BBC News - Li Keqiang: China economy at crucial stage

Recent manufacturing data has soothed some fears of a "hard landing" for China's economy

China's economy is going through a "crucial" stage of restructuring, says the country's Premier, Li Keqiang.

At the World Economic Forum in the Chinese port city of Dalian, Mr Li pledged to improve relations with foreign firms.

He stressed that multinationals would get "equal treatment" with state-owned enterprises.

He added that China was well-placed to hit a growth target of 7.5% this year, despite a "complex" economic climate.

China posted its lowest growth in two decades for the second quarter of 2013, and there had been some concerns that the world's second-largest economy might be headed for a so-called "hard landing".

However, Mr Li sought to allay those fears by saying the Chinese economy was stable and had strong fundamentals.

'Structural transformation'

"The foundation for an economic rebound is still fragile with many uncertainties ahead," Mr Li said in comments carried by the Associated Press news agency.

"China is now at such a crucial stage that without structural transformation and upgrading, we will not be able to sustain economic growth," Mr Li said.

The government has been undertaking key structural reforms, such as liberalising interest rates, allowing its currency to strengthen, and taking steps to reduce its dependency on exports.

Recent economic data showed a sharp rise in growth of exports and imports, as well as improvement in manufacturing figures.

These better-than-expected numbers were taken as a sign that China's growth is stabilising.

"We are determined to further stimulate domestic demand and consumer spending. At the same time, we want to improve our investment structure and make it more efficient," Mr Li said.

Mr Li also addressed the issue of local government debts, which an audit last year found to be 10.7 trillion yuan ($1.6tn) or about one-quarter of China's annual economic output.

"This has become a source of concern," Mr Li said. "We are taking relevant measures to address it in an orderly fashion. Here I can say with certainty that the situation is, on the whole, safe and manageable."

BBC News - Barroso's state of union: EU must not delay reforms

The head of the European Union's executive has warned that the bloc must not ease off on reform as growth edges back to the economy.

In his annual state of the union address, Jose Manuel Barroso said there was "no way back to business as usual".

"The recovery is within sight," he said, but warned it was fragile and that political leaders must "keep up our efforts".

He urged the eurozone to press ahead with the creation of a banking union.

Mr Barroso, president of the European Commission, said the union must complete the project to "make sure that taxpayers are no longer in the front line to pay" when banks failed.

The European Parliament is expected to vote on Thursday this week on legislation establishing the first pillar of the banking union - oversight of the eurozone's biggest banks by the European Central Bank.

However, other elements of the banking union are proving harder to establish because of opposition by some governments.

Speaking in Strasbourg, Mr Barroso said all the EU's economic efforts must be focused on growth, because that was necessary to remedy "today's most pressing problem: unemployment".

He said the level of unemployment - 26 million people across the union - was "economically unsustainable, politically untenable, socially unacceptable".

'Stand by Ukraine'

On Syria, he said "a strong response" was needed to the use of chemical weapons, and called the proposal for Syria to hand over its stockpiles "potentially a positive development".

He implicitly criticised Russia for putting pressure on former Soviet states to reject the European Union and align with Moscow instead.

Armenia recently announced it would be joining Russia's customs union despite long talks aimed at bringing it closer to the EU. Moldova and Georgia are reportedly under pressure to do the same, and the EU is especially concerned about the biggest country in the region, Ukraine.

"Today, countries like Ukraine are more than ever seeking closer ties to the European Union, attracted by our economic and social model. We cannot turn our back on them. We cannot accept any attempt to limit these countries' own sovereign choices," Mr Barroso said.

BBC News - Greece PM sees end to recession in Thessaloniki speech

Greek Prime Minister Antonis Samaras says the country's six years of recession will end next year.

   

Mr Samaras came to the trade fair to give his annual speech on the economy

He said that Greece was now an "island of stability" in an ever less stable region.
Mr Samaras was speaking at the Thessaloniki trade fair, which has been the scene of protests about the country's tough austerity measures.

More protests are expected on Saturday, this time in support of civil servants who face losing their jobs.
Four thousand police have been deployed to avoid violence.

Greece's economy has shrunk by 23% since 2008. So far the country has received two bailouts of about 240bn euros (£205bn).

As part of current bailout conditions, the government has been forced to impose drastic cuts, tax rises, and labour market and pension reforms.
'Grecovery'
The BBC's Mark Lowen in Athens said that in a country where economic confidence is sorely lacking, the prime minister showed plenty of it in his Thessaloniki speech.

He told his audience that talk of "Grexit", Greece's departure from the euro, had been replaced by "Grecovery".

He talked up the prospect of foreign investment and said his government was enacting long-delayed reforms such as tackling tax evasion.

European Union and International Monetary Fund lenders project the Greek economy will shrink by 4.2% this year, after contracting by 6.4% in 2012.

But Mr Samaras said the 2013 contraction would be "smaller than forecast".
Greece would achieve a budget surplus this year, Mr Samaras said, apart from interest payments on its loans.

He said Greece had done its part by achieving the largest ever reduction in the budget deficit - and added that the country's creditors must do theirs by further lightening the debt burden.

Mr Samaras ended his speech in patriotic style, saying five or six years of tough challenges could not wipe out 3,000 years of glorious history.

But our correspondent says that, on the streets, few share Mr Samaras' hope.
Protesters are holding a rally on behalf of thousands of civil servants who could lose their jobs, and there is also anger at reports that state-owned defence companies could close.

Greece's economy has shrunk further than any other in Europe. International creditors are expected to review the country's aid programme in the autumn.

SKY News - 'World's Greatest White Diamond' Up For Auction

The size of a small egg, the 118-carat gem from southern Africa is expected to sell for a record price when sold at auction.

An 118-carat stone from Africa billed as the world's "greatest white diamond" has gone on display at a New York auction house

The oval gem, not yet mounted after it was mined and cut two years ago, is being showcased at Sotheby's Manhattan headquarters and has a pre-sale estimate of between $28m (£18m) and $35m (£22m).
In terms of size, quality, polish and colour, "this is the greatest white diamond we've ever had the privilege to sell," said Quek Chin Yeow, deputy chairman of Sotheby's Asia and an international diamond expert.
The stone was discovered in 2011 as a 299-carat rough diamond in a southern African country whose name Sotheby's has declined to disclose.
Auction house officials said the owner wishes to remain anonymous.

A 7.6-carat blue diamond is also up for sale

The current record for any white diamond is $26.7m (£17.1m). That pear-shaped stone was over 101 carats and was sold at Christie's in Geneva last spring.
Three other white diamonds over 100 carats have been auctioned by Sotheby's in 1990, 1993 and 1995.
Carefully and meticulously worked over a period of months, the resulting 118-carat stone is one of a number of jewels to be auctioned in Hong Kong on October 7.
Others include a flawless, round, 7.6-carat blue diamond, worth an estimated $19m (£12m).
It is the largest, most significant such diamond graded by the Gemological Institute of America.

Bloomberg News - Swiss Franc Cap Reaps Reward of Growth Defying Euro Area

 

Valentin Flauraud/Bloomberg

Customers look at flowers displayed for sale at a market in front of the Swiss National Bank's (SNB) headquarters in Berne, Switzerland

Switzerland’s economy defied the recession that afflicted its neighbors to notch up a year of uninterrupted growth, underlining the importance of the country’s currency ceiling as it marks its second anniversary.
Swiss gross domestic product rose 0.5 percent in the second quarter from three months through March, when it expanded by 0.6 percent, the Secretariat for Economic Affairs in Bern said in a statement today. That is more than a median estimate of 0.3 percent in a Bloomberg survey of 18 economists.


Since the Swiss National Bank set a cap on the franc of 1.20 per on Sept. 6, 2011, the economy has seen only a single quarter of contraction, while the debt-plagued euro area only emerged from 18 months of recession last quarter. Given the need to keep prices stable and the chance of the euro-area crisis flaring up again, the ceiling remains the right policy tool, SNB President Thomas Jordan said in a Berner Zeitung interview published yesterday.
“It’s a clear success -- they achieved what they wanted,” minimizing deflation risks, said Daniel Hartmann, an economist at Bantleon Bank in Zug. “At the beginning the step was met with much skepticism. There were worries the cap wouldn’t be manageable, that it would fail or the SNB would have to buy lots of euros and was exposing itself to huge losses.”

Consumer Prices

In a sign of how well the measure has worked, 21 months of falling consumer prices ended in June, and the Swiss economy is expected to outperform that of the euro area again this year. The European Central Bank forecasts the 17-nation currency region will contract 0.6 percent, while the SNB sees growth of 1 percent to 1.5 percent in Switzerland. It will issue a new forecast at its policy review on Sept. 19.
To be sure, a calming of financial markets, fiscal reforms from Spain to Italy and a pick up of momentum in the U.S. have played into the SNB’s hands by lessening investors’ interest in the franc, which they tend to buy in times of turmoil.
Spanish unemployment unexpectedly was little changed last month, data today showed. That is the first time Spain’s joblessness hasn’t increased in August since 2000.
Even so, uncertainty over the euro area’s economic situation persists. The cap on the franc will remains “as long as it corresponds to monetary conditions,” SNB Vice President Jean Pierre Danthine said yesterday during a speech in Lausanne.

Euro ‘Mess’

Compared with a year ago, the Swiss economy grew 2.5 percent in the second quarter, up from a revised 1.2 year-on-year growth rate in the first, today’s data showed.
“The euro zone is not yet out of the mess for good -- one swallow doesn’t make a summer,” said Christian Lips, an economist at NordLB in Hanover. “Even with the end of the recession things are still on shaky ground there and could flare up again. The SNB could again find itself up against the wall on the exchange rate again.”
The easing of the debt crisis has led the franc to depreciate 2.1 percent against the euro this year, allowing the SNB to hold off on major interventions. In 2012, it spent 188 billion francs ($201 billion) defending the cap, and as a result now holds foreign currency equal to three-quarters of the economy’s annual output.
The SNB’s cap defense, undertaken over the past 18 months under Jordan, stands in contrast to the strategy pursued in 2010, when his predecessor Philipp Hildebrand was at the helm. For that year, the SNB suffered a record loss of 26 billion francs on its foreign currency positions, after having injected more than 100 billion francs into spot markets.

Overvalued Franc

“The franc is still overvalued, albeit less strongly than in 2011,” said Maxime Botteron, an economist with Credit Suisse Group AG in Zurich. “We don’t think the SNB will change its stance before the end of 2014.”
The franc was little changed at 1.2339 per euro at 9:50 a.m. in Zurich, while it fell 0.3 percent against the dollar to 93.74 centimes.
Less volatility in the exchange rate due to the cap has also helped the export sector, which grew 0.9 percent in the second quarter. Domestic demand, which constitutes a large share of the economy, grew 0.5 percent in the three months through June.
The SNB’s loose monetary policy has kept mortgages cheap, boosting demand for homes and apartments. The central bank has sounded the alarm about borrowers overextending themselves.
To prevent the mortgage writedowns from hobbling economic growth, the SNB, whose hands are tied on the interest rate front by the cap, pushed for a bank capital buffer. The measure, set at 1 percent of mortgage-related assets, comes into force at the end of this month and can be increased to as much as 2.5 percent.
“With the very expansionary monetary policy, the risk for new excesses and new risks to financial stability can arise,” NordLB’s Lips said. “Limiting the financing may help, but it may not be enough.”
 By Catherine Bosley

Sky News - Lenders To Fork Out £1bn For Iceland Losses

The Icesave website was used by British bank account holders

British banks, building societies and credit unions have begun making multimillion pound payments to cover the costs of the Icelandic banking crisis.

When the banking crisis struck Iceland in 2008, hundreds of thousands of British savers had deposits in Icelandic banks, many through accounts at Icesave which went bankrupt.
At the time, concern mounted over the potential losses for UK customers so the UK Government stepped in to ensure that no one lost their money.
British banks are now repaying the Government for that expense, by writing out cheques for up to £1.089bn of this compensation.
Anthony Browne, chief executive of the British Bankers Association, said: "The UK banking industry is today picking up the tab for £1bn of the costs of the Icelandic banking crisis. This money ensured that no savers who had money in Icelandic banks lost out.
"We hope it gives confidence to consumers that if there is ever another bank failure that their savings will be protected."
Mr Browne says the fact the banks are able to make these repayments now shows that the industry is returning to health.
The money will be paid in three instalments, over three years from today and are required under the Financial Services Compensation Scheme which protects customer deposits in the event of bank failure.
The scheme now covers all customers' savings up to the value of £85,000 should another bank go into insolvency.
Joe Rundle, head of trading at ETX Capital, told Sky News: "The news is actually positive for the vast majority of savers who are guaranteed by the compensation scheme.
"It is our inherently sturdy, transparent and reassuring compensation scheme which provides comfort and confidence to savers who need protection, especially in times like this."
However, he added: "It couldn't come at more difficult time for the UK banking sector which is evolving rapidly.
"UK banks will ultimately end up having to raise more capital to fund this repayment which will be met with disappoint by shareholders."
 By Poppy Trowbridge, Business and Economics Correspondent

Reuters News - Indian rupee resumes slide as fears grow for slowing economy

1 of 2. A shopkeeper writes currency exchange rates on a board inside a currency exchange shop in Kolkata August 29, 2013.

Credit: Reuters/Rupak De Chowdhuri

By Subhadip Sircar and Rafael Nam

MUMBAI | Fri Aug 30, 2013 1:55am EDT

(Reuters) - The rupee slid back towards a record low on Friday, with investors braced for a statement on the state of economy from Prime Minister Manmohan Singh and the release of data that was expected to show India in the grip of a protracted slowdown.

Weak economic growth, a record high current account deficit and concerns about the government's finances are proving a toxic mix for the rupee, which hit a record low of 68.85 on Wednesday after falling around 20 percent since May.

The Reserve Bank of India had prompted the rupee's largest single-day rally since January 1998 on Thursday by saying it would provide dollars directly to state oil companies to pay for imports, but the recovery proved short-lived.

By late morning, the partially convertible rupee was trading at 67.36 per dollar, down from Thursday's close of 66.55. Having tumbled 10.4 percent against the dollar so far this month, the rupee was set to record its largest monthly depreciation ever, according to Thomson Reuters data.

The fall has been so fast that is now firmly in territory that is uncharted, leaving analysts unsure how far it can go.

Gross domestic product data, due to be released after the markets close, is expected to show the economy grew 4.7 percent in the April-June quarter, marking a third consecutive quarter of sub-5 percent growth.

India suffered decade-low growth of 5 percent in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse.

"The lack of affirmative action by the government on improving the investment cycle in rest of the year risks reviving a downward spiral, which might pave the way for slip below 4 percent mark, as a worst case scenario," said Radhika Rao, an economist at DBS in Singapore, in an email to clients.

With a national election due by May, Singh's minority government is under fire from all quarters to come up with meaningful reforms, including a possible increase in diesel prices, that would lower the subsidy burden.

While the government gropes for game-changing policies to revive investment, while containing its fiscal deficit and reducing the current account gap, the central bank has led the defense of the currency.

A radical plan is being considered by the central bank, a source familiar with the RBI's thinking told Reuters, to cut gold imports, the second biggest item after oil on the import bill, a source familiar with the RBI's thinking told Reuters.

The proposal, which has met with skepticism in some quarters, would see commercial banks buy gold from ordinary citizens and sell to precious metal refiners.

Another suggestion came from Trade Minister Anand Sharma, who on Thursday said the RBI could monetize its gold reserves in order to reduce imports, while adding that it was up to the central bank to decide.

The RBI's main defense of the rupee has rested on draining cash from domestic money markets and raising short-term interest rates, but that has made it more costly for struggling corporates to raise money, putting another brake on growth.

RBI Governor Duvvuri Subbarao, whose tenure ends next week, said on Thursday that those actions were necessary to stabilize markets, and urged the government to find longer-term solutions to the country's current account deficit.

Although global factors such as the potential end to U.S. stimulus and most recently tensions overSyria have contributed to the rupee's falls, Subbarao said domestic factors were at the root cause, an assessment shared by most analysts.

On Thursday, India's lower house of parliament approved a land acquisition act, that is meant to help investment in industry and infrastructure, while protecting farmers interests by letting them get up to four times the market rate for their land. Critics say the new law will hardly help revive the floundering economy.