Reuters News - UK economy set for fastest growth in seven years in 2014 - BCC

A shopper walks past an empty retail unit in Nottingham, central England, June 6, 2013.

CREDIT: REUTERS/DARREN STAPLES

(Reuters) - Britain's economy will expand at its fastest rate in seven years in 2014, thanks to strengthening household consumption, but high household debt will slow growth in 2015, the British Chambers of Commerce (BCC) said on Thursday.

The business group forecast economic growth to rise to 2.7 percent in 2014, an upgrade from the forecasts of 2.2 percent it made as recently as August.

Output should pass its pre-recession peak in the second half of the year, more than six years after the financial crisis began, the BCC said.

The group also raised its estimate of 2013 growth to 1.4 percent from 1.3 percent but reduced the 2015 forecast by 0.1 percentage point to 2.4 percent, saying high household debt would limit consumption.

BCC Director General John Longworth warned that recovery could not come from households and an accelerating housing market alone, echoing comments earlier this week from Bank of England Governor Mark Carney.

"We have to find ways of boosting business investment and exports, as rebalancing oureconomy is critical to our long-term economic future," Longworth said. "Young, growing firms, and many SMEs, continue to struggle with lack of access to available credit, while consumers are getting the support they need to buy homes."

The BCC expects business investment to fall by 5.3 percent in 2013, then recover to rise 5.7 percent in 2014 and a similar amount in 2015, as companies take confidence from a stronger economy.

The BCC also said unemployment would fall to 7 percent - the level at which the Bank of England has said it would start to think about raising interest rates - in the third quarter of 2015, one quarter earlier than previously forecast, but it urged the BoE to make sure the recovery was firmly established.

The group foresees the first BoE rate rise in the fourth quarter of 2015.

BY FREYA BERRY

BBC News - US Congress cross-party budget deal reached

A cross-party Congressional budget committee convened after an October government shutdown has reached an agreement to fund federal services.

Senator Patty Murray (right) and Congressman Paul Ryan (left) were picked to head a cross-party budget committee in the wake of an October government shutdown

The proposed deal finances the government for two years and reduces the federal deficit by $23bn (£14bn).

It also avoids another government shutdown on 15 January when government funding is scheduled to run out.

The new deal "cuts spending in a smarter way," Republican Congressman Paul Ryan said on Tuesday.

'Gridlock'

The budget deal also offsets $63bn in previously enacted automatic military and domestic spending cuts triggered in January when Democrats and Republicans failed to reach a budget compromise.

Mr Ryan and Democratic Senator Patty Murray, the respective chairs of the House and Senate budget committees, were called on to reach a cross-party budget deal in the wake of October's partial government shutdown over federal spending.

"We have broken through the partisanship and gridlock," Ms Murray said of the new deal.

Mr Ryan said he was optimistic the new budget agreement could pass both sides of the highly politically divided Congress.

The measure is expected to come to a vote before the House recesses for several weeks beginning on Friday.

According to the Congressional budget chairs, the new deal does not raise taxes but requires newly hired federal workers to make larger contributions to their pensions.

A federal airport security fee adding $5 to the cost of a typical return flight is also included.

Nature of compromise

Following the announcement on Tuesday, Republican House Speaker John Boehner called the "modest" cross-party deal a "positive step forward".

US President Barack Obama issued a written statement labelling the agreement "balanced" and "designed in a way that doesn't hurt our economy".

"This agreement doesn't include everything I'd like - and I know many Republicans feel the same way. That's the nature of compromise," he said.

But, "because it's the first budget that leaders of both parties have agreed to in a few years, the American people should not have to endure the pain of another government shutdown for the next two years," he added.

Government officials say the deal, totalling an estimated $85bn over the next decade, aims to carve $20bn out of the nation's $17 trillion debt.

Political rancour

The deal is expected to pass both houses of Congress, despite attempts by Conservative groups to persuade Republicans to oppose it.

Democratic lawmakers have also expressed frustration over a failed bid to extend benefits for people unemployed longer than 26 weeks.

That program will expire on 28 December, cutting off benefits to more than one million individuals.

But many have praised the cross-party deal as a crucial step forward after political rancour led to a 16-day government shutdown in October which halted many federal services across the country.

The manoeuvre is said to have cost the US economy $24bn, as projected by financial services company Standard & Poor's.

Under a temporary deal reached to end that political standoff, the newly-formed budget conference committee was given until 13 December to come up with a new deal or face triggering further automatic spending cuts.

Those cuts, estimated at $20bn, would come largely from the Pentagon, according to media reports.

Bloomberg News - Pimco’s El-Erian Sees Faster Global Growth as U.S. Offsets China

The world economy will enjoy faster growth next year, as improvement in the U.S. and the euro area offsets slowdowns in China and Japan, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co.

The Newport Beach, California-based asset manager said the world economy is likely to expand 2.5 percent to 3 percent in 2014, up from 2.3 percent this year. U.S. growth will accelerate to 2.25 percent to 2.75 percent from 1.8 percent.

“The U.S. economy is healing,” he said in an interview yesterday. “Household balance sheets are in a better place.”

Pimco, which manages $1.97 trillion in assets, sees Chinese growth slowing to 6.75 percent to 7.25 percent from 7.8 percent over the last 12 months, according to El-Erian. Japan’s economy will expand 1 percent to 1.5 percent, down from 2.4 percent in 2013.

He said it’s virtually certain the Federal Reserve will begin moderating its asset purchases by the end of March, with a 50-50 chance of a move next week. He said the Fed is likely to couple any tapering announcement with a cut in the interest rate it pays on banks’ excess reserves and a strengthened commitment to keep monetary policy easy for an extended period.

The euro-area’s economy will expand by 0.25 percent to 0.75 percent in 2014, after contracting 0.4 percent this year, he said.

Job Market

The Pimco executive said he was heartened by the broad-based improvement in the U.S. job market last month. Payrolls increased by 203,000, while the unemployment rate fell to 7 percent from 7.3 percent in October, the Labor Department reported on Dec. 6. The employment-to-population rate also rose while hourly earnings increased.

“The breadth of improvement was notable,” El-Erian said.

The Fed’s “hyperactive” monetary policy has given the U.S. economy time to mend after its deepest recession since the Great Depression, according to El-Erian.

The Fed is buying $85 billion of bonds per month. It has also promised to keep its target for the federal funds rate near zero at least as long as unemployment remains above 6.5 percent and forecast inflation is not above 2.5 percent.

“You’re looking at a transition where the Fed will remain engaged but will alter its policy mix,” by gradually reducing its bond buying while strengthening its forward guidance on short-term interest rates, he said.

He said he expects the Fed to cut the 0.25 percent rate it pays commercial banks on excess reserves as part of that transition. While such a move wouldn’t have a “dramatic impact,” it would underscore the Fed’s commitment to keeping rates low, he said.

Mushrooming Reserves

Banks’ reserves have mushroomed as the Fed purchased securities from them in its bid to lower long-term interest rates. Banks currently have more than $2 trillion in extra cash at the Fed, according to data from the central bank.

Even as the economy improves next year, it won’t achieve “escape velocity,” according to El-Erian. The big missing ingredient is stepped-up capital spending by companies.

“We have yet to see business investment really pick up,” he said. “Companies still prefer to use their excess cash for financial engineering” such as buying back shares or boosting dividends.

By Rich Miller

BBC News - European Central Bank keeps rates at record 0.25% low

The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25%.

The ECB's move came as no surprise to analysts

The decision follows its surprise cut from 0.5% in November.

ECB president Mario Draghi said the decision to keep the rate at its current level reflected the fact that the eurozone's economy remained "subdued".

The eurozone - the 17 countries that use the euro currency - grew by 0.1% in the July-to-September period.

This compares with 0.3% growth in the previous quarter.

In a news conference following the announcement, Mr Draghi confirmed the ECB's forward guidance that the interest rate would remain at the same level or lower for the foreseeable future.

Prices remained "subdued", he said, despite the recent increase in the eurozone inflation rate from 0.7% to 0.9%.

"Our monetary policy decisions are taking time to make their influence felt," he said.

The ECB has reduced its benchmark interest rate consistently since 2008, when it stood at 3.75%, in response to the region's sustained debt crisis and contracting economy.

This refinancing rate determines what banks pay to borrow from the ECB and influences borrowing costs for businesses and consumers.

Reuters News - With song and sadness, South Africans mourn Mandela

1 OF 18. File photo of Nelson Mandela smiling at a news conference ahead of the second 46664 concert near the small Southern Cape province town of George.

BY TOSIN SULAIMAN AND PEROSHNI GOVENDER

(Reuters) - South Africans united in mourning for Nelson Mandela on Friday, but while some celebrated his remarkable life with dance and song, others fretted that the anti-apartheid hero's death would make the nation vulnerable again to racial and social tensions.

As the country's 52 million people absorbed the news that their beloved former president had departed forever, many expressed shock at the passing of a man who was a global symbol of reconciliation and peaceful co-existence.

South Africans heard from President Jacob Zuma late on Thursday that the statesman and Nobel Peace Prize laureate died peacefully at his Johannesburg home in the company of his family after a long illness.

Despite reassurances from public figures that Mandela's passing, while sorrowful, would not halt South Africa's advance away from its bitter apartheid past, some still expressed unease about the absence of a man famed as a peacemaker.

"It's not going to be good, hey! I think it's going to become a more racist country. People will turn on each other and chase foreigners away," said Sharon Qubeka, 28, a secretary from Tembisa township as she headed to work in Johannesburg.

"Mandela was the only one who kept things together," she said.

Flags flew at half mast as South Africa entered a period of mourning leading up to a planned state funeral for its first black president next week.

Trade was halted for five minutes on the Johannesburg stock exchange, Africa's largest bourse, out of respect.

But the mood was not all somber. Hundreds filled the streets around Mandela's home in the upmarket Johannesburg suburb of Houghton, many singing songs of tribute and dancing.

The crowd included toddlers carrying flowers, domestic workers still in uniform and businessmen in suits.

Many attended church services, including another veteran anti-apartheid campaigner, former Anglican Archbishop of Cape Town Desmond Tutu. He said that like all South Africans he was "devastated" by Mandela's death.

"Let us give him the gift of a South Africa united, one," Tutu said, holding a mass in Cape Town's St George's Cathedral.

An avalanche of tributes continued to pour in for Mandela, who had been ailing for nearly a year with a recurring lung illness dating back to the 27 years he spent in apartheid jails, including the notorious Robben Island penal colony.

U.S. President Barack Obama and British Prime Minister David Cameron were among world leaders who paid tributes to him as a moral giant and exemplary beacon.

The loss was also keenly felt across the African continent. "We are in trouble now, Africa. No one will fit Mandela's shoes," said Kenyan teacher Catherine Ochieng, 32.

POLITICIANS NOW "NOTHING LIKE MANDELA"

For South Africa, the death of its most beloved leader comes at a time when the nation, which basked in global goodwill after apartheid ended, has been experiencing labor unrest, growing protests against poor services, poverty, crime and unemployment and corruption scandals tainting Zuma's rule.

Many saw today's South Africa - the African continent's biggest economy but also one of the world's most unequal - still distant from being the "Rainbow Nation" ideal of social peace and shared prosperity that Mandela had proclaimed on his triumphant release from prison in 1990.

"I feel like I lost my father, someone who would look out for me," said Joseph Nkosi, 36, a security guard from Alexandra township in Johannesburg.

Referring to Mandela by his clan name, he added: "Now without Madiba I feel like I don't have a chance. The rich will get richer and simply forget about us. The poor don't matter to them. Look at our politicians, they are nothing like Madiba."

The crowd around Mandela's home in Houghton preferred to celebrate his achievement in bringing South Africans together.

For 16-year-old Michael Lowry, who has no memory of the apartheid system that ended in 1994, Mandela's legacy means he can have non-white friends. He attended two schools where Mandela's grandchildren were also students.

"I hear stories that my parents tell me and I'm just shocked that such a country could exist. I couldn't imagine just going to school with just white friends," Lowry said.

Shortly after the news of Mandela's death, Tutu had tried to calm fears that the absence of the man who steered South Africa to democracy might revive some of the ghosts of apartheid.

"To suggest that South Africa might go up in flames - as some have predicted - is to discredit South Africans and Madiba's legacy," Tutu said in a statement on Thursday.

"The sun will rise tomorrow, and the next day and the next ... It may not appear as bright as yesterday, but life will carry on," Tutu said.

MAY HURT ANC IN LONG TERM

Zuma and his ruling African National Congress face presidential and legislative elections next year which are expected to reveal discontent among voters about pervasive poverty and unemployment 20 years after the end of apartheid.

But the former liberation movement is expected to maintain its predominance in South African politics.

Mark Rosenberg, Senior Africa Analyst at the Eurasia Group, said that while Mandela's death might even give the ANC a sympathy-driven boost for elections due next year, it would hurt the party in the long term.

He saw Mandela's absence "sapping the party's historical legitimacy and encouraging rejection by voters who believe the ANC has failed to deliver on its economic promises and become mired in corruption."

Mandela rose from rural obscurity to challenge the might of white minority rule - a struggle that gave the 20th century one of its most respected and loved figures.

He was among the first to advocate armed resistance to apartheid in 1960 but was quick to preach reconciliation and forgiveness when the white minority began easing its grip on power 30 years later.

He was elected president in landmark all-race elections in 1994 after helping to steer the racially divided country towards reconciliation and away from civil war.

Mandela was awarded the Nobel Peace Prize in 1993, an honor he shared with F.W. de Klerk, the white Afrikaner president who released him in 1990. Reacting to his death, the Nobel Committee said Mandela would remain one of the greatest ever prizewinners.

In 1999, Mandela handed over power to younger leaders better equipped to manage a modern economy - a rare voluntary departure from power cited as an example to African leaders.

This made him an exception on a continent with a bloody history of long-serving autocrats and violent coups.

Bloomberg News - Age of Austerity Nearing End May Boost Global Economy

Pedestrians carry shopping bags across a square in central Athens

The age of austerity may be nearing an end as governments ease the fiscal cuts that restrained economic recoveries.

After three years of slashing budgets bloated by recession and the stimulus deployed to fight it, U.S. and euro-area officials are finding less need to retrench as their previous efforts and improving economic growth help narrow deficits.

This will allow them to tighten policy next year by the least since they began in 2011, according to estimates by the International Monetary Fund. The lender projects the fiscal reduction by Group of Seven nations will be almost half this year’s pace as the average budget shortfall drops to about a quarter of where it was just three years ago.

“The softening of the fiscal drag is likely to play an important role in supporting a pick-up in global growth,” said Jose Ursua, a New York-based economist at Goldman Sachs Group Inc., referring to the negative effect of budget-chopping on an economy.

Economists at Goldman Sachs and Deutsche Bank AG say the relaxation will help industrial economies almost double their rate of expansion next year to 2.2 percent, the most since the recovery from recession in 2010. The Federal Reserve -- including Vice Chairman Janet Yellen, nominated to be its next chairman -- already is taking note as it considers when to curtail its own stimulus.

‘Major Contributor’

Ursua calls the shift a “major contributor” to an acceleration in U.S. growth next year to 2.9 percent from 1.7 percent this year. That in turn helps explain why Goldman Sachs forecasts the Standard & Poor’s 500 Index will climb to 1,900 at the end of 2014 from 1,792.81 (SPX) at 4 p.m. in New York yesterday.

In Europe, signs that the so-called peripheral economies such as Spain and Greece are getting more control over their budgets will reduce the “risk premium” investors demand to hold their bonds over similarly dated securities, according to Bill Street, head of investments for Europe, Middle East and Africa at State Street Global Advisors in London.

The gap between 10-year yields for Spain and Germany (GDBR10) was 2.37 percentage points yesterday, down from 6.5 points in July 2012. “You’ll see spreads coming in, definitely,” Street said.

Reduced austerity would end a period when governments raised taxes and cut public spending, reining in their economies, as they tried to restore the fiscal order they abandoned to fight the worldwide recession.

Employment Gains

Adjusting budgets to ignore interest payments, the IMF says the so-called primary deficit in the G-7 countries reached an average 5.1 percent in 2010 when also smoothed to ignore large economic swings and will fall to 1.2 percent next year.

The unprecedented retrenchments between 2010 and 2013 amounted to 3.5 percent of U.S. gross domestic product and 3.3 percent of euro-area GDP, according to Julian Callow, chief international economist at Barclays Plc in London. For the U.S., Deutsche Bank economists estimate nonfarm payrolls would have gained 400,000 a month this year instead of about 186,000 without fiscal restraint.

The U.S. and Europe also fell victim to uncertainty shocks. First the euro area struggled to tame markets rattled by debt burdens and bailouts. Then American lawmakers partially closed the government for 16 days and squabbled over raising the $16.7 trillion debt ceiling before agreeing on a short-term fix that suspended the borrowing cap until Feb. 7.

Higher Taxes

What matters for economists is the fiscal drag. The greater the tightening, the more restraint as companies and consumers face higher taxes, and there’s less government hiring or spending on programs such as education or roads and other infrastructure. This then feeds through the economy as households and businesses pull back on their own spending.

Even a reduction in the amount of drag can bring relief to an economy, Ursua said. The IMF projects the cyclically adjusted primary deficit for the U.S. will fall to 1.2 percent of GDP in 2014 from 1.9 percent this year and 4.2 percent in 2012. Such a slowing in the rate of decline leads Ursua to calculate fiscal drag will fall by 1.6 percentage points next year. It rose 1.2 points this year.

The room for error lingers. U.S. lawmakers still must agree on a spending plan for the rest of the fiscal year -- which may trigger more automatic spending cuts, including to defense programs -- and they face the Feb. 7 deadline for raising the borrowing limit.

Political Gridlock

A survey of Bloomberg subscribers last month identified political gridlock in Washington as the biggest threat to global growth. Events there are “the cause of many of the problems” with the economy, William Brodsky, executive chairman of CBOE Holdings Inc., the biggest options-exchange operator, told a Bloomberg LP conference on Nov. 20.

Still, neither Democrats nor Republicans have the appetite for more spending cuts, and changes to the tax code probably won’t come soon, according to Nomura Holdings Inc. economists. If the negotiations go smoothly, the economy could accelerate faster toward the 3 percent they project for the second half of 2014 and into 2015, they wrote in a Nov. 25 report.

Not everyone will be tightening their belts. After providing stimulus this year as part of his campaign to defeat deflation, Japanese Prime Minister Shinzo Abe is raising the country’s sales tax to 8 percent in April from 5 percent. Partly to counter the impact, he’s also planning an 18.6 trillion yen ($181.6 billion) spending and loan package.

Austerity Commitment

The U.K. government, which releases new forecasts today, says it remains committed to the austerity it has put at the heart of its economic policy. Goldman Sachs predicts greater restraint in emerging markets, including China, Russia, Brazil and India.

If the U.S. does relax, it would be welcome news for the Fed as it debates tapering its monthly purchases of $85 billion in Treasuries and mortgage-backed securities.

“I would expect if there were less fiscal drag, and I hope there will be less going forward, that the economy’s growth rate is going to tick up,” Yellen said on Nov. 14 as she addressed senators considering her candidacy to replace Ben S. Bernanke as chairman.

“The lack of a shutdown and a stronger fiscal impulse is a net positive for the Fed next year,” said Drew Matus, deputy chief U.S. economist in Stamford, Connecticut, at UBS Securities LLC. The firm is predicting the central bank will begin tapering in January.

State Spending

What also may help the U.S. are state and local governments: Their $1.74 trillion in inflation-adjusted spending is 50 percent larger than the federal sector, and they employ seven times more people, according to Joseph LaVorgna, chief U.S. economist at Deutsche Bank in New York. Having declined for three years in a row for the first time since World War II, their spending jumped 1.5 percent in the third quarter, the most since the second quarter of 2009, he said.

“The positive incremental effect from stronger state and local activity is considerable,” said LaVorgna, who predicts the U.S. will expand 3.2 percent next year after 1.8 percent this year.

Driven to austerity by debt crises, Europe also is finding room to relax. The IMF data suggest the region’s adjusted primary budget surplus will grow for a second year, rising to 1.4 percent of GDP in 2014 from 1.1 percent this year and a deficit of 2.6 percent in 2010. Greece’s shortfall will decline to 5.4 percent of GDP from 13.6 percent in 2009.

Longest Recession

The cutting helped deepen the longest recession since the euro began trading in 1999 and led to fatigue among politicians and voters, said Giada Giani, an economist at Citigroup Inc. in London. With less pressure from bond investors to tackle fiscal excesses, countries will take a break and across the continent, fiscal policy won’t be constrictive for the first time since 2009, she said.

“Growth suffered more than originally envisaged,” said Giani in a Nov. 22 report titled “Is This The End of Austerity?” “The slowdown in fiscal consolidation is likely to continue in 2014.”

It still may take until 2015 for the drag to really diminish, given that policies implemented in 2013 have yet to take full effect, according to Laurence Boone, chief European economist at Bank of America Corp. in London.

“It’s important overall the drag disappears, as growth needs to come back,” said Boone, who predicts the euro-zone economy will expand 0.8 percent next year after shrinking 0.5 percent this year.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

BBC News - China markets fall on new share sale guidelines

Chinese stock markets fell on Monday after the regulators issued new rules for reforming the country's share sale market over the weekend.

Analysts said investors were worried that a slew of listings may hurt liquidity in the markets

The rules are likely to see listings resume next year, ending a freeze that has lasted more than a year.

Analysts said investors were keen for the rules to be eased, but there were fears a slew of new listings might not leave enough cash in the market.

The Shenzen stock index fell 4% and the Shanghai stock index dropped 1%.

Zhang Yanbing, an analyst with Zheshang Securities said the guidelines had "sparked worries that a flood of IPOs [initial public offerings] could divert funds from the secondary market".

However, he added that the rules "should be positive to the market in the long run".

Speeding up?

The new guidelines were published by the China Securities Regulatory Commission (CSRC) as part of reforming the country's stock market listing system.

Among the key issues addressed by the new rules are limiting the government's influence over the pricing of share offers and boosting transparency.

According to the state-owned Xinhua news agency, the current system of approving a share listing "can take multiple rounds of reviews and several years before investors receive approval from the securities regulator".

Xinhua said that under new rules, the securities regulator "would only be responsible to decide whether companies fulfil the rules".

"The values and risks would be for investors and the market to judge."

Luke Wang, a vice-president at China Galaxy Securities, said under the new guidelines, "the IPO issuance process will speed up massively".

Deng Ge, spokesman for the CSRC, was quoted as saying by Xinhua that about 50 companies would be able to complete their registration process for IPOs by January next next year.

The securities regulator added that it would also conduct strict checks to ensure that information provided by firms looking to list on the stock exchanges was full and accurate before allowing them to conduct a share sale.

"We will expand the scale of information disclosure and make our review standard and process more transparent," said Mr Deng.

"We will open the IPO process to the public, so that they can have a closer supervision to the issuance process."

Shanghai Composite Index

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