Friday, January 30, 2015
Thursday, January 29, 2015
Bank of England governor Mark Carney has warned the current structure of the eurozone puts it in an "odd position".
Mr Carney said sharing a currency without also sharing decisions on taxes and spending did not work.
"For complete solutions to current and potential future problems the sharing of fiscal risks is required," he told an audience in Dublin, Ireland.
Currently, EU members share the euro currency, but decisions on spending are made at a national level.
Mr Carney said "it is no coincidence" that effective currency unions tended to have centralised fiscal authorities.
"European monetary union will not be complete until it builds mechanisms to share fiscal sovereignty," he said.
He said the current system in the eurozone made it stand out from federal countries like the US, Canada and Germany, where a central government has the ability to transfer significant financial resources to constituent states as-and-when those states run into severe difficulties.
"Without this risk sharing, the euro area finds itself in an odd position," he added.Analysis: BBC economics editor Robert Peston:
In saying that monetary union cannot work without fiscal union - or the ability and willingness of countries with stronger public finances to support those that are struggling to grow under the burden of big debts - he is in effect saying that Germany ought to do more to support the likes of Italy, Spain and France.
There is nothing new in Mr Carney's argument. Almost from the moment the eurozone was created, economists and politicians have argued that monetary union in Europe could not endure over the long term without fiscal and political union - or the transfer of national taxing and spending powers to a central decision-making body.
But it is the timing of the intervention which is striking, coming as it does a few days after the European Central Bank launched more than a billion euros of public-sector and private-sector debt purchases, or quantitative easing, as the eurozone continues to flat-line, and as eurozone countries led by Germany baulk at providing further financial help to Greece.
The speech comes just days after after the European Central Bank said that it would inject at least €1.1 trillion (£834bn) into the ailing eurozone economy, in a bid to encourage spending.
Mr Carney said the ECB's actions were "timely and welcome", but warned the "ECB alone cannot eliminate the risks of a prolonged stagnation".
"Europe needs a comprehensive, coherent plan to anchor expectations, build confidence and escape its debt trap. That plan begins but does not end with the monetary policy boldness of the ECB," he added.
He also acknowledged that Europe's leaders did not currently foresee fiscal union as a part of monetary union.
"Such timidity has costs," he concluded.
Wednesday, January 28, 2015
(Reuters) - China plans to cut its growth target to around 7 percent in 2015, its lowest goal in 11 years, sources said, as policymakers try to manage slowing growth, job creation and pursuing reforms intended to make the economy more driven by market forces.
The growth target, which is set to be announced by Premier Li Keqiang at the annual parliament session in March, was endorsed by top party leaders and policymakers at a closed-door Central Economic Conference in December, said a number of people with knowledge of the outcome of meeting who spoke to Reuters.
The target, which is in line with market expectations, has not been previously reported.
"This year's economic growth target will be around 7 percent, but the 7 percent should be the bottom line," said one of the sources, an influential economist who advises the government.
"The government will have to balance economic growth, employment and structural reforms this year," said the economist, who requested anonymity due to the sensitivity of the matter.
The use of "around" to qualify the growth forecast repeats terminology used last year by authorities to show they were not fixed on a hard target.
Although the target was endorsed in December, it is still possible for it to be adjusted before the parliament convenes.
The State Council Information Office, the public relations arm of the government, had no comment on the growth forecast when contacted by Reuters.
Officials have said slowing growth reflects reforms to put the economy on a more sustainable path, but they are wary of a sharp slowdown that could cause job losses and debt defaults.
China's pursuit of rapid growth in recent decades has helped fuel overinvestment in some sectors and a sharp build-up of debt by local governments. Almost $7 trillion was wasted on ineffective investment since 2009, a government official and economist said last year.
Central Bank Governor Zhou Xiaochuan has acknowledged a lower growth target was on the cards for 2015, saying it would be discussed by the parliament in March.
The government is also looking at lowering its forecast for consumer price inflation to around 3 percent, the sources said.
Consumer prices rose 2 percent in 2014, coming in well below a target of 3.5 percent as deflation fears intensified, while producer prices have been falling for almost three years.
"Fighting deflation could be the top priority in the near term, but that won't contradict with structural adjustments," said another source, who is a senior economist at a well-connected think-tank in Beijing.
The last time China set its national growth target at 7 percent was in 2004, when theeconomy actually grew 10.1 percent. The growth target was 7.5 percent last year.
Data last week showed growth in the world's second-largest economy plumbed a 24-year low of 7.4 percent in 2014, and a Reuters poll of more than 40 economists found growth was expected to slow to 7 percent this year and 6.8 percent in 2016.
Some local governments have already lowered their growth targets for this year, often after significantly undershooting their 2014 goals, and Shanghai said it would not even set a growth target because its focus was on reforms and developing a free-trade zone.
Fifteen of 17 regions, provinces and municipalities, including Beijing, that have released local growth plans for 2015 have cut their GDP targets by between half a percentage point to 2.5 percentage points from last year, local media reports and government websites showed.
Tuesday, January 27, 2015
Germany has warned the new Greek government that it must live up to its commitments to its creditors.
German government spokesman Steffan Seibert said it was important for Greece to "take measures so that the economic recovery continues".
His comments were echoed by the head of the eurozone finance ministers' group.
The far-left Syriza party, which won Sunday's poll, wants to scrap austerity measures demanded by international lenders, and renegotiate debt payments.
However Jeroen Dijsselbloem, president of the Eurogroup, said on Monday: "There is very little support for a write-off in Europe."
Speaking after a meeting of eurozone finance ministers in Brussels, he said members should "abide by the rules and commitments".
Meanwhile the German government said that Greece's new leadership should take measures to ensure the economic recovery continues.
"A part of that is Greece holding to its prior commitments and that the new government be tied in to the reform's achievements," government spokesman Steffan Seibert said.
Syriza's victory has caused some concern in the financial markets.
In a volatile start to the week the euro briefly touched an 11-year lowagainst the dollar, before recovering to trade almost 0.7% higher against the US currency.
In Athens the stock market closed 3.2% lower, with particularly heavy losses for Piraeus Bank which fell 17.6% and Alpha Bank which fell 11.6%.
Syriza leader Alexis Tsipras helped calm investors' nerves when he said in a speech that he wanted negotiation, not confrontation, with international lenders.
"The new Greek government will be ready to co-operate and negotiate for the first time with our peers a just, mutually beneficial and viable solution," Mr Tsipras said following his election win.
The troika of lenders that bailed out Greece - the European Union, European Central Bank, and International Monetary Fund - imposed big budgetary cuts and restructuring in return for the money.
But Mr Tsipras said: "The troika for Greece is the thing of the past."
Analysis: Robert Peston, BBC economics editor
If Syriza were to win its negotiations with the rest of the eurozone, other anti-austerity parties would look more credible to voters. The victory of protectionist Marine le Pen in France's presidential election would be an interesting test of markets' sangfroid.
And if Syriza were to lose in talks with Brussels and Berlin, and the final rupture of Greece from the euro were to take place, investors might well pull their savings from any eurozone country where nationalists are in the ascendant.
So why are investors not in a state of frenzied panic? Why have the euro and stock markets bounced a bit? One slightly implausible explanation is that investors believe the eurozone would actually be stronger without Greece, so long as no other big country followed it out the door.
More likely is that they believe reason will prevail, and Berlin will sanction a write-off of Greece's excessive debts.
Monday, January 26, 2015
Friday, January 23, 2015
(Reuters) - Chinese factories were forced to cut prices for the sixth straight month in January to sell their products, while economic growth in South Korea slowed sharply, raising the prospect of more policy easing from major central banks in Asia.
The weak manufacturing reading from China added to expectations that Beijing will have to announce fresh stimulus measures soon, and came a day after the European Central Bank took the ultimate leap and launched a huge bond-buying program as it tries to stave off deflation and kick-start growth.
China's manufacturing growth stalled for the second month in a row, the HSBC/Markit Flash Manufacturing Purchasing Managers' Index (PMI) survey showed on Friday, while the sub-index for input prices fell to the lowest since the global financial crisis, reflecting a tumble in oil prices that is spreading disinflationary pressure throughout the globe.
Chinese companies again cut output prices, but more deeply than in December, eroding their profit margins and pointing to faltering demand.
Analysts at Nomura saw more downside pressure on China's producer prices, "enhancing our concerns over deflation".
"This looks like a trend and it will affect core inflation at some stage. So the PBOC will very likely react to such deflation concerns," said Chang Chun Hua, an economist at Nomura, adding he expected the central bank to cut commercial banks' reserve requirement ratio (RRR) in the first quarter to free up more money to lend.
News out of South Korea made for uncomfortable reading as well. Asia's fourth-largesteconomy grew a seasonally adjusted 0.4 percent in the October-December period on-quarter, less than half of the 0.9 percent gain in the third quarter.
A senior statistics official from the central bank pointed to the uncertainty facing the trade-reliant economy, not least from the slowdown in China, South Korea's biggest export market.
RACE TO THE BOTTOM?
The Bank of Korea is widely expected to cut interest rates in the first half of this year.
In Bangkok, Thailand's finance minister urged the central bank to cut rates to help the sputtering economy and said he was worried that the strength of the baht currency will hurt exports, a key growth engine.
In Australia, investors now see a bigger chance of a cut after surprise easing from Canada earlier this week, while India last week cut rates earlier than expected and hinted at more to come.
The lone bright spot in Asia was Japan, where manufacturers saw a pick up in domestic and overseas orders this month and hired more staff.
Still, the Bank of Japan is struggling to reach its ambitious 2 percent inflation target two years into so-called 'Abenomics' – a mix of aggressive monetary and fiscal policy plus structural reform aimed at pulling the country out of decades of deflation, a fate other global policymakers are desperate to avoid.
Indeed, earlier this week, the BoJ slashed its inflation forecasts.
While the Japanese central bank signaled it was in no hurry to add to its massive asset-buying scheme, some analysts suspect it will have to do more later in the year.
"With very low inflation, or even negative inflation and some slack remaining, we expect that advanced economy monetary policy will continue to loosen overall," analysts at Citi wrote in a note to clients.
"ECB QE will probably be scaled up further over time. We also expect the BoJ to expand QE further around mid-year."
Friday's reports in Asia came a day after the European Central Bank launched a full-scale attack on the threat of deflation, pledging to pump hundreds of billions in new money into a sagging euro zone economy.
While surveys on the euro zone manufacturing sector due later on Friday will not reflect the ECB's latest measures, any disappointment would only serve to further justify its bold action.
Similar reports on the U.S. factory sector may highlight concerns that its economy could be the only engine driving global growth this year.
BY KOH GUI QING AND CHRISTINE KIM
Thursday, January 22, 2015
The European Central Bank (ECB) is expected to announce it will inject up to €1 trillion euros into the ailing eurozone economy.
The ECB could purchase government bonds worth up to €50bn (£38bn) per month until the end of 2016 - double the amount previously expected.
Creating new money to buy government debt, or quantitative easing (QE), should reduce the cost of borrowing.
The eurozone is flagging and the ECB is seeking ways to stimulate spending.
Lowering the cost of borrowing should encourage banks to lend and eurozone businesses and consumers to spend more.Big bazooka
It is a strategy that appears to have worked in the US, which undertook a huge programme of QE between 2008 and 2014.
The UK and Japan have also had sizeable bond-buying programmes.
What is a government bond?
Governments borrow money by selling bonds to investors. A bond is an IOU. In return for the investor's cash, the government promises to pay a fixed rate of interest over a specific period - say 4% every year for 10 years. At the end of the period, the investor is repaid the cash they originally paid, cancelling that particular bit of government debt.
Government bonds have traditionally been seen as ultra-safe long-term investments and are held by pension funds, insurance companies and banks, as well as private investors. They are a vital way for countries to raise funds.
Up until now, the ECB has resisted, although the bank's president, Mario Draghi, reassured markets in July 2012 by saying he would be prepared to do whatever it took to maintain financial stability in the eurozone, nicknamed his "big bazooka" speech.
Since then, the case for quantitative easing has been growing.
Earlier this month, figures showed the eurozone was suffering deflation, creating the danger that growth would stall as businesses and consumers shut their wallets, as they waited for prices to fall.Whose debt?
The ECB's bond-buying programme is likely to begin in March, although the final decision over whether to start the measures will be taken at a meeting of the bank's 25-member policy-making board on Thursday.
There remains a possibility that the German members of the board will object to the plan. They would prefer any government bonds purchased to be held by national governments, rather than centrally by the ECB. That would reduce the risk of a default by struggling peripheral countries, such as Greece and Italy, being shouldered by the richer members of the eurozone.
On Wednesday, the Organisation for Economic Co-operation and Development (OECD) urged Mr Draghi to pursue uncapped quantitative easing.
Angel Gurria, secretary-general of the OECD, told the World Economic Forum in Davos on Wednesday: "Let Mario go as far as he can. I don't think he should cap it. Don't say 500bn (euros). Just say, 'As far as we can, as far as we need it.'"