Weekly – Economy and Markets – 29 March 2012

Compiled by – Dilip Dhanaiya, more information –

Global – Economy and Market

  • Spain risks years without economic growth

(Reuters) – Belt tightening in the board room and the living room, deep public budget cuts and anaemic bank lending may be setting Spain up for years of economic stagnation that could eventually force it to seek a bailout.

  • ECB gives national central banks more discretion on collateral

The European Central Bank said national central banks are allowed to reject as collateral securities issued by banks in Greece, Portugal and other countries involved in rescue programs. "National Central Banks (NCBs) are not obliged to accept as collateral for Eurosystem credit operations eligible bank bonds guaranteed by a Member State under an EU-[International Monetary Fund] financial assistance programme," according to an ECB statement.

  • Ireland returns to recession

The Irish economy slid back into recession during the second half of 2011, the Central Statistics Office said. Gross domestic product contracted 0.2% in the fourth quarter, after a 1.1% decline in Q3

  • Interest rates must stay low to create jobs, Bernanke says

Federal Reserve Chairman Ben Bernanke said it is essential that the U.S. central bank hold interest rates close to zero to create jobs. Despite recent gains, the number of Americans holding jobs and the hours they work are fewer than they were before the financial crisis in 2008, he said. "The job market remains far from normal," Bernanke said.

  • Initial jobless claims in U.S. fall to a 4-year low

The U.S. Labor Department said first-time jobless claims fell to 348,000 last week, the fewest since February 2008. The four-week rolling average — considered a more accurate indicator of labor-market conditions — declined 1,250, to 355,000 claims, the department said

  • U.S. home prices sink to lowest level since financial crisis

U.S. house prices fell in January to their lowest since the financial crisis, according to the Standard & Poor’s/Case-Shiller Home Price index. The index declined 0.8% from December and 3.8% from January 2011. Many analysts said they expect the housing market to hit bottom this year and begin a slow recovery.

  • Profit slides 5.2% at Chinese industrial firms

With export demand falling, profit at China’s industrial companies dropped 5.2% in January and February compared with the same months last year, the National Bureau of Statistics said. The agency withheld a separate January figure because the long Lunar New Year holiday interfered with production.

  • Analysis: U.K. budget acknowledges need to lure foreign investment

The U.K.’s budget signals the government acknowledges a need to attract foreign investment and bright financial minds, according to The Economist. Cutting the top tax bracket from 50% to 45% probably won’t aid the rich much, but it sends the right message. "At a time when France’s most likely next president wants to introduce a 75% tax and [U.S. President] Barack Obama is moaning about millionaires and billionaires, Britain is welcoming entrepreneurs and financiers," the magazine notes. The Economist

  • Italy moves toward labor-market reform

Under technocratic Prime Minister Mario Monti, Italy is proceeding toward labor-market reform that was politically impossible in the past. Almost every proposal from the Monti administration, which has overwhelming public support, is fought for a while by parliamentarians, who buckle in the end.

  • U.K. banking trade group prefers gradual revamp of Libor

The British Bankers’ Association said it prefers a gradual overhaul of the London Interbank Offered Rate, which has been under review amid allegations that it was manipulated. CEO Angela Knight said change needs to be slow because so many contracts worldwide are tied to Libor. "It will take place on a sensible and reasonable timetable," Knight said. "It’s all about evolution, confidence and no fireworks. If you went for a big-bang change, you have big market instability."

  • Analysis: EU makes dangerous step toward protectionism

The European Commission’s proposal to bar countries from bidding on EU government contracts unless they are open to buying from Europe is the wrong thing to do when the region’s economy is slumping, according to The Economist. "Europe needs more competition, not less, to overcome its crisis," the magazine notes.

  • Saudi Arabia pledges to cut global oil prices, support recovery

Saudi Arabia’s King Abdullah promised to use his nation’s oil to bring down worldwide prices enough to accelerate the global economic recovery. He said Saudi Arabia will work with other Persian Gulf oil-producing states to ensure all customers have adequate and stable supplies.

  • China: March HSBC Flash PMI

The March HSBC flash PMI moderated to 48.1, down from the actual release of 49.6 in

February, and staying below the 50 mark.

This weakening fits with our view that the Chinese economy is still on moderation trend, and our expectation that growth is likely to continue slowing on both a yearly and sequential basis in 1Q12.

  • Hong Kong: February CPI

Headline inflation eased to 4.7% yoy in February, while underlying CPI inflation moderated to 5.4% yoy. Similar to the January release, the February inflation reading was distorted downwards by the Chinese New Year effect.

For January and February combined, headline inflation was at 5.4% yoy, versus 5.7%

yoy in December, while underlying inflation softened to 6.1% yoy. The latest trend shows that inflation has moderated mildly, but remained elevated.

  • Singapore: February CPI

Inflation slowed on food and transport. CPI inflation slowed to 4.6% yoy in February from 4.8% yoy in January, below the market expectation of 4.9% yoy according to a Bloomberg survey. Food and transport inflation led the slowdown.

  • Malaysia: Minimum wage policy: Pain for SMEs

Malaysia is set to introduce a minimum wage policy. Our channel checks suggest that the government could set the minimum wage at RM900 for Peninsular Malaysia and RM800 for East Malaysia. The policy would benefit some 3.2 mn workers or about a quarter of Malaysia’s workforce, including foreign workers.

India – Economy and Market

  • RBI to keep liquidity tight till inflation eases

NEW DELHI – The Reserve Bank of India will keep liquidity tight as long as inflation is above comfort level, Deputy Governor K.C. Chakrabarty said on Tuesday.

RBI to provide additional borrowing facility on March 30, 31

The RBI said it will provide additional borrowing facility to banks in the last two days of the fiscal to prevent any liquidity crisis in view of tax payments.

  • Analysis: Indian economy is hindered by politics

Since liberalization in the 1990s, India has enjoyed remarkable growth. However, the economy is becoming sluggish again, and the political system is to blame, according to The Economist. "India is a place that has fallen out of love with reform," the magazine notes. "It needs to get the magic back." The Economist

  • Arms of profitable PSUs like MMTC, NBCC, Sail, Hindustan Copper, Bhel to be listed in disinvestment drive

Govt plans to focus on firms in which it has more than 90% stake. MMTC, STC, Neyveli Lignite and Rashtriya Chemicals & Fertilizers are among such public sector units.

Dilip_Dhanaiya_EI.doc

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