March 18, 2019

Canadian Steps In to Lead Bank of England

It was Mark J. Carney, who was then the more or less anonymous head of Canada’s central bank. An increasingly influential, if not discreet, troubleshooter on global financial matters, Mr. Carney had become an active participant at Downing Street’s crisis huddles in late 2008. He argued that giant entities like Royal Bank of Scotland posed a danger not only to their home country but the financial system as a whole.

Mr. Carney’s advice was to consider the institutions those banks were borrowing from and lending to, recalled Alistair Darling, who was the British chancellor of the Exchequer, or finance minister, at the time. “It gave us a bigger picture that the supervisory authorities did not have at the time,” Mr. Darling said.

Britain would later become the first major country to inject capital directly into its ailing banks. And while full credit for the decision goes to Mr. Darling and the prime minister at the time, Gordon Brown, Mr. Carney played a crucial role.

On Monday, Mr. Carney, 48, will no longer be an adviser but the man in charge. He is to step into the Bank of England’s palatial home on Threadneedle Street to take on one of the biggest roles in the future of Britain’s economy and banking sector.

Mr. Carney, who is Canadian, is succeeding Mervyn A. King as the governor of the Bank of England and is hailed as the first non-British governor in the bank’s 319-year history. But as Mr. Carney prepares to take on his new role some question if the task at hand may be beyond him, or any central banker, for that matter.

Sluggish demand for goods from the troubled euro zone, Britain’s largest export market, is keeping many companies from investing in new machinery or hiring staff. And the austerity measures prescribed by the current chancellor, George Osborne — which are likely to continue through 2018, much longer than initially planned — have squeezed disposable income as consumer prices keep rising. At the beginning of the year, Britain barely avoided a triple-dip recession.

“We’re not exporting enough and not consuming enough, and monetary policy alone can’t fix that,” said Robert Wood, an economist at Berenberg Bank. “Mr. Carney has been built up as Superman, but clearly there’s no way he can live up to the hype,” Mr. Wood said. “He can’t single-handedly rescue the economy.”

Mr. Carney declined an interview request.

Young and dynamic — he was a goalie on Harvard University’s varsity hockey team — Mr. Carney brings with him attributes not usually found among the dowdy breed of central bankers. While Mr. King once said his ambition was for monetary policy to be boring, Mr. Carney has been overheard using phrases like “monetary activism” and “escape velocity.”

An ability to make himself seem indispensable lies at the root of Mr. Carney’s extraordinary rise, accomplished in just under 10 years, from a position as a midlevel investment banker at Goldman Sachs to the top of the Bank of England.

It was not until March 2008, when Mr. Carney became the first central banker to aggressively lower interest rates in his country, that his current reputation as the Superman of central bankers began to take form. He then pledged to keep rates low for a year — at 0.25 percent — providing some certainty to borrowers in the chaos of the financial crisis.

For Mr. Osborne, it was that combination of style and substance that made Mr. Carney “simply the best, most experienced and most qualified person in the world” to lead the Bank of England. So eager was Mr. Osborne to hire Mr. Carney, who has a doctorate from the University of Oxford, that he chased him across continents to ask him more than once and to promise by far the highest pay package of any central banker in the world — £480,000, or $730,000, in salary, plus a generous housing allowance.

Under Mr. King, the Bank of England injected money into the economy by buying £375 billion in assets, mainly government bonds. To get banks to lend again, the central bank started to offer cheap credit to banks, but that stimulus move had little result. Mr. King, arguing that more needs to be done to revive growth, has been voting for more asset purchases on the monetary policy committee but has been outvoted every month since February.

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Toyota Profit Increases Sharply

Toyota, the world’s largest automaker by sales in 2012, on Wednesday reported a net profit of ¥962.1 billion, or about $9.7 billion, for the most recent fiscal year, compared with ¥283.5 billion the previous year. Sales came to ¥22 trillion yen, up 18.7 percent. For the January-March quarter, Toyota’s net profit came to ¥313.9 billion, compared to ¥121 billion yen in the same quarter last year.

The automaker, based in Toyota City, Japan, said that it expected net profit for the current fiscal year through March 2014 to rise further, to ¥1.37 trillion. A company-wide cost reduction drive, as well as strong sales — especially in the United States, its biggest export market — would continue to drive its profit rebound, Toyota said.

The yen, which has weakened by almost 30 percent since September, has also given Toyota’s profit a major bump, driving up the value of its overseas earnings in the home currency and making Japan-based production more cost-efficient. For every yen the Japanese currency loses in value against the dollar, Toyota estimates that its operating profit rises by about ¥35 billion yen.

Still, the showing, Toyota’s strongest in five years, offered the latest evidence that the Toyota City-based automaker may finally be shaking off the effects of some of the biggest crises of its 75-year history.

“What an amazing turnaround for Toyota, which started last year after a couple of years of a roller-coaster ride dealing with numerous recalls and the Japanese earthquake,” Alec Gutierrez, a senior analyst at Kelley Blue Book, said in an e-mail. “It’s been a wild ride for Toyota but we’re seeing the fruits of its labor,” he said.

Mr. Gutierrez said that Toyota faced tough competition from familiar competitors like Honda and Nissan in the United States as well as renewed competition from Detroit and Korean automakers, and that gaining market share would be more difficult. But the launch later this year of a completely redesigned version of Toyota’s Corolla, its best-selling compact car, could help bolster sales, while the declining yen would continue to shore up its profitability, he


Toyota had just started to regroup from a historic collapse in sales due to the global financial crisis when reports of unintended acceleration prompted recalls involving almost 10 million vehicles — a scandal that dealt a heavy blow to the company’s sales and reputation in the United States, its biggest export market.

In early 2011, Japan’s auto parts makers suffered great damage from the earthquake and tsunami that ravaged the country’s northeast coast, forcing Toyota to slash production while it scrambled to meet shortages of components. Fears of an electricity shortfall following the Fukushima nuclear crisis added to Toyota’s problems. Later that year, widespread flooding in Thailand paralyzed manufacturing in the Southeast Asian nation, further disrupting Toyota’s global supply chain.

All the while, a strong yen ate into Toyota’s profits, eroding the value of its overseas earnings and making its factories in Japan painfully expensive to maintain. President Akio Toyoda, who took helm of the company in 2009, often spoke of the multiple woes facing Japanese exporters, including the strong yen, energy shortages and other high costs of doing business in Japan.

He also quipped at times that he was not Toyota’s chief executive as much as the company’s chief apologizer for blunders, mishaps and overall sluggish business.

Still, Toyota’s series of setbacks has in many ways made it a leaner, stronger company. To better shield itself from currency fluctuations, Toyota has shifted more production from high-cost Japan to its overseas markets: in 2012, it made almost 20 percent fewer cars in Japan than in 2007, and Mr. Toyoda has said that the weaker yen will not alter that strategy.

Last month, even as the yen weakened, Toyota announced that it would spend $360 million to expand a factory in Georgetown, Kentucky, to bring production of its Lexus luxury sedans to the United States for the first time.

The company has also started to source more of its parts locally in the countries where it manufactures, a move aimed at making its supply chains more resilient to natural disasters and other disruptions. To make up for lost share in the United States, Toyota has started to use bolder designs to woo younger drivers, and has offered higher discounts in a bid to win back market share.

At a press conference in Tokyo on Wednesday, Mr. Toyoda reflected on the company’s recent trials. “We have faced many challenges since 2009 but have learned valuable lessons, including the need for Toyota to maintain sustainable growth,” he said.

Despite its rebound, Toyota’s latest earnings remain far below the heights of the year that ended March 2008, when net profit hit ¥1.7 trillion on record sales of ¥26 trillion. American consumers riding out the last of the credit boom had helped spur global sales to a record 9.37 million cars in 2007. Toyota finally topped that record in 2012, with global sales of 9.75 million cars.

In the contemplative, measured tones that have become Mr. Toyoda’s signature, the chief executive struck a cautious note.

“Have we really turned into a company that will be profitable and continue to grow no matter what happens to its business environment?” Mr. Toyoda asked.

“I am not sure yet, is my honest answer. An unprecedented crisis even beyond the scale of the Lehman Shock may happen again,” he said, using a common Japanese reference to the global economic crisis. “We’ll only know the answer when such events actually happen.”

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Bank of England Stands Pat

LONDON — The Bank of England kept its benchmark interest rate unchanged on Thursday amid concern that the British economy fell back into recession at the beginning of the year.

The central bank decided to leave its interest rate at the record low of 0.5 percent, where it has been since March 2009. It also held its program of economic stimulus at £375 billion, or about $568 billion.

The governor of the Bank of England, Mervyn A. King, has been pushing this year for more fiscal stimulus to help the economy grow, but has been overruled by other members of the central bank’s interest rate setting committee. Mr. King is to be succeeded in three months by Mark J. Carney, the governor of the Bank of Canada.

The concern is that more stimulus would weigh on the pound, which in turn would fan inflation that is already running at an annual rate of 2.8 percent, above the central bank’s target of 2 percent.

Disappointing manufacturing data, apprehensive consumers and concern about the effects of the crisis in Cyprus mean that many economists still expect the Bank of England to expand its bond-purchasing program this year.

“The economy is going nowhere,” said Vicky Redwood, an economist at Capital Economics in London. “There’s essentially no growth.”

Data released in three weeks is to show whether Britain fell back into a recession in the first quarter, which would be the third recession for the economy in five years. Consumers have curbed spending as the government’s austerity measures, which include spending cuts and tax increases, raise fears that unemployment will increase. Higher costs for electricity during an unusually long winter have further squeezed households.

Many companies are reluctant to spend while bank loans are difficult to come by and while the outlook for demand — especially from the euro zone, Britain’s largest export market — is difficult to predict.

George Osborne, the chancellor of the Exchequer, warned last month when he updated Parliament on the state of the economy that “another bout of economic storms in the euro zone would hit Britain’s economic fortunes hard again.”

In March, the Office for Budget Responsibility halved its forecast for British economic growth to 0.6 percent this year from a previous forecast of 1.2 percent. Growth is expected to rise to 1.8 percent next year, compared with a previous estimate of 2 percent, the office said.

Cold weather was partly to blame for a contraction in the construction industry in March, the fifth consecutive month of declining activity, according to Markit Economics. Disposable income fell 0.1 percent in the fourth quarter from the previous three months, the Office for National Statistics said last month.

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Chinese Economic Growth Slipped Again in 4th Quarter

BEIJING — China’s economy slowed further in the fourth quarter of 2011, the government reported, lowering the growth in gross domestic product for the year to 9.2 percent, from 10.4 percent in 2010.

The gross domestic product grew at an annual rate of 8.9 percent in the last three months of the year, down from 9.1 percent in the third quarter of last year. It was the slowest pace since the second quarter of 2009, when the rate was 7.9 percent.

Economists had forecast that the rate of growth could drop to as little as 8.5 percent for the quarter as a slowing global economy cooled demand for Chinese products and the government’s inflation-fighting measures clamped down on domestic expansion.

Industrial production increased 12.8 percent in December compared with the same period a year earlier, the national Statistics Bureau stated. A Bloomberg survey of economists had predicted a 12.3 percent increase, which would have been the smallest in more than two years.

“It all looks pretty robust, I have to say,” Arthur Kroeber, the managing director of Dragonomics, an analytics firm in Beijing, said by telephone. “Export growth has been slowing and we’ll expect that to continue because Europe is just dreadful, and that’s China’s best export market. But even with those kinds of negative factors in the mix, the basic structure of the economy is still O.K.

“Things are slowing. But they’re not falling off a cliff.”

That said, he and most other analysts said that they expected a sharper deceleration in 2012, in part because of the bleak outlook for exports and the scant indication so far that Chinese leaders are making a serious effort to shift their economy from its export base to one driven by domestic consumption.

Improving domestic demand is crucial to stable economic growth, Jing Ulrich, the chairman of China global markets at JPMorgan Chase, said in a report issued on Tuesday.

“The government appears more inclined to support the economy by boosting wages and enacting tax reductions,” the report said. “There is considerable scope to support domestic demand by boosting income growth, and by reducing the tax burden for both companies and individuals.” 

Mr. Kroeber said his firm believed that annual growth in 2012 could cool to as little as 8 percent.

Chinese regulators have alternated in the last year between pumping up the economy and deflating it. External factors like the European debt crisis kept export demand unpredictable, and domestic influences like China’s red-hot property markets balked at attempts to control them.

The government finally began to cool property prices in the second half of 2011 after sharply curbing lending to prospective homebuyers and forcing banks to set aside more money in reserve. But at year’s end, regulators began to reverse course, lowering bank reserve requirements to stimulate lending after exports began to sag.

Their challenge in the next year is to stimulate the economy enough to maintain stable growth without worsening some of the problems that began to appear when G.D.P. was barreling ahead in 2010 and early 2011, said Alistair Thornton of IHS Global Insight in Beijing.

In particular, he said, encouraging more lending by the state-controlled banking sector — one of the government’s principal economic levers — risks a further buildup of local government debt, which some say is already at worrisome levels, and reigniting inflation, a serious worry in mid-2011.

More lending also could reinflate the property market that many say already was becoming a bubble before the government sharply reduced lending last year.

The figures released Tuesday show that fixed-asset investment in real estate, a key measure of the property market, dropped sharply in December. But even so, investment rose at a torrid 27.9 percent rate for the last 12 months.

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Europeans Claim Partial Victory in Appeal of Airbus-Boeing Case

PARIS — A World Trade Organization appeals panel has overturned a key part of the 2010 ruling that found Airbus benefited from billions of dollars in illegal subsidies, European officials said Wednesday.

The panel’s decision, which was to be released publicly later Wednesday, states that loans from European governments to build the A380 superjumbo jet were not prohibited under global trade rules, according to officials who had seen it.

“The U.S. central claim that Airbus received prohibited export subsidies has been dismissed in its entirety,” Karel De Gucht, the European Union’s trade commissioner, said in a statement. “I am particularly pleased with this important result.”

Mr. De Gucht acknowledged that the trade body had upheld other parts of the earlier decision, including that government support to Airbus had caused its American rival, Boeing, to lose aircraft sales. He insisted, however, that the economic impact of those subsidies was “very limited” and said Brussels would now study the report “to determine the next steps in this dispute.”

The U.S. Trade Representative in Washington was to brief reporters later Wednesday.

But the latest ruling appeared to upend what the Americans had considered the one of the most crucial parts of the landmark case: Namely, that loans Airbus received from Germany, Spain and Britain for the A380 were prohibited because governments expected a significant export market for the twin-deck planes when they granted the support. The United States had hoped to get the loans — known as “launch aid” — banned by the global trade body and to force Airbus to either repay or refinance the loans on ordinary commercial terms.

The W.T.O. defines two broad categories of subsidies: those that are “prohibited” and those that are “actionable” — that is, subject to legal challenge or to countervailing measures such as punitive tariffs. Prohibited subsidies are those which are specifically designed to promote exports or to encourage production using domestically made components. Under W.T.O. rules, any prohibited subsidy must be withdrawn within 90 days of the adoption — by all 153 member states — of a dispute panel’s findings.

Actionable subsidies, meanwhile, are not prohibited per se, but they can be challenged if the complaining country shows that the subsidy caused material injury — a loss of jobs, profit or production capacity — or “adverse effects” to its industry, such as a loss of export market share or sales.

Boeing has contended that the subsidies helped Airbus vault past it in 2003 to become the world’s largest plane maker.

Under the current terms of the government loans, Airbus makes its repayments as its planes are delivered to customers. Airbus has delivered 43 of 244 orders for the A380. The vast majority of those sales have been to non-European customers.

“This is a big win for Europe,” Thomas Enders, the Airbus chief executive, said in a statement. “It is good to see that the WTO has fully green lighted the public-private partnership instruments with France, Germany, Spain and the UK. We now can and will continue this kind of partnership on future development programs.”

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