Steady
Asian stocks swung between gains and losses. The MSCI Asia Pacific Index rose 0.2 percent at 3:51 p.m. in Tokyo. Australia’s S&P/ASX 200 Index slipped 0.5 percent in Sydney today, erasing earlier gains of as much as 0.4 percent.
Australia’s currency strengthened to as much as $1.0811 in Sydney, the highest since Aug. 2, compared with $1.0705 immediately before the decision was announced. The Australian dollar, the world’s fifth-most traded currency, has increased 5.7 percent this year.
Interbank cash-rate futures for March were yielding 4.115 percent, indicating traders expect Stevens to lower rates that month.
Stevens trimmed the nation’s benchmark interest rate by a quarter percentage point to 4.5 percent on Nov. 1 and to 4.25 percent Dec. 6 to help revive household demand and hiring.
Even after the reductions, Australia’s borrowing costs are higher than other industrial nations. Policy rates in Japan and the U.S. are near zero, while the European Central Bank has its benchmark at 1 percent.
‘Easier’ Policy
“Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy,” Stevens said in the statement today.
Elsewhere in Asia, the Indian government said today economic growth probably slowed to 6.9 percent in the year through March from 8.4 percent in 2010-2011. The forecast is less than the 7 percent median estimate in a Bloomberg News survey of 15 economists.
Chinese stocks fell after the country’s Ministry of Industry and Information Technology said industrial output growth is likely to slow this quarter as the world economy cools and Europe’s debt crisis worsens. The Shanghai Composite Index tumbled 1.7 percent at the close today.
Taiwan may say today exports fell 17 percent last month from a year earlier, after increasing 0.6 percent in December, according to the median estimate of 11 economists surveyed by Bloomberg News. The island’s Ministry of Finance is scheduled to announce trade data, including imports and total trade balance, at 4 p.m. in Taipei.
European Industry
Germany, Denmark, Norway and the Netherlands will be among European nation releasing industrial production data today. Output probably stagnated in December from a month earlier in Germany and the Netherlands, and climbed at a faster pace in Denmark, according to the median estimates by economists surveyed by Bloomberg.
In the U.S., an index of economic optimism probably rose to 48.6 this month from 47.5 in January, according to a Bloomberg survey of economists before the release by Investors Business Daily and TechnoMetrica Market Intelligence. A reading below 50 signals a negative outlook.
For Australia’s central bank, Chinese demand for the nation’s commodities is helping propel the domestic economy even as global expansion slows.
“Growth in China has moderated as was intended, but on most indicators remained quite robust through the second half of last year,” Stevens said today. “Commodity prices declined for some months to be noticeably off their peaks, but over the past couple of months have risen somewhat and remain at quite high levels.”
Australia’s trade surplus soared to a record in 2011 on coal and iron ore shipments, a Feb. 2 government report showed, as exports outpaced imports by A$19.3 billion.
Demand for Australian resources and rates that were 2.25 percentage points higher than any other developed nation spurred the Australian dollar to $1.1081 on July 27, the highest level since it was freely floated in 1983.
Australia unexpectedly kept interest rates unchanged as two cuts late last year help the economy weather Europe’s debt crisis, sending the nation’s currency soaring to a six-month high.
“Much remains to be done to put European sovereigns and banks on a sound footing, but some progress has been made,” Reserve Bank Governor Glenn Stevens said in a statement today announcing the official cash rate target will stay at 4.25 percent, the highest level among the world’s major developed economies. “Financial market sentiment, though remaining skittish, has generally improved since early December.”
Stevens’s first rate decision of the year reflects confidence the U.S. and Chinese economies will withstand a European recession and domestic unemployment will stay close to 5 percent as A$456 billion ($492 billion) in resource projects boost hiring. He signaled today a willingness to lower borrowing costs if conditions warrant an easing of monetary policy.
“The bias is still to cut, that much is clear,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker, who predicted today’s decision. “But they’ve tied it to a weakening in demand, which is appropriate.”
Carr was one of three economists surveyed by Bloomberg News to predict a pause. The other 24 forecast a quarter-percentage- point reduction.
Stocks Steady
Asian stocks swung between gains and losses. The MSCI Asia Pacific Index rose 0.2 percent at 3:51 p.m. in Tokyo. Australia’s S&P/ASX 200 Index slipped 0.5 percent in Sydney today, erasing earlier gains of as much as 0.4 percent.
Australia’s currency strengthened to as much as $1.0811 in Sydney, the highest since Aug. 2, compared with $1.0705 immediately before the decision was announced. The Australian dollar, the world’s fifth-most traded currency, has increased 5.7 percent this year.
Interbank cash-rate futures for March were yielding 4.115 percent, indicating traders expect Stevens to lower rates that month.
Stevens trimmed the nation’s benchmark interest rate by a quarter percentage point to 4.5 percent on Nov. 1 and to 4.25 percent Dec. 6 to help revive household demand and hiring.
Even after the reductions, Australia’s borrowing costs are higher than other industrial nations. Policy rates in Japan and the U.S. are near zero, while the European Central Bank has its benchmark at 1 percent.
‘Easier’ Policy
“Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy,” Stevens said in the statement today.
Elsewhere in Asia, the Indian government said today economic growth probably slowed to 6.9 percent in the year through March from 8.4 percent in 2010-2011. The forecast is less than the 7 percent median estimate in a Bloomberg News survey of 15 economists.
Chinese stocks fell after the country’s Ministry of Industry and Information Technology said industrial output growth is likely to slow this quarter as the world economy cools and Europe’s debt crisis worsens. The Shanghai Composite Index tumbled 1.7 percent at the close today.
Taiwan may say today exports fell 17 percent last month from a year earlier, after increasing 0.6 percent in December, according to the median estimate of 11 economists surveyed by Bloomberg News. The island’s Ministry of Finance is scheduled to announce trade data, including imports and total trade balance, at 4 p.m. in Taipei.
European Industry
Germany, Denmark, Norway and the Netherlands will be among European nation releasing industrial production data today. Output probably stagnated in December from a month earlier in Germany and the Netherlands, and climbed at a faster pace in Denmark, according to the median estimates by economists surveyed by Bloomberg.
In the U.S., an index of economic optimism probably rose to 48.6 this month from 47.5 in January, according to a Bloomberg survey of economists before the release by Investors Business Daily and TechnoMetrica Market Intelligence. A reading below 50 signals a negative outlook.
For Australia’s central bank, Chinese demand for the nation’s commodities is helping propel the domestic economy even as global expansion slows.
“Growth in China has moderated as was intended, but on most indicators remained quite robust through the second half of last year,” Stevens said today. “Commodity prices declined for some months to be noticeably off their peaks, but over the past couple of months have risen somewhat and remain at quite high levels.”
Australia’s trade surplus soared to a record in 2011 on coal and iron ore shipments, a Feb. 2 government report showed, as exports outpaced imports by A$19.3 billion.
Demand for Australian resources and rates that were 2.25 percentage points higher than any other developed nation spurred the Australian dollar to $1.1081 on July 27, the highest level since it was freely floated in 1983.
China Central Bank to Aid Home Buyers to Balance Crackdown on Speculators
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China’s central bank pledged support for first-home buyers as a crackdown on real-estate speculation threatens to trigger a property slump in the world’s second- biggest economy.
Officials will increase support for construction of affordable housing and ensure that “loan demand from first-home families” is met, the People’s Bank of China said on its website today.
A government clampdown to make housing affordable is cooling prices and driving down transactions just as Europe’s sovereign-debt crisis caps export demand. Fitch Ratings said today that a “hard landing” for China is a key global risk, after the International Monetary Fund cautioned yesterday that a deterioration in Europe could cut the nation’s growth rate almost in half.
“The government doesn’t want to see home transactions slide too fast -- that may hurt economic growth,” said Lu Ting, a Hong Kong-based economist at Bank of America Corp.
Home prices in 52 of 70 major cities declined in December from November, according to government data. Contract sales, or sales booked before apartments are completed, dropped 30 percent in December at China Vanke Co., as the country’s biggest developer by market value offered fewer homes from November.
No ‘Wild’ Bubbles
China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the slowest pace since the first half of 2009. Home prices have declined in cities from Beijing to Wenzhou.
Jim O’Neill, the economist who coined the term BRIC for developing nations Brazil, Russia, India and China, said Jan. 17 that Chinese officials had acted to avoid the “wild housing bubbles” that many western nations had experienced. O’Neill, chairman of Goldman Sachs Asset Management, said he doesn’t see a “hard landing” for China.
The central bank said today that it will continue to implement “differentiated” housing loan policies. Down payment ratios and mortgage rates vary for first and multiple home buyers and local authorities have a range of restrictions, including based on whether buyers are local residents.
“The PBOC is opening a small window for property and is starting selective easing on the sector,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA. “Real estate activities have cooled a lot in recent months” threatening to hurt economic growth, she said.
Separately, the central bank also said it would “regulate order in the gold market and strengthen management.”
“The regulation seems a continuation of recent central bank moves to crack down on the rampant illegal underground trading in gold derivatives,” said Song Qing, a fund manager at Lion Fund Management Co., China’s first asset manager to place money in foreign exchange-traded gold funds.
China’s central bank pledged support for first-home buyers as a crackdown on real-estate speculation threatens to trigger a property slump in the world’s second- biggest economy.
Officials will increase support for construction of affordable housing and ensure that “loan demand from first-home families” is met, the People’s Bank of China said on its website today.
A government clampdown to make housing affordable is cooling prices and driving down transactions just as Europe’s sovereign-debt crisis caps export demand. Fitch Ratings said today that a “hard landing” for China is a key global risk, after the International Monetary Fund cautioned yesterday that a deterioration in Europe could cut the nation’s growth rate almost in half.
“The government doesn’t want to see home transactions slide too fast -- that may hurt economic growth,” said Lu Ting, a Hong Kong-based economist at Bank of America Corp.
Home prices in 52 of 70 major cities declined in December from November, according to government data. Contract sales, or sales booked before apartments are completed, dropped 30 percent in December at China Vanke Co., as the country’s biggest developer by market value offered fewer homes from November.
No ‘Wild’ Bubbles
China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the slowest pace since the first half of 2009. Home prices have declined in cities from Beijing to Wenzhou.
Jim O’Neill, the economist who coined the term BRIC for developing nations Brazil, Russia, India and China, said Jan. 17 that Chinese officials had acted to avoid the “wild housing bubbles” that many western nations had experienced. O’Neill, chairman of Goldman Sachs Asset Management, said he doesn’t see a “hard landing” for China.
The central bank said today that it will continue to implement “differentiated” housing loan policies. Down payment ratios and mortgage rates vary for first and multiple home buyers and local authorities have a range of restrictions, including based on whether buyers are local residents.
“The PBOC is opening a small window for property and is starting selective easing on the sector,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA. “Real estate activities have cooled a lot in recent months” threatening to hurt economic growth, she said.
Separately, the central bank also said it would “regulate order in the gold market and strengthen management.”
“The regulation seems a continuation of recent central bank moves to crack down on the rampant illegal underground trading in gold derivatives,” said Song Qing, a fund manager at Lion Fund Management Co., China’s first asset manager to place money in foreign exchange-traded gold funds.
Pakistan Must Cut Budget Deficits to Shield ‘Vulnerable’ Economy, IMF Says
Pakistan must stem risks to a “highly vulnerable” economy that include inflation projected at 12 percent, a widening budget deficit and declining currency reserves, the International Monetary Fund said.
The Washington-based IMF called on Pakistan to broaden the tax base, eliminate some subsidies and curtail central bank financing of a budget shortfall that may rise to 7 percent of gross domestic product this fiscal year.
Floods in August that forced more than 1 million people from their homes have added to the woes of the world’s second- largest majority-Muslim nation, a key U.S. partner in the battle against al-Qaeda. Economic growth estimated at 3.4 percent in the fiscal year ending in June 2012 will fall short of the 7 percent pace needed to provide work for the 2 million people who enter the labor force each year, the fund said in a report release yesterday.
“Two major floods, difficulties in implementing key policy reforms, and a more challenging global environment have combined to limit growth and employment creation and made the economy highly vulnerable, with few buffers to absorb shocks,” the fund said.
The government of Prime Minister Yousuf Raza Gilani has struggled to revive an economy hurt by political instability and militant attacks that have killed at least 35,000 people since 2006, according to estimates from the government. Gilani himself faces a contempt of court charge that threatens to force him from office.
Rupee Weakens
Pakistan’s rupee weakened to a record low against the dollar on Jan. 9 on concern foreign reserves will shrink as international aid dwindles. Reserves have fallen by about $2 billion in the last six months and may weaken further, the IMF said. The local currency slipped to 90.5988 per dollar as of 4:30 p.m. in Karachi yesterday, from 90.4713 on Feb. 5, according to data compiled by Bloomberg.
A continuing decline in the reserves “would be credit negative,” Moody’s Investors Service said in a statement yesterday, adding they stood at $12.5 billion at the end of January. While the outlook on Pakistan’s B3 rating is stable, the nation hasn’t eliminated economic imbalances that arose after the 2008 global financial crisis, Moody’s said.
The U.S., the country’s largest export market and aid provider, held back $800 million in military assistance in July out of $2 billion pledged for this fiscal year because of disputes over how to combat terrorism.
U.S., Pakistan Ties
Relations between the U.S. and Pakistan are critical to the Obama administration’s battle with al-Qaeda’s leaders in Pakistan and its plans to end the American combat role in Afghanistan within two years. Ties have become strained since U.S. special operations forces killed Osama bin Laden in a compound in the Pakistani city of Abbottabad last May.
An $11.3 billion IMF loan to Pakistan expired in September, with disbursements suspended in May 2010 after the country failed to meet conditions attached to it. The South Asian nation turned to the IMF for aid in 2008 after its foreign reserves shrank.
Pakistan needs to start repaying the loan this month, and authorities have not requested another one, IMF mission chief Adnan Mazarei said on a conference call yesterday.
“The way we recommended to the authorities to address these vulnerabilities is to recognize that we are all, including Pakistan, living in a more dangerous environment because of the deteriorating global environment and to build buffers,” Mazarei said.
‘Too Accommodative’
The Washington-based IMF last month lowered its estimate for global growth this year and next and warned that the European debt crisis could plunge the world into another recession if it were to worsen.
The IMF report said Pakistan’s “monetary policy is now too accommodative, and should be tightened if inflation or external pressures increase.” It added that “central bank financing of the budget needs to be curtailed, and greater operational independence of the central bank needs to be secured.”
Emerging markets from India to Thailand have eased policy as Europe’s debt crisis hampers the global economy. Pakistan’s central bank left the discount rate at 12 percent in November, pausing to gauge the impact of a 2 percentage-point reduction since the end of July. The next rate decision for the $175 billion economy is due Feb. 11.
Pakistan’s gross domestic product rose 2.4 percent in the year through June 2011, one of the smallest expansions in a decade.
The Washington-based IMF called on Pakistan to broaden the tax base, eliminate some subsidies and curtail central bank financing of a budget shortfall that may rise to 7 percent of gross domestic product this fiscal year.
Floods in August that forced more than 1 million people from their homes have added to the woes of the world’s second- largest majority-Muslim nation, a key U.S. partner in the battle against al-Qaeda. Economic growth estimated at 3.4 percent in the fiscal year ending in June 2012 will fall short of the 7 percent pace needed to provide work for the 2 million people who enter the labor force each year, the fund said in a report release yesterday.
“Two major floods, difficulties in implementing key policy reforms, and a more challenging global environment have combined to limit growth and employment creation and made the economy highly vulnerable, with few buffers to absorb shocks,” the fund said.
The government of Prime Minister Yousuf Raza Gilani has struggled to revive an economy hurt by political instability and militant attacks that have killed at least 35,000 people since 2006, according to estimates from the government. Gilani himself faces a contempt of court charge that threatens to force him from office.
Rupee Weakens
Pakistan’s rupee weakened to a record low against the dollar on Jan. 9 on concern foreign reserves will shrink as international aid dwindles. Reserves have fallen by about $2 billion in the last six months and may weaken further, the IMF said. The local currency slipped to 90.5988 per dollar as of 4:30 p.m. in Karachi yesterday, from 90.4713 on Feb. 5, according to data compiled by Bloomberg.
A continuing decline in the reserves “would be credit negative,” Moody’s Investors Service said in a statement yesterday, adding they stood at $12.5 billion at the end of January. While the outlook on Pakistan’s B3 rating is stable, the nation hasn’t eliminated economic imbalances that arose after the 2008 global financial crisis, Moody’s said.
The U.S., the country’s largest export market and aid provider, held back $800 million in military assistance in July out of $2 billion pledged for this fiscal year because of disputes over how to combat terrorism.
U.S., Pakistan Ties
Relations between the U.S. and Pakistan are critical to the Obama administration’s battle with al-Qaeda’s leaders in Pakistan and its plans to end the American combat role in Afghanistan within two years. Ties have become strained since U.S. special operations forces killed Osama bin Laden in a compound in the Pakistani city of Abbottabad last May.
An $11.3 billion IMF loan to Pakistan expired in September, with disbursements suspended in May 2010 after the country failed to meet conditions attached to it. The South Asian nation turned to the IMF for aid in 2008 after its foreign reserves shrank.
Pakistan needs to start repaying the loan this month, and authorities have not requested another one, IMF mission chief Adnan Mazarei said on a conference call yesterday.
“The way we recommended to the authorities to address these vulnerabilities is to recognize that we are all, including Pakistan, living in a more dangerous environment because of the deteriorating global environment and to build buffers,” Mazarei said.
‘Too Accommodative’
The Washington-based IMF last month lowered its estimate for global growth this year and next and warned that the European debt crisis could plunge the world into another recession if it were to worsen.
The IMF report said Pakistan’s “monetary policy is now too accommodative, and should be tightened if inflation or external pressures increase.” It added that “central bank financing of the budget needs to be curtailed, and greater operational independence of the central bank needs to be secured.”
Emerging markets from India to Thailand have eased policy as Europe’s debt crisis hampers the global economy. Pakistan’s central bank left the discount rate at 12 percent in November, pausing to gauge the impact of a 2 percentage-point reduction since the end of July. The next rate decision for the $175 billion economy is due Feb. 11.
Pakistan’s gross domestic product rose 2.4 percent in the year through June 2011, one of the smallest expansions in a decade.
China Industrial Output Growth to Slow as Global Risks Rise, Ministry Says
China’s industrial output growth is likely to slow this quarter as the world economy cools and Europe’s debt crisis worsens, the Ministry of Industry and Information Technology said.
“The global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile,” the ministry said in a statement before a briefing in Beijing today.
The Shanghai Composite Index tumbled 1.6 percent as of 2:50 p.m. local time, set for the biggest decline since Jan. 16. Fitch Ratings said today that a “hard landing” for China is a key global risk, after the International Monetary Fund cautioned yesterday that a worsening of Europe’s debt crisis could cut the nation’s growth rate almost in half from a forecast of 8.2 percent for this year.
“China’s industry development is facing an increasingly complex domestic and international environment with increased unstable and uncertain factors,” the ministry said.
Production gains may continue to be relatively rapid for the year as a whole, Zhu Hongren, a spokesman, said at the briefing.
Output grew 13.9 percent in 2011 from the previous year, according to the statistics bureau. The government is targeting an 11 percent increase this year.
The central bank has left benchmark interest rates unchanged for the past seven months, while making a single cut to lenders’ reserve requirements, as the government cools house prices and inflation.
Andrew Colquhoun, the Hong Kong-based head of Asia-Pacific ratings for Fitch Ratings, defined a hard landing as growth “significantly lower” than the rating company’s “base case” of an 8.2 percent expansion in 2012. Colquhoun commented by e- mail, confirming remarks he made earlier in a panel discussion in Hong Kong.
“The global economy is slowing down, Europe’s sovereign debt crisis is deepening and the downside risks to the world economy are rising with international demand still slack and global commodities and financial markets continuing to be volatile,” the ministry said in a statement before a briefing in Beijing today.
The Shanghai Composite Index tumbled 1.6 percent as of 2:50 p.m. local time, set for the biggest decline since Jan. 16. Fitch Ratings said today that a “hard landing” for China is a key global risk, after the International Monetary Fund cautioned yesterday that a worsening of Europe’s debt crisis could cut the nation’s growth rate almost in half from a forecast of 8.2 percent for this year.
“China’s industry development is facing an increasingly complex domestic and international environment with increased unstable and uncertain factors,” the ministry said.
Production gains may continue to be relatively rapid for the year as a whole, Zhu Hongren, a spokesman, said at the briefing.
Output grew 13.9 percent in 2011 from the previous year, according to the statistics bureau. The government is targeting an 11 percent increase this year.
The central bank has left benchmark interest rates unchanged for the past seven months, while making a single cut to lenders’ reserve requirements, as the government cools house prices and inflation.
Andrew Colquhoun, the Hong Kong-based head of Asia-Pacific ratings for Fitch Ratings, defined a hard landing as growth “significantly lower” than the rating company’s “base case” of an 8.2 percent expansion in 2012. Colquhoun commented by e- mail, confirming remarks he made earlier in a panel discussion in Hong Kong.
India Forecasts Slowest Economic Growth Since ’09, Adding to Rate-Cut Case
India’s government predicted the weakest economic expansion this year since 2009, adding pressure on the central bank to reduce interest rates.
Gross domestic product will probably rise 6.9 percent in the 12 months through March from a year earlier, the Central Statistical Office said in a statement in New Delhi today. The median of 15 estimates in a Bloomberg News survey was 7 percent. Asia’s third-largest economy expanded 8.4 percent in 2010-2011.
Growth has slowed after the Reserve Bank of India raised rates by a record amount from 2010 until October last year to fight price increases and as Europe’s debt crisis and policy gridlock deter investment. The central bank has signaled readiness to follow nations from Brazil to Indonesia in lowering borrowing costs if inflation eases further, saying the government can help by curbing the country’s budget deficit.
“This number reaffirms the belief that growth drivers will remain subdued and suggests the RBI will cut rates in April,” said Radhika Rao, an economist at Forecast Pte in Singapore. “The reversal of RBI policy is on the way but will be guided by the fiscal deficit and the drop in inflation.”
The rupee, Asia’s worst performer last year with a 16 percent slide against the dollar, climbed 0.3 percent to 48.9875 per dollar as of 3:55 p.m. local time. The BSE India Sensitive Index closed down 0.5 percent. The yield on the 8.79 percent note due November 2021 was little changed at 8.19 percent.
Europe’s Impact
Asia-Pacific officials are striving to weather the impact of Europe’s debt turmoil on global growth. Expansion has eased in countries from China to South Korea, prompting central banks to cut rates or leave them unchanged. Australia today left borrowing costs on hold after two reductions last year.
Indian manufacturing may rise 3.9 percent in the current fiscal year, compared with 7.6 percent in 2010-2011, today’s report showed. Farm output may gain 2.5 percent and mining could fall 2.2 percent, according to the estimates.
India’s inflation in December remained the fastest in the so-called BRIC group that also includes Brazil, Russia and China.
The Reserve Bank on Jan. 24 cut the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze. It also said inflationary threats, including the budget deficit and the slide in the rupee, made it “premature” to start reducing rates.
Budget Deficit
At the same time, the monetary authority reinforced guidance that future rate actions “will be towards lowering them.” It kept the repurchase rate at 8.5 percent for a second month in January, following 375 basis points of increases in 13 moves from mid-March 2010.
The government is struggling to curb India’s budget deficit as a slowing economy hurts tax receipts and subsidies spur spending. The gap reached 92.3 percent of the fiscal-year target in the nine months through December. Standard Chartered Plc has predicted India will miss its goal of lowering the shortfall to 4.6 percent of gross domestic product by March.
The next budget will be presented on March 16, Parliamentary Affairs Minister Pawan Kumar Bansal said in New Delhi today. The fiscal gap may reach 5.9 percent of GDP in 2011-2012 and reducing it requires spending cuts, said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai.
The South Asian nation is selling more debt after a slump of almost 25 percent in the stock market last year forced state- owned companies such as Oil & Natural Gas Corp. to delay share sales. The government has raised 11.4 billion rupees ($233 million) from asset sales compared with a target of 400 billion rupees by March 31.
‘Reforms’ Needed
“What India needs is a furthering of reforms to expand the capacity of the economy,” said Amol Agrawal, a Mumbai-based economist at STCI Primary Dealer Ltd. “Corruption charges and the reversal of policy initiatives have taken a toll.”
Prime Minister Manmohan Singh’s government is under pressure to revive a legislative agenda derailed by claims of graft and stalled moves to spur investment. The government in December suspended its decision to allow foreign retailers such as Wal-Mart Stores Inc. to open supermarkets following protests.
Singh is trying to preserve an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said in an interview in December.
“Concerns remain about the current political environment as both policy formulation and implementation have been hit,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered. “There is an urgent need to revive the economy.”
Gross domestic product will probably rise 6.9 percent in the 12 months through March from a year earlier, the Central Statistical Office said in a statement in New Delhi today. The median of 15 estimates in a Bloomberg News survey was 7 percent. Asia’s third-largest economy expanded 8.4 percent in 2010-2011.
Growth has slowed after the Reserve Bank of India raised rates by a record amount from 2010 until October last year to fight price increases and as Europe’s debt crisis and policy gridlock deter investment. The central bank has signaled readiness to follow nations from Brazil to Indonesia in lowering borrowing costs if inflation eases further, saying the government can help by curbing the country’s budget deficit.
“This number reaffirms the belief that growth drivers will remain subdued and suggests the RBI will cut rates in April,” said Radhika Rao, an economist at Forecast Pte in Singapore. “The reversal of RBI policy is on the way but will be guided by the fiscal deficit and the drop in inflation.”
The rupee, Asia’s worst performer last year with a 16 percent slide against the dollar, climbed 0.3 percent to 48.9875 per dollar as of 3:55 p.m. local time. The BSE India Sensitive Index closed down 0.5 percent. The yield on the 8.79 percent note due November 2021 was little changed at 8.19 percent.
Europe’s Impact
Asia-Pacific officials are striving to weather the impact of Europe’s debt turmoil on global growth. Expansion has eased in countries from China to South Korea, prompting central banks to cut rates or leave them unchanged. Australia today left borrowing costs on hold after two reductions last year.
Indian manufacturing may rise 3.9 percent in the current fiscal year, compared with 7.6 percent in 2010-2011, today’s report showed. Farm output may gain 2.5 percent and mining could fall 2.2 percent, according to the estimates.
India’s inflation in December remained the fastest in the so-called BRIC group that also includes Brazil, Russia and China.
The Reserve Bank on Jan. 24 cut the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze. It also said inflationary threats, including the budget deficit and the slide in the rupee, made it “premature” to start reducing rates.
Budget Deficit
At the same time, the monetary authority reinforced guidance that future rate actions “will be towards lowering them.” It kept the repurchase rate at 8.5 percent for a second month in January, following 375 basis points of increases in 13 moves from mid-March 2010.
The government is struggling to curb India’s budget deficit as a slowing economy hurts tax receipts and subsidies spur spending. The gap reached 92.3 percent of the fiscal-year target in the nine months through December. Standard Chartered Plc has predicted India will miss its goal of lowering the shortfall to 4.6 percent of gross domestic product by March.
The next budget will be presented on March 16, Parliamentary Affairs Minister Pawan Kumar Bansal said in New Delhi today. The fiscal gap may reach 5.9 percent of GDP in 2011-2012 and reducing it requires spending cuts, said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai.
The South Asian nation is selling more debt after a slump of almost 25 percent in the stock market last year forced state- owned companies such as Oil & Natural Gas Corp. to delay share sales. The government has raised 11.4 billion rupees ($233 million) from asset sales compared with a target of 400 billion rupees by March 31.
‘Reforms’ Needed
“What India needs is a furthering of reforms to expand the capacity of the economy,” said Amol Agrawal, a Mumbai-based economist at STCI Primary Dealer Ltd. “Corruption charges and the reversal of policy initiatives have taken a toll.”
Prime Minister Manmohan Singh’s government is under pressure to revive a legislative agenda derailed by claims of graft and stalled moves to spur investment. The government in December suspended its decision to allow foreign retailers such as Wal-Mart Stores Inc. to open supermarkets following protests.
Singh is trying to preserve an economic turnaround that began in the 1990s, when as finance minister he helped engineer a shift toward free-market policies. Once the global economy stabilizes, India will return to 8.5 percent to 9 percent trend growth, he said in an interview in December.
“Concerns remain about the current political environment as both policy formulation and implementation have been hit,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered. “There is an urgent need to revive the economy.”
South Korea’s Growth May Be Below Trend in First Half, Central Bank Says
South Korea’s economy faces “downside risks” and may grow more slowly in the first half than its long-term trend, the Bank of Korea said.
Price pressures will likely persist on elevated inflation expectations and unstable oil costs, the central bank also said in a report to the National Assembly today. Consumer price gains moderated to 3.4 percent in January largely due to a high year- earlier base, it said.
Growth may gradually pick up pace in the second half of this year on improving global conditions, the Bank of Korea said. Policy makers have kept benchmark interest rates unchanged after three increases in the first half of 2011, largely due to risks from Europe’s debt crisis, a slowdown in major economies, and global financial market instability, the central bank said.
External uncertainty, weak consumer and business sentiment, and high household debt are weighing on growth, and downside risks are greater than upside risks, the central bank said.
South Korea’s economy grew 3.6 percent in 2011.
Price pressures will likely persist on elevated inflation expectations and unstable oil costs, the central bank also said in a report to the National Assembly today. Consumer price gains moderated to 3.4 percent in January largely due to a high year- earlier base, it said.
Growth may gradually pick up pace in the second half of this year on improving global conditions, the Bank of Korea said. Policy makers have kept benchmark interest rates unchanged after three increases in the first half of 2011, largely due to risks from Europe’s debt crisis, a slowdown in major economies, and global financial market instability, the central bank said.
External uncertainty, weak consumer and business sentiment, and high household debt are weighing on growth, and downside risks are greater than upside risks, the central bank said.
South Korea’s economy grew 3.6 percent in 2011.
German Workers Demand 6.5% Raise
Two years of minimal wage increases have left Christoph Schoenau, a metallographer for auto and aircraft component maker GKN Plc at a factory near Frankfurt, feeling left out of Germany’s economic rebound.
Schoenau, 39, is one of 3.6 million workers in the metal and electrical industries clamoring for as much as 6.5 percent more in their paychecks when unions lock horns with employers next month. That’s after Germany’s economy, the largest in Europe, registered 3 percent annual growth last year and 3.7 percent the year before, the most since German reunification.
As manufacturers from BASF SE to Volkswagen AG prepare to report a surge in 2011 earnings, workers are calling for a bigger share of the spoils. Employers contend that raising costs above productivity gains would hurt Germany’s competitive advantage as Europe risks slipping back into recession.
“There’s always a reason why labor representatives are pressed to hold back,” said Schoenau, who checks the quality of axle components for cars in Offenbach. “Regardless of whether we are in a recession, or at the beginning or the middle of a recovery, employers always say that there is no room for a decent wage increase.”
The last agreement between the IG Metall union, of which Schoenau is a member, and employer representatives for the metal and electrical industry was in May 2010. It produced a one-time payment of 320 euros ($417), with a 2.7 percent pay increase delayed until April 2011. The accord runs out at the end of March, with talks for a new deal starting next month.
Payback Time
The duration of accords is typically used as a bargaining tool by both sides, and agreements in the past have run anything from 12 to 36 months, according to the IG Metall. The union is seeking a fresh accord well into next year, and both sides remain bound to a truce agreement until the end of April before any labor strike could take place.
“We are under pressure from our membership because they went through two years of low wage increases and demands from management for salary reductions because of the crisis,” IG Metall board member Christian Brunkhorst said. “They see that German companies are doing pretty well and make extra profits with overtime work and weekend shifts.”
Even though the union has to balance the short-term demands of the workforce with the long-term requirement of the company to remain competitive, it may still demand more than in the past because of the “excellent situation of the companies,” said Brunkhorst, who is responsible for the automotive sector of the trade union’s policy department.
Swelling Order Book
Carmakers including Bayerischen Motoren Werke AG and Volkswagen are expected to post record earnings for 2011 next month as demand for their vehicles climbs in China and spending recovers in the U.S. Linde AG, the world’s second-largest industrial gas maker, is expected on March 9 to post record pretax profit, according to analyst estimates. Siemens AG, Europe’s largest engineer, is sitting on a record order book.
German exports probably exceeded 1 trillion euros ($1.3 trillion) for the first time last year, as demand from developing states offset waning sales in Europe, the Berlin- based BGA Exporters and Wholesalers group said in November.
GEA Group AG on Feb. 6 said operating profit last year was the highest in more than 10 years and it expects sales and profitability to rise further this year. MTU Aero Engines AG is scheduled on Feb 23 to report the highest annual pretax profit since the company was listed, according to analyst estimates.
Falling Unemployment
German unemployment dropped to a two-decade low in January, bolstering economic growth as the sovereign-debt crisis prompted companies from Spain to Greece to cut jobs. Germany’s economic expansion has helped soften a slowdown across the region as companies boost output and hiring.
Still, Europe’s largest economy is cooling as slower global growth and weaker demand from debt-stricken euro-area neighbors erode sales. Siemens said last month that meeting targets for this year has become harder and predicted that Europe will slip into recession.
“We know the sword of Damocles pertaining to economic development,” Martin Kannegiesser, president of Gesamtmetall employers association said in a statement on the group’s website. “I’m sure we’ll see higher wages but one should not expect that the sky should be the limit.”
BASF, scheduled to report annual earnings on Feb. 24, may post an 8.3 percent increase in earnings before interest and taxes, the highest operating profit in the company’s 146-year history. Still, the BAVC chemical manufacturing employers association urged restraint before it starts negotiations with union representatives next month.
‘Economic Reality’
“Last year we agreed on the highest increase in Germany with 4.1 percent,” said Sebastian Kautzky, spokesman for the BAVC. “Now it’s about the future economic development. I hope that the unions take the economic reality of 2012 into account when considering their demands.”
Average gross pay per hour stagnated while inflation rose 1.2 percent in 2010, and pay gained 2.8 percent with inflation at 2.5 percent last year, according to the Federal Statistics Office. Germany may avoid a recession as the low level of unemployment supports consumer spending, economists including Aline Schuiling at ABN Amro in Amsterdam said last month.
Jens Kramer, an economist at NordLB in Hanover, said he also isn’t expecting a recession in Germany and that higher wages would boost domestic demand, which was the main driver of the economy last year. Average wage increases will probably come in at about 3 1/2 or 4 percent although it will be different from industry to industry, he predicted.
German Restraint
“Wage increases this year could reasonably be a bit juicier than in the past,” said Kramer. “It’s justified because the wage cost development in Germany has been extremely cheap.”
Increases in employment costs of all euro nations outpaced Germany’s in the decade through 2010. German hourly labor costs rose an average 1.7 percent per year, while they jumped 2.9 percent in Portugal, 3.2 percent in Italy, 3.4 percent in Greece and 4.1 percent in Spain, the labor union-affiliated IMK institute in Dusseldorf said Dec. 12. The figures were based on calculations from Eurostat, the EU statistics agency.
Schoenau, the worker for GKN, said that although he’s weary of excuses from executives to avoid a boost in pay, he hasn’t given up. His union has indicated it is ready to support workers should they decide to take the battle to the streets.
“Our strike fund is nice and full,” said Detlev Wetzel, vice chairman of the IG Metall.
Schoenau, 39, is one of 3.6 million workers in the metal and electrical industries clamoring for as much as 6.5 percent more in their paychecks when unions lock horns with employers next month. That’s after Germany’s economy, the largest in Europe, registered 3 percent annual growth last year and 3.7 percent the year before, the most since German reunification.
As manufacturers from BASF SE to Volkswagen AG prepare to report a surge in 2011 earnings, workers are calling for a bigger share of the spoils. Employers contend that raising costs above productivity gains would hurt Germany’s competitive advantage as Europe risks slipping back into recession.
“There’s always a reason why labor representatives are pressed to hold back,” said Schoenau, who checks the quality of axle components for cars in Offenbach. “Regardless of whether we are in a recession, or at the beginning or the middle of a recovery, employers always say that there is no room for a decent wage increase.”
The last agreement between the IG Metall union, of which Schoenau is a member, and employer representatives for the metal and electrical industry was in May 2010. It produced a one-time payment of 320 euros ($417), with a 2.7 percent pay increase delayed until April 2011. The accord runs out at the end of March, with talks for a new deal starting next month.
Payback Time
The duration of accords is typically used as a bargaining tool by both sides, and agreements in the past have run anything from 12 to 36 months, according to the IG Metall. The union is seeking a fresh accord well into next year, and both sides remain bound to a truce agreement until the end of April before any labor strike could take place.
“We are under pressure from our membership because they went through two years of low wage increases and demands from management for salary reductions because of the crisis,” IG Metall board member Christian Brunkhorst said. “They see that German companies are doing pretty well and make extra profits with overtime work and weekend shifts.”
Even though the union has to balance the short-term demands of the workforce with the long-term requirement of the company to remain competitive, it may still demand more than in the past because of the “excellent situation of the companies,” said Brunkhorst, who is responsible for the automotive sector of the trade union’s policy department.
Swelling Order Book
Carmakers including Bayerischen Motoren Werke AG and Volkswagen are expected to post record earnings for 2011 next month as demand for their vehicles climbs in China and spending recovers in the U.S. Linde AG, the world’s second-largest industrial gas maker, is expected on March 9 to post record pretax profit, according to analyst estimates. Siemens AG, Europe’s largest engineer, is sitting on a record order book.
German exports probably exceeded 1 trillion euros ($1.3 trillion) for the first time last year, as demand from developing states offset waning sales in Europe, the Berlin- based BGA Exporters and Wholesalers group said in November.
GEA Group AG on Feb. 6 said operating profit last year was the highest in more than 10 years and it expects sales and profitability to rise further this year. MTU Aero Engines AG is scheduled on Feb 23 to report the highest annual pretax profit since the company was listed, according to analyst estimates.
Falling Unemployment
German unemployment dropped to a two-decade low in January, bolstering economic growth as the sovereign-debt crisis prompted companies from Spain to Greece to cut jobs. Germany’s economic expansion has helped soften a slowdown across the region as companies boost output and hiring.
Still, Europe’s largest economy is cooling as slower global growth and weaker demand from debt-stricken euro-area neighbors erode sales. Siemens said last month that meeting targets for this year has become harder and predicted that Europe will slip into recession.
“We know the sword of Damocles pertaining to economic development,” Martin Kannegiesser, president of Gesamtmetall employers association said in a statement on the group’s website. “I’m sure we’ll see higher wages but one should not expect that the sky should be the limit.”
BASF, scheduled to report annual earnings on Feb. 24, may post an 8.3 percent increase in earnings before interest and taxes, the highest operating profit in the company’s 146-year history. Still, the BAVC chemical manufacturing employers association urged restraint before it starts negotiations with union representatives next month.
‘Economic Reality’
“Last year we agreed on the highest increase in Germany with 4.1 percent,” said Sebastian Kautzky, spokesman for the BAVC. “Now it’s about the future economic development. I hope that the unions take the economic reality of 2012 into account when considering their demands.”
Average gross pay per hour stagnated while inflation rose 1.2 percent in 2010, and pay gained 2.8 percent with inflation at 2.5 percent last year, according to the Federal Statistics Office. Germany may avoid a recession as the low level of unemployment supports consumer spending, economists including Aline Schuiling at ABN Amro in Amsterdam said last month.
Jens Kramer, an economist at NordLB in Hanover, said he also isn’t expecting a recession in Germany and that higher wages would boost domestic demand, which was the main driver of the economy last year. Average wage increases will probably come in at about 3 1/2 or 4 percent although it will be different from industry to industry, he predicted.
German Restraint
“Wage increases this year could reasonably be a bit juicier than in the past,” said Kramer. “It’s justified because the wage cost development in Germany has been extremely cheap.”
Increases in employment costs of all euro nations outpaced Germany’s in the decade through 2010. German hourly labor costs rose an average 1.7 percent per year, while they jumped 2.9 percent in Portugal, 3.2 percent in Italy, 3.4 percent in Greece and 4.1 percent in Spain, the labor union-affiliated IMK institute in Dusseldorf said Dec. 12. The figures were based on calculations from Eurostat, the EU statistics agency.
Schoenau, the worker for GKN, said that although he’s weary of excuses from executives to avoid a boost in pay, he hasn’t given up. His union has indicated it is ready to support workers should they decide to take the battle to the streets.
“Our strike fund is nice and full,” said Detlev Wetzel, vice chairman of the IG Metall.
Labor Loss Spurs Search of U.S. Churches, Libraries for Dropouts: Economy
In the nation’s capital, city employees are scouring churches, libraries, and community centers to find people who have dropped out of the labor force and help them get jobs.
“The most surprising thing is the length of time people have been out of work,” said Hugh Bailey, head of satellite operations for Washington’s Department of Employment Services, where municipal crews are using a mobile van made by Winnebago Industries Inc. to find people. “We ask, ‘How long have you been out of work?’ and may hear three, four or five years.”
The lowest U.S. jobless rate in three years hasn’t changed the long-term picture for millions of Americans: about 5.5 million haven’t worked for 27 weeks or more and are still looking -- making up 42.9 percent of the total unemployed pool. Another 2.8 million are too discouraged to actively look for work in recent weeks or have other reasons for not wanting to be in the labor force, according to non-seasonally adjusted data released Feb. 3 by the Labor Department.
“The labor market is still worse than the official unemployment rate would suggest,” said Henry Mo, an economist at Credit Suisse Group AG (CSGN) in New York.
Unemployment fell to 8.3 percent in January from 9.1 percent a year earlier, and payrolls increased by 243,000 workers, extending from professional services and hospitality to manufacturing. Job gains haven’t done much to boost the percentage of the population participating in the labor force: 63.7 percent, the lowest level in three decades. Last month’s drop in the participation rate reflected adjustments to the labor force count resulting from the 2010 census.
Shares Fall
Stocks fell today on concern Greece’s political leaders will fail to reach an agreement allowing the nation to receive a second bailout from international creditors. The Standard & Poor’s 500 dropped 0.2 percent to 1,342.3 at 12 p.m. in New York, snapping a three-day rally.
Data today showed German manufacturers were weathering Europe’s sovereign debt crisis on growing demand from outside the region. Orders to factories, adjusted for seasonal swings and inflation, rose 1.7 percent from November, when they slumped 4.9 percent, the Economy Ministry in Berlin said today.
Long-term unemployment in the U.S. is a focus of attention among Federal Reserve officials, who last month said they would keep borrowing costs low through at least late 2014 to boost the economy and put more Americans back to work.
“We’re concerned that the large amount of long-term unemployment may be causing some workers to lose skills or lose labor force attachment,” Fed Chairman Ben S. Bernanke said at a Jan. 25 news conference.
Household Survey
Labor force data is released by the Bureau of Labor Statistics and based on a monthly survey of 60,000 households that uses a geographical sample to extrapolate the total number of employed and unemployed people 16 and over looking for work in the four weeks prior to the data-reporting period.
Research by the Federal Reserve Bank of New York concludes that the percentage of men active in the labor force has declined “considerably more than” women.
That’s possibly because industries such as construction suffered disproportionately during the recession compared with education or health care, according to a paper released in December by bank economist Richard Peach, analyst Josiah Bethards, and Joseph Song, a former researcher. The participation rate among workers over the age of 55 is dropping faster than their younger counterparts for reasons that may range from the availability of early retirement packages to a lack of job opportunities and age discrimination, they said.
Demographic Changes
About a quarter of the decline in the labor-force participation rate from 2008 to 2011 among 16- to 79-year-olds is due to long-run demographic changes, such as the retirement of baby boomers, economists from the Chicago Fed said in a paper released Feb. 1.
The efforts in Washington to find both the long-term unemployed and out-of-work who have given up searching has found a roughly equal number of males and females in the pool of “disaffected, disconnected” workers who have “checked out,” mostly between the ages of 22 to 44, Bailey said. The city’s unemployment rate has remained stuck above 8 percent since January 2009.
“There are a large number of reasons why people are not working or engaged in the process,” he said. “We found some people homeless and living in shelters, some living with family members, some having been involved in illegal activity, and many relying on public assistance programs. Some found themselves not believing they would be able to get back to work, and some have grown accustomed to not finding a job.”
Looking for Work
Tanya Smith, 46, said she is ready to begin looking again after losing her last full-time job in 2008 as a teacher’s aide, which paid $13.63 an hour.
“You go on enough interviews, it does take you to that point where you think, ‘No one’s going to hire me so let me get out for a little while,’” said Smith, a mother of four from Washington. “I know there’s a job out there for me. Where it is, I don’t know.”
Smith said she spent September through December of last year doing housework, volunteering at her church, and attending parent-teacher meetings at her son’s school. Meanwhile, she relied on her husband’s salary as an assistant supervisor at a university, along with income from his side business repairing watches.
Outreach Program
Washington officials have placed more than 2,000 out-of- work people since September, using a campaign in five languages that also includes public-service announcements and websites such as Twitter Inc.’s twitter.com and Facebook Inc.’s facebook.com, said David Thompson, spokesman for the city’s Department of Employment Services. More than 450 employers -- such as Safeway Inc. (SWY), CVS Caremark Corp. (CVS), Denny’s Corp. (DENN), and 7- Eleven Inc. -- are participating in the program. go beyond those being made in some states where unemployment levels are among the highest in the country.
In California, where the jobless rate was 11.1 percent in December, reaching out to workers needing a job “has grown more difficult as layoffs have soared and funding of our programs has dwindled,” Patrick Joyce, a spokesman for the state’s employment development department, said in a statement.
Michigan, which had 9.3 percent unemployment as of December, has no program to reach out to discouraged people who have dropped out of the labor market, according to the state’s Unemployment Insurance Agency.
Still Searching
For millions of workers counted as long-term unemployed, the search continues. Teresa Johnson, 56, hasn’t had a full-time job since April 2005, when she was earning $5.25 an hour as an administrative assistant and secretarial trainee.
“It’s very frustrating,” said Johnson, a Washington, D.C., resident. “I do a lot of praying. You go through a lot of headaches and it wears you down.”
Still, “you feel a little bit more confident when somebody is helping you find work,” she said of the city’s outreach efforts.
“The most surprising thing is the length of time people have been out of work,” said Hugh Bailey, head of satellite operations for Washington’s Department of Employment Services, where municipal crews are using a mobile van made by Winnebago Industries Inc. to find people. “We ask, ‘How long have you been out of work?’ and may hear three, four or five years.”
The lowest U.S. jobless rate in three years hasn’t changed the long-term picture for millions of Americans: about 5.5 million haven’t worked for 27 weeks or more and are still looking -- making up 42.9 percent of the total unemployed pool. Another 2.8 million are too discouraged to actively look for work in recent weeks or have other reasons for not wanting to be in the labor force, according to non-seasonally adjusted data released Feb. 3 by the Labor Department.
“The labor market is still worse than the official unemployment rate would suggest,” said Henry Mo, an economist at Credit Suisse Group AG (CSGN) in New York.
Unemployment fell to 8.3 percent in January from 9.1 percent a year earlier, and payrolls increased by 243,000 workers, extending from professional services and hospitality to manufacturing. Job gains haven’t done much to boost the percentage of the population participating in the labor force: 63.7 percent, the lowest level in three decades. Last month’s drop in the participation rate reflected adjustments to the labor force count resulting from the 2010 census.
Shares Fall
Stocks fell today on concern Greece’s political leaders will fail to reach an agreement allowing the nation to receive a second bailout from international creditors. The Standard & Poor’s 500 dropped 0.2 percent to 1,342.3 at 12 p.m. in New York, snapping a three-day rally.
Data today showed German manufacturers were weathering Europe’s sovereign debt crisis on growing demand from outside the region. Orders to factories, adjusted for seasonal swings and inflation, rose 1.7 percent from November, when they slumped 4.9 percent, the Economy Ministry in Berlin said today.
Long-term unemployment in the U.S. is a focus of attention among Federal Reserve officials, who last month said they would keep borrowing costs low through at least late 2014 to boost the economy and put more Americans back to work.
“We’re concerned that the large amount of long-term unemployment may be causing some workers to lose skills or lose labor force attachment,” Fed Chairman Ben S. Bernanke said at a Jan. 25 news conference.
Household Survey
Labor force data is released by the Bureau of Labor Statistics and based on a monthly survey of 60,000 households that uses a geographical sample to extrapolate the total number of employed and unemployed people 16 and over looking for work in the four weeks prior to the data-reporting period.
Research by the Federal Reserve Bank of New York concludes that the percentage of men active in the labor force has declined “considerably more than” women.
That’s possibly because industries such as construction suffered disproportionately during the recession compared with education or health care, according to a paper released in December by bank economist Richard Peach, analyst Josiah Bethards, and Joseph Song, a former researcher. The participation rate among workers over the age of 55 is dropping faster than their younger counterparts for reasons that may range from the availability of early retirement packages to a lack of job opportunities and age discrimination, they said.
Demographic Changes
About a quarter of the decline in the labor-force participation rate from 2008 to 2011 among 16- to 79-year-olds is due to long-run demographic changes, such as the retirement of baby boomers, economists from the Chicago Fed said in a paper released Feb. 1.
The efforts in Washington to find both the long-term unemployed and out-of-work who have given up searching has found a roughly equal number of males and females in the pool of “disaffected, disconnected” workers who have “checked out,” mostly between the ages of 22 to 44, Bailey said. The city’s unemployment rate has remained stuck above 8 percent since January 2009.
“There are a large number of reasons why people are not working or engaged in the process,” he said. “We found some people homeless and living in shelters, some living with family members, some having been involved in illegal activity, and many relying on public assistance programs. Some found themselves not believing they would be able to get back to work, and some have grown accustomed to not finding a job.”
Looking for Work
Tanya Smith, 46, said she is ready to begin looking again after losing her last full-time job in 2008 as a teacher’s aide, which paid $13.63 an hour.
“You go on enough interviews, it does take you to that point where you think, ‘No one’s going to hire me so let me get out for a little while,’” said Smith, a mother of four from Washington. “I know there’s a job out there for me. Where it is, I don’t know.”
Smith said she spent September through December of last year doing housework, volunteering at her church, and attending parent-teacher meetings at her son’s school. Meanwhile, she relied on her husband’s salary as an assistant supervisor at a university, along with income from his side business repairing watches.
Outreach Program
Washington officials have placed more than 2,000 out-of- work people since September, using a campaign in five languages that also includes public-service announcements and websites such as Twitter Inc.’s twitter.com and Facebook Inc.’s facebook.com, said David Thompson, spokesman for the city’s Department of Employment Services. More than 450 employers -- such as Safeway Inc. (SWY), CVS Caremark Corp. (CVS), Denny’s Corp. (DENN), and 7- Eleven Inc. -- are participating in the program. go beyond those being made in some states where unemployment levels are among the highest in the country.
In California, where the jobless rate was 11.1 percent in December, reaching out to workers needing a job “has grown more difficult as layoffs have soared and funding of our programs has dwindled,” Patrick Joyce, a spokesman for the state’s employment development department, said in a statement.
Michigan, which had 9.3 percent unemployment as of December, has no program to reach out to discouraged people who have dropped out of the labor market, according to the state’s Unemployment Insurance Agency.
Still Searching
For millions of workers counted as long-term unemployed, the search continues. Teresa Johnson, 56, hasn’t had a full-time job since April 2005, when she was earning $5.25 an hour as an administrative assistant and secretarial trainee.
“It’s very frustrating,” said Johnson, a Washington, D.C., resident. “I do a lot of praying. You go through a lot of headaches and it wears you down.”
Still, “you feel a little bit more confident when somebody is helping you find work,” she said of the city’s outreach efforts.
Cameron Faith in Ratings That Don’t Matter Hurts Pound With Anemic Growth
The spending cuts that helped the U.K. preserve its AAA credit rating last year and bolstered the pound are now weighing on the currency as investors lose confidence that Prime Minister David Cameron will revive economic growth.
Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg. Gilts are lagging behind lower-rated Treasuries, after world-beating gains of almost 17 percent last year.
Investors are beginning to favor policies promoting growth over austerity just as the biggest government-spending squeeze since World War II risks sending the U.K. into its second recession since 2009. U.S. President Barack Obama has used outlays to drive America’s recovery even as near-record deficits led to an August downgrade by Standard & Poor’s.
“Given that there was no move from international bond investors to force this upon them, the U.K. is choosing a macro policy mix that is negative for the pound,” Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. said in a Jan. 31 interview. “The main drag on the economy is the austerity measures taken to address the government deficit, which is meant to spur confidence in the bond market.”
Selling Gilts
Overseas investors sold a net 10.7 billion pounds ($16.9 billion) of gilts in December, the most since March 2009, Bank of England data on Jan. 31 showed. That was after the U.S. said net purchases of its financial assets by international investors soared to $59.8 billion in November from $8.3 billion in October.
The pound was little changed at $1.5821 at 12:55 p.m. New York time today, after falling as much as 0.5 percent. It strengthened 0.2 percent to 82.20 pence per euro. It’s down 0.8 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies against each other. Gilts have lost 1.5 percent since December, including reinvested interest, while Treasuries lost 0.2 percent, based on indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The combination of austerity and investor demand for a refuge from the euro-region’s sovereign debt crisis helped the pound appreciate 2.8 percent against the common currency in 2011.
‘Free Pass’
Sterling will end the year at $1.55 and 83 pence per euro, according to the median of no fewer than 40 analyst forecasts compiled by Bloomberg. Wells Fargo & Co., the most-accurate forecaster for the pound-dollar pair in the six quarters ended Dec. 31, according to Bloomberg Rankings, predicts sterling will drop to $1.54 by year-end, the data show.
“People are less willing to give the pound a free pass as a safe haven,” Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, said in an interview on Feb. 1. The “pound is in the middle to lower tier of currencies,” he said.
Eliminating the U.K. deficit, equal to 9 percent of gross domestic product, by 2017 has been the centerpiece of Cameron’s and Chancellor of the Exchequer George Osborne’s fiscal policy. By comparison, Obama is seeking re-election in November with a $1.3 trillion deficit, equivalent to 8.6 percent of GDP.
The U.K.’s top rating will probably not be enough to ensure demand for gilts and the pound, even as Osborne said on Oct. 3 that bond markets are “ready to pick off the next country that lacks the will to deal with its debts.”
S&P Downgrade
Deviation from the program would “be abandoning the deficit plan that has brought us the stability other nations today crave,” Osborne said then, the same day that S&P affirmed the nation’s rating.
The dollar outperformed all major currencies except the yen, while Treasury yields fell to records, after S&P cut the U.S.’s credit ranking one step to AA+ on Aug. 5. The ratings company, a unit of New York-based McGraw-Hill Cos., cited weakened “effectiveness, stability and predictability of American policy makers and political institutions” as reasons for the downgrade.
The U.S. currency rose 5.5 percent against the pound from the day of the cut through year-end.
“There is limited upside for the pound this year,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said Jan. 30 in an interview. “People are more comfortable with AA paper.”
Bond Yields
The extra yield investors demand to hold 10-year gilts versus similar-maturity Treasuries more than doubled to 0.256 percentage point this year through last week. The spread was at 0.6 percentage point, the most in more than two years, in September, about a month after the U.S. downgrade.
Yields on benchmark 10-year gilts climbed 11 basis points last week to 2.18 percent, while those for Treasuries of similar maturity increased 3 basis points to 1.92 percent. A basis point is 0.01 percentage point.
“We perceive their political will to be stronger than the United States to get their fiscal house in order,” John Chambers, managing director of sovereign ratings at S&P, said in a Bloomberg Radio interview Feb. 3, referring to the U.K. “Like the United States they have a reserve currency, and that gives them a lot of flexibility on the financing side. As long as they stick to that plan and maintain that credibility everything should be all right.”
A weaker pound may end up helping Britain. While exports fell 1.5 percent in November amid sputtering growth in Europe, the U.K.’s top export market, the goods-trade deficit narrowed by a record in October, fueled by demand elsewhere.
‘More Flexibility’
“The pound’s going to be a fantastic candidate for a new breed of safe haven,” Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva, said in a Jan. 31 interview. Britain will “have much more flexibility than euro-zone counterparts to deal with their slowdown in growth,” she said.
Osborne has scope to implement “significant” fiscal stimulus to spur the economy amid signs that the deficit will be lower than estimated, an Institute for Fiscal Studies report said on Feb. 1. The report was produced with Oxford Economics, which predicts the economy will expand 0.3 percent this year.
The government’s deficit-reduction plan has helped restore confidence in the U.K. public finances and resulted in lower market interest rates, a spokesman for the Treasury, who declined to be identified, said on Feb. 2. This has allowed the Bank of England to keep monetary policy looser than it otherwise would have been, the spokesman said.
Quantitative Easing
The National Institute for Economic and Social Research said last week that it forecasts the U.K. economy will shrink 0.1 percent this year and grow 2.3 percent in 2013, compared with previous projections in October for growth of 0.8 percent and 2.6 percent. Growth in the U.S. may total 2.3 percent, according to the median estimate of 72 economists surveyed by Bloomberg News.
Unlike in the U.S., Bank of England Governor Mervyn King’s efforts to boost the economy through a bond-buying program may not be enough to prevent a contraction. The central bank’s balance sheet assets now total 19.8 percent of GDP, 0.7 percent more than the comparable ratio for the Federal Reserve, according to Guggenheim Partners LLC.
‘Moderately Bearish’
Bank of England policy maker Adam Posen said last week there is a case to expand the so-called quantitative-easing program by 75 billion pounds. The Monetary Policy Committee announces its next decision on Feb. 9. King raised the ceiling on the bank’s bond purchases to 275 billion pounds in October.
The cash being created by the Bank of England hasn’t spurred lending by financial institutions. The sterling Libor- OIS spread, a gauge of banks’ reluctance to lend, was at 58.8 basis points last week, approaching the widest since July 2009.
“In the short term, we are moderately bearish” on the pound versus the dollar, Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc, said in an e-mailed response to questions received on Feb. 2. “The likelihood that the Bank of England will enact even more QE should keep U.K. yields ultra-low, while the U.K. economy remains mired in recession near-term.”
Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg. Gilts are lagging behind lower-rated Treasuries, after world-beating gains of almost 17 percent last year.
Investors are beginning to favor policies promoting growth over austerity just as the biggest government-spending squeeze since World War II risks sending the U.K. into its second recession since 2009. U.S. President Barack Obama has used outlays to drive America’s recovery even as near-record deficits led to an August downgrade by Standard & Poor’s.
“Given that there was no move from international bond investors to force this upon them, the U.K. is choosing a macro policy mix that is negative for the pound,” Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. said in a Jan. 31 interview. “The main drag on the economy is the austerity measures taken to address the government deficit, which is meant to spur confidence in the bond market.”
Selling Gilts
Overseas investors sold a net 10.7 billion pounds ($16.9 billion) of gilts in December, the most since March 2009, Bank of England data on Jan. 31 showed. That was after the U.S. said net purchases of its financial assets by international investors soared to $59.8 billion in November from $8.3 billion in October.
The pound was little changed at $1.5821 at 12:55 p.m. New York time today, after falling as much as 0.5 percent. It strengthened 0.2 percent to 82.20 pence per euro. It’s down 0.8 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies against each other. Gilts have lost 1.5 percent since December, including reinvested interest, while Treasuries lost 0.2 percent, based on indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The combination of austerity and investor demand for a refuge from the euro-region’s sovereign debt crisis helped the pound appreciate 2.8 percent against the common currency in 2011.
‘Free Pass’
Sterling will end the year at $1.55 and 83 pence per euro, according to the median of no fewer than 40 analyst forecasts compiled by Bloomberg. Wells Fargo & Co., the most-accurate forecaster for the pound-dollar pair in the six quarters ended Dec. 31, according to Bloomberg Rankings, predicts sterling will drop to $1.54 by year-end, the data show.
“People are less willing to give the pound a free pass as a safe haven,” Todd Elmer, head of Group-of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, said in an interview on Feb. 1. The “pound is in the middle to lower tier of currencies,” he said.
Eliminating the U.K. deficit, equal to 9 percent of gross domestic product, by 2017 has been the centerpiece of Cameron’s and Chancellor of the Exchequer George Osborne’s fiscal policy. By comparison, Obama is seeking re-election in November with a $1.3 trillion deficit, equivalent to 8.6 percent of GDP.
The U.K.’s top rating will probably not be enough to ensure demand for gilts and the pound, even as Osborne said on Oct. 3 that bond markets are “ready to pick off the next country that lacks the will to deal with its debts.”
S&P Downgrade
Deviation from the program would “be abandoning the deficit plan that has brought us the stability other nations today crave,” Osborne said then, the same day that S&P affirmed the nation’s rating.
The dollar outperformed all major currencies except the yen, while Treasury yields fell to records, after S&P cut the U.S.’s credit ranking one step to AA+ on Aug. 5. The ratings company, a unit of New York-based McGraw-Hill Cos., cited weakened “effectiveness, stability and predictability of American policy makers and political institutions” as reasons for the downgrade.
The U.S. currency rose 5.5 percent against the pound from the day of the cut through year-end.
“There is limited upside for the pound this year,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said Jan. 30 in an interview. “People are more comfortable with AA paper.”
Bond Yields
The extra yield investors demand to hold 10-year gilts versus similar-maturity Treasuries more than doubled to 0.256 percentage point this year through last week. The spread was at 0.6 percentage point, the most in more than two years, in September, about a month after the U.S. downgrade.
Yields on benchmark 10-year gilts climbed 11 basis points last week to 2.18 percent, while those for Treasuries of similar maturity increased 3 basis points to 1.92 percent. A basis point is 0.01 percentage point.
“We perceive their political will to be stronger than the United States to get their fiscal house in order,” John Chambers, managing director of sovereign ratings at S&P, said in a Bloomberg Radio interview Feb. 3, referring to the U.K. “Like the United States they have a reserve currency, and that gives them a lot of flexibility on the financing side. As long as they stick to that plan and maintain that credibility everything should be all right.”
A weaker pound may end up helping Britain. While exports fell 1.5 percent in November amid sputtering growth in Europe, the U.K.’s top export market, the goods-trade deficit narrowed by a record in October, fueled by demand elsewhere.
‘More Flexibility’
“The pound’s going to be a fantastic candidate for a new breed of safe haven,” Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva, said in a Jan. 31 interview. Britain will “have much more flexibility than euro-zone counterparts to deal with their slowdown in growth,” she said.
Osborne has scope to implement “significant” fiscal stimulus to spur the economy amid signs that the deficit will be lower than estimated, an Institute for Fiscal Studies report said on Feb. 1. The report was produced with Oxford Economics, which predicts the economy will expand 0.3 percent this year.
The government’s deficit-reduction plan has helped restore confidence in the U.K. public finances and resulted in lower market interest rates, a spokesman for the Treasury, who declined to be identified, said on Feb. 2. This has allowed the Bank of England to keep monetary policy looser than it otherwise would have been, the spokesman said.
Quantitative Easing
The National Institute for Economic and Social Research said last week that it forecasts the U.K. economy will shrink 0.1 percent this year and grow 2.3 percent in 2013, compared with previous projections in October for growth of 0.8 percent and 2.6 percent. Growth in the U.S. may total 2.3 percent, according to the median estimate of 72 economists surveyed by Bloomberg News.
Unlike in the U.S., Bank of England Governor Mervyn King’s efforts to boost the economy through a bond-buying program may not be enough to prevent a contraction. The central bank’s balance sheet assets now total 19.8 percent of GDP, 0.7 percent more than the comparable ratio for the Federal Reserve, according to Guggenheim Partners LLC.
‘Moderately Bearish’
Bank of England policy maker Adam Posen said last week there is a case to expand the so-called quantitative-easing program by 75 billion pounds. The Monetary Policy Committee announces its next decision on Feb. 9. King raised the ceiling on the bank’s bond purchases to 275 billion pounds in October.
The cash being created by the Bank of England hasn’t spurred lending by financial institutions. The sterling Libor- OIS spread, a gauge of banks’ reluctance to lend, was at 58.8 basis points last week, approaching the widest since July 2009.
“In the short term, we are moderately bearish” on the pound versus the dollar, Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc, said in an e-mailed response to questions received on Feb. 2. “The likelihood that the Bank of England will enact even more QE should keep U.K. yields ultra-low, while the U.K. economy remains mired in recession near-term.”
Fed Twists Yields for McDonald’s Record Low Rate: Credit Markets
Federal Reserve Chairman Ben S. Bernanke’s Operation Twist is paying dividends in the corporate bond market.
The central bank’s program to extend the average maturity of debt in its portfolio by selling short-term bonds and buying longer-term ones is helping borrowers from McDonald’s Corp. (MCD) to Procter & Gamble Co. (PG) cut interest rates to record lows. Since August, the difference in yields between notes due in one to three years and bonds that mature in 15 years or more has shrunk by 0.7 percentage point to 3.3 percentage points.
Companies already flush with cash are locking in all-time low borrowing costs for decades thanks to the Fed’s Twist and its bid to stimulate the world’s largest economy by pledging to hold rates near zero until at least late 2014. Sales of bonds due in more than 15 years soared to $13.6 billion in January from $5.28 billion in December, according to data compiled by Bloomberg.
“From a company standpoint, that’s kind of a home run scenario,” Lon Erickson, a money manager who helps oversee $9 billion of fixed-income assets for Thornburg Investment Management Inc. in Santa Fe, New Mexico, said in a telephone interview. “It’s exactly what I’d be doing.”
The average yield on corporate bonds in the U.S. maturing in 15 or more years was 5.138 percent as of Feb. 3, after reaching 5.005 percent on Jan. 31, the lowest on record in Bank of America Merrill Lynch index data that goes back to 1999.
Lock in Rates
That compares with a 1.822 percent average yield on company debt that matures in one to three years, the data show.
For borrowers, “it’s a motivation to do a 10-year as opposed to a five-year deal,” Anthony Valeri, a market strategist with LPL Financial LLC in San Diego, which oversees $330 billion, said in a telephone interview. “The trend that we’ve seen over two years now is for corporates to redeem some of their short-term debt and lock in attractive longer-term funding.”
Elsewhere in credit markets, Express Scripts Inc., the pharmacy-benefits manager planning to buy Medco Health Solutions Inc., is planning a second bond sale to help fund the $29.1 billion acquisition.
The company may issue senior notes in benchmark size, typically at least $500 million, as it seeks to pay back $14 billion of bridge loans it took on for the purchase, according to a statement today from the St. Louis-based company. Express Scripts sold $4.1 billion of debt in November to cut loans as it plans to complete its acquisition of rival Medco in the first half of this year, pending approval from the U.S. Federal Trade Commission.
Credit-Default Swaps
A benchmark gauge of U.S. company credit risk was little changed after declining for four straight days. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased by 0.1 basis point to a mid-price of 94.4 basis points as of 11:39 a.m. in New York, according to Markit Group Ltd.
The index, which typically rises as investor confidence deteriorates and falls as it improves, reached 94.3 basis points on Feb. 3, the lowest level since July. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Bonds of Bank of America Corp. are the most actively traded U.S. corporate securities by dealers today, with 46 trades of $1 million or more as of 11:40 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Zero Interest Rate
Traders have been driving down long-term yields since before the Fed’s Sept. 21 announcement that it would buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less in a program known as Operation Twist.
Operation Twist gets its name from a policy conducted by the Fed in cooperation with the Treasury Department in 1961, when the central bank bought long-term securities as the government concentrated its issuance in shorter maturity debt.
While Fed staff called it Operation Nudge, it became known as Operation Twist, after Chubby Checker’s hit, “The Twist,” according to a report published March 14 by Eric Swanson, an economist at the Federal Reserve Bank of San Francisco.
The central bank has kept its target interest rate at zero to 0.25 percent since December 2008 and expanded its balance sheet by purchasing $2.3 trillion in bonds. On Jan. 25, the Federal Open Market Committee said the outlook for the economy would likely warrant that rates remain near zero through at least late 2014, more than a year later than planned.
‘Floodgates Opened’
Borrowing costs for companies around the world have also been driven lower as confidence builds that Europe’s sovereign debt crisis won’t disrupt credit markets. The European Central Bank set off a rally in riskier assets on Dec. 21 when it gave financial institutions a record 489 billion euros ($643.4 billion) of three-year loans in a so-called longer-term refinancing operation.
“It all started from that three-year lending operation,” LPL’s Valeri said. “That’s why, with Europe getting better, the floodgates opened to start the year.”
The average yield on corporate bonds worldwide is down from 4.064 percent on Dec. 21 and is at about the lowest since August, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index.
That sparked $337.1 billion of company bond sales from the U.S. to Europe to Asia in January, almost double December’s $183 billion total and the most since May, Bloomberg data show. Offerings in January of bonds that mature in more than 15 years were 64 percent higher than the monthly 2011 average of $8.3 billion.
P&G, IBM
P&G, the Cincinnati-based maker of Crest toothpaste and Pampers diapers, issued $1 billion of 10-year debt, paying a record-low coupon of 2.3 percent for the maturity. International Business Machines Corp. (IBM), the world’s biggest computer-services provider, sold $1.5 billion of notes due February 2015 at an interest rate of 0.55 percent, the lowest for three-year debt. McDonald’s, the largest restaurant chain, paid a 3.7 percent coupon on its $500 million of 30-year bonds, also an all-time low.
While that level is “pretty attractive” for McDonald’s, it’s not as appealing for investors, Thornburg’s Erickson said.
“Even if it’s a good company, a lot of things can happen,” he said. “There could be a lot of volatility in the meantime and I just don’t know that you’re getting paid for that.”
The central bank’s program to extend the average maturity of debt in its portfolio by selling short-term bonds and buying longer-term ones is helping borrowers from McDonald’s Corp. (MCD) to Procter & Gamble Co. (PG) cut interest rates to record lows. Since August, the difference in yields between notes due in one to three years and bonds that mature in 15 years or more has shrunk by 0.7 percentage point to 3.3 percentage points.
Companies already flush with cash are locking in all-time low borrowing costs for decades thanks to the Fed’s Twist and its bid to stimulate the world’s largest economy by pledging to hold rates near zero until at least late 2014. Sales of bonds due in more than 15 years soared to $13.6 billion in January from $5.28 billion in December, according to data compiled by Bloomberg.
“From a company standpoint, that’s kind of a home run scenario,” Lon Erickson, a money manager who helps oversee $9 billion of fixed-income assets for Thornburg Investment Management Inc. in Santa Fe, New Mexico, said in a telephone interview. “It’s exactly what I’d be doing.”
The average yield on corporate bonds in the U.S. maturing in 15 or more years was 5.138 percent as of Feb. 3, after reaching 5.005 percent on Jan. 31, the lowest on record in Bank of America Merrill Lynch index data that goes back to 1999.
Lock in Rates
That compares with a 1.822 percent average yield on company debt that matures in one to three years, the data show.
For borrowers, “it’s a motivation to do a 10-year as opposed to a five-year deal,” Anthony Valeri, a market strategist with LPL Financial LLC in San Diego, which oversees $330 billion, said in a telephone interview. “The trend that we’ve seen over two years now is for corporates to redeem some of their short-term debt and lock in attractive longer-term funding.”
Elsewhere in credit markets, Express Scripts Inc., the pharmacy-benefits manager planning to buy Medco Health Solutions Inc., is planning a second bond sale to help fund the $29.1 billion acquisition.
The company may issue senior notes in benchmark size, typically at least $500 million, as it seeks to pay back $14 billion of bridge loans it took on for the purchase, according to a statement today from the St. Louis-based company. Express Scripts sold $4.1 billion of debt in November to cut loans as it plans to complete its acquisition of rival Medco in the first half of this year, pending approval from the U.S. Federal Trade Commission.
Credit-Default Swaps
A benchmark gauge of U.S. company credit risk was little changed after declining for four straight days. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased by 0.1 basis point to a mid-price of 94.4 basis points as of 11:39 a.m. in New York, according to Markit Group Ltd.
The index, which typically rises as investor confidence deteriorates and falls as it improves, reached 94.3 basis points on Feb. 3, the lowest level since July. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Bonds of Bank of America Corp. are the most actively traded U.S. corporate securities by dealers today, with 46 trades of $1 million or more as of 11:40 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Zero Interest Rate
Traders have been driving down long-term yields since before the Fed’s Sept. 21 announcement that it would buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less in a program known as Operation Twist.
Operation Twist gets its name from a policy conducted by the Fed in cooperation with the Treasury Department in 1961, when the central bank bought long-term securities as the government concentrated its issuance in shorter maturity debt.
While Fed staff called it Operation Nudge, it became known as Operation Twist, after Chubby Checker’s hit, “The Twist,” according to a report published March 14 by Eric Swanson, an economist at the Federal Reserve Bank of San Francisco.
The central bank has kept its target interest rate at zero to 0.25 percent since December 2008 and expanded its balance sheet by purchasing $2.3 trillion in bonds. On Jan. 25, the Federal Open Market Committee said the outlook for the economy would likely warrant that rates remain near zero through at least late 2014, more than a year later than planned.
‘Floodgates Opened’
Borrowing costs for companies around the world have also been driven lower as confidence builds that Europe’s sovereign debt crisis won’t disrupt credit markets. The European Central Bank set off a rally in riskier assets on Dec. 21 when it gave financial institutions a record 489 billion euros ($643.4 billion) of three-year loans in a so-called longer-term refinancing operation.
“It all started from that three-year lending operation,” LPL’s Valeri said. “That’s why, with Europe getting better, the floodgates opened to start the year.”
The average yield on corporate bonds worldwide is down from 4.064 percent on Dec. 21 and is at about the lowest since August, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index.
That sparked $337.1 billion of company bond sales from the U.S. to Europe to Asia in January, almost double December’s $183 billion total and the most since May, Bloomberg data show. Offerings in January of bonds that mature in more than 15 years were 64 percent higher than the monthly 2011 average of $8.3 billion.
P&G, IBM
P&G, the Cincinnati-based maker of Crest toothpaste and Pampers diapers, issued $1 billion of 10-year debt, paying a record-low coupon of 2.3 percent for the maturity. International Business Machines Corp. (IBM), the world’s biggest computer-services provider, sold $1.5 billion of notes due February 2015 at an interest rate of 0.55 percent, the lowest for three-year debt. McDonald’s, the largest restaurant chain, paid a 3.7 percent coupon on its $500 million of 30-year bonds, also an all-time low.
While that level is “pretty attractive” for McDonald’s, it’s not as appealing for investors, Thornburg’s Erickson said.
“Even if it’s a good company, a lot of things can happen,” he said. “There could be a lot of volatility in the meantime and I just don’t know that you’re getting paid for that.”
Denmark’s Credit Crunch Worsening as Retrenching Banks Spur Vicious Circle
Denmark’s credit crunch is getting worse as businesses accuse banks of withholding funds and the financial regulator warns that deteriorating asset quality may put more lenders out of business.
“When we ask our companies, small- and medium-sized, they say they are experiencing a credit crunch and it has become worse in the last month,” Karsten Dybvad, chief executive officer of the Danish Confederation of Industry, said in an interview in Copenhagen.
Dybvad’s group, which represents 10,000 Danish firms, wants the financial regulator to give banks more leeway in meeting capital requirements so they don’t call in loans and fuel a vicious circle that’s stifling the $300 billion economy. In a December survey of confederation members, two thirds said they had limited access to financing, while one in five said an absence of funds was the biggest obstacle for growth.
Three Danish banks, including Amagerbanken A/S, failed last year after the FSA required them to restate bad loans, leaving them in breach of capital rules. Two of the failures pushed losses on to senior creditors and exacerbated a funding squeeze that’s frozen most of Denmark’s 120 banks out of debt markets.
Bank Failures
More lenders may collapse this year as Denmark’s regional bank crisis worsens, the Financial Supervisory Authority’s Director General Ulrik Noedgaard said in an interview last week. The FSA introduced stricter reviews of loan books last year, after finding banks understated writedowns, and has been enforcing the more rigorous standards through surprise audits.
The regulator today proposed that lenders tighten reporting standards further to reflect declining property values more accurately in loan portfolios.
According to Dybvad, banks are reacting by restricting credit and calling in existing loans. Even healthy companies are being denied credit, according to a Jan. 16 report by the Danish Association of Auditors.
“You have to do it more smoothly so that you don’t over- react,” Dybvad said. “There’s an increasing number of companies having difficulties financing their operations and also difficulties financing investments.”
Denmark’s 173-member all-share index lost as much as 1 percent today before trading 0.6 percent lower at 2:10 p.m. local time. Danish shares underperformed their European peers, with the Stoxx Europe 600 losing 0.4 percent.
Vicious Circle
The Organization for Economic Cooperation and Development warns an absence of credit may fuel a vicious circle in which businesses lack the funds to run their operations, leaving them unable to pay their debts.
“This in turn could worsen loan impairments in the corporate sector, putting pressure on the financial sector,” the Paris-based OECD said in a Jan. 26 report. “Some small banks are especially exposed to agriculture, which faces high debt, falling land prices and funding problems.”
Agricultural debt swelled 2.6 percent to 359 billion kroner ($63 billion) in 2010, the Danish Agriculture and Food Council estimates. Commercial farms have lost as much as half their value in some parts of Denmark, leaving 6 percent of the industry technically insolvent, according to the council.
Denmark is also struggling to recover from a property bubble that burst in 2007, throwing the economy into a recession and killing jobs. House prices fell an annual 8.5 percent in November as the gap between bid and ask prices widened. Prices will have slumped 25 percent by 2013 since the crisis started in 2007, the government-backed Economic Council estimates.
Bankruptcies
Loans to farming, construction and real estate made up 26 percent of total lending at the end of 2010 at banks with less than 50 billion kroner in working capital, according to a May report by the central bank. For the biggest banks, the corresponding figure was 16 percent.
Small- and medium-sized enterprises, including retailers and construction-related businesses, are now struggling to stay afloat. The number of bankruptcies rose to 511 in January, adjusting for seasonal swings, from 449 at the end of last year, Statistics Danmark said today. More companies went out of business in January than in any month since November 2010, official data show.
“As feared, it looks like the setback in Denmark’s economy is leaving its depressing mark on businesses,” Jes Asmussen, Svenska Handelsbanken AB’s chief economist in Copenhagen, said in a note.
Stagnant Economy
Annual retail sales fell for the fourth consecutive month in December while gross domestic product, which contracted in the third quarter, probably stagnated in the final three months of 2011, the confederation’s Chief Economist Klaus Rasmussen estimates.
Twin banking and housing crises have so far made little impression on investors in Denmark’s AAA rated government bonds, thanks to the country’s low debt ratio. State debt will stay within Europe’s 60 percent rule and be only 44.6 percent of gross domestic product in 2012, compared with an average of 90.4 percent in the euro area, the European Commission said Nov. 10.
Denmark’s government pays about six basis points less than Germany to borrow for 10 years, with the benchmark 2021 note yielding 1.87 percent at the end of last week.
Still, Denmark’s debt load has widened every year since 2007, unlike neighboring Sweden’s, where debt relative to GDP has narrowed every year since 2009 and will shrink again in 2013. Denmark has the highest household debt load in the world, at 310 percent of disposable incomes, Exane BNP Paribas estimates.
Banks Overreacting
Dybvad said banks are overreacting to the FSA’s stricter standards and preventing businesses from contributing to an economic recovery by denying them credit.
“The banks need to be more open, to study things in detail and to be careful before they just cancel credit lines,” he said. “Bank regulation must not be enforced as strongly and as fast as some proposals.”
European banks also face tougher capital requirements that threaten to curb lending to businesses and slow growth. European trade groups in January issued a joint letter to lawmakers urging them to take more time to overhaul bank regulations.
“If global financial conditions were to deteriorate further, leading to liquidity shortages, banks might restrict lending to the corporate sector,” the OECD said in its report on Denmark last month. “This would make it especially difficult for small and medium-sized enterprises, which already face stricter lending conditions, to access funding and would depress growth even further.”
“When we ask our companies, small- and medium-sized, they say they are experiencing a credit crunch and it has become worse in the last month,” Karsten Dybvad, chief executive officer of the Danish Confederation of Industry, said in an interview in Copenhagen.
Dybvad’s group, which represents 10,000 Danish firms, wants the financial regulator to give banks more leeway in meeting capital requirements so they don’t call in loans and fuel a vicious circle that’s stifling the $300 billion economy. In a December survey of confederation members, two thirds said they had limited access to financing, while one in five said an absence of funds was the biggest obstacle for growth.
Three Danish banks, including Amagerbanken A/S, failed last year after the FSA required them to restate bad loans, leaving them in breach of capital rules. Two of the failures pushed losses on to senior creditors and exacerbated a funding squeeze that’s frozen most of Denmark’s 120 banks out of debt markets.
Bank Failures
More lenders may collapse this year as Denmark’s regional bank crisis worsens, the Financial Supervisory Authority’s Director General Ulrik Noedgaard said in an interview last week. The FSA introduced stricter reviews of loan books last year, after finding banks understated writedowns, and has been enforcing the more rigorous standards through surprise audits.
The regulator today proposed that lenders tighten reporting standards further to reflect declining property values more accurately in loan portfolios.
According to Dybvad, banks are reacting by restricting credit and calling in existing loans. Even healthy companies are being denied credit, according to a Jan. 16 report by the Danish Association of Auditors.
“You have to do it more smoothly so that you don’t over- react,” Dybvad said. “There’s an increasing number of companies having difficulties financing their operations and also difficulties financing investments.”
Denmark’s 173-member all-share index lost as much as 1 percent today before trading 0.6 percent lower at 2:10 p.m. local time. Danish shares underperformed their European peers, with the Stoxx Europe 600 losing 0.4 percent.
Vicious Circle
The Organization for Economic Cooperation and Development warns an absence of credit may fuel a vicious circle in which businesses lack the funds to run their operations, leaving them unable to pay their debts.
“This in turn could worsen loan impairments in the corporate sector, putting pressure on the financial sector,” the Paris-based OECD said in a Jan. 26 report. “Some small banks are especially exposed to agriculture, which faces high debt, falling land prices and funding problems.”
Agricultural debt swelled 2.6 percent to 359 billion kroner ($63 billion) in 2010, the Danish Agriculture and Food Council estimates. Commercial farms have lost as much as half their value in some parts of Denmark, leaving 6 percent of the industry technically insolvent, according to the council.
Denmark is also struggling to recover from a property bubble that burst in 2007, throwing the economy into a recession and killing jobs. House prices fell an annual 8.5 percent in November as the gap between bid and ask prices widened. Prices will have slumped 25 percent by 2013 since the crisis started in 2007, the government-backed Economic Council estimates.
Bankruptcies
Loans to farming, construction and real estate made up 26 percent of total lending at the end of 2010 at banks with less than 50 billion kroner in working capital, according to a May report by the central bank. For the biggest banks, the corresponding figure was 16 percent.
Small- and medium-sized enterprises, including retailers and construction-related businesses, are now struggling to stay afloat. The number of bankruptcies rose to 511 in January, adjusting for seasonal swings, from 449 at the end of last year, Statistics Danmark said today. More companies went out of business in January than in any month since November 2010, official data show.
“As feared, it looks like the setback in Denmark’s economy is leaving its depressing mark on businesses,” Jes Asmussen, Svenska Handelsbanken AB’s chief economist in Copenhagen, said in a note.
Stagnant Economy
Annual retail sales fell for the fourth consecutive month in December while gross domestic product, which contracted in the third quarter, probably stagnated in the final three months of 2011, the confederation’s Chief Economist Klaus Rasmussen estimates.
Twin banking and housing crises have so far made little impression on investors in Denmark’s AAA rated government bonds, thanks to the country’s low debt ratio. State debt will stay within Europe’s 60 percent rule and be only 44.6 percent of gross domestic product in 2012, compared with an average of 90.4 percent in the euro area, the European Commission said Nov. 10.
Denmark’s government pays about six basis points less than Germany to borrow for 10 years, with the benchmark 2021 note yielding 1.87 percent at the end of last week.
Still, Denmark’s debt load has widened every year since 2007, unlike neighboring Sweden’s, where debt relative to GDP has narrowed every year since 2009 and will shrink again in 2013. Denmark has the highest household debt load in the world, at 310 percent of disposable incomes, Exane BNP Paribas estimates.
Banks Overreacting
Dybvad said banks are overreacting to the FSA’s stricter standards and preventing businesses from contributing to an economic recovery by denying them credit.
“The banks need to be more open, to study things in detail and to be careful before they just cancel credit lines,” he said. “Bank regulation must not be enforced as strongly and as fast as some proposals.”
European banks also face tougher capital requirements that threaten to curb lending to businesses and slow growth. European trade groups in January issued a joint letter to lawmakers urging them to take more time to overhaul bank regulations.
“If global financial conditions were to deteriorate further, leading to liquidity shortages, banks might restrict lending to the corporate sector,” the OECD said in its report on Denmark last month. “This would make it especially difficult for small and medium-sized enterprises, which already face stricter lending conditions, to access funding and would depress growth even further.”
German Factory Orders Increase on Demand From Outside Euro Area: Economy
German factory orders rose more than economists forecast in December as demand from outside the euro area helped its largest nation weather the sovereign debt crisis.
Orders, adjusted for seasonal swings and inflation, rose 1.7 percent from November, when they slumped 4.9 percent, the Economy Ministry in Berlin said today. Economists forecast an increase of 1 percent, according to the median of 36 estimates in a Bloomberg News survey.
“It is too early to call this a rebound,” said Carsten Brzeski, senior economist at ING Group in Brussels. “However, there is at least still sufficient demand for goods ‘made in Germany’ to keep the industrial engine running in 2012.”
German business confidence jumped to a five-month high in January, adding to signs that Europe’s largest economy may be coping with the debt crisis and could avoid a deep recession. At the same time, the government and the International Monetary Fund have reduced their 2012 growth forecasts as budget cuts across the 17-nation currency area damp demand for Germany’s goods in its biggest export market.
Orders from euro-region nations fell 6.8 percent in the month, today’s report showed. Domestic orders slipped 1.4 percent. Orders from outside the euro area jumped 12.3 percent, more than compensating for their 10 percent decline in November. Demand for investment goods rose 2.8 percent in December and orders for consumer goods increased 1.9 percent.
Growth in China
The euro was little changed after the report, trading at $1.3055 at 12:30 a.m. in Frankfurt for a decline of 0.8 percent today. European stocks dropped, with the Stoxx Europe 600 Index trimming a six-month high, as Greece struggled to reach a deal with its international creditors to avoid default. U.S. index futures fell, while Asian shares rose.
China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the IMF said in a report today.
Based on the IMF’s “downside” forecast for the global economy, China’s growth could drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent this year, the organization said in a report released by its China office in Beijing.
In the U.S., the trade deficit probably widened in December to a six-month high as imports climbed faster than exports, economists said a report this week will show.
Fourth-Quarter Contraction
From a year ago, German factory orders were unchanged in December when adjusted for work days. The Economy Ministry said orders fell 1.4 percent in the fourth quarter of last year from the third.
Siemens AG, Germany’s largest engineering company, reported fiscal first-quarter earnings on Jan. 24 that missed analysts’ estimates and warned that its profit targets for this year have become more challenging to reach.
The IMF on Jan. 24 cut its forecast for German growth this year by one percentage point to 0.3 percent, citing a growing threat of recession across the single currency area.
Bundesbank President Jens Weidmann said that view is “too pessimistic.” The Frankfurt-based central bank forecasts 0.6 percent growth for 2012.
Robert Bosch GmbH, the world’s biggest car-parts supplier, said on Jan. 25 that revenue rose 8.8 percent last year, driven by expansion in its home European markets. The Stuttgart-based manufacturer forecasts sales growth of between 3 percent and 5 percent in 2012.
Investor Confidence
European investor confidence rose to a seven-month high in February, the Sentix research institute said today. In December, the European Central Bank lent euro-area banks 489 billion euros for up to three years in an effort to unlock freezing credit markets.
Since then, money-market rates and the yields on Spanish and Italian government debt have fallen, signaling the debt crisis may be easing.
“We’re seeing stabilization on all fronts,” said Jana Meier, an economist at HSBC Trinkaus & Burkhardt AG in Dusseldorf, Germany. “The risk for the German economy is that governments across the euro area implement additional austerity measures.”
Orders, adjusted for seasonal swings and inflation, rose 1.7 percent from November, when they slumped 4.9 percent, the Economy Ministry in Berlin said today. Economists forecast an increase of 1 percent, according to the median of 36 estimates in a Bloomberg News survey.
“It is too early to call this a rebound,” said Carsten Brzeski, senior economist at ING Group in Brussels. “However, there is at least still sufficient demand for goods ‘made in Germany’ to keep the industrial engine running in 2012.”
German business confidence jumped to a five-month high in January, adding to signs that Europe’s largest economy may be coping with the debt crisis and could avoid a deep recession. At the same time, the government and the International Monetary Fund have reduced their 2012 growth forecasts as budget cuts across the 17-nation currency area damp demand for Germany’s goods in its biggest export market.
Orders from euro-region nations fell 6.8 percent in the month, today’s report showed. Domestic orders slipped 1.4 percent. Orders from outside the euro area jumped 12.3 percent, more than compensating for their 10 percent decline in November. Demand for investment goods rose 2.8 percent in December and orders for consumer goods increased 1.9 percent.
Growth in China
The euro was little changed after the report, trading at $1.3055 at 12:30 a.m. in Frankfurt for a decline of 0.8 percent today. European stocks dropped, with the Stoxx Europe 600 Index trimming a six-month high, as Greece struggled to reach a deal with its international creditors to avoid default. U.S. index futures fell, while Asian shares rose.
China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the IMF said in a report today.
Based on the IMF’s “downside” forecast for the global economy, China’s growth could drop by as much as 4 percentage points from the fund’s current projection, which is for 8.2 percent this year, the organization said in a report released by its China office in Beijing.
In the U.S., the trade deficit probably widened in December to a six-month high as imports climbed faster than exports, economists said a report this week will show.
Fourth-Quarter Contraction
From a year ago, German factory orders were unchanged in December when adjusted for work days. The Economy Ministry said orders fell 1.4 percent in the fourth quarter of last year from the third.
Siemens AG, Germany’s largest engineering company, reported fiscal first-quarter earnings on Jan. 24 that missed analysts’ estimates and warned that its profit targets for this year have become more challenging to reach.
The IMF on Jan. 24 cut its forecast for German growth this year by one percentage point to 0.3 percent, citing a growing threat of recession across the single currency area.
Bundesbank President Jens Weidmann said that view is “too pessimistic.” The Frankfurt-based central bank forecasts 0.6 percent growth for 2012.
Robert Bosch GmbH, the world’s biggest car-parts supplier, said on Jan. 25 that revenue rose 8.8 percent last year, driven by expansion in its home European markets. The Stuttgart-based manufacturer forecasts sales growth of between 3 percent and 5 percent in 2012.
Investor Confidence
European investor confidence rose to a seven-month high in February, the Sentix research institute said today. In December, the European Central Bank lent euro-area banks 489 billion euros for up to three years in an effort to unlock freezing credit markets.
Since then, money-market rates and the yields on Spanish and Italian government debt have fallen, signaling the debt crisis may be easing.
“We’re seeing stabilization on all fronts,” said Jana Meier, an economist at HSBC Trinkaus & Burkhardt AG in Dusseldorf, Germany. “The risk for the German economy is that governments across the euro area implement additional austerity measures.”
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