European Economies: French Confidence Holds Near Five-Year High
By Gabriele Parussini
Nov. 24 (Bloomberg) -- French business confidence held near a five-year high in November on lower oil prices and declining unemployment as executives anticipate a fourth-quarter pickup in economic growth.
Insee, the Paris-based national statistics office, said today its index of sentiment remained at 107 this month after October's reading was revised down to 107. The gauge reached 109 in April, the highest since March 2001.
The durability in the economy's standstill in the third quarter was temporary. In Germany, France's largest trading partner, a gauge of business confidence rose yesterday to a 15- year high. The expansion in the euro region this year may reach 2.6 percent, the fastest in six years, before slowing to 2.1 percent next year as interest rates and the euro rise, the European Commission estimates.
``The main boost to confidence is from European growth and the exceptional news from Germany,'' said Maryse Pogodzinski, an economist at JPMorgan Chase & Co. in Paris. ``The fall in oil prices is doing the rest.''
A decline in oil prices from a record reached four months ago helped cut companies' costs and put more money in consumers' pockets. Crude oil traded below $59 a barrel yesterday, down from $78.40 on July 14.
A surge in the euro may restrain growth. The euro surged to a 20-month high of $1.3109 at 3:11 p.m. in Paris. The currency has gained 10.7 percent against the dollar this year. It has also risen 9 percent against the Japanese yen the past nine months, reducing euro-region exports' competitiveness.
`Measured' Optimism
``Companies' optimism remains measured,'' said Alexandre Bourgeois, an economist at Natixis in Paris, who expects the European Central Bank to raise interest rates to 4 percent in 2007. ``The euro remains quite high and there's a prospect of a global slowdown next year.''
As French industrial production fell 0.1 percent in the third quarter after a decline of 0.9 percent in September, with carmakers cutting production by 3.1 percent, Prime Minister Dominique de Villepin said Nov. 22 he will present a plan to support the country's struggling auto industry. He's already announced 145 million euros ($189 million) in subsidies to companies in the aviation industry.
With five months before the presidential elections in France, the government is counting on a strong economy to sustain the candidate of the ruling Union for a Popular Movement party, who will probably be Interior Minister Nicolas Sarkozy.
`Very Strong' Growth
Finance Minister Thierry Breton said last week he expects a ``very strong'' fourth quarter, with growth between 0.6 percent and 0.8 percent. He reiterated a forecast of 2 percent to 2.5 percent expansion for both 2006 and 2007.
Consumers in France helped sustain the economy in the third quarter as unemployment fell to 8.8 percent, a five-year low. The economy expanded 1.2 percent in the second quarter, the fastest pace since 2001, before grinding to a halt between July and September.
Morgan Stanley, Goldman Sachs Group Inc. and Unicredit SpA all raised their ECB forecasts this month. They expect the ECB's benchmark rate to reach 4 percent by the end of 2007. The bank is set to raise the rate to 3.50 percent next month on concern the economic expansion will fuel wage demands and lead to more persistent inflation.
``Things are going extremely well,'' Air France-KLM Chief Operating Officer Pierre-Henri Gourgeon told reporters yesterday after Europe's biggest airline reported a 26 percent increase in third-quarter profit.
A gauge of sentiment on past production rose to 15 from 8 in October, while the forecast on prices increased to 9 from 5, indicating that executives think they'll be able to raise prices, the report said
Sunday, November 26, 2006
EU's Beres Says ECB Rate Policy Wrong as Euro Rises (Update1)
EU's Beres Says ECB Rate Policy Wrong as Euro Rises (Update1)
By John Fraher
Nov. 24 (Bloomberg) -- The European Central Bank is wrong to raise interest rates as the euro's climb above $1.30 threatens to hurt export growth, said Pervenche Beres, head of the European Parliament's economic and monetary committee.
``It's not good news for the European economy,'' said Beres, whose committee oversees the ECB's activities, in an interview in Berlin today. ``It's not the right time to raise interest rates.''
Europe's single currency rose above $1.30 for the first time since April 2005 today on speculation ECB President Jean-Claude Trichet will keep raising borrowing costs next year to prevent faster economic growth fueling inflation. The rally puts an additional burden on the region's exporters, who are already coping with the currency's climb against the yen.
The euro is strengthening as the interest-rate gap between Europe and the U.S. narrows. The Federal Reserve has left its key rate at 5.25 percent since June 29, a period in which the ECB has lifted its benchmark 50 basis points to 3.25 percent.
With economists at Goldman Sachs Group Inc. and Merrill Lynch & Co. forecasting that the Fed will ease policy next year and European policy makers including Bundesbank President Axel Weber suggesting ECB rates will have increase rates further next year, the euro may come under even more pressure.
Morgan Stanley on Nov. 21 said the ECB will take its key rate to 4 percent in 2007.
Stronger Euro
Europe's single currency was worth $1.3089 at 12:25 p.m. in London, taking its gain in the past month to 4 percent. It traded at 151.43 yen, after reaching a record of 151.67 on Nov. 20.
The euro is gaining just as a U.S. slowdown threatens to damp export growth. DaimlerChrysler AG, the world's largest truckmaker, said Nov. 17 it expects a ``profound downturn'' in U.S. demand.
German lawmaker Joachim Poss, who sits on the country's budget committee, also said the ECB should be concerned by the currency's appreciation.
``I hope that the ECB will consider it carefully in its assessment'' of the interest rate outlook, Poss told reporters in Berlin.
Peres said the euro's rally also shows the need for ``coordination'' of foreign exchange policy between the ECB and the euro-region's finance ministers.
By John Fraher
Nov. 24 (Bloomberg) -- The European Central Bank is wrong to raise interest rates as the euro's climb above $1.30 threatens to hurt export growth, said Pervenche Beres, head of the European Parliament's economic and monetary committee.
``It's not good news for the European economy,'' said Beres, whose committee oversees the ECB's activities, in an interview in Berlin today. ``It's not the right time to raise interest rates.''
Europe's single currency rose above $1.30 for the first time since April 2005 today on speculation ECB President Jean-Claude Trichet will keep raising borrowing costs next year to prevent faster economic growth fueling inflation. The rally puts an additional burden on the region's exporters, who are already coping with the currency's climb against the yen.
The euro is strengthening as the interest-rate gap between Europe and the U.S. narrows. The Federal Reserve has left its key rate at 5.25 percent since June 29, a period in which the ECB has lifted its benchmark 50 basis points to 3.25 percent.
With economists at Goldman Sachs Group Inc. and Merrill Lynch & Co. forecasting that the Fed will ease policy next year and European policy makers including Bundesbank President Axel Weber suggesting ECB rates will have increase rates further next year, the euro may come under even more pressure.
Morgan Stanley on Nov. 21 said the ECB will take its key rate to 4 percent in 2007.
Stronger Euro
Europe's single currency was worth $1.3089 at 12:25 p.m. in London, taking its gain in the past month to 4 percent. It traded at 151.43 yen, after reaching a record of 151.67 on Nov. 20.
The euro is gaining just as a U.S. slowdown threatens to damp export growth. DaimlerChrysler AG, the world's largest truckmaker, said Nov. 17 it expects a ``profound downturn'' in U.S. demand.
German lawmaker Joachim Poss, who sits on the country's budget committee, also said the ECB should be concerned by the currency's appreciation.
``I hope that the ECB will consider it carefully in its assessment'' of the interest rate outlook, Poss told reporters in Berlin.
Peres said the euro's rally also shows the need for ``coordination'' of foreign exchange policy between the ECB and the euro-region's finance ministers.
Dollar Declines to 19-Month Low Versus Euro, Breaches $1.30
Dollar Declines to 19-Month Low Versus Euro, Breaches $1.30
By Daniel Kruger and Kabir Chibber
Nov. 24 (Bloomberg) -- The dollar fell to its lowest level in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.
The U.S. currency extended its losses after breaching $1.30 against the euro for the first time since April 2005, a level where traders had placed automatic orders to sell the dollar. The European Central Bank has raised rates to an almost four-year high and President Jean-Claude Trichet on Nov. 20 said inflation remains a threat. The Fed has left rates unchanged since August.
``The break of 1.30 is a strong signal that the dollar has to weaken,'' said Carsten Fritsch, a currency strategist at Commerzbank AG in Frankfurt. ``The sentiment for the dollar is negative. In the euro-zone, growth will remain strong.''
The dollar traded as low as $1.3109 per euro in London earlier today and breached $1.31 in New York trading. The U.S. currency was at $1.3094 at 5 p.m., from $1.2945 yesterday. The dollar also fell to 115.90 yen, from 116.30, and to as low as $1.9351 versus the U.K. pound, the weakest in almost two years.
The euro traded at 151.71 yen, from 150.52 yesterday, after touching a record of 151.76.
The volume of trading today may have been less than usual after public holidays yesterday in the U.S. and Japan.
`Weaker Side'
``It was easier to push through'' $1.30 in an illiquid market, said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``You had a battle in the ranges. The weaker side was the dollar side.''
Traders place automatic orders, or so-called stop-losses, at preset positions to sell the currency after it breaches certain key levels, such as $1.30. Before this week the euro had been stuck between $1.2458 and $1.2938 during the second half of this year.
``The move we saw overnight was very much driven by some important technical levels,'' said Matthew Strauss, senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``Some stop-losses were triggered and forced it above the psychological level of $1.30.''
Implied three-month volatility, which measures expected price moves during the period, rose to the highest level in two months for the dollar versus the euro.
Reducing Forecasts
Economic advisers to President George W. Bush on Nov. 21 cut their forecasts for growth next year on a weaker housing market. Gross domestic product will increase 2.9 percent next year, slower than the 3.6 percent forecast in June, the Council of Economic Advisers said.
ECB policy maker Klaus Liebscher told Reuters today that the central bank must remain ``vigilant'' on inflation. Trichet and fellow council member Miguel Angel Fernandez Ordonez also this week said inflation is a risk.
Europe's central bank has lifted borrowing costs five times since December, to 3.25 percent, to stem inflation. The Fed has left its benchmark rate at 5.25 percent for the past three meetings, after 17 straight quarter-percentage point increases since June 2004.
The three-month Euribor futures contract for June trades at a 3.875 percent yield, suggesting traders are nearly certain the ECB will raise interest rates two more times by June to 3.75 percent. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999.
Traders see a 51 percent chance the Fed will reduce interest rates at the central bank's March 21 meeting. That compares with an 11 percent chance on Nov. 16.
European Stocks
European stocks slumped today on speculation the stronger euro will hurt exports to the U.S., the region's biggest trading partner. The U.K.'s FTSE 100 Index lost 0.3 percent. France's CAC 40 benchmark dropped 0.7 percent. Germany's DAX slid 1 percent.
The extra yield investors earn on U.S. government bonds over those in Europe has shrunk to near the lowest in 17 months, attracting investors to assets in the euro region and away from the dollar.
The narrowing yield premium on dollar-denominated debt may also encourage central banks to hold more of their foreign- exchange reserves in other currencies.
People's Bank of China Vice-Governor Wu Xiaoling said East Asia needs to reduce its reliance on dollar inflows because of the risk of a further slump in the currency. China's foreign- exchange reserves exceed $1 trillion, the world's largest.
Wu's comments were released today in an article circulated during a press conference in Beijing.
``China holds most of its reserves in the dollar and these comments may lead to speculation they will sell,'' said Tohru Sasaki, a strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. ``Diversifying reserves always puts downward pressure on the dollar.''
The U.S. currency fell for three straight years through 2004 versus the euro and the yen as the country's trade deficit widened, reaching a record $1.3666 per euro on Dec. 30, 2004. It advanced against the euro and yen last year as the Fed pushed borrowing costs higher at every meeting
By Daniel Kruger and Kabir Chibber
Nov. 24 (Bloomberg) -- The dollar fell to its lowest level in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.
The U.S. currency extended its losses after breaching $1.30 against the euro for the first time since April 2005, a level where traders had placed automatic orders to sell the dollar. The European Central Bank has raised rates to an almost four-year high and President Jean-Claude Trichet on Nov. 20 said inflation remains a threat. The Fed has left rates unchanged since August.
``The break of 1.30 is a strong signal that the dollar has to weaken,'' said Carsten Fritsch, a currency strategist at Commerzbank AG in Frankfurt. ``The sentiment for the dollar is negative. In the euro-zone, growth will remain strong.''
The dollar traded as low as $1.3109 per euro in London earlier today and breached $1.31 in New York trading. The U.S. currency was at $1.3094 at 5 p.m., from $1.2945 yesterday. The dollar also fell to 115.90 yen, from 116.30, and to as low as $1.9351 versus the U.K. pound, the weakest in almost two years.
The euro traded at 151.71 yen, from 150.52 yesterday, after touching a record of 151.76.
The volume of trading today may have been less than usual after public holidays yesterday in the U.S. and Japan.
`Weaker Side'
``It was easier to push through'' $1.30 in an illiquid market, said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``You had a battle in the ranges. The weaker side was the dollar side.''
Traders place automatic orders, or so-called stop-losses, at preset positions to sell the currency after it breaches certain key levels, such as $1.30. Before this week the euro had been stuck between $1.2458 and $1.2938 during the second half of this year.
``The move we saw overnight was very much driven by some important technical levels,'' said Matthew Strauss, senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``Some stop-losses were triggered and forced it above the psychological level of $1.30.''
Implied three-month volatility, which measures expected price moves during the period, rose to the highest level in two months for the dollar versus the euro.
Reducing Forecasts
Economic advisers to President George W. Bush on Nov. 21 cut their forecasts for growth next year on a weaker housing market. Gross domestic product will increase 2.9 percent next year, slower than the 3.6 percent forecast in June, the Council of Economic Advisers said.
ECB policy maker Klaus Liebscher told Reuters today that the central bank must remain ``vigilant'' on inflation. Trichet and fellow council member Miguel Angel Fernandez Ordonez also this week said inflation is a risk.
Europe's central bank has lifted borrowing costs five times since December, to 3.25 percent, to stem inflation. The Fed has left its benchmark rate at 5.25 percent for the past three meetings, after 17 straight quarter-percentage point increases since June 2004.
The three-month Euribor futures contract for June trades at a 3.875 percent yield, suggesting traders are nearly certain the ECB will raise interest rates two more times by June to 3.75 percent. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB's benchmark rate since 1999.
Traders see a 51 percent chance the Fed will reduce interest rates at the central bank's March 21 meeting. That compares with an 11 percent chance on Nov. 16.
European Stocks
European stocks slumped today on speculation the stronger euro will hurt exports to the U.S., the region's biggest trading partner. The U.K.'s FTSE 100 Index lost 0.3 percent. France's CAC 40 benchmark dropped 0.7 percent. Germany's DAX slid 1 percent.
The extra yield investors earn on U.S. government bonds over those in Europe has shrunk to near the lowest in 17 months, attracting investors to assets in the euro region and away from the dollar.
The narrowing yield premium on dollar-denominated debt may also encourage central banks to hold more of their foreign- exchange reserves in other currencies.
People's Bank of China Vice-Governor Wu Xiaoling said East Asia needs to reduce its reliance on dollar inflows because of the risk of a further slump in the currency. China's foreign- exchange reserves exceed $1 trillion, the world's largest.
Wu's comments were released today in an article circulated during a press conference in Beijing.
``China holds most of its reserves in the dollar and these comments may lead to speculation they will sell,'' said Tohru Sasaki, a strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. ``Diversifying reserves always puts downward pressure on the dollar.''
The U.S. currency fell for three straight years through 2004 versus the euro and the yen as the country's trade deficit widened, reaching a record $1.3666 per euro on Dec. 30, 2004. It advanced against the euro and yen last year as the Fed pushed borrowing costs higher at every meeting
Putin Deplores Failure of EU Trade Talks on Meat Row (Update3)
Putin Deplores Failure of EU Trade Talks on Meat Row (Update3)
By Sebastian Alison
Nov. 24 (Bloomberg) -- Russian President Vladimir Putin deplored the failure of his nation and the European Union to start negotiating a key trade deal after Poland vetoed talks due to a Russian ban on its meat exports. The EU vowed to get the talks going.
Russia and the EU were due to start talks, at a summit meeting in Helsinki, on a Partnership and Cooperation Agreement, the fundamental text defining trade and other relations between the two sides. It will replace an existing agreement that expires next year. Over 50 percent of Russia's exports go to the EU, which gets a quarter of its natural gas from Russia.
The European Commission, the EU's executive body, can only start negotiating the text when all 25 EU member states have given it a mandate to do so. Poland refused after Russia banned meat imports, and hasn't signed a separate agreement regulating energy trade.
``I deplore the fact that we haven't started work,'' Putin told a news conference at the end of the one-day summit meeting. ``Russia is prepared to launch these talks,'' he said.
`Common Future'
Jose Barroso, president of the European Commission, acknowledged it was a disappointment that talks had not started, saying the Russian ban on Polish meat was ``disproportionate'' and adding that ``I appealed to the President of Russia to lift it.'' He said the commission would work to relaunch the talks quickly, adding ``we cannot escape our common future.''
The failure of the talks followed days of ultimately fruitless attempts by EU officials to persuade Poland to drop its veto. Putin spokesman Dmitry Peskov said the failure was more a disappointment to the EU than to Russia.
The summit was still a success, EU foreign policy chief Javier Solana said, ``contrary to what public expectations were.''
In an indication the two sides want to develop relations, Finnish Prime Minister Matti Vanhanen announced the EU and Russia reached agreement to end fees on EU airlines flying over Siberia on routes to the Far East. This will have ``major significance for our economies,'' Barroso said.
`Trade Irritant'
``This issue has been a trade irritant for the EU and Russia for a long time,'' EU Trade Commissioner Peter Mandelson said in a statement released in Brussels.
Russian-EU trade has increased since the bloc enlarged to 25 members in 2004, taking in several former communist eastern European states once in the Soviet Union's sphere of influence. That's one reason why a new PCA is needed, Marc Franco, the head of the European Commission's delegation in Moscow, said in an interview.
A provisional draft of the text of the PCA to be negotiated, seen by Bloomberg News, states that ``it will be of long, preferably unlimited duration,'' unlike the current one, which was signed in 1997.
The summit came a day after Alexander Litvinenko, a former Russian spy who sought political asylum in London, died of poisoning in unexplained circumstances. Putin called his death a tragedy, while adding that ``I hope the British authorities will not contribute to the instigation of political scandals.''
He also cast doubt on a letter supposedly dictated by Litvinenko before his death, and added he understood British doctors didn't regard the death as violent.
Energy Charter
The EU wants Russia to agree to use the language of the so- called Energy Charter in the PCA. This sets out terms for trading and transporting energy across the Eurasian landmass. Russia signed it, then later said it won't ratify it. The EU sees the PCA as a way of getting the charter's language into a treaty without requiring Russian ratification of the original document.
Barroso said the two sides were working toward a ``win-win deal'' in which EU consumers would be ensured security of supply, while Russian producers would have a guaranteed market. ``We are basing ourselves on the principles of the Energy Charter treaty,'' he said.
The Russian meat ban was prompted by accusations by the Russian authorities that Polish producers are violating hygiene laws and smuggling. Putin said there's no problem with Polish produce itself.
``This is not about the quality of Polish meat,'' he said, adding that food producers in Poland ``know their business.'' He said the problem lay with meat from outside Poland, for example from China and India, which was imported and then relabelled as Polish for export. ``Please don't link this purely technical issue with the general state of EU-Russian relations,'' he said.
Polish Prime Minister Jaroslaw Kaczynski said in Warsaw it was impossible to reach a new agreement with Russia because Russian authorities have violated the current accord. ``There's no way we can agree to Russia treating Poland as if it wasn't a member of the EU,'' he said
By Sebastian Alison
Nov. 24 (Bloomberg) -- Russian President Vladimir Putin deplored the failure of his nation and the European Union to start negotiating a key trade deal after Poland vetoed talks due to a Russian ban on its meat exports. The EU vowed to get the talks going.
Russia and the EU were due to start talks, at a summit meeting in Helsinki, on a Partnership and Cooperation Agreement, the fundamental text defining trade and other relations between the two sides. It will replace an existing agreement that expires next year. Over 50 percent of Russia's exports go to the EU, which gets a quarter of its natural gas from Russia.
The European Commission, the EU's executive body, can only start negotiating the text when all 25 EU member states have given it a mandate to do so. Poland refused after Russia banned meat imports, and hasn't signed a separate agreement regulating energy trade.
``I deplore the fact that we haven't started work,'' Putin told a news conference at the end of the one-day summit meeting. ``Russia is prepared to launch these talks,'' he said.
`Common Future'
Jose Barroso, president of the European Commission, acknowledged it was a disappointment that talks had not started, saying the Russian ban on Polish meat was ``disproportionate'' and adding that ``I appealed to the President of Russia to lift it.'' He said the commission would work to relaunch the talks quickly, adding ``we cannot escape our common future.''
The failure of the talks followed days of ultimately fruitless attempts by EU officials to persuade Poland to drop its veto. Putin spokesman Dmitry Peskov said the failure was more a disappointment to the EU than to Russia.
The summit was still a success, EU foreign policy chief Javier Solana said, ``contrary to what public expectations were.''
In an indication the two sides want to develop relations, Finnish Prime Minister Matti Vanhanen announced the EU and Russia reached agreement to end fees on EU airlines flying over Siberia on routes to the Far East. This will have ``major significance for our economies,'' Barroso said.
`Trade Irritant'
``This issue has been a trade irritant for the EU and Russia for a long time,'' EU Trade Commissioner Peter Mandelson said in a statement released in Brussels.
Russian-EU trade has increased since the bloc enlarged to 25 members in 2004, taking in several former communist eastern European states once in the Soviet Union's sphere of influence. That's one reason why a new PCA is needed, Marc Franco, the head of the European Commission's delegation in Moscow, said in an interview.
A provisional draft of the text of the PCA to be negotiated, seen by Bloomberg News, states that ``it will be of long, preferably unlimited duration,'' unlike the current one, which was signed in 1997.
The summit came a day after Alexander Litvinenko, a former Russian spy who sought political asylum in London, died of poisoning in unexplained circumstances. Putin called his death a tragedy, while adding that ``I hope the British authorities will not contribute to the instigation of political scandals.''
He also cast doubt on a letter supposedly dictated by Litvinenko before his death, and added he understood British doctors didn't regard the death as violent.
Energy Charter
The EU wants Russia to agree to use the language of the so- called Energy Charter in the PCA. This sets out terms for trading and transporting energy across the Eurasian landmass. Russia signed it, then later said it won't ratify it. The EU sees the PCA as a way of getting the charter's language into a treaty without requiring Russian ratification of the original document.
Barroso said the two sides were working toward a ``win-win deal'' in which EU consumers would be ensured security of supply, while Russian producers would have a guaranteed market. ``We are basing ourselves on the principles of the Energy Charter treaty,'' he said.
The Russian meat ban was prompted by accusations by the Russian authorities that Polish producers are violating hygiene laws and smuggling. Putin said there's no problem with Polish produce itself.
``This is not about the quality of Polish meat,'' he said, adding that food producers in Poland ``know their business.'' He said the problem lay with meat from outside Poland, for example from China and India, which was imported and then relabelled as Polish for export. ``Please don't link this purely technical issue with the general state of EU-Russian relations,'' he said.
Polish Prime Minister Jaroslaw Kaczynski said in Warsaw it was impossible to reach a new agreement with Russia because Russian authorities have violated the current accord. ``There's no way we can agree to Russia treating Poland as if it wasn't a member of the EU,'' he said
China's Economy Unlikely to Slow `Sharply' in 2007 (Update1)
By Yanping Li
Nov. 26 (Bloomberg) -- China's economy is unlikely to slow ``sharply'' in 2007 because rising consumer spending and industrial production will underpin growth, said Yao Jingyuan, chief economist of the National Bureau of Statistics.
``The government's policy to boost consumption will show better results next year,'' Yao said in an interview at a business forum in Beijing today. Consumer spending should make a ``greater contribution to economic growth, even though investment may slow amid the government's curbing measures.''
China has raised minimum wages and increased welfare spending to get households to spend more and make the economy less dependent on investment and exports. As it encourages spending by consumers, China has increased interest rates and ordered banks to set aside more money as reserves to damp business investment and clamp down on wasteful factory expansion.
``Growth will continue to be strong, but weaker than this year,'' Federico Bazzoni, head of Asian equities at BNP Paribas SA, said in an interview in Milan on Nov. 24. ``That's good news, as there are fewer risks of overheating. Growth in 2007 will be less than 10 percent.''
China's economic expansion slowed in the third quarter for the first time in a year as lending curbs damped business investment. The economy grew 10.4 percent in the quarter from the same period a year earlier, compared with 11.3 percent in the prior three months.
The world's fourth-largest economy will maintain ``steady and relatively fast growth'' in 2007, Yao said at today's conference, without providing a forecast.
World Bank Forecasts
The World Bank on Nov. 14 raised its estimate for China's 2007 economic growth for a second time in four months. The World Bank said the world's fastest growing major economy may expand 9.6 percent next year after advancing 10.4 percent in 2006.
China's 2006 growth rate may be as high as 10.7 percent, Yao said yesterday. Gross domestic product will rise between 10 percent and 10.7 percent this year, he said in Shanghai.
Consumer spending is gathering pace as curbs on lending and land use slow business investment, helping China's economy skirt a sharp slowdown. Retail sales jumped in October at the fastest pace in almost two years.
China is planning to increase wages for government employees by the end of the year, a move aimed at raising urban incomes and further stoking household spending, Yao said.
The World Bank has urged China to boost spending on healthcare, education and social security to encourage its 1.3 billion citizens to spend rather than putting their money in bank deposits. China's savings rate is double the world average.
Investment Controls
China needs to continue its economic, monetary and administrative measures to control bank lending and fixed-asset investment, Yao said. Growth in investment spending is still ``relatively high,'' he said.
Eight provinces out of the 31 in China had annual investment growth of more than 35 percent at the end of October, and three of those had investment growing faster than 40 percent annually, Yao said.
Investment growth in China's towns and cities slowed to 26.8 percent in the first 10 months from a year earlier, after rising 28.2 percent through September, a government report on Nov. 16 showed.
``Further tightening is expected since the government has failed to control investment growth to its targeted 18 percent for this year,'' said Zhu Baoliang, chief economist at the State Information Center, an affiliate of the country's top planning agency, the National Development and Reform Commission.
``We see next year's economic growth slowing mildly to around 9.5 percent, as investment and trade growth falls after government's curbing measures,'' Zhu said today.
By Yanping Li
Nov. 26 (Bloomberg) -- China's economy is unlikely to slow ``sharply'' in 2007 because rising consumer spending and industrial production will underpin growth, said Yao Jingyuan, chief economist of the National Bureau of Statistics.
``The government's policy to boost consumption will show better results next year,'' Yao said in an interview at a business forum in Beijing today. Consumer spending should make a ``greater contribution to economic growth, even though investment may slow amid the government's curbing measures.''
China has raised minimum wages and increased welfare spending to get households to spend more and make the economy less dependent on investment and exports. As it encourages spending by consumers, China has increased interest rates and ordered banks to set aside more money as reserves to damp business investment and clamp down on wasteful factory expansion.
``Growth will continue to be strong, but weaker than this year,'' Federico Bazzoni, head of Asian equities at BNP Paribas SA, said in an interview in Milan on Nov. 24. ``That's good news, as there are fewer risks of overheating. Growth in 2007 will be less than 10 percent.''
China's economic expansion slowed in the third quarter for the first time in a year as lending curbs damped business investment. The economy grew 10.4 percent in the quarter from the same period a year earlier, compared with 11.3 percent in the prior three months.
The world's fourth-largest economy will maintain ``steady and relatively fast growth'' in 2007, Yao said at today's conference, without providing a forecast.
World Bank Forecasts
The World Bank on Nov. 14 raised its estimate for China's 2007 economic growth for a second time in four months. The World Bank said the world's fastest growing major economy may expand 9.6 percent next year after advancing 10.4 percent in 2006.
China's 2006 growth rate may be as high as 10.7 percent, Yao said yesterday. Gross domestic product will rise between 10 percent and 10.7 percent this year, he said in Shanghai.
Consumer spending is gathering pace as curbs on lending and land use slow business investment, helping China's economy skirt a sharp slowdown. Retail sales jumped in October at the fastest pace in almost two years.
China is planning to increase wages for government employees by the end of the year, a move aimed at raising urban incomes and further stoking household spending, Yao said.
The World Bank has urged China to boost spending on healthcare, education and social security to encourage its 1.3 billion citizens to spend rather than putting their money in bank deposits. China's savings rate is double the world average.
Investment Controls
China needs to continue its economic, monetary and administrative measures to control bank lending and fixed-asset investment, Yao said. Growth in investment spending is still ``relatively high,'' he said.
Eight provinces out of the 31 in China had annual investment growth of more than 35 percent at the end of October, and three of those had investment growing faster than 40 percent annually, Yao said.
Investment growth in China's towns and cities slowed to 26.8 percent in the first 10 months from a year earlier, after rising 28.2 percent through September, a government report on Nov. 16 showed.
``Further tightening is expected since the government has failed to control investment growth to its targeted 18 percent for this year,'' said Zhu Baoliang, chief economist at the State Information Center, an affiliate of the country's top planning agency, the National Development and Reform Commission.
``We see next year's economic growth slowing mildly to around 9.5 percent, as investment and trade growth falls after government's curbing measures,'' Zhu said today.
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