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Economic Outlook: Conflicting Signals for End of One-Way Policy Traffic

June 9, 2013 by Leave a Comment

LONDON — Financial markets have become convinced in the past two weeks that two years of one-way policy traffic from the developed world’s central banks is coming to an end.

The difficulty, on the evidence of the last few days, is the mass of conflicting signals on how shaky things still are, or how much better they will get — and as a result, getting from here to actual changes in policy will probably take months.

Since the euro zone’s sovereign debt crisis administered another jolt to the global economy three years ago, central bank decisions on more monetary easing have not so much been a question of if, but when. The same has largely gone for a fragile U.S. recovery.

That is not the case in 2013, even if global growth looks likely to disappoint again this year.

Faced with fewer immediate threats but still under pressure to nurse the world economy back to more convincing health, central bankers have been grasping at a disparate and volatile set of economic indicators for a guide on policy.

“That’s a fairly difficult challenge at the best of times, and we’re hardly in the best of times,” said Craig Wright, chief economist at Royal Bank of Canada in Toronto.

Data from the United States last week summed up the problem.

Depending on the indicator, there was a case for the Federal Reserve maintaining support for the economy by pressing on with its $85 billion-a-month bond purchase program for a long time, or scaling it back soon.

U.S. manufacturing activity unexpectedly fell to the lowest level in four years, economists said — a sign that the Fed will refrain from winding down its program anytime soon.

On the other hand, the news Friday that U.S. employers had stepped up hiring was interpreted as a sign of economic resilience, suggesting that the Fed could begin to scale back its stimulus this year.

The Fed’s officials are split, too, meaning it could be months until a consensus emerges. But most economists expect a scaling back of bond purchases by the end of the year, and a sizeable number expect reduced buying as early as September. Of course, central bankers have to take into account developments in economies other than their own, and the economic data from the rest of the world has been similarly volatile.

“The indicators are mixed across the globe, some countries look a little more convincing than others. I’d put the U.S. and Canada as looking like a recovery is taking hold,” said Mr. Wright, contrasting that with a situation in Britain and the euro zone that “is still hit and miss.”

While a fairly quiet week for economic data lies ahead, central bankers and top officials from the World Bank, the Organization for Economic Cooperation and Development and the Asian Development Bank are expected to give their views on the world economy Monday at the 2013 Conference of Montreal.

For Europe and Japan, the question is whether more still needs to be done.

Early doubts about the effectiveness of a growth strategy outlined by Prime Minister Shinzo Abe of Japan, dubbed Abenomics, pushed Japanese stocks to two-month lows Friday after their worst week in two years.

This week will provide a better idea of whether that was a blip in the aftermath of the Bank of Japan’s announcement of $1.4 trillion in monetary stimulus, or a sign that it might not be enough to right the Japanese economy.

“Recent weakness in the market represents a little bit of a disappointment for Abenomics,” said Kenji Shiomura, an analyst at Daiwa Securities.

“But it would be too extreme to say that hopes for Abenomics have faded completely because the biggest impact Abenomics gave the market was monetary easing, and it is still continuing.”

Perhaps the biggest worry for Japanese officials is the yen’s spike to its strongest in two months against the dollar. While the government showed little concern about the Friday surge, the calm response masks a lack of solid policy options should the yen strengthen further and stamp on the country’s ability to export.

European policy makers, like their U.S. counterparts, have had a hodgepodge of numbers to deal with.

Economic confidence figures have surprised on the upside in the euro zone over the last month, but harder data like business surveys still point to a dearth of demand. And like the Fed, the lack of a clear guide for the economy means the European Central Bank is sitting on the fence when it comes to the question of stimulus.

“There was a common assessment that the changes that have taken place are not sufficiently one-directional as to grant action now,” the E.C.B. president, Mario Draghi, said after leaving policy unchanged last Thursday.

Britain has been leading the way in Europe of late, according to the latest business surveys. But like the United States, there is little certainty about whether Britain will keep up the momentum.

“I think when you look at turning points in the cycle, which is hopefully where we are in Europe, you do get these mixed signals. And that’s what we’re seeing,” said Mr. Wright.

Article source: http://www.nytimes.com/2013/06/10/business/global/10iht-econ10.html?partner=rss&emc=rss

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Gains for a 4th Week in a Row, and Milestones, Too

May 17, 2013 by Leave a Comment

Stocks continued their climb into uncharted territory on Friday, racking up the fourth week in a row of gains as encouraging economic data prompted investors to buy shares of growth companies.

The Dow Jones industrial average and the Standard Poor’s 500-stock index finished at highs, driven by gains in energy and industrial shares. The indexes have pushed to a series of high levels as part of the rally that has lifted equities more than 16 percent for the year so far.

The Dow Jones industrial average gained 121.18 points, or 0.80 percent, to close at a milestone 15,354.40. The S. P. 500-stock index rose 17 points, or 1.03 percent, to end at a record 1,667.42.

The Nasdaq composite index climbed 33.73 points, or 0.97 percent, to finish at 3,498.97 — its highest close since October 2000.

In a sign of how far the market has come, the S. P. 500 is about 1,000 points above the low it hit in March 2009 in the wake of the credit crisis and recession.

“It’s hard to hold this market down,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Conn.

Data released on Friday showed Americans felt better about their economic and financial prospects in early May, with consumer sentiment at its highest in nearly six years, while a gauge of future economic activity rose in April to a near five-year high.

“If you believe the economy is going to gradually get better and that global growth will improve, the parts of the market that have not benefited so far, like cyclicals, will probably be the next group to outperform,” Mr. Sheldon said. Cyclical industries are those that do well when times are good, like an airline that benefits from more people flying on vacation.

The SP energy sector index gained 0.8 percent, with Exxon Mobil up 1.2 percent at $91.76.

Boeing shares led the S. P. 500’s industrial sector index higher with a 2.4 percent advance to $98.92, its highest since October 2007. The S. P. industrial index rose 1.4 percent.

The rate of growth in the economy has been expected to slow in the second quarter as tighter fiscal policy started to take effect. But recent improvements, including in the labor market and retail sales, suggest the recovery remains resilient.

“We are still recovering,” said Doreen Mogavero, chief of Mogavero, Lee Company in New York, who also noted that the comeback was slow. She added that markets in the United States, for all their troubles, were “still the best place to be at this moment.”

Earlier in Friday’s session, the Dow touched a high at 15,357.40. For the week, the Dow advanced 1.7 percent, while the S. P. 500 climbed 2.1 percent and the Nasdaq rose 1.9 percent.

J. P. Morgan raised its year-end target for the S. P. 500 to 1,715 from 1,580, implying a gain of just under 3.5 percent for the index for the rest of the year.

“We realize investors are apprehensive about making fresh money purchases, but we see the risk/reward as particularly attractive in technology, health care and financials,” said the client note from Thomas Lee, J. P. Morgan’s United States equity strategist.

J. C. Penney shares lost 4.2 percent to $18.01 after the retailer reported another steep quarterly loss on weak sales and heavy clearance deals, and the chief executive, Myron Ullman, cautioned that he needed time to fix the company’s problems.

Tableau Software, a maker of data analysis software, surged in its first day of trading as investors bet the rising interest in Big Data would drive its growth. Tableau surged 64 percent to $50.75.

The price of the benchmark 10-year Treasury note fell 22/32 to 98 5/32, increasing the yield to 1.95, from 1.88 on Thursday.

Article source: http://www.nytimes.com/2013/05/18/business/daily-stock-market-activity.html?partner=rss&emc=rss

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I.M.F. Forecasts Modest Global Economic Growth, at Best

January 23, 2013 by Leave a Comment

The fund cautioned, however, that growth was hardly expected to snap back to precrisis levels in the coming years. Over all, the fund expects global growth of 3.5 percent in 2013 and 4.1 percent in 2014, up from 3.2 percent in 2012. In the years just before the global downturn, annual economic growth ranged from 4.5 to 5.5 percent.

“If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected,” the Washington-based fund said in its economic report. “However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks.”

The fund issued a routine update to the projections it makes in its twice-yearly World Economic Outlook report. This time, it whittled down many of the forecasts for 2013 that it had made in October, knocking 0.1 percentage point from its United States growth forecast, 0.3 percentage point from the euro area and 0.4 percentage point from the newly industrialized Asian economies, like Singapore and South Korea.

Still, the International Monetary Fund noted that financial stresses and the risk of a major policy shock in Europe and the United States have decreased. “Optimism is in the air,” said Olivier Blanchard, the fund’s chief economist, at a news conference. “Some cautious optimism may indeed be justified,” he added. “We may have avoided the cliffs, but we still face high mountains.”

The fund said it downgraded its estimate of European growth from October despite “progress in national adjustment and a strengthened European Union-wide policy response to the euro area crisis.” It said that there might be “delays” as lower sovereign bond yields and reduced financial stress eventually translated into improved private sector borrowing conditions. It added that uncertainty about the ultimate resolution of the long-simmering European debt crisis remained high.

Mr. Blanchard said that policy challenges “clearly” remained highest in certain European countries struggling with large debt burdens and slow-growing economies. He said business competitiveness and exports had improved recently, but high interest rates, pressure for budget cuts and uncertainty continued to depress growth.

Slow growth in advanced economies, including the United States, Germany and Japan, will continue to weigh on growth in emerging economies, the fund said.

Mr. Blanchard noted that financial markets had become considerably more sanguine over the last year. The European Central Bank started a major new bond-buying program and the United States avoided the worst of the so-called fiscal cliff package of tax increases and budget cuts. He said that could be a sign that the financial markets were experiencing some kind of “bubble” but also said that investors could be “seeing things which are truly good.” Ultimately, with less financial stress, the real economy should pick up, thus explaining the market optimism, he said.

In terms of policy advice, Mr. Blanchard said that his “main message” would be that “financial market optimism should not lead to policy complacency.”

For Washington, the “priority is to avoid excessive fiscal consolidation in the short term, promptly raise the debt ceiling and agree on a credible medium-term consolidation plan,” the fund’s economists said. Christine Lagarde, the fund’s managing director, and other officials have repeatedly warned politicians in Washington not to embark on too stringent an austerity program, for the good of the world economy as well as the United States.

At the news conference, Thomas Helbling of the fund’s research division said that the United States faced a “long-term” fiscal problem, with much of the policy challenge resting in bringing down health care spending over time. He said that the challenge seemed “doable,” and stressed that other countries faced far more wrenching adjustments.

This month, the fund’s sister institution, the World Bank, released a rosier economic analysis. It foresees global growth of just 2.4 percent in 2013. But it said that emerging economies could worry less about downside risks from advanced economies and start focusing on domestic economic issues, like labor market or regulatory reforms.

Article source: http://www.nytimes.com/2013/01/24/business/economy/imf-forecast-global-economic-growth-modest-at-best.html?partner=rss&emc=rss

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U.N. Agency Warns of Rising Unemployment

January 21, 2013 by Leave a Comment

PARIS — More than 197 million people worldwide are jobless, and an additional 39 million have simply given up looking for work, a United Nations agency said on Monday, warning that government budget-balancing was hurting employment and would probably lead to more job losses soon.

With global growth stalling five years after the financial crisis upended much of the world economy, the number of jobless is expected to rise by 5.1 million this year, to more than 202 million, the International Labor Organization said in a special report. And it predicted there would be a further three million newly jobless people next year.

High unemployment rates in the developed world — 7.8 percent in the United States, 11.8 percent in the euro zone — weigh on demand and hold back economic growth. Global gross domestic product will probably expand about 3.6 percent this year, the International Monetary Fund said in October, below its previous forecast.

Addressing the issue of unemployment last Thursday, the I.M.F.’s managing director, Christine Lagarde, urged governments to focus on “growth that can actually deliver jobs.”

“We stopped the collapse,” Ms. Lagarde said during a news conference in Washington, warning about the risks to growth posed by complacency in Europe and difficult budget negotiations in the United States. “We should avoid the relapse, and it’s not time to relax.”

The International Labor Organization found that macroeconomic imbalances “have been passed on to the labor market to a significant degree.” With aggregate demand weakening, employment “has been further hit by fiscal austerity programs in a number of countries, which often involved direct cutbacks in employment and wages, directly impacting labor markets.”

More troubling, it said, was that while governments had sought to counter the effects of the financial crisis with fiscal stimulus, later austerity measures in some countries appeared to be reinforcing the downturn.

The effects of the recession in Europe are being felt elsewhere through “a spillover effect,” the organization found, mostly through the mechanism of reduced demand for foreign goods, but also in the form of volatile capital inflows in places like Latin America and the Caribbean. These forces have left policy makers with difficult choices about how to keep soaring currencies in check without strangling economic growth.

The agency said that it was common for the rate of job creation to be slow after a financial crisis, but that there had been “a short-lived respite” for developed countries beginning in 2010. That period has now ended, and once again “further job restructuring is likely before a stronger rebound can be expected in labor markets.”

More people were simply leaving the job market altogether, particularly in the developed world, with labor force participation rates falling “dramatically,” it said, “masking the true extent of the jobs crisis.”

The ratio of employment-to-population ratio has fallen as much as four percentage points or more in some areas, it noted, and even where jobless rates have eased, the participation rate “has not yet recovered.”

The labor organization also spotlighted youth unemployment, noting that there were 73.8 million young people unemployed worldwide. It estimated that an additional half million would join the ranks of the jobless this year. The youth unemployment rate, now 12.6 percent, will probably rise to 12.9 percent by 2017, the agency said.

“The crisis has dramatically diminished the labor market prospects for young people,” the agency said, “as many experience long-term unemployment right from the start of their labor market entry, a situation that was never observed during earlier cyclical downturns.”

The agency said employment tapered off in 2011 before turning negative in 2012, with four million people added to global unemployment rolls last year.

But even countries in which jobless rates have not risen “often have experienced a worsening in job quality,” the organization said.

Article source: http://www.nytimes.com/2013/01/22/business/global/un-agency-warns-of-rising-unemployment.html?partner=rss&emc=rss

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Inflation Cooling Off in China

December 9, 2011 by Leave a Comment

HONG KONG — Inflation and industrial activity in China cooled markedly in November, according to data released Friday — an important development that raises the likelihood that the authorities in Beijing will seek to inject more momentum into an economy that has become a key engine of global growth.

Consumer price inflation, which had topped 6 percent earlier in the year, sagged to just 4.2 percent in November, the Chinese statistics office reported. The increase was less than analysts had expected and marked a significant improvement from the 5.5 percent reading recorded the previous month.

At the same time, industrial output data, also released on Friday, showed that activity in November expanded just 12.4 percent from a year earlier. That reading was weaker than the 13.2 percent annual increase recorded in October, and highlighted a development that has become apparent in recent months: economic growth, which was red hot in 2010 and early 2011, has moderated significantly this year.

The positive news is that tighter bank lending, higher interest rates, curbs on property speculation and slowing export growth have also helped to ease inflation, which soared well above Beijing’s comfort level over the summer.

Better-than-expected harvests also have helped bring down food price inflation, which is a particularly sensitive issue in a country where many millions still struggle to make ends meet.

Although it may still be too early for China to claim complete victory over inflation, the sharp drop in inflation “does free up some wiggle room for monetary easing,” Xianfang Ren and Alistair Thornton, economists at IHS Global Insight in Beijing, wrote in a note Friday.

The Chinese authorities’ focus has increasingly shifted from fighting inflation to bolstering growth, especially as Europe, a key destination for Chinese-made goods, is mired in a debt crisis that has badly undermined growth prospects there.

The central bank in South Korea on Friday underscored the effect that a slowdown in the West will have across Asia when it lowered its 2012 growth forecast for South Korea to 3.7 percent, from an earlier projection of 4.6 percent.

And in Japan, revised gross domestic product data showed that the economy grew by less than initially expected during the past quarter: 5.6 percent annual growth from a previous estimate of 6 percent, and 1.4 percent quarterly growth from the previous estimate of 1.5 percent.

The worsening environment has already prompted several rate cuts in the Asia-Pacific region as policy makers race to shore up their economies.

The first significant policy response by Beijing came last week, when the central bank loosened the reins on bank lending by lowering the so-called reserve requirement ratio. Lower reserve requirements effectively free up more lending by banks.

The inflation data on Friday suggested that there will be another cut in the reserve requirement ratio in December, economists at ANZ in Hong Kong said in a note. “We also expect two more such cuts in the first half of 2012,” they said.

The government also “has considerable scope to support domestic demand by boosting income growth and by reducing the tax burden for both companies and individuals,” Jing Ulrich, chairwoman of global markets at JPMorgan Chase, wrote in a note on Friday.

Unlike in 2008 and 2009, when the Beijing introduced a 4 trillion renminbi, or $629 billion, stimulus package, the government’s response this time is likely to be “nuanced,” Ms. Ulrich said.

Article source: http://feeds.nytimes.com/click.phdo?i=b9b1b2823aa8627f1941771d8be12113

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Chinese Factory Index’s Decline Sends Asian Stocks Lower

November 23, 2011 by Leave a Comment

HONG KONG — A closely watched gauge of manufacturing activity in China slumped to its lowest level since March 2009, sending Asian stocks lower on Wednesday and highlighting how the turmoil in Europe and feeble growth in the United States are taking their toll on the giant Chinese economy.

The November purchasing managers’ index, released by HSBC, dropped to 48 this month, from 51 in October — a surprisingly steep decline that is likely to fan worries about the damaging spillover of the West’s problems into Asia, whose emerging economies are now one of the main engines of global growth.

Readings below 50 indicate contraction, and although the HSBC index has dipped below that level on several occasions this year, it had so far held up relatively well.

The sharp drop in November takes the reading to a level not seen since early 2009, when global economic activity was still reeling from the fallout of the global credit crunch after the collapse of Lehman Brothers.

Stock markets fell further in the Asia-Pacific region on Wednesday after the release of the index. The Kospi in South Korea closed 2.4 percent lower, and the Taiex in Taiwan tumbled 2.8 percent. The Shanghai composite index slipped 0.7 percent.

In Hong Kong, the Hang Seng index was down 2 percent in late afternoon trading. Japan was closed for a national holiday.

In Australia, whose commodity sector is heavily dependent on demand from China, the S..P./ASX 200 fell 2 percent. The Australian dollar also dropped after the HSBC index was released, last trading at $0.9775.

The euro edged down to $1.3468 from $1.3505 in New York trading.

European stock futures indicated that markets there would see losses at the open.

Persistently slow growth in the United States and Europe have undermined demand for Asian-made goods and prompted a steady fall in exports from the region. Although intra-Asian demand is helping to offset the decline from the West, exports to the United States and Europe remain a key driver of economic activity in many Asian nations.

Industrial output growth is likely to slow further in China in the coming months as both domestic and external demand cool, Qu Hongbin, chief economist for China at HSBC in Hong Kong, commented in a statement accompanying the index.

On the upside, inflation has slowed more rapidly than expected in China, leaving policy makers in Beijing with more room to take steps to support growth. This, Mr. Qu said, “should gradually filter through to keep China on track for a soft landing.”

Dariusz Kowalczyk of Crédit Agricole CIB said, “While the data should be interpreted cautiously because it has short history, and is not highly correlated with actual industrial output, it does point to significant deterioration of manufacturing sentiment and suggests the possibility of contraction in output.”

Economists are now expecting Beijing to loosen the reins on bank lending once again, and some even expect a cut in interest rates in coming months. Such steps would reverse some of the tightening undertaken over the past year, as Beijing strove to slow down growth and contain the inflation pressures that accompanied it.

The manufacturing index released by HSBC on Wednesday is a preliminary reading derived from a survey of the Chinese manufacturing sector in November, with a final reading published in about a week. The official government manufacturing survey also will be released next week.

Article source: http://feeds.nytimes.com/click.phdo?i=533b8ae55db7840f04a3e2ce2f35ed6f

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Citing Weak Global Growth, FedEx Cuts Its Profit Outlook

September 23, 2011 by Leave a Comment

Frederick W. Smith, the chief executive, said he did not expect economic conditions to improve much any time soon, although he did not expect the United States to dip back into recession.

“We expect sluggish economic growth will continue, largely due to a lack of confidence that U.S. and European policy makers will effectively address current economic challenges,” Mr. Smith said in a conference call to discuss quarterly results.

With inventories low, FedEx expects to benefit if there is an uptick in demand in the run-up to the holiday shopping season and retailers need fast delivery. Much is also riding on robust online orders. But for now, things remain subdued.

The sheer volume of goods moved by FedEx makes its shipment trends a bellwether for consumer demand and economic growth. The value of packages handled by FedEx’s trucks and planes every year is equivalent to about 4 percent of United States gross domestic product and 1.5 percent of global G.D.P.

The company so far has had little resistance to rate increases, the latest of which went into effect this month.

FedEx reiterated its $4.2 billion capital expenditure plan for the year ending next May. The company is considering buying about 50 wide-body freighters from Boeing and Airbus to update its fleet to more fuel-efficient models.

FedEx said fiscal first-quarter profit, which slightly beat forecasts, rose to $464 million, or $1.46 a share, from $380 million, or $1.20 a share, in the period a year ago. Analysts, on average, had expected a profit of $1.45 a share, according to Thomson Reuters.

The company cut its forecast for earnings for the year to May 2012 to $6.25 to $6.75 a share from its June estimate of $6.35 to $6.85.

Revenue rose 11 percent, to $10.52 billion, from $9.46 billion a year earlier. That was above the average forecast of $10.32 billion.

Shares of FedEx fell $5.92, or 8.2 percent, to $66.58..

With the stock down about 30 percent this year, FedEx said it planned to buy back 5.7 million shares under its existing repurchase authorization.

Article source: http://feeds.nytimes.com/click.phdo?i=1ff0b6af1ac5ab0e1d075bb795e9d3e4

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Stock Markets in Asia Resume Their Slide

September 6, 2011 by Leave a Comment

Dismal U.S. jobs data on Friday and fresh worries about Europe’s ability to deal with the debt crisis engulfing some of the euro zone states prompted investors once again to dump stocks and flee into assets deemed safer, like gold and U.S. Treasuries

On Monday, in Germany, the Dax index plummeted 5.3 percent, the FTSE 100 in Britain lost 3.6 percent, and several Asian stock markets fell well over 2 percent.

Stock markets in the Asia-Pacific region continued to sink Tuesday, though less dramatically.

By midmorning, the Nikkei 225 index was 1.2 percent lower, while the benchmark indexes in Singapore, Hong Kong and South Korea lost 0.9 percent.

The Taiex in Taiwan and the S. P./ASX 200 in Australia were down 1.1 percent, and in mainland China, the Shanghai composite index slipped 0.4 percent.

“Key economic data continues to disappoint as global business sentiment surveys weakened further and the U.S. employment report printed well below market expectations,” analysts at Barclays Capital said in a research note.

“Increasing concerns over global growth appear to have halted the brief rally in risk assets in the last week of August,” they said, adding that investors are likely to remain edgy, and financial markets volatile, over the next few weeks.

U.S. markets had taken a major battering on Friday, with falls of more than 2 percent, after data showed the U.S. economy had added no jobs in August.

Futures on the Standard Poor’s 500 index were 2.3 percent lower in early Asian trading on Tuesday, indicating that the market is likely to sag again when Wall Street reopens. The U.S. market was closed for Labor Day on Monday.

U.S. Treasuries jumped, pushing the yield on the 10-year Treasuries to 1.92 percent, a record low, according to Bloomberg News.

Gold was trading at just under $1,900 an ounce, not far off a nominal record high of just over $1,913, hit late last month. The precious metal is seen as a haven in times of uncertainty, and its sharp ascent in recent weeks has reflected the global nervousness that has built up this year.

Article source: http://www.nytimes.com/2011/09/07/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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Draghi Receives Warm Welcome in Germany

May 26, 2011 by Leave a Comment

Invited by the economy council of the governing Christian Democratic Union party, Mr. Draghi warned at an economics conference about the perils of inflation as the world recovered from the global financial crisis.

His remarks won repeated applause from nearly 1,000 audience members, most of them company executives who have been critical of Chancellor Angela Merkel’s economic policies.

Mr. Draghi, governor of the Italian central bank, was nominated this month at a meeting of euro zone finance ministers to succeed Jean-Claude Trichet as European Central Bank president in October, when Mr. Trichet’s term ends. Mr. Draghi will need to be endorsed by European Union leaders, but that is considered a formality.

His candidacy has been the subject of strident commentary in the German news media, which has asserted that a banker from a south European country would be unsuited for a job that demanded fiscal and monetary discipline.

Even Mrs. Merkel, who was one of the government leaders in the euro zone countries to withhold support from Mr. Draghi at the early stages of his candidacy, only recently spoke out in favor of him.

Mr. Draghi’s advisers said it was not certain that he and Mrs. Merkel would meet because of scheduling conflicts. Mr. Draghi was to return to Italy late Wednesday afternoon. Mrs. Merkel, in Paris for meetings at the Organization for Economic Cooperation and Development, was to return to Berlin on Wednesday night to address the same conference.

During his 20-minute keynote address, Mr. Draghi said the recovery of the world economy was continuing, with overall gross domestic product expected to expand 4.4 percent this year, and 6.5 percent in emerging countries.

“However, the crisis is not over,” he warned. “While global growth has been gathering robustness, it is very uneven.”

Turning to the euro zone countries, Mr. Draghi said it was crucial in a monetary union that each member country satisfy three conditions: price stability, fiscal discipline and national economic policies conducive to growth.

The first condition “was and is ensured by the E.C.B,” Mr. Draghi said, “but in some countries, we do not have the second and the third. The primary responsibility for a response to a lack of confidence must be national.”

Underscoring the interdependence of euro zone countries, he noted that the sovereign debt crisis of three countries — which he did not name — whose combined gross domestic product amounted to about 6 percent of the total euro zone G.D.P. held “the potential to have a big systemic impact.”

In a specific reference to German industrialists, he said that, “with the notable exception of Germany,” economic growth “remains feeble in the advanced countries, too slow to help redress seriously weakened fiscal balances and unemployment rates.”

In emerging countries, Mr. Draghi said, “there are signs of overheating, with large capital inflows carrying a heightened potential for disruption. Commodity and oil prices have been under heavy upward pressure.”

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Inflation in China Poses Big Threat to Global Trade

April 18, 2011 by Leave a Comment

The latest sign that things were moving too fast came on Sunday, when China’s central bank ordered the biggest banks to set aside more cash reserves.

The move essentially reduces the amount of money available for loans, and is an attempt to cool down the economy. It follows the government announcement on Friday that China’s economy was growing at an annual rate of 9.7 percent, by far the strongest performance by any of the world’s biggest economies.

Because China is now the world’s second largest economy, after the United States, and because the country has been a leading source of global growth during the last two years, money problems here can reverberate from Wal-Mart to Wall Street and the world beyond.

High inflation endangers China’s status as the low-cost workshop for the world. And if the government’s efforts to fight inflation cause the economy to stumble, that will cloud the outlook for international businesses — whether multinationals like General Electric or copper miners in Chile — that have been counting on China for growth.

Inside China, inflation also poses a threat to social stability, a particular worry for Beijing, especially since authoritarian governments in North Africa and the Middle East have become the focus of popular uprisings.

“China’s inflation is a big concern, and actual numbers are worse than officially reported,” said Carmen M. Reinhart, an economist at the Peterson Institute for International Economics in Washington.

She says Beijing is engaged in an economic tug of war, trying to encourage sustainable growth while struggling to control inflation.

Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years. Hoping to tame inflation, in the last six months Beijing has tightened restrictions on bank lending and raised interest rates on loans (to discourage borrowing) and deposits (to encourage savings).

The decision on Sunday to raise the capital reserve ratio for banks, to 20.5 percent of their cash, was the fourth such increase this year.

The government has also increased agricultural subsidies to curb food prices, and tried to forbid some Chinese companies from raising consumer prices. These efforts stand in contrast to those in the United States, where inflation is low (the underlying annual inflation rate was 1.2 percent last month) and where the debate centers on how much to stimulate the economy given the size of the deficit. Inflation is also running low in Europe, where some countries are imposing harsh austerity measures to pare their budget gaps.

But analysts say the results of this economic management have been mixed. Growth has begun to moderate from its torrid pace of about 10 percent annual growth but inflation has become worse.

For example, housing prices continue to climb even though Beijing has long promised to curb the property market and to spend billions of dollars over the next few years on affordable housing.

The average apartment in central Shanghai now costs more than $500,000. Even in second-tier cities like Chengdu, in central China, the price of a typical home costs about 25 times the average annual income of residents.

Analysts say too much of the country’s growth continues to be tied to inflationary spending on real estate development and government investment in roads, railways and other multibillion-dollar infrastructure projects.

In the first quarter of 2011, fixed asset investment — a broad measure of building activity — jumped 25 percent from the period a year earlier, and real estate investment soared 37 percent, the government said on Friday.

Some of the inflationary factors, like global commodity and food prices, may be beyond Beijing’s ability to influence. Gasoline prices have also jumped sharply, in line with global oil prices. As the world’s largest car market, China’s demand for fuel is soaring, and gasoline prices are close to $4.50 a gallon, up from $3.82 a gallon in late 2009.

Rising food prices, meanwhile, are showing up in various ways — including higher prices at fast-food chains, like Master Kong, which in January raised the price of its popular instant noodles by about 10 percent.

China’s current supercharged boom began in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $586 billion stimulus package and record lending by state-run banks.

The loose monetary policy, and big investments in local government projects, did revive economic growth. But even at the time there were already concerns about soaring property prices, undisciplined bank lending and the huge debts being amassed by local governments.

Xu Yan contributed research from Shanghai.

Article source: http://feeds.nytimes.com/click.phdo?i=ddb197fa4c17622dc5e97d0909cec48f

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