Japan Unemployment Exceeds All Estimates

Japan’s jobless rate surged by more than the predictions of 29 economists, adding pressure on the central bank to expand stimulus as Europe’s debt crisis deepens and gains by the yen impede the nation’s recovery.

The unemployment rate increased to 4.5 percent in October from 4.1 percent in September, the statistics bureau said today in Tokyo. That exceeded analysts’ median estimate of 4.2 percent and was the highest level in three months.

Panasonic Corp. and TDK Corp. are cutting jobs as a yen near a post World War II high against the dollar erodes profits and the nation struggles to recover from the March earthquake that left about 19,000 people dead or missing. Bank of Japan Governor Masaaki Shirakawa indicated yesterday that 55 trillion yen ($708 billion) of credit and asset-buying programs will be expanded if necessary.

“With the number of jobs in manufacturing falling, we’re already starting to see the impact of the global economic slowdown,” said Yoshimasa Maruyama, an economist at Itochu Corp. in Tokyo. In the event of any global financial crisis, “exports will fall off a cliff,” Maruyama said.

UBS AG today cut global growth forecasts for 2012 and the Australian government reduced estimates for that country. At the same time, Asian stocks rose on optimism that Europe’s crisis can be contained. The MSCI Asia Pacific Index gained 0.4 percent as of 12:03 p.m. in Tokyo.

South Korea, Australia
In a more positive sign for Japan, a separate report today showed retail sales rose 1.9 percent in October, more than the 0.7 percent median forecast of economists.

Across Asia, South Korea reported that its current-account surplus widened to a one-year high of $4.23 billion as imports weakened. Australia lowered its forecast for the nation’s economic growth to 3.25 percent through June 30, from 4 percent in May. It cut the projection through June 30, 2013, to 3.25 percent from a previous 3.75 percent.

In the U.S., data is due later on consumer confidence. In the U.K., government forecasts to be presented to Parliament may show Chancellor of the Exchequer George Osborne’s plan to reduce Britain’s budget deficit will come under pressure from an economy that is bordering on its second recession in three years.
In Japan, manufacturers shed 210,000 jobs in October from a year earlier, today’s report showed.

Panasonic’s Job Cuts

Panasonic is forecasting its biggest annual loss in 10 years and has accelerated plans to eliminate 17,000 jobs while TDK, the world’s biggest maker of magnetic heads for disk drives, may eliminate 11,000 jobs, about 12 percent of its workforce.

The yen traded at 78.18 per dollar as of 12:12 p.m. in Tokyo. It touched a postwar high of 75.35 on Oct. 31, prompting authorities to sell the yen in foreign-exchange markets for the third time this year.

Japan’s initial rebound from the March 11 earthquake and tsunami is fading, the OECD said in a report yesterday. At the same time, reconstruction work will help to support growth through the middle of 2012, it said.

A separate government report today showed that Japan’s job- to-applicant ratio failed to rise in October for the first time in five months. There were 67 positions open for every 100 candidates, the Labor Ministry said.
The economy, the world’s third biggest, expanded at an annual 6 percent pace in the three months ended September, ending a nine-month contraction. Economists surveyed by Bloomberg News expect growth to cool this quarter and moderate further next year.

Global Growth Estimates

UBS lowered its estimate for global growth next year to 2.7 percent from 3.1 percent as it forecast a euro area recession. UBS lowered its forecast for the U.S. to 2 percent from 2.3 percent and for China to 8 percent from 8.3 percent.

In the U.S., the Conference Board’s measure of sentiment may rise to 44 for November from 39.8, the lowest level since March 2009, according to economists’ median estimate. American real estate data, including the S&P/Case-Shiller index of property values in 20 cities, is also due to be released.

Growing doubts about the survival of Europe’s monetary union has caused global growth to stall and represents the main world risk, the OECD said yesterday.

In the U.K. estimates prepared by the Office for Budget Responsibility and due be presented to Parliament by Osborne at 12:30 p.m. local time, will show the economy expanding at a slower pace than the 1.7 percent rate seen eight months ago.

Government predictions will show that Osborne needs to borrow an extra 86 billion pounds ($133 billion) over the four fiscal years to April 2015 as growth forecasts are lowered to just under 1 percent this year and cut by more than half in 2012, according to a survey of 14 economists published by the Treasury this month.
The deteriorating outlook means Osborne may have to extend spending cuts, so that austerity continues during the first two years after the next general election due to take place in 2015.

“An even longer period of fiscal consolidation probably lies ahead,” Michael Saunders, chief European economist at Citigroup Inc. in London, said in a note. (Bloomberg)

Australia Cuts $6.7B to Keep Budget Pledge

Australia’s government will cut A$6.8 billion ($6.7 billion) in spending to meet Prime Minister Julia Gillard’s pledge to deliver a budget surplus as Europe’s debt crisis crimps revenue by slowing global growth.

The surplus forecast for the fiscal year starting July 1, 2012, was cut to A$1.5 billion from a target of A$3.5 billion in the May budget, the Treasury’s midyear review released in Canberra today showed. Even as the deficit this year swells to A$37.1 billion from a prior A$22.6 billion estimate, Australia for the first time holds the top grade at all three main credit assessors after Fitch Ratings earlier boosted the nation to AAA.

“We are showcasing to the world the strong economic fundamentals of the Australian economy,” Treasurer Wayne Swan told reporters in Canberra today.

Gillard, 50, is trying to balance the books in a nation forecast to have the fastest-growing economy in the Organization for Economic Cooperation and Development next year. The task is made tougher as Europe’s sovereign-debt crisis intensifies, increasing the threat to growth in Asian countries that buy Australia’s iron ore, coal and energy.

‘Miraculous’

“It’s quite miraculous that they’ve retained the forecast surplus for 2012-13 given how bad 2011-12 looks,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “The fact the forecast surplus remains razor thin suggests a downside risk.”

The heightened global risk is reflected in a decline in commodity prices this quarter and a 6.3 percent drop in the Australian dollar this month. The so-called Aussie, the world’s fifth-most traded currency, fell to as low as 98.63 U.S. cents after the review was released, from 99.05 cents yesterday in New York.

“Global economic and financial conditions have deteriorated markedly in recent months, and the risks to global stability from the European sovereign debt crisis have intensified,” Swan said in a statement. “Global growth prospects have been downgraded markedly in 2012.”

The government lowered its forecast for Australia’s annual economic growth to 3.25 percent through June 30, from 4 percent in the May budget. It cut the projection to 3.25 percent through June 30, 2013, from 3.75 percent, the report showed.

Monetary Stimulus

The government’s pledge to reduce spending as global growth slows leaves central bank stimulus as the main policy tool for spurring the economy.

The Reserve Bank on Nov. 1 lowered its benchmark interest rate by a quarter percentage point to 4.5 percent from a developed-world high to help boost domestic demand, its first reduction in 31 months. Swaps traders wager policy makers will need to cut again next month on the way to reducing borrowing costs by at least 1.5 percentage points over the next year, a Credit Suisse Group AG Index shows.

In the press conference, Swan noted Australia’s inflation rate has eased to within the central bank’s target range of 2 percent to 3 percent on average. He also said growth in China, Australia’s biggest trading partner, is “coming off a bit.”

The gap between yields on Australian five-year inflation- linked debt and benchmark notes of similar maturity was 2.20 percentage points today, after reaching 2.18 percentage points yesterday, the lowest since at least December 2009. The spread indicates investor expectations for consumer-price gains over the lifetime of the debt. The so-called breakeven rate has dropped from this year’s high of 3.14 percentage points reached in May, Bloomberg data show.

Surplus ‘Fetish’

To fend off criticism from an opposition coalition about her fiscal management, Gillard is sticking with a commitment to return to surplus by fiscal 2012-13 even after floods and cyclones in the nation’s northeast earlier this year slowed the domestic economy. Former RBA board member Warwick McKibbin earlier this year called that pledge a political “fetish” for avoiding deficits.

The A$6.8 billion in cost reductions will come from a combination of spending cuts, deferrals of commitments and tightening of the tax system, the government said today.

The fiscal tightening includes a one-time increase in an “efficiency dividend” of 2.5 percent from the civil service that is projected to save A$1.5 billion. It involves steps such as reduced use of consultants and contractors, teleconferencing instead of travel and limiting media and advertising spending.

The government will also crack down on living away from home tax concessions that it says are “being rorted” by foreign workers and high-paid executives, bringing savings of A$683 million, Assistant Treasurer Bill Shorten said in a statement. It will also reduce payment to parents for new-born babies to A$5,000 from A$5,400.

Ratings Upgrade

Fitch Ratings upgraded Australia’s long-term foreign- currency issuer default grade to AAA from AA+, in a statement released before the budget review.

One of Australia’s strengths is its debt-to-GDP ratio of 26.3 percent, compared with its peer group median of 55.7 percent, Fitch said. “This provides Australia with the fiscal space to weather adverse shocks,” the ratings company said.

The urbanization of hundreds of millions of people in China and India has also intensified demand for Australia’s mineral wealth, produced by companies including BHP Billiton Ltd. (BHP) and Rio Tinto Group. (RIO)
 

Mining Boom

The surge in commodity extraction has also spurred hiring and Australia’s jobless rate, at 5.2 percent in October, was almost half the euro zone’s 10.2 percent in September.

The government forecast Australian unemployment will increase to 5.5 percent in June 2012, today’s report showed. Swan he expects 300,000 new jobs to be created in Australia, a nation of 22.8 million people, in the next few years, he said today.

The OECD said this week that mounting concern Europe’s monetary union may not survive has caused global growth to stall and represents the main risk to the world economy.

The 34 OECD economies will expand 1.9 percent this year and 1.6 percent next, down from 2.3 percent and 2.8 percent predicted in May, the Paris-based organization said in its twice-annual global outlook released late yesterday.

Australia’s gross domestic product will increase 4 percent next year, tied with Chile as the best-projected performer among OECD members.(Bloomberg)

Malaysia Inflation up 3.4% in October

The country's inflation rate as measured by the consumer price index (CPI) remained unchanged at 3.4% in October on a year-on-year basis, with prices mainly driven by growth in the food component.


This was in line with market expectations and was just slightly above the median of 3.3% in a Bloomberg survey of economists.

The Statistics Department said month-on-month, prices were up 0.2% with food and non-alcoholic beverages as well as non-food items for October 2011 showing increases of 5.7% and 2.4% respectively when compared with the corresponding month.

Goldman Sachs Group Inc's Singapore-based economist Mark Tan said in a report that headline inflation would remain near current levels over the next few months before moderating in 2012.

“Food prices (partly driven by floods in the region) should continue to add to upward pressure in the coming months, though this will likely be balanced out by the lower commodity prices in recent months and increasingly, lower core inflation next year, as demand slows,” he said.

Tan said the house's 2012 inflation forecast was for prices to average 2.6% from the average 3.2% expected this year.

Citigroup Inc's Singapore-based economist Kit Wei Zheng said although inflation pressures have not completely dissipated due to economic outperformance in the third quarter, a more forward-looking perspective suggested inflation would likely moderate below Bank Negara's implicit inflation tolerance threshold of 3% by next year and perhaps as early as this December.

“The marginally higher petroleum subsidy allocation in 2012 should cap supply-side inflation pressures and the government could cut fuel prices if crude oil prices decline,” he said.

Kit said the central bank would not have to worry about inflation if it needed to cut rates if domestic demand showed signs of softening amid receding inflation risks.

Meanwhile, Hong Kong-based Societe Generale senior Asia economist Joseph Lau said in a report dated Nov 17 that base effects (calculating from a year-on-year basis) would mean that inflation would be lower across Asia in the first quarter of 2012, assuming prices remained stable month-on-month.

He said this was on the assumption that all other drivers of inflation were stable through this period, which would be unlikely.

Lau said “as long as month-on-month momentum is stable or close to, Asian inflation will be coming off naturally and markedly over the next few quarters, most notably from the second quarter of 2012.”

He added that these assumptions were not unreasonable given the weak global economic growth next year and slower activity emerging in Asia although there was still cost-push price pressure remaining in the region.
“Producer price index inflation was still rising faster than CPI across the region through the third quarter, suggesting that latent price pressures may still be feeding through into CPI later,” Lau noted. (The Star Online)

Malaysia likely to see 5%-6% growth next year

KUALA LUMPUR: Private investment growth will continue to be the main driver for the Malaysian economy, which is anticipated to expand between 5% and 6% next year, according to Lim Seng Gim, the Finance Ministry's macroeconomics head (economics and international division).

Lim said private investment in the country is estimated to hit RM113bil in 2012, compared with a forecast of RM94bil this year.

“This will be spurred by flows from the implementation of various projects under the ETP (Economic Transformation Programme) and investments in Iskandar Malaysia in Johor,” he said during the Macroeconomic Conference organised by Affin Investment Bank Bhd yesterday.

Lim noted that Malaysia's gross domestic product (GDP) is forecast to grow by 5% to 5.5% this year.

“Private investments had reached about RM75bil during the first three quarters of 2011. We are on track to hit more than RM90bil in private investments this year.”

He said there were 14 ongoing high-impact projects in Malaysia worth RM38.2bil, including developments in the oil and gas sector as well as the My Rapid Transit (MRT).

The International Monetary Fund (IMF) has projected Malaysia's economy to grow by 5.2% this year and 5.1% in 2012.

Other speakers at the conference included IMF resident representative in Singapore Ravi Balakrishnan; John Wong, who is an academic advisor at the East Asian Institute, the National University of Singapore; and the Government's Performance Management and Delivery Unit director of ETP Investment Ku Kok Peng.
Ravi reiterated that the global economy was at a dangerous stage, with significant downside risks due to the eurozone's debt crisis and a weakened US economy.

He said the baseline forecast was for more uneven global economic recovery of 4% next year, with an estimated 6% growth in emerging markets and about 2% expansion in advanced economies.

“Domestic demand can be resilient for emerging economies in Asia. However, if their exports are impacted, they are likely to see a significant reduction in domestic demand,” cautioned Ravi.

Meanwhile, Wong said China, as the world's second-biggest economy, was expected to see a slowdown in its growth momentum to 8.5%.  (The Star Online)

Pick-up in Malaysia Q3 growth seen

A Business Times poll expects the economy to grow by an average of 4.95 per cent in the third quarter from 4.0 per cent in the second.
The Malaysian economy is likely to accelerate in the third quarter,driven by firm domestic activities. But economists continue to keep one eye on the manufacturing sector and trade in the coming months as they could be hit by sluggish demand in rich countries.

A Business Times poll expects the economy to grow by an average of 4.95 per cent in the third quarter from 4.0 per cent in the second.

The government thinks the economy could grow by 5 per cent this year, the lower end of its forecast. However, economists expect a 4.68 per cent growth in 2011 and 4.5 per cent in 2012.

Bank Negara will release details this afternoon.

For the July-September quarter, the domestic engine will remain the key driver of the economy with underlying demand from abroad
still holding up, said DBS Bank economist Irvin Seah.

Exports continue to surprise as commodity prices stay firm.

“Plainly, pockets of uncertainty remain on the external front but the domestic engines of the economy are not showing any sign of stalling.

“Domestic consumption is expected to remain robust while investment will be the key driver of growth in the third quarter and going forward,” he said.

The “healthy pipeline” of development projects will continue to propel the economy.

Citi said services and domestic demand, especially consumption, are holding up well with a modest acceleration in consumer
spending in the third quarter.

CIMB Investment Bank’s chief economist Lee Heng Guie says some of the constraints on output such as post-quake supply chain problems are being lifted gradually while mining output is also contracting by a slower degree.

His estimation is supported by an export value which is rising due to firm commodity prices and a low base.

“Stronger exports and improved industrial output will lift the third quarter growth but a strong growth in the fourth quarter and first half of 2012 is not in the offing,” he said,
attributing it to external headwinds, especially supply chain snags from worsening floods in Thailand.

AmResearch’s director of economic research Manokaran Mottain also remains wary about trade and manufacturing in the
months to come.

“The anticipated stronger growth in the third quarter will indicate that it is unlikely that Malaysia will enter a recession in the short term but the possibility of the economy
underperforming in the medium term has increased, given the softening of external demand following the higher recession risks
in the OECD countries.”

He said the jump in exports for the past few months was due to sustained increases in demand from Southeast Asia and China. (Business Times)

Southeast Asian Slowdown Looms as Thai Floods Compound Europe Demand Slump

Growth in Southeast Asian economies including Malaysia and Thailand may have peaked last quarter as the European debt crisis and Thai floods hurt the outlook for exports, adding pressure on policy makers to cut interest rates.

Malaysia’s gross domestic product increased 4.8 percent in the three months through September from a year earlier, after a 4 percent expansion the previous quarter, according to the median of 25 estimates in a Bloomberg News survey. Thailand’s growth probably quickened to 4.5 percent from 2.6 percent, according to a survey of 11 economists.

“Exports will likely soften in the coming months as Europe slides into a recession,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Both Bank Negara Malaysia and Bank of Thailand will keep their options open and ease if growth readings turn ugly in coming months.”

Authorities in Singapore and Indonesia have cut growth forecasts in recent weeks and the Asian Development Bank said economies in the region may expand at a slower pace than earlier estimated. Most Asian currencies fell in the past three months on concern the nations that led the recovery from the 2009 global recession will falter, and United Overseas Bank Ltd. said policy makers may allow more weakening to support exports.
“It’s part of monetary easing if they let their currencies weaken,” said Ho Woei Chen, an economist at United Overseas Bank in Singapore who expects Malaysia and Thailand to highlight the risks to growth going forward. “Probably they are not cutting interest rates that aggressively but letting their currency depreciate.”

Ringgit Falls

Malaysia’s central bank will release GDP data at 6 p.m. today. Thailand will give its economic report for the third quarter on Nov. 21.

The Malaysian ringgit has fallen more than 5 percent in the past three months and the Thai baht has weakened 3.3 percent. Neither have cut rates even as Indonesia and Australia lowered borrowing costs this quarter.
Singapore, which uses the island’s dollar as its main tool to manage inflation, said in October it will reduce the pace at which the currency strengthens. The nation’s exports fell the most in more than two years in October as electronics shipments by companies such as contract manufacturer Venture Corp. dropped 31.2 percent, a report showed yesterday.

Revised third-quarter GDP data due Nov. 21 may show Singapore’s economy grew faster than the government estimated earlier, a Bloomberg survey showed.

Major Risks

Exports and domestic demand probably helped Thailand and Malaysia expand faster last quarter, before the deepening European sovereign-debt crisis and the worst Thai floods in almost 70 years threatened global growth and regional trade.

“Strong domestic demand continued to drive growth” in Malaysia, said Daniel Wilson, an analyst at Australia & New Zealand Banking Group Ltd. in Singapore. “Looking ahead, one of the major risks to growth is a slowdown in the external sector spilling over into the domestic economy. Supply chain disruptions stemming from Thai floods may depress industrial production in the short run.”

Investment has accelerated in Southeast Asia’s third- largest economy since Prime Minister Najib Razak’s government last year identified $444 billion worth of private sector-led projects to spur growth.
International Business Machines Corp., Toshiba Corp. and Agilent Technologies Inc. are among companies pledging new investments in Malaysia. Exports grew at the fastest pace in more than a year in September as companies shipped abroad more electronics and commodities.

Thai Floods

“Most of the emerging economies like ours are still experiencing growth even though we may experience a moderation in growth because of the challenging global environment,” Bank Negara Malaysia Governor Zeti Akhtar Aziz said this week.

Thai leader Yingluck Shinawatra is struggling to rescue the nation from floods that have claimed at least 567 lives, swamped thousands of factories and threatened the homes of 20 percent of the country’s 67 million people since late July. Yingluck was sworn in as the nation’s first female prime minister in early August.
The Bank of Thailand has signaled it may consider cutting rates as the disaster curbs growth. It kept rates unchanged in October for the first time in 2011.

The flood damage could cost as much as 400 billion baht ($13 billion), or 4 percent of GDP, Rahul Bajoria, a Singapore- based regional economist at Barclays Plc said in a research note yesterday. He revised down his forecast for Thai economic growth this year to 2.4 percent and predicted the central bank will cut the benchmark rate by 50 basis points to “shore up consumer and business confidence.”

“The strong growth we’ve seen in all GDP components in the third quarter will turn opposite this quarter,” said Kampon Adireksombat, an economist at Tisco Securities Co. in Bangkok. “The flooding is far worse than what we had expected as the water spread through most of our capital. We expect the central bank to come up with a drastic move of a 50 basis-point cut at the upcoming meeting if they want to rescue the economy.” (Bloomberg)

World Economy Faces ‘Significant’ Risks: APEC

The world economy is facing “significant downside risks” stemming in part from the European debt crisis, leaders at the Asia-Pacific Economic Cooperation forum said.

Growth and job creation have weakened in many countries and further trade liberalization is “essential” to boost economic expansion, the leaders said in a statement in Honolulu today. A series of natural disasters in the region has also threatened growth, they said, without elaborating.

Europe’s sovereign-debt crisis was a frequent topic at the summit aimed at improving economic ties in the Asia-Pacific region. While the appointments of new governments in Greece and Italy have eased concerns the crisis will deteriorate, APEC officials have said they are bracing for more turmoil in the euro zone that may push the global economy into a recession and increase volatility in financial markets.

“We meet at a time of uncertainty for the global economy,” the leaders said in the statement. “Significant downside risks remain, including those arising from the financial challenges in Europe. APEC’s core mission continues to be further integration of our economies and expansion of trade among us.”


Interest Rates
 
Emerging-market nations from Brazil to China to Indonesia have started to cut interest rates or increase fiscal measures to shield growth. Federal Reserve Chairman Ben S. Bernanke said this month a U.S. recovery may be “frustratingly slow” while International Monetary Fund Deputy Managing Director Zhu Min and China’s National Economic Research Institute Director Fan Gang told business leaders at an APEC forum yesterday that the Chinese economy was heading for a “soft landing” as growth eases.

Europe is battling a debt crisis that so far has cost five leaders their jobs, including Italian Prime Minister Silvio Berlusconi. In Greece, a unity government led by Lucas Papademos was sworn in Nov. 11 with a mandate to implement budget measures and decisions related to a 130 billion-euro bailout agreed on Oct. 26.

The euro region’s rescue plan “needs to be put in place with the speed that markets require and with the force necessary to restore confidence,” U.S. Treasury Secretary Timothy F. Geithner said Nov. 10 after meeting with other APEC finance ministers.

Italian Yields

Investors this month pushed Italian bond yields passed the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts. Spain risks seeing its borrowing costs rise closer to those of Italy as European Central Bank buying fails to cap yields and slowing growth threatens to make its deficit- reduction targets unachievable.

“Without a solution to the eurozone crisis, the world economy could be swept into a downward spiral of collapsing confidence, weaker growth, and fewer jobs,” IMF Managing Director Christine Lagarde said at the APEC summit today. “This would affect all nations and so we all have a stake in resolving that crisis.”
APEC leaders have pushed for more trade and services liberalization in the economic grouping that represents more than 40 percent of world commerce.

The euro maintained gains today following a two-day rally on prospects investor confidence in Italy’s ability to contain its debt will be revived after Mario Monti, a former European Union competition commissioner, takes over as prime minister.
The euro traded at $1.3767 as of 12:23 p.m. in Tokyo from $1.3750 on Nov. 11 in New York. Europe’s shared currency bought 106.25 yen from 106.10.

TPP Framework

The U.S. and eight other Asia-Pacific nations at the meetings outlined a framework for a free trade accord and agreed to accelerate negotiations with the aim of completing an agreement within the next year. Japan, Canada and Mexico have expressed interest in joining discussions on the Trans-Pacific Partnership.
Some nations are seeking their own free-trade agreements as the World Trade Organization’s Doha round of global talks remains unfinished after a decade.

“We recognize that further trade liberalization is essential to achieving a sustainable global recovery in the aftermath of the global recession of 2008-2009,” the leaders said today. “We have deep concerns regarding the impasse confronting the Doha Development Agenda, and the reality is that a conclusion of all elements of the Doha agenda is unlikely in the near future.”

Currency Policies

Currency policies were also the focus of discussions at the meetings in Honolulu. President Barack Obama pressured China on its exchange-rate, telling President Hu Jintao that the American public and businesses are growing “increasingly impatient and frustrated” with the pace of progress in relations between the two nations.
APEC finance ministers said in a statement they are committed to moving “more rapidly” toward market-determined exchange rate systems and will increase currency flexibility to reflect their economic fundamentals. Officials from the 21- member grouping also said they will avoid persistent exchange- rate misalignments and refrain from competitive currency devaluations. (Bloomberg)

Hong Kong Dodges Recession as China’s Shoppers Counter Weakness in Exports

Hong Kong’s economy grew 0.1 percent in the third quarter from the previous three months as low unemployment and tourists from China boosted consumption while Europe’s crisis dragged on exports.

The figure released by the government yesterday compared with a revised 0.4 percent contraction in the three months ended June and the median estimate of no change in a Bloomberg News survey of 15 economists.

Asian policy makers are weighing steps to support growth as Europe’s debt crisis threatens to engulf Italy and trigger a global slump. The GDP number showed Hong Kong skirting a technical recession, defined as two straight quarters of contraction. Chief Executive Donald Tsang warned this week in New York that there’s a 50 percent chance the global economy will shrink next year.

“A persistent stall of the economy will prompt the government to pledge another round of fiscal relief measures in February’s budget,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong.

The economy grew 4.3 percent from a year earlier, down from a revised 5.3 percent gain in April-through-June, the government said. Officials lowered their estimate for the full-year expansion to 5 percent from a range of 5 percent to 6 percent in an August estimate.

‘No Silver Bullet’

“There may be some fiscal measures, like tax rebates in the next budget, as a government response to the slowdown,” said Joseph Lau, an economist at Societe Generale SA in Hong Kong. “However there’s no silver bullet here. It will largely be a case of riding this out.”

The macro risk for Hong Kong has shifted to growth from inflation, government economist Helen Chan said at a press briefing in the city. In 2012, the expansion may be as little as 2 percent, Tsang said Nov. 8.
Exports declined in September for the first time in almost two years and the government said yesterday that the trade outlook is “bleak.” Inflation may be 5.2 percent for the full year, down from an August estimate of 5.4 percent, it said, citing smaller gains in global food and commodity prices.

In contrast, retail sales have been bouyant, with 11 million tourist arrivals in the third quarter. The jobless rate stayed at 3.2 percent for the three months ended September, a 13-year low.

Private consumption rose 8.8 percent in the third quarter from a year earlier and business investment climbed 10.2 percent, yesterday’s report showed.

Flood of Tourists

“Mainland Chinese tourists are flooding our store and the mall and so we are recruiting more sales people right now,” said Leung Chun-kit, 31, a salesman at Golden Computer Accessories Ltd., a retail shop in Wanchai. “I don’t really feel any impact from the European crisis -- that doesn’t matter to us at all.”

The threat of a global slowdown is intensifying downward risks in Hong Kong’s home market, Financial Secretary John Tsang said Oct. 27. Home sales halved last month from a year earlier to HK$22.5 billion ($2.9 billion), after the government raised minimum down-payment requirements and imposed taxes on some transactions to curb prices that surged more than 70 percent since the start of 2009.

Side-effects of global market volatility include cancelled share offerings in the city. Sany Heavy Industry Co., the construction-equipment maker backed by China’s richest man Liang Wengen, postponed in September a $3.3 billion stock sale. Hong Kong’s benchmark Hang Seng Index (HSI) index has tumbled 17 percent this year.

“Some Shocks”

Hong Kong’s economy may face “some shocks” in coming quarters as global growth is losing traction, Chief Executive Tsang told reporters during the Asia-Pacific Economic Cooperation forum in Honolulu today.

“Although Hong Kong’s economy is now fundamentally sound, we are facing an uncertain outlook,” said Tsang. “The government will roll out measures to support small- and medium- sized companies if needed.”

Chinese president Hu Jintao urged Hong Kong’s government to ensure long-term economic stability and prosperity during a meeting with Tsang at the APEC forum, the official Xinhua News Agency reported today. Hu said the central government has been unwavering and consistent in supporting Hong Kong’s economy, according to Xinhua.

Asian Response

Across Asia, officials are girding for any deterioration in the global economy. China’s lending rebounded in October according to data released yesterday, signaling that officials may be loosening limits on credit growth. Indonesia this week cut benchmark interest rates for the second straight month.

Malaysia left interest rates unchanged for a third straight meeting yesterday. Bank Negara Malaysia kept the benchmark overnight policy rate at 3 percent, as predicted by 18 of 19 economists surveyed by Bloomberg News.

Hong Kong’s merchandise exports fell 2.2 percent in the third quarter from a year earlier, yesterday’s report showed.

“The negative impacts on the global economy caused by the euro zone sovereign-debt crisis and the ensuing global financial turbulence have intensified towards the end of the third quarter, and are likely to remain pronounced,” the government said in a statement. “While the euro zone debt problem will remain a key threat to the global economic outlook, the weakness in the U.S. economy also warrants concern.” (Bloomberg)

China Inflation Slows by Most Since 2009

China’s inflation slowed by the most in almost three years, giving officials more room to support growth as the property market cools, Europe’s crisis threatens exports and a credit squeeze hits small businesses.

Consumer prices rose 5.5 percent in October from a year earlier, the statistics bureau said on its website today. The 0.6 percentage point decline from September’s rate was the biggest since February 2009. Producer prices rose 5 percent last month, less than any of 24 analysts forecast.

Most economists expect Premier Wen Jiabao’s government to loosen fiscal or monetary policy without cutting interest rates as inflation stays above a full-year target of 4 percent, a Bloomberg News survey showed this week. HSBC Holdings Plc said today that “targeted easing” may include measures to support smaller businesses and the construction of public housing and infrastructure.

“The combination of easing inflationary pressures, a protracted euro debt crisis and a potential property market slump has set the scene for an imminent policy easing,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd. “The time is right” for a cut in lenders’ reserve requirements, he said.

China’s price gains may moderate further as raw-material costs decline, reflecting headwinds to the global recovery from faltering U.S. growth and the prospect of a recession in Europe. The increase in producer prices, the smallest gain in a year, compared with the 5.8 percent median estimate in a Bloomberg survey of economists and a 6.5 percent gain in September.

Swaps Decline 

 

The benchmark Shanghai Composite Index was little changed at 10:57 a.m. local time. China’s swap market is starting to indicate chances for an interest-rate reduction in the coming year. The cost of fixing borrowing costs for a year fell below the 3.5 percent benchmark savings rate last month and reached 3.125 percent today.

Five of 13 forecasters in the Bloomberg News survey predicted no change in the one-year deposit rate before the end of 2012, five predicted an increase and three saw a cut.

Food costs rose 11.9 percent last month from a year earlier after a 13.4 percent increase in September, the statistics bureau said. Pork climbed 39 percent after a 44 percent jump.

Food accounted for 3.62 percentage points of the overall increase in consumer prices, the bureau said. Non-food inflation eased for a second month to 2.7 percent.

Credit Boom 

 

The People’s Bank of China raised interest rates five times from October 2010 to July and boosted banks’ reserve requirements nine times to a record 21.5 percent for the biggest lenders to rein in a credit boom that fueled consumer and property prices.

The cost of housing in China has started to decline after a two-year government campaign to curb speculation and limit purchases. Poly Real Estate Group Co., China’s second-largest developer by market value, said Nov. 7 its contracted sales fell 39 percent from a year earlier last month. Barclays Capital estimates home prices may decrease by 10 percent to 30 percent in the next year.

“Without a doubt, the Chinese housing market is entering a difficult period,” Barclays’ Hong Kong-based economists led by Huang Yiping said in a Nov. 8 research note.

Farmer Subsidies 

 

The government raised subsidies for farmers to increase food supplies, reduced transport charges to limit costs and told companies to refrain from putting up prices. The National Development and Reform Commission told liquor makers including Kweichow Moutai Co. and Wuliangye Yibin Co. in September to hold off planned price increases of as much as 30 percent.

Falling costs for commodities such as oil and an improved supply of pork are helping to ease price pressures even as the government is set to miss its full-year inflation target.

Gasoline and diesel prices were cut by 3.5 percent and 3.9 percent respectively on Oct. 9 for the first time this year after crude oil costs dropped. An index of manufacturers’ input prices fell the most in 17 months in October, China’s logistics federation and the statistics bureau said on Nov. 1.

The central bank may reduce reserve requirements for smaller lenders to help ease a credit squeeze, according to economists at banks including Mizuho Securities Asia Ltd. and Societe Generale SA.

The move would be part of a “fine tuning” of economic policies pledged by Wen last month to protect the economy against global economic turmoil. The government has already announced tax cuts for companies, trial reform of the value- added tax system and increased credit for smaller companies.(Bloomberg)

China PMI Drops to Lowest in Almost 3 Years

A Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world’s second-biggest economy.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. That was lower than any of 16 economist estimates in a Bloomberg News survey that had a median forecast of 51.8. A reading above 50 indicates expansion.

An index of export orders contracted for the second time in three months as Europe’s failure to resolve its debt crisis dims the outlook for shipments to China’s biggest market. South Korea reported today the weakest export growth since 2009 and Taiwan’s government said yesterday that the island’s economy expanded by the least in two years.

The PMI reading “is a reflection of slowing momentum in the economy” and exports may “slow sharply in coming months,” said Wang Tao, a Hong Kong-based economist at UBS AG. “Policy will ease more visibly in the first quarter of 2012.”
A separate manufacturing index released today by HSBC Holdings Plc and Markit Economics rose to 51 from 49.9. The surveys have different sample sizes and methodologies.

Premier Wen Jiabao said last week that economic policies will be “fine-tuned” as needed. That fueled speculation that the government may ease reserve requirements for smaller banks and add fiscal stimulus, putting growth ahead of inflation risks.

‘Weak’ Figure

The MSCI Asia Pacific Index fell 0.9 percent as of 11:07 a.m. in Tokyo. The benchmark Shanghai Composite Index rose 0.3 percent on speculation that more easing is possible after the government last month offered tax breaks for smaller companies that have been hardest hit by lending curbs and slowing growth.

“The weak PMI figure may prompt the government to loosen policies going forward such as a cut in reserve-requirement ratios for small banks and that’ll be positive for stocks,” Liu Li-Gang, head of Greater China Economics at Australia & New Zealand Banking Group Ltd., said in an interview in Bloomberg’s Shanghai office. “China’s economy is poised for a soft landing in the fourth quarter rather than a hard landing.”

On Oct. 26, the government announced a trial of changes to value-added taxes, a move that HSBC Holdings Plc economist Qu Hongbin said heralds the “official start” of selective easing. The finance ministry yesterday raised the threshold for payment of VAT and business taxes.

Exports, Orders

The manufacturing index from the logistics federation and National Bureau of Statistics is based on a survey of purchasing managers in more than 820 companies in 20 industries. The gauge hasn’t fallen below 50, the level dividing expansion from contraction, since February 2009.

The gauge of new export orders declined to 48.6 from 50.9 the previous month. The new orders index fell to 50.5 from 51.3 in September, the lowest reading since February 2009. A measure of output dropped to 52.3 from 52.7 in September.

The data “indicate fourth-quarter economic growth will continue to slow,” Zhang Liqun, a senior researcher at the Development Research Center of the State Council, said in today’s statement. “Export and investment growth will continue to fall.”

China’s economy grew 10.4 percent in 2010 and 9.4 percent in the first nine months of this year.

Shipyard Orders Drop

Positive signs for policy makers include a decline in a measure of input prices to 46.2 in October from 56.6 the previous month, the first reading below 50 since March 2009.

The drop suggests cost pressures on companies are decreasing, although it may also signal destocking is increasing because of expectations prices will fall, Zhang said.

In a sign manufacturing growth is moderating, new orders placed at Chinese shipyards in the first nine months of the year dropped 42.8 percent, the Ministry of Industry and Information Technology said on its website on Oct. 20. Guangzhou Shipyard International Co. said last week its third-quarter net income dropped 45 percent from a year earlier due to higher costs and an impairment provision for shipbuilding contracts.(Bloomberg)

Taiwan GDP Rises Least in Two Years

Taiwan’s economy expanded at the slowest pace in two years last quarter as a faltering global recovery hurt exports, prompting the government to cut its growth outlook for this year and 2012.

Gross domestic product climbed 3.37 percent in the three months through September from a year earlier, after rising 5.02 percent in the second quarter, the statistics bureau said in a preliminary estimate in Taipei yesterday. The median of 13 forecasts in a Bloomberg News survey was for a 3.56 percent gain.

Europe’s debt crisis and elevated U.S. unemployment have sapped demand for Asian exports, contributing to an easing in economic growth in nations from China to South Korea. Taiwan’s central bank left interest rates unchanged in September, snapping a run of five straight quarterly increases, as emerging-market officials try to shield expansion.

“Taiwan’s economy slowed considerably with the latest round of global market turmoil in August,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. GDP performance this and next quarter may be “subpar,” and the central bank will probably leaving borrowing costs unchanged in December, he said.

The island’s benchmark Taiex stock index has slumped 15 percent so far in 2011 after investors pared bets on emerging markets. The Taiwan dollar has climbed about 1.2 percent against its U.S. counterpart over the same period, according to Taipei Forex Inc. The stock index rose 0.4 percent as of 10:17 a.m. local time today, while the local currency weakened 0.2 percent.

Contraction

The economy contracted 0.28 percent last quarter from the prior three months, shrinking for the first time since 2009.

The government lowered its 2011 GDP growth forecast to 4.56 percent from 4.81 percent, and cut its estimate for 2012 to 4.38 percent from 4.58 percent.

It predicted an inflation rate of 1.51 percent this year, less than an earlier projection of 1.59 percent. Consumer prices may rise 1.12 percent in 2012, the administration said, compared with an earlier forecast of 1.21 percent.

Exports, which are equivalent to about two-thirds of Taiwan’s $355 billion GDP, rose 11.6 percent in the third quarter from a year earlier, compared with a 14.6 percent pace in the three months through June.

The statistics bureau predicted 13.18 percent export growth this year compared with an earlier estimate of 15.24 percent. Overseas sales may climb 6.68 percent in 2012, it said, lowering a previous forecast of 8.52 percent.

Europe Crisis

Europe’s sovereign-debt turmoil is clouding the outlook for Asia as the Group of 20 readies for further crisis resolution talks at its Nov. 3-4 summit in France. The meeting takes place a week after euro-area authorities pledged to magnify the capacity of their rescue fund to 1 trillion euros ($1.4 trillion).

In Asia, South Korea’s economy expanded at a slower pace in the third quarter compared with the previous three months as companies cut spending. China, Taiwan’s largest trading partner and investment destination, grew 9.1 percent in the three months through September from a year earlier, the least since 2009.

Risks are prompting Asian officials to boost fiscal measures, cut interest rates or hold off on further monetary tightening.

Taiwan’s central bank has increased its key rate in five steps to 1.875 percent currently from 1.25 percent at the start of June 2010, partly to curb gains in property prices. Consumer- price inflation eased to 1.35 percent in September from 1.95 percent in June.

China Buffer

Signs of an improvement in manufacturing in China should help limit the dip in Taiwan’s economy, enabling the island’s monetary authority to leave rates unchanged in December rather than cut borrowing costs, according to HSBC Holdings Plc.

“Taiwan’s slowing, but the domestic economy’s still holding up,” Donna Kwok, an economist at HSBC in Hong Kong, wrote in a research note on Oct. 24. “With China’s manufacturing activity now stabilizing, the island should be able to lean a bit more heavily on mainland demand as it fends off the impact of U.S. and European” deleveraging, she said.

For now, exporters are taking steps to counter slowing demand. Hsinchu-based Taiwan Semiconductor Manufacturing Co., the island’s biggest company by market value, last week cut its 2011 spending budget for the second time this year after posting its biggest quarterly profit decline in two years.

Inventec Corp. said Oct. 27 it will fire about 400 workers after an earlier decision to shut tablet computer production. The Taipei-based PC maker said Oct. 6 the closure was triggered by “changes in the macro environment and external factors.”

Taiwan’s President Ma Ying-jeou, seeking re-election in January, has sought closer commercial ties with China to bolster growth. Ma would get 43.9 percent of the vote, compared with 38.4 percent for the opposition Democratic Progressive Party’s candidate Tsai Ing-wen, the Taipei-based China Times reported Oct. 25, citing its own poll.(Bloomberg)