BBC News - IMF says world at risk of 'economic derailment'

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Image captionIMF deputy chief David Lipton, centre, says more forceful policy action is needed

The International Monetary Fund (IMF) has warned that the global economy faces a growing "risk of economic derailment."

Deputy director David Lipton called for urgent steps to boost global demand.

"We are clearly at a delicate juncture," he said in a speech to the National Association for Business Economics in Washington on Tuesday.

"The IMF's latest reading of the global economy shows once again a weakening baseline," he warned.

The comments come after weaker-than-expected trade figures from Chinashowing that exports in February plunged by a quarter from a year ago.

With the world's second largest economy often referred to as as "the engine of global growth", weaker global demand for its goods is read as an indicator of the general global economic climate.

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Image captionIf the global growth engine stutters, it's time to worry

'Highly vulnerable'

The IMF has already said it is likely to downgrade its current forecast of 3.4% for global growth when it releases its economic predictions in April.

Last month, the international lender had warned that the world economy was "highly vulnerable" and called for new efforts to spur growth.

In a report ahead of last month's Shanghai G20 meeting, the IMF said the group should plan a co-ordinated stimulus programme as world growth had slowed and could be derailed by market turbulence, the oil price crash and geopolitical conflicts.

In his Washington speech, Mr Lipton said "the burden to lift growth falls more squarely on advanced economies" which have fiscal room to move.

"The downside risks are clearly much more pronounced than before, and the case for more forceful and concerted policy action, has become more compelling."

"Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy," he added.

The downbeat picture is one that has continuing ramifications for businesses and industries that bet on China's growth story.

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Image captionBeijing faces the tough task of reforming the economy while trying to maintain stability

A slew of weak economic data has recently added to those concerns and US ratings agency Moody's has downgraded its outlook for China from "stable" to "negative".

There also is concern over rising unemployment as Beijing seeks to gradually shift its economy from overdependence on manufacturing and industry towards more services and consumer spending.

China's economy is growing at the slowest rate in 25 years, and the slowdown has created considerable uncertainty in financial markets around the world and led to sharp falls in commodity prices.

Bloomberg News - BOE to Offer Extra Liquidity to Banks Around EU Referendum

The Bank of England said it will offer extra liquidity to the financial system around the U.K.’s European Union referendum in order to improve the availability of funds to banks.

The central bank will offer three additional indexed long-term repo operations in the weeks around the vote scheduled for June 23, taking the total number that month to four from the usual one, it said in a statement published on its website on Monday.

The move is a precautionary measure to help ensure the continued smooth functioning of sterling markets and is not in response to specific concerns about liquidity stress around the referendum, according to a person familiar with the situation, who asked not to be named because deliberations on the matter are confidential.

“It seems as though the BOE is erring on the side of caution,” said Orlando Green, a fixed-income strategist at Credit Agricole SA’s corporate and investment-banking unit in London. “There will likely be a significant level of volatility due to the voyage into the unknown if there is an ‘out’ vote. Hence the BOE will want to offer additional support for banks.”

Carney Testimony

With Bank of England Governor Mark Carney due to testify at Parliament’s Treasury Committee on Tuesday on the economic and financial costs and benefits of EU membership, the announcement is an early insight into the central bank’s contingency planning. While the BOE didn’t announce extra liquidity operations before Scotland’s independence referendum in September 2014, it later disclosed emergency plans to pump money into the financial system in the event of a breakup of the U.K.

“The bank will continue to monitor market conditions carefully and keep its operations under review,” the central bank said on Monday. The BOE “stands ready to take additional action if necessary.”

The extra operations will be held on June 14, June 21 and June 28, and will be in addition to BOE’s regular monthly ILTR operations. The central bank will continue to offer liquidity insurance via its other facilities throughout this period, it said.

“It is clear that the bank does not want to be accused of being asleep at the wheel and are setting out a backstop plan to ensure banks have ample liquidity in the event that it is required,” said Jason Simpson, a strategist at Societe Generale SA in London.

BBC News - Brazil's economy shrank 3.8% in 2015

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Brazil's GDP fared worse than almost any other major economy in 2015, contracting by 3.8%, according to the national statistics agency IBGE.

Economic growth in the world's seventh-largest economy has fallen sharply in recent months.

This was due partly to low commodity prices and sluggish global growth.

But political paralysis has hampered Brazil's efforts to tackle its economic problems, including a budget deficit that has reached 10.8% of GDP.

President Dilma Rousseff is trying to head off the opposition's efforts to impeach her over alleged accounting irregularities, which means she cannot afford to alienate supporters in her Workers' Party by cutting spending or raising taxes.

Investigations are also continuing into a high-level bribery and corruption scandal involving major construction projects. Ms Rousseff's predecessor as president, fellow Workers' Party politician Luiz Inacio Lula da Silva, is one of the people under investigation.

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Analysis: Andrew Walker, economics correspondent

What a contrast with the optimism of the 2000s. That was when the term Brics was coined, covering the largest emerging economies, including Brazil, which were seen as major contributors to global economic growth.

Among the group today, India is still performing strongly, but China has slowed - and many economists say by much more than the official figures suggest.

Russia's economy contracted by a similar amount to that of Brazil last year, and South Africa - a later addition to this group - managed a very lacklustre 1.3% growth last year.

These figures do pose the question: is this dip in emerging economies' performance just that - a temporary dip. Or is it a longer-term transition to slower growth?

Some factors, such as Brazil's political crisis, may pass, but on the wider question for the emerging economies, the jury is still out.

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Inflation surge

Brazil's economic performance last year vies with that of Russia as the worst in a major economy for 2015. Official figures for Russia's GDP last year have not yet been released.

It was also Brazil's worst set of figures since 1990.

Analysts say Brazil is now caught in a classic case of stagflation - a combination of high inflation and a recession.

On Wednesday, policymakers at the country's central bank voted to keep the benchmark Selic interest rate at its current level of 14.25%.

High interest rates have traditionally been used in Brazil as a policy tool to keep inflation in check. But inflation has surged in any case, now standing at 11%, while high rates are hurting businesses.

"While we don't think Brazil is on the cusp of a fiscal crisis, the position is fragile," said emerging markets economist Edward Glossop at Capital Economics.

"If nothing else, it is facing an extended period of budget austerity - and the longer the government fudges or delays the necessary adjustment, the more painful it will be."

Bloomberg News - The British Economy Is Having a Terrible Week

And you think you're having a bad week?

Global gloom is catching up with the U.K. While economic growth came in at 0.5 percent in the fourth quarter, a recent bad run of numbers is threatening that pace. Markit Economics sees 0.3 percent — at best — this quarter, and says its indexes are back at a level that in the past has been consistent with more Bank of England stimulus.

Manufacturing, highly dependent on exports, has been struggling against global headwinds. But services, the biggest part of the economy, was apparently faring well — until this morning. 

Here's Markit's index of activity in services. Now at the lowest in almost three years.

And here's manufacturing from Tuesday.

Even going back to last Thursday's fourth-quarter growth data, there are troubling signs. While the pace compared favorably with Europe's other big economies of Germany, France and Italy, the detail showed imbalances. Net trade dragged on growth, as did industrial production, which dropped 0.5 percent in the quarter.

And what about the Brits themselves? Consumers have helped to keep the show on the road, but even they've become a little nervous about the outlook. Here's a measure of their economic optimism from GfK last Friday, and it's near the lowest in three years.

And there's still the vote on EU membership to come. While most polls last month gave the "stay" camp a lead, it's the big cloud hanging over the year. Economists in a Bloomberg survey in February said a vote to leave —  a “Brexit”  — would dramatically increase the chance of a recession.

They put the odds at 40 percent, three times the risk seen if the status quo is kept.

At least the Bank of England isn't making any moves to increase interest rates from a record-low 0.5 percent. Even with unemployment at a decade low and limited spare capacity, global risks have increased and the economy isn't quite on a solid footing. Some investors are even pricing in a rate cut.

by Fergal O'Brien

BBC News - Australian economic growth beats expectations

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Australia's economy grew by 3% in the three months ending December 2015, compared to the same period a year ago.

Compared to the third quarter, growth was up 0.6%, beating market expectations of 0.4%.

Household consumption, construction and public spending were the main factors driving the better-than-expected growth.

The strong data comes despite the global commodity slump hitting the country's vital mining and oil sectors.

Australia's benchmark ASX/200 was up 1.5% on the positive news.

"Given Australia is going through the biggest mining pullback in our lifetimes, this is a pretty good outcome," said David de Garis, a senior economist at National Australia Bank.

Analysts also said the stronger-than-expected figure meant further cuts in interest rates were unlikely in the near future.

The Australian central bank has held rates steady since May last year and earlier this week decided to keep its main interest rate at 2% for a tenth consecutive month saying it saw "reasonable prospects" for growth.

However The Reserve Bank governor Glenn Stevens said the bank would be keeping an eye on the country's low inflation rate.

"Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand," he said.

Analysis: Karishma Vaswani, Asia business correspondent

Australians must be feeling pretty smug these days. Despite a collapse in global commodity prices, it has managed to escape recession yet again.

So what are Australians getting right? Well - it may just come down to that "lucky country" cliché we hear about "Down Under" all the time.

There's no denying that as mines have closed, jobs have been lost and that's putting pressure on the government to find new avenues of growth - but don't forget Australia is already a highly diversified economy.

Services like tourism, finance, business, technology and education are major components of Australia's economy and they've benefited from a weaker Australian dollar. The agriculture sector is also seeing renewed interest - check out the reports I did on Australia's agricultural sector here.

Mining has also seen a boost from the lower Australian dollar, because it has meant that Australia's products are cheaper at a time when demand has dropped.

Investments in mining software have helped the industry to remain competitive even in a downturn, and maintain Australia's global share of resource exports.

BBC News - Moody's cuts China outlook to negative

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US ratings agency Moody's has cut its outlook for China from "stable" to "negative".

While reaffirming its current debt rating, the agency warned that reforms were needed to avoid a downgrade.

Moody's said the change in outlook was based on expectations that Beijing's fiscal strength would continue to decline.

The negative outlook comes on the heels of fresh data suggesting China's economy is continuing to lose steam.

Moody's said it was concerned over China's incomplete implementation of much needed reforms.

High debt burden

"Without credible and efficient reforms, China's GDP growth would slow more markedly as a high debt burden dampens business investment and demographics turn increasingly unfavourable," Moody's said in a note.

"Government debt would increase more sharply than we currently expect."

But the ratings agency did confirm China's current Aa3 rating, saying that there was still time to address the current economic imbalances and implement reforms.

Just one week ago, China sought to assure the global economic communityover the strength of its economy.

At the G20 meeting in Shanghai, the country's finance minister Lou Jiwei insisted Beijing could tackle the pressures it is currently facing.

China's economy, the second-biggest in the world, is growing at the slowest rate in 25 years as it attempts to move from an export-led nation to one led by consumption and services.

The slowdown in China's economy has created considerable uncertainty in financial markets and has led to sharp falls in commodity prices.

Reuters News - Euro feels European Central Bank pressure

The famous  euro sign landmark is seen through the lights of a passing tram outside the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany, January 19, 2016.

REUTERS/KAI PFAFFENBACH

The euro hit its lowest in almost three years against the yen and Europe's shares extended their best run of the year on Tuesday, as data from the region's big economies bolstered the case for another strong dose of ECB stimulus next week.

Euro zone manufacturing activity expanded at its weakest pace for a year last month as deep price discounting failed to put a floor under slowing order growth.

Markit's Purchasing Managers' Index (PMI) will make gloomy reading for the European Central Bank, coming little more than a week before its next policy setting meeting where it is expected to increase its support programme.

Britain's FTSE 100 .FTSE climbed 0.6 percent, Germany's DAX .GDAXI jumped 1.3 percent and France's CAC 40 .FCHI rose 0.4 percent after Asian markets had also risen after weak Chinese manufacturing and service surveys fanned stimulus hopes there.

The yen eased back in early European trading but was still hot to the touch having completed its best month against the dollar JPY= since 2008 and reached its highest against the euro EURJPY= since April 2013. [FRX/]

That was despite Japan becoming the first major G7 economy to sell 10-year government bonds at a negative yield, something that would usually make the currency less attractive as investors effectively pay rather than get paid to hold them.

"The yen strength right now is largely being dominated by (weak) risk appetite," said UniCredit's Global Head of FX Strategy Vasileios Gkionakis.

On the euro he added: "There is no doubt the low inflation and the soft economic data is keeping the pressure on the ECB to do something next week."

There was a glimmer of hope for the central bankers though as Brent oil prices LCOc1, the big downward force on inflation for the last two years, hit their highest level since the start of the year having just seen their best month since August.[O/R]

It helped German Bund yields nudge off 10-month lows after the previous day's deeper than expected fall in euro zone consumer prices had seen the bloc's inflation expectations EUIL5YF5Y=R fall to their lowest on record.

The European Central Bank is expected to cut its deposit rate by at least another 10 basis points next week ECBWATCH and add to its 1.5 trillion euro bond buying scheme.

CAUTION FRAGILE CHINA

Later in the day, U.S. manufacturing and services sector data will feed the constantly evolving view of whether the Federal Reserve can continue to squeeze up interest rates in the world's largest economy this year.

In Asia overnight, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ended up 1.3 percent, as Chinese stocks .CSI300 climbed 1.8 percent after Monday's easing move from the PBOC as it cut banks' reserve requirements.

There was a widespread feeling more stimulus is likely. Official data on Tuesday showed activity in the country's giant manufacturing sector shrank for a seventh straight month in February and faster than expected.

The services sector did expand although it was at the slowest pace since late 2008 and the private Caixin/Markit China Manufacturing Purchasing Managers' Index came in short of both market expectations and the previous month's reading.

"We think the PBOC easing is consistent with continued weaker-than-expected economic activity and downside risks to growth," wrote Jian Chang, an analyst at Barclays. "It should help to support market sentiment in the near term."

Japan's Nikkei .N225 erased losses and ended up 0.4 percent although the yen's hot streak continued to drag back a market that has slumped 15 percent this year.

Against the perceived safe-haven yen, the common currency clawed back some territory and rose 0.2 percent to 122.73 EURJPY=R, after earlier dropping as low as 122.085, which was its lowest level since April 2013.

The dollar was buying 112.75 yen JPY=, edging up about 0.1 percent, while the Australian dollar added 0.2 percent against its U.S. counterpart to $0.7155 AUD=D4 after the Reserve Bank of Australia left its rates at a record low 2.0 percent.

 BY MARC JONES
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Janet Lawrence)