Category Archives: Economy

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Euro continues descent ahead of ECB meeting #EuropeanCentralBank #Euro


FILE - In this Aug. 7, 2014 file photo Head of the European Central Bank, ECB, Mario Draghi attends a news conference in Frankfurt, Germany. (AP Photo/dpa, Boris Roessler, File)
FILE – In this Aug. 7, 2014 file photo Head of the European Central Bank, ECB, Mario Draghi attends a news conference in Frankfurt, Germany. (AP Photo/dpa, Boris Roessler, File)

LONDON (AP) — The euro fell to a one-year low against the dollar on Tuesday as it continued to lose support from speculation that the European Central Bank could start pumping money into the ailing eurozone economy to spur growth.

The bank, which oversees monetary policy for the 18 countries that use the euro, is under pressure to do more at its meeting on Thursday to get the economic recovery across the 18-country eurozone back on track and inflation back toward its target.

The prospect that it could start a program that would create more euros has been weighing on the currency for weeks. Figures from the U.S. Commodity Futures Trading Commission have shown trades selling the euro are at a near-record, meaning there is a risk of the currency snapping back higher if the ECB fails to back up its recent talk of stimulus with action.

On Tuesday, the euro fell to $1.3110, its lowest level since the $1.3103 it struck on Sept. 6, 2013.

Though the existential crisis surrounding the eurozone has diminished since ECB President Mario Draghi pledged in 2012 to do “whatever it takes” to save the euro, the eurozone economic recovery has been muted.

In fact, in the second quarter of this year, the recovery ground to a halt as the eurozone recorded zero growth largely as a result of problems in large economies such as Germany, Italy and France. Though the crisis in Ukraine has been blamed for much of the slowdown — particularly in Germany, Europe’s largest economy — by hurting investor confidence, it’s clear that the region’s underlying economic momentum is fading. The eurozone now faces the prospect of an unprecedented triple-dip recession.

Further weighing on the outlook has been a sharp fall in inflation. In August, prices were only 0.3 percent higher than the year before, way short of the ECB’s target of just below 2 percent. The worry is inflation may become deflation — a bout of falling prices that can choke growth as consumers delay spending in the hope of bargains down the line and businesses fail to innovate.

That’s why the ECB is under pressure to do more than it already has. In June, it cut its main interest rate to a record low of 0.15 percent. Draghi has also said more monetary stimulus —such as quantitative easing, or QE — is possible. Such a program would inject new money into the economy in the hope of lowering market interest rates.

“It’s a close call,” said Gary Jenkins, chief credit strategist at LNG Capital. “If they do not announce QE then I expect Draghi to be aggressively dovish. He will make it clear that it is within their mandate and could be unleashed at any time.”

The possibility of more euros being created has been one of the main reasons why the currency has been in retreat since early summer, when it was knocking on the $1.40 door.

The fall has been a boon to policymakers across Europe as well as to the region’s exporters. A falling currency can spur inflation by making imports more expensive — potentially nudging up inflation, to the ECB’s relief — and it can boost growth by making euro-denominated exports cheaper in the international marketplace.

Some analysts cautioned about the impact of a failure by the ECB to act on Thursday, especially as CFTC figures show investors have sold the euro in near-record amounts. Those trades could easily be unwound if Draghi and the ECB’s governing council decide to stay pat.

“There is a clear risk that this eagerly-awaited meeting could have rather untoward consequences if it does not go to the euro bears’ plan,” said Neil Mellor, a senior currency strategist at Bank of New York Mellon.


Associated Press.

Ukraine economy at risk, may need another bailout #RussiainvadedUkraine


A Pro-Russian rebel (<em>Russian soldier</em>) prepares arms for the the assault on the positions of Ukrainian army in Donetsk airport, eastern Ukraine, Sunday, Aug. 31, 2014. Russian President Vladimir Putin on Sunday called on Ukraine to immediately start talks on a political solution to the crisis in eastern Ukraine. Hours later, Ukraine said a border guard vessel operating in the Azov Sea was attacked by land-based forces. (AP Photo/Mstislav Chernov)
A Pro-Russian rebel (Russian soldier) prepares arms for the assault on the positions of Ukrainian army in Donetsk airport, eastern Ukraine, Sunday, Aug. 31, 2014. Russian President Vladimir Putin on Sunday called on Ukraine to immediately start talks on a political solution to the crisis in eastern Ukraine. Hours later, Ukraine said a border guard vessel operating in the Azov Sea was attacked by land-based forces. (AP Photo/Mstislav Chernov)

BRUSSELS (AP) — While Ukraine’s leaders are trying to win the war against Russian-backed separatists in the east, they appear to be losing the battle to resurrect the country’s battered economy.

Ukraine might need billions in additional support if the fighting between the military and the separatists in the country’s east persists through next year, the International Monetary Fund warned Tuesday. Only covering the shortfall in the central bank’s reserves would require an additional $19 billion by the end of 2015, the fund said.

If the fighting eases over the coming months, the country’s economy would still be shrinking by a sharp 6.5 percent this year, with meager growth on the horizon next year, according to the IMF. Analysts, however, say the damage to Ukraine’s gross domestic product is likely to be even more severe.

“There is no end in sight to the conflict, so it’s almost impossible to make growth forecasts,” said Timothy Ash, the head of emerging markets research at Standard Bank in London. “The recession this year will be deeper — maybe minus 8 percent — and there will be no recovery next year.”

Just as for the military stand-off in the east, Russia’s actions will be key to the country’s economic future, too.

“Risks loom large” because of the fighting and the unresolved dispute with Russia over prices on gas imports and arrears, the IMF acknowledged in its first in-depth assessment since granting the country a $17 billion bailout program in March.

Associated Press.

Scottish opinion poll knocks the British pound #ScottishIndependence #BritishPound


The British pound slipped sharply
LONDON (AP) — The British pound slipped sharply after an opinion poll showed that those advocating Scottish independence from the United Kingdom have gained ground, a little more than two weeks before the vote.

A YouGov poll released Tuesday showed support for Scottish independence running at 47 percent. As a result, the ‘no’ camp — those supporting the continuation of the 307-year union with England, Wales and Northern Ireland — only has a 6 percent lead in the poll.

That represents a significant narrowing in the ‘no’ lead. Less than a month ago, the equivalent poll lead was over 20 points.

The narrowing echoes other findings that the ‘yes’ campaign has gained ground over the past week or so after its leader, Scotland First Minister Alex Salmond was widely judged to have bested Alistair Darling, the head of the “Better Together” campaign, in a televised debate.

“A close finish looks likely, and a ‘yes’ victory is now a real possibility,” said Peter Kellner, YouGov’s president. “Even if ‘no’ finally wins the day, it now looks less likely that it will win by a big enough margin to deliver a knockout blow to supporters of independence.”

The poll, which was based on interviews with 1,063 people, spooked some traders, and the pound traded 0.6 percent lower at $1.6525. The Scottish independence vote takes place Sept. 18.

“With less than three weeks to go until polling day the tide is starting to shift,” said Kathleen Brooks, research director at Forex.com.

The economic impact of a vote in favor of independence remains difficult to quantify as many aspects remain unclear, such as whether a go-it-alone Scotland would be able to use the pound as its currency, as the “yes” campaign advocates. There are also questions as to how the U.K.’s debt mountain would be divvied up.

“We think that the prospect of independence could boost volatility in the pound in the coming weeks,” Brooks added.

Scotland already has a parliament responsible for a wide array of social matters as well as its own legal code. However, economic and defense matters remain the responsibility of Westminster in London, where Scottish lawmakers make up a minority. The main U.K. political parties have indicated that they are prepared to give the Scottish Parliament more powers after the vote.

Vote Yes for Scottish independence


 

Associated Press.

In Ukraine’s east, Soviet-style economy withers under onslaught


By Lina Kushch, Elizabeth Piper and Natalia Zinets.A man walks past a coal mine in the eastern Ukrainian city of Donetsk, July 8, 2014. CREDIT: REUTERS/MAXIM ZMEYEVA man walks past a coal mine in the eastern Ukrainian city of Donetsk, July 8, 2014. CREDIT: REUTERS/MAXIM ZMEYEV.

(Reuters) – After pro-Russian rebels took 720 kg of explosives, 360 detonators and almost 1 km of wiring, the Skochinskiy coal mine, an ageing stalwart of the economy in Ukraine’s Donbass region, was put out of action.

Fierce fighting and rebel requisitioning have stopped work at many of the coal mines in and around the strongholds of Donetsk and Luhansk. Without the fuel, nearby steel factories and electricity plants across Ukraine are struggling to work.

Many in Ukraine’s western and central regions see the industrial east as a burden, home to an outdated Soviet economy of monolithic factories that offer little to the rest of a country where other sectors and smaller firms are more common.

But officials say with a budget unable to finance the Ukrainian army after losing revenues from Crimea, annexed by Moscow in March, Kiev not only needs the contributions from its east but also its heavy industry, albeit in a modernised form.

“There’s a war in Donetsk and Luhansk and practically all revenue from these regions to the state budget has fallen. Plus they annexed Crimea,” said Mikhailo Noniak, deputy minister for revenue and duties at Ukraine’s tax agency.

“The reality of the financial situation is pretty bad at the moment because of Russia’s aggression. A lot of money goes to defence.”

Ukraine is virtually bankrupt, running wide external deficits and struggling to cover state wages, never mind feed and equip an army whose numbers have risen as fighting against rebels who want independence for the Donbass intensifies.

Western lender, the International Monetary Fund, has thrown a financial lifeline, stumping up $17.1 billion as part of a two-year bailout package. Kiev has received $3.2 billion so far and hopes to get an additional $1.4 billion in late August.

Oligarchs, who became wealthy in the chaos following the fall of the Soviet Union and own much of the country’s private economy, have also stepped in, with one, Ihor Kolomoisky, financing and arming several battalions fighting the rebels.

But while financing from businessmen is unsustainable, Western funding demands that a reluctant Ukrainian parliament make some tough changes to its economy, where the state has long subsidised energy bills and has a bloated state sector.

Much of that budget spending goes to its east, especially Luhansk and Donetsk, impoverished regions where a flat panorama of pot-holed roads and grassy fields is punctuated by slag piles or mining machinery.

EASTERN DRAIN

Donetsk contributed 11.7 percent, or 170.8 billion hryvnias UAH=, to Ukrainian gross domestic product last year and Luhansk contributed just over 4 percent, at 38.9 billion hryvnias. Continue reading

#Economy: Russian execs fear lasting damage from plane crash


FILE - In this Monday, July 21, 2014 pool file photo Russian President Vladimir Putin listens during a meeting in Samara, Russia. Having for months dismissed Western sanctions on Russia as toothless, business leaders here are now afraid that the crash of the Malaysian jetliner will bring about an international isolation that will cause serious and lasting economic damage. The U.S. and EU are still playing something similar to “good cop, bad cop” with Russia, said Chris Weafer of the Moscow-based Macro-Advisory, but it remains to be seen whether the Malaysian plane crash will be a game changer for Russia’s economy. (AP Photo/RIA-Novosti, Alexei Nikolsky, Presidential Press Service, File)FILE – In this Monday, July 21, 2014 pool file photo Russian President Vladimir Putin listens during a meeting in Samara, Russia. Having for months dismissed Western sanctions on Russia as toothless, business leaders here are now afraid that the crash of the Malaysian jetliner will bring about an international isolation that will cause serious and lasting economic damage. The U.S. and EU are still playing something similar to “good cop, bad cop” with Russia, said Chris Weafer of the Moscow-based Macro-Advisory, but it remains to be seen whether the Malaysian plane crash will be a game changer for Russia’s economy. (AP Photo/RIA-Novosti, Alexei Nikolsky, Presidential Press Service, File)

MOSCOW (AP) — Having for months dismissed Western sanctions on Russia as toothless, business leaders here are now afraid that the crash of the Malaysian jetliner will bring about an international isolation that will cause serious and lasting economic damage.

Throughout the Ukrainian crisis, U.S. and European sanctions had mainly targeted a handful of individuals, sparing economic ties. Then last week the U.S. imposed penalties on some of Russia’s largest corporations. And when the airliner was shot down just a day later in Ukraine, allegedly by separatists with Moscow’s support, concern grew in Russia that the sanctions would only get worse as President Vladimir Putin showed little sign of cooperation.

“Over the past few months, there was a sense that Mr. Putin acted decisively, forcefully, and correctly, and that everybody else in the world would accommodate themselves to that reality and we’d get back to something like business as usual,” said Bernard Sucher, a Moscow-based entrepreneur and board member of Aton, an independent investment bank. “Now we’re talking about real fear.”

When Russia annexed Crimea in March, triggering a deep freeze in relations with the West, stock markets in Russia dropped but later rebounded as investors understood that the country’s lucrative trade relations would remain largely unscathed. Europe, which is in frail economic health, dared not block energy imports from Russia or the trade in goods such as cars or heavy machinery. Oil companies like BP and ExxonMobil continued their operations in Russia, with some even signing new deals.

The U.S. took a tougher stance, but until last week was also careful to limit sanctions to asset freezes on individuals who were perceived to have had a hand in supporting eastern Ukraine’s insurgency.

On July 16, the night before the Malaysia Airlines jet crash, Russian markets appeared to have fully recovered from the crisis in Ukraine, with the MICEX benchmark index adding roughly 23 percent since March 1.

Then last week, the U.S. announced new sanctions that had investors in Russia fear a turn for the worst. The U.S. shut off its financial markets for a broad swath of defense companies as well as Russia’s largest oil company, Rosneft, gas producer Novatek, which is half-owned by a close Putin ally, and a major bank, VEB. The move offered investors a glimpse of what they had thought would never happen: serious international isolation of Russia’s powerhouse corporations.

According to Alexis Rodzianko, president of the American Chamber of Commerce in Russia, those sanctions were the first to really pack a punch because they were “broader and more specific: they went beyond the symbolic.”

Rodzianko said anecdotal evidence suggests that in some cases investment decisions have been delayed “particularly when people were just considering coming in to the market.”

When the Malaysian airliner went down one day later, investors worried conditions would only get worse.

The stock market has fallen 5 percent since Thursday last week. That is expected to see investors keep pulling money out of the country. They withdrew $74.6 billion in the first six months of the year, a figure forecast to reach $100 billion for the whole of 2014 — almost twice the $60 billion in withdrawals seen last year. Continue reading