Australian Economic Growth Accelerates, Points to Rate Increase

Australia’s economic growth unexpectedly accelerated in the second quarter, driving the nation’s currency higher on expectations the central bank will raise borrowing costs from a half-century low.

Gross domestic product rose 0.6 percent, the biggest gain in more than a year, from the previous three months when it grew 0.4 percent, the Bureau of Statistics said in Sydney today. The median estimateof 20 economists surveyed by Bloomberg News was for a 0.2 percent expansion.

Today’s report confirms central bank Governor Glenn Stevens’ view that the economy has been “stronger than expected” as A$20 billion ($16.6 billion) of government cash handouts boosted spending at retailers such as Woolworths Ltd. and Harvey Norman Holdings Ltd. Australia joins other developed nations, including France and Germany, that are rebounding from the deepest global recession since the Great Depression.

“Australia clearly is in a sweet spot, one that we expect to extend through to year end,” saidGlenn Maguire, chief Asia- Pacific economist at Societe Generale in Hong Kong. The Reserve Bank will raise interest rates by a quarter-percentage point in November, he added.

The Australian dollar rose 83.04 U.S. cents at 12:38 p.m. in Sydney from 82.73 cents just before the report was released. The two-year government bond yield gained 7 basis points to 4.39 percent. A basis point is 0.01 percentage point. The benchmark S&P/ASX 200 index has climbed 41 percent since March 6.

Government Stimulus

Governor Stevens and his board left the overnight cash rate target at a 49-year low of 3 percent yesterday for a fifth month as the economy strengthens. GDP may expand further in coming quarters as the government spends A$22 billion on roads, railways and schools.

Traders forecast the central bank’s overnight cash rate target will be 175 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:35 p.m. in Sydney.

Consumer spending jumped 0.8 percent in the second quarter, the largest gain since the three months through December 2007, adding 0.5 percentage points to GDP.

The economy grew 0.6 percent from a year earlier, twice the pace forecast by economists, today’s report showed.

Analysts had cut their growth forecast in the past two days after reports showed a widening current account deficit in the second quarter and a record drop in business inventories.

Global Rebound

Government stimulus also helped lift Germany out it its worst recession since World War II, a report showed on Aug. 25. Europe’s largest economy grew 0.3 percent from the first quarter, after four quarters of contraction. France’s economy, the second-biggest in the euro region, unexpectedly exited a year- long recession, gaining by the same amount as Germany.

By contrast, the U.K.’s economy shrank 5.5 percent in the second quarter, the most since records began in 1955, and U.S. GDP dropped 1 percent.

Today’s report showed engineering construction jumped 5.2 percent in the second quarter. The government last month approved Chevron Corp.’s A$50 billion liquefied natural gas venture, which will leapfrog Australia to second place behind Qatar as the world’s biggest LNG producers.

The Reserve Bank scrapped its forecast last month for the economy to contract this year, instead predicting gross domestic product will expand 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.

Retail Profits

Reports this week showed building approvals rose for a second month in July and manufacturing expanded in August for the first time in 14 months. Consumer and business confidence have also surged to the highest levels in almost two years.

Woolworths Ltd., Australia’s largest retailer, said last week that profit in the six months ended June 28 jumped 16 percent.

“The troubles are probably behind us now and things are looking a lot better,” Gerry Harvey, chairman of Australia’s biggest electronics seller, Harvey Norman, said on Aug. 28. “Consumer sentiment is much higher than it was six months ago and there’s no reason to believe that won’t continue.”

Harvey Norman’s earnings in Australia, where it gets three quarters of its revenue, rose 4 percent in the year ended June 30.

“The stimulus is helping Australia defy global economic gravity,” Treasurer Wayne Swantold reporters in Canberra today. “Without economic stimulus, our economy would have contracted.” The government would start withdrawing its stimulus from the fourth quarter, he said.

The chain price index, a measure of retail prices, declined 2.2 percent in the second quarter from the previous three months, today’s report showed.

-Source: Bloomberg-

U.S. Economy: GDP Contracts 1% as Recovery Approaches

The U.S. economy took a first step toward recovering from the worst recession since the 1930s in the second quarter as companies reduced inventories, spending started to climb and profits grew.

Gross domestic product shrank at a 1 percent annual rate from April to June, less than the 1.5 percent decline projected by economists in a Bloomberg News survey, a Commerce Department report showed today in Washington. Corporate earnings rose by the most in four years, the department also said.

Government programs, including the “cash-for-clunkers” and first-time homebuyer incentives, are boosting manufacturing and housing, indicating the gain in sales that began last quarter will be sustained in the second half of the year. Another report showed unemployment may jeopardize the strength of the economic rebound.

“We’re on a pretty decent recovery path,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “There was a better mix last quarter with almost every major component of final demand being revised up and inventories being revised down. That puts us in a pretty decent position going into the third quarter.”

Stocks rose, propelled by a late rally in commodities. The Standard & Poor’s 500 Index rose 0.3 percent to close at 1,030.98. Treasury securities fell as stocks climbed, pushing up the yield on the benchmark 10-year note to 3.46 percent at 5:12 p.m. in New York from 3.44 percent late yesterday.

BNM kekalkan OPR pada 2 peratus

Bank Negara Malaysia (BNM), pada mesyuarat Jawatankuasa Dasar Monetarinya (MPC) hari ini, memutuskan untuk mengekalkan Kadar Dasar Semalaman (OPR) tidak berubah pada 2.00 peratus.

“Sejak mesyuarat MPC yang lalu, ekonomi global telah menunjukkan tanda penstabilan dan keadaan dalam pasaran kewangan antarabangsa pada amnya bertambah baik,” kata BNM dalam satu kenyataan di sini.

Sungguh pun keadaan ekonomi di negara maju masih lagi lembap, BNM berkata, kadar kemerosotan aktiviti ekonomi semakin perlahan.

“Tanda-tanda juga menunjukkan aktiviti ekonomi di kebanyakan ekonomi serantau bertambah baik,” kata BNM.

BNM berkata, langkah untuk menstabilkan sistem kewangan di negara maju dan kesan terkumpul rangsangan fiskal dan monetari terus menyumbang kepada peningkatan secara beransur-ansur dalam aktiviti ekonomi di kebanyakan negara.

“Tanda penstabilan juga ditunjukkan pada suku kedua, dengan beberapa petunjuk seperti indeks pengeluaran perindustrian dan pemberhentian pekerja telah mencatatkan penurunan yang lebih perlahan,” katanya.

Pada masa hadapan, BNM berkata, keadaan pasaran pekerja dan sentimen perniagaan dan pengguna yang lebih baik akan menyokong permintaan dalam negeri.

Selain itu, pelaksanaan rangsangan fiskal yang lebih pesat, akses kepada pembiayaan yang berterusan dan kadar inflasi yang lebih rendah juga akan menyumbang kepada peningkatan ekonomi dalam negeri pada separuh kedua 2009 hingga ke tahun 2010, katanya.

“Seperti yang dijangkakan, inflasi terus menjadi sederhana dan bertukar menjadi negatif pada bulan Jun.”

“Penurunan inflasi sebahagian besarnya disebabkan oleh kesan statistik yang mencerminkan kenaikan inflasi pada Jun 2008, apabila harga bahan api meningkat berikutan pengurangan dalam subsidi bahan api.”

BNM berkata, inflasi yang negatif dijangka hanya untuk sementara waktu dan akan bertukar menjadi positif apabila keadaan ekonomi dalam negeri bertambah baik.

“Berdasarkan penilaian yang dibuat, dengan kadar faedah semasa yang rendah dan rangsangan fiskal yang mula memberikan kesan, langkah dasar yang sedang dilaksanakan adalah memadai untuk memberikan sokongan kepada aktiviti ekonomi.” 

-Utusan Malaysia-

MIER: 2009 GDP to shrink 4.2pc, economy needs RM8b more

Malaysia may need another RM8 billion to fight recession in its economy that the Malaysian Institute of Economic Research (MIER) says will shrink 4.2 per cent this year.

The government has already put in RM67 billion in two stimulus packages of cash and guarantees to defend the economy that Prime Minister Datuk Seri Najib Razak said will contract between 4 and 5 per cent in 2009.

MIER executive director Professor Emeritus Datuk Dr Mohamed Ariff said the economy needs pure government spending of RM30 billion or 4 per cent of GDP but the combined stimulus packages only had about RM22 billion for that while the rest was “padding that doesn’t mean much”.

“We need more government spending to make a critical impact. There may be a case for another RM8 billion in pure government spending,” Ariff told reporters at MIER’s national economic briefing.

He said recent reforms by the prime minister aimed at opening up the economy were a good beginning but the full impact would only be felt when the economy recovers.

“Our forecasts are not really impacted by these long-term measures,” he said.

MIER had revised Malaysia’s 2009 growth forecast downwards from -2.2 per cent previously to -4.2 per cent, and expects negative growth for the second and third quarters and a slight growth in the fourth quarter.

It also revised its growth forecast for 2010 to 2.8 per cent from 3.3 per cent previously.

Several MIER surveys however indicate that business and consumer confidence had improved in the second quarter of the year, possibly influenced by government measures to support the economy.

The Business Conditions Index (BCI) and Consumer Sentiments Index (CSI) passed the 100 points threshold that separates an expansion from a contraction, said MIER.

The BCI gained 44.1 points to 105.2 in the second quarter, indicating that business confidence has regained strength. The CSI rose 26.9 points to 105.8 in the second quarter.

Ariff said Malaysia remains one of the stronger economies in the region with sound fundamentals but that the crisis, while easing, is still ongoing.

“Jobs statistics in countries like the US and South Korea are not encouraging. We’re not out of the woods yet,” said Ariff.

 

Source: Malaysia Insider

Dollar Falls, Set for Weekly Loss Against Euro, on Yield Demand

 

The dollar fell, heading for its biggest weekly loss against the euro in a month, as Asian stocks rose for a third day and on speculation the Federal Reserve will keep interest rates low.

The dollar weakened against 11 of the 16 most-traded currencies as Dallas Fed President Richard Fisher may elaborate on the central bank’s statement this week that the benchmark rate will stay at “exceptionally low levels” for an extended period. Japan’s currency slid for a fourth day against the Australian dollar as commodity prices gained, spurring demand for the South Pacific nation’s assets. New Zealand’s dollar fell after the government said its economy shrank at a faster pace.

“Gains in stocks are pumping capital into markets,” said Masaki Fukui, a senior market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender by assets. “The recent risk aversion strengthened the dollar as a refuge, but as risk appetite rebounds, higher- yielding currencies seem to be benefiting.”

The dollar declined to $1.4043 per euro as of 12:30 p.m. in Tokyo from $1.3988 yesterday in New York, extending its loss this week to 0.8 percent. The yen fell to 134.66 per euro from 134.22. The U.S. currency traded at 95.89 yen from 95.95 yen.

Australia’s dollar rose 0.5 percent to 80.61 U.S. cents, and climbed 0.4 percent to 77.30 yen. Against the dollar, the pound advanced 0.4 percent to $1.6437.

Indonesia’s rupiah led Asian currencies higher against the greenback, strengthening 1.2 percent to 10,155 per dollar, as regional equities gained. The Nikkei 225 Stock Average rose 0.2 percent, climbing a third day, and the MSCI Asia-Pacific Index of regional shares advanced 0.9 percent.

Commodity Prices Gain

Gold gained for a fourth day, adding 0.3 percent, and crude oil rose 0.3 percent. Gold is Australia’s third-most valuable raw material export, and crude oil is its fourth.

“We had a strong performance in commodity prices,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “Equities also performed very well, which is very supportive of investors’ sentiment generally” to seek higher- yielding currencies.

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia, making the South Pacific nation’s assets more attractive.

The U.S. central bank held the target rate for overnight lending between banks in a range of zero to 0.25 percent for a fourth consecutive meeting on June 24. The Fed’s Fisher will speak at noon in Dallas.

Summer Bonuses

The yen headed for a weekly decline against the euro as signs the global recession is waning increased speculation that Japanese employees will use their summer bonuses to buy higher- yielding assets abroad.

Finance companies in Japan are looking to raise 520 billion yen ($5.4 billion) for mutual funds focused on foreign assets this week, according to data compiled by Bloomberg.

“Risk-taking appetite among investors is improving,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-biggest bank. “The bias is to sell the yen.”

Large companies in Japan will pay this month an average of 754,009 yen in summer bonuses, according to data from the Japan Business Federation. Japanese firms pay bonuses twice a year.

The Ministry of Finance in Tokyo reported yesterday Japanese investors bought 336.1 billion yen more in foreign bonds, stocks and short-term securities than they sold in the week ended June 20.

The yen lost 0.4 percent against the euro this week, extending its loss this quarter to 2.7 percent.

New Zealand’s dollar weakened 0.2 percent to 64.41 U.S. cents after the statistics bureau said gross domestic product declined 1 percent in the first quarter. That exceeded the median estimate for a 0.7 percent contraction in a Bloomberg News survey of 11 economists.

“This is the fifth negative quarter and the second quarter is also on track for a drop so the green shoots in the New Zealand economy are fragile,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Data like this does support Reserve Bank of New Zealand Governor Alan Bollard’s warning that benchmark rates may still come down and will remain low for some time.”

-Bloomberg-