By Andy Bruce - Reuter
LONDON (Reuters) - The world economy should expand steadily this year and next thanks mainly to prospering emerging powers, a Reuters poll showed, but fiscal troubles lurking in Europe and potentially the United States risk blowing this view apart.
The quarterly survey of more than 350 economists from all over the world showed a dimmer outlook for most of the rich-world Group of Seven economies since the last survey in April.
Only Germany, booming thanks to buoyant exports, is expected to post growth averaging more than 3 percent this year. Elsewhere, fiscal austerity in Europe and growing debt fears have soured analysts' sentiment.
By contrast, emerging powers like China have enjoyed near double-digit annual growth rates since the global recession -- but they face risks of their own, struggling to contain rampant inflation that has accompanied fervent growth.
Economists pointed to the fiscal crisis raging in the euro zone's peripheral countries and the political deadlock in the United States surrounding an increasingly urgent lift to the country's legal debt ceiling as the biggest risks to global economic growth.
"If the (euro zone) debt crisis is mishandled, it's a major threat. But it's a threat comparable to the mishandling of the U.S. sovereign debt crisis. It's six and two threes," said Willem Buiter, chief economist at Citi.
The poll showed the world economy expanding 4.1 percent this year and 4.3 percent next year, little changed from April's survey.
Buiter said that authorities in emerging markets are largely behind the curve in monetary policy, which could leave open the prospect that their boom could become a bubble and then a bust -- but not for a couple of years.
While economists cut their U.S. economic outlook compared with a poll published last month, they still see the United States performing better this year than struggling European peers like Britain, Italy and France.
They saw the U.S. economy growing an average 2.5 percent this year, before picking up to 3.0 percent next year -- comfortably in excess of the sub-2 percent growth rates seen for this year for Europe's G7 members, excluding Germany.
"It was the surge in oil and gasoline prices that hurt the (U.S.) economy the most in the first half, and now that they're down, that should take the weight off," said Mark Zandi, chief economist of Moody's Analytics.
The dimming U.S. outlook has had a knock-on effect for Canadian growth prospects this year, with economists applying a hefty downgrade to their quarterly growth profiles.
DEFAULT?
Still, the focus over the next few months will be averting sovereign defaults in both the euro zone and the United States. While the euro zone question is one of fundamental solvency, most notably in Greece, the U.S. problem is a political one.
Economists remain confident that U.S. lawmakers will reach a deal to raise the government's debt ceiling. All but two of 40 economists polled said a deal would be reached.
"They will squeak something out, but the odds of failure have increased," said Chris Lowe, chief economist for FTN Financial and one of the economists surveyed.
The poll was conducted from Friday to Wednesday and was completed before House Republican leader Eric Cantor said President Barack Obama walked out of a meeting on Wednesday evening, escalating concerns about the negotiations.
Lawmakers disagree over budget deficit reduction measures that are a condition for extending the legal $14.3 trillion borrowing limit -- needed so the U.S. government can fund its commitments next month.
In Europe, Greek Prime Minister George Papandreou said the euro zone and International Monetary Fund must quickly approve a bailout to avoid a collapse of Greece's economic reform plans.
While Germany has recently topped the European -- and G7 -- growth charts, peripheral strugglers like Greece, Ireland, Spain and Italy will drag hard on the euro zone's economic performance.
The 17-nation bloc's economy will probably grow just 0.4 percent per quarter from here until next April. That would be slower than the 0.8 percent rise seen in the first quarter of this year.
Economists in the poll also left their 2011 and 2012 growth forecasts unchanged at 2.0 and 1.7 percent, respectively. By contrast, the German GDP growth outlook for this year and next was 3.4 percent and 1.9 percent.
"Germany's growth will remain above average, by historic and euro zone standards, so long as the euro zone doesn't totally fall apart and leave just a core group of countries remaining," said Timo Klein, an economist at IHS Global Insight.
Unlike Germany, Britain's economy probably struggled to generate meaningful growth in the second quarter and its prospects ahead look likely to be jaded by fierce fiscal austerity measures and high inflation.
JAPAN RECOVERS
Japan's recovery from the March 11 earthquake and tsunami that killed at least 21,000 people looks likely to proceed at a faster pace than thought even last month, helped by a restoration of factory output.
Although Japan, the world's third-largest economy likely contracted for a third straight quarter in April-June, it is likely to emerge from recession this quarter as it shakes off supply constraints more quickly than expected, according to the poll of around 30 economists.
"Automakers are pushing forward production plans and companies are making efforts to limit the impact of summer power shortages on output," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.
"We expect factory output to normalize in July-September."
(Additional reporting by reporters in London, Toronto, Tokyo, New York, Berlin, Paris and Rome, Editing by Ross Finley, Anna Willard and Leslie Adler)
Monday, July 18, 2011
Friday, July 15, 2011
Why Wall Street doesn't seem worried about default
Juky 15, 2011
By BERNARD CONDON - AP Business Writers,MATTHEW CRAFT - AP Business Writers | AP – 1 hr 8 mins ago
....NEW YORK (AP) — The CEO of a big bank says a U.S. default could be catastrophic for the economy. The head of the Federal Reserve warns of chaos. And a credit rating agency threatens to take away the country's coveted triple-A status.
The response on Wall Street: So what?
In Washington, the fight over whether to raise the federal debt limit has grown uglier by the day. The White House says the limit must be raised by Aug. 2 or the government won't be able to pay its bills, possibly including U.S. bonds held around the world.
But as the deadline nears, stocks and bonds have barely flinched.
The Dow Jones industrial average fell just 54 points Thursday and stands about where it did at the start of the month. The yield on the 10-year Treasury bond, which usually rises when investors see it as a riskier bet, is considerably lower than earlier this year.
It may seem an odd, even reckless, reaction by investors. But it isn't completely crazy.
Take the ho-hum reaction from the bond market. In theory, investors in U.S. Treasury bonds should demand higher interest payments when there's a greater risk they won't get their money back — in this case, in the event of a default next month.
Instead, the yield on the 10-year Treasury note rose only slightly Thursday, to 2.95 percent. In February, when the U.S. economic recovery seemed stronger and the debt limit was a distant threat, it was 3.74 percent.
But in this market, as in the schoolyard, size wins. The U.S. has $14 trillion in outstanding Treasury bonds. That dwarfs government bonds of any other nation. U.S. debt is held more widely and traded more often than any other government's IOU.
That matters because pensions, private investment funds and central banks the world over want to know that they can buy and sell these holdings fast — what investors call liquidity. During the credit crisis of 2008, investors bought U.S. Treasurys because they were perceived as not only safe but liquid.
"It's very nice that Switzerland is a safe place," says Avi Tiomkin, a hedge fund consultant who holds Treasurys. "But if you're the Russian or Chinese central bank, it's just too small."
Steve Ricchiuto, chief economist at Mizuho Securities, points to another reason the markets are calm: The U.S. may seem a more dangerous place to park your money given its rising debt, but much of the rest of the world isn't faring well, either.
He notes that Europe is trying to contain a debt crisis. Yields on bonds of various countries there have gone up recently. "The U.S. is the best in a bad world," he says, so people have no choice but to invest here.
As for stocks, there's plenty of news — some very good — to distract investors from Washington's problems. U.S. companies are issuing their financial results for the latest quarter, and they're expected to post big profits — up 15 percent, according to a survey by data provider FactSet.
JPMorgan Chase reported profits up 13 percent Thursday, higher than analysts had expected. The stock rose sharply on the news. Earlier in the day, it was that bank's CEO, James Dimon, who warned that a failure by Congress to agree to raise the debt ceiling could mean "catastrophe."
On Wednesday, Moody's Investors Services warned it might take away the United States' top-notch credit rating if it missed even one interest payment on its bonds. In testimony before Congress on Thursday, Federal Reserve Chairman Ben Bernanke said a U.S. default could throw the financial system into "chaos."
The Dow Jones industrial average closed at 12,437, down 0.4 percent. The S&P 500 closed at 1,308, down 0.7 percent.
The United States hit its current $14.3 trillion debt ceiling in May. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.
A default would drive up the cost of government borrowing for years to come. That would translate into higher interest rates for everybody else, making it more expensive for corporations to finance spending projects and for Americans to take out mortgages or other loans.
The bigger fear is that a default could freeze the short-term lending markets that keep money moving throughout the global financial system. Treasurys and other government-backed debt are the most widely used collateral for loans in these markets.
A default and a downgrade of U.S. debt would lower the value of that collateral. Lenders might respond by forcing borrowers to sell other assets to post more collateral. The fallout could resemble what happened when Lehman Brothers collapsed in 2008.
The prospect of such terrible consequences may be exactly the reason investors aren't all that worried.
"There's just too much at stake politically and economically for a deal not to get done," says John Briggs, Treasury strategist at the Royal Bank of Scotland. "It seems hard to believe that any politician would want their name attached to a default of U.S. debt."
Many other investors are assuming the same thing. Tony Crescenzi, market strategist at money manager Pimco, says Wall Street has been expecting a deadline-beating deal since the debt-limit became a subject of debate earlier this year.
No one knows how close Washington can get to the deadline without triggering a sell-off. Sam Yake, a stock analyst at BGB Securities, is confident a deal will be struck. But he says that if enough investors start to worry, the fear could feed on itself.
"In financial markets, you're playing with people's confidence," he says. "If enough people start thinking it's a catastrophe, it could become so."
...
By BERNARD CONDON - AP Business Writers,MATTHEW CRAFT - AP Business Writers | AP – 1 hr 8 mins ago
....NEW YORK (AP) — The CEO of a big bank says a U.S. default could be catastrophic for the economy. The head of the Federal Reserve warns of chaos. And a credit rating agency threatens to take away the country's coveted triple-A status.
The response on Wall Street: So what?
In Washington, the fight over whether to raise the federal debt limit has grown uglier by the day. The White House says the limit must be raised by Aug. 2 or the government won't be able to pay its bills, possibly including U.S. bonds held around the world.
But as the deadline nears, stocks and bonds have barely flinched.
The Dow Jones industrial average fell just 54 points Thursday and stands about where it did at the start of the month. The yield on the 10-year Treasury bond, which usually rises when investors see it as a riskier bet, is considerably lower than earlier this year.
It may seem an odd, even reckless, reaction by investors. But it isn't completely crazy.
Take the ho-hum reaction from the bond market. In theory, investors in U.S. Treasury bonds should demand higher interest payments when there's a greater risk they won't get their money back — in this case, in the event of a default next month.
Instead, the yield on the 10-year Treasury note rose only slightly Thursday, to 2.95 percent. In February, when the U.S. economic recovery seemed stronger and the debt limit was a distant threat, it was 3.74 percent.
But in this market, as in the schoolyard, size wins. The U.S. has $14 trillion in outstanding Treasury bonds. That dwarfs government bonds of any other nation. U.S. debt is held more widely and traded more often than any other government's IOU.
That matters because pensions, private investment funds and central banks the world over want to know that they can buy and sell these holdings fast — what investors call liquidity. During the credit crisis of 2008, investors bought U.S. Treasurys because they were perceived as not only safe but liquid.
"It's very nice that Switzerland is a safe place," says Avi Tiomkin, a hedge fund consultant who holds Treasurys. "But if you're the Russian or Chinese central bank, it's just too small."
Steve Ricchiuto, chief economist at Mizuho Securities, points to another reason the markets are calm: The U.S. may seem a more dangerous place to park your money given its rising debt, but much of the rest of the world isn't faring well, either.
He notes that Europe is trying to contain a debt crisis. Yields on bonds of various countries there have gone up recently. "The U.S. is the best in a bad world," he says, so people have no choice but to invest here.
As for stocks, there's plenty of news — some very good — to distract investors from Washington's problems. U.S. companies are issuing their financial results for the latest quarter, and they're expected to post big profits — up 15 percent, according to a survey by data provider FactSet.
JPMorgan Chase reported profits up 13 percent Thursday, higher than analysts had expected. The stock rose sharply on the news. Earlier in the day, it was that bank's CEO, James Dimon, who warned that a failure by Congress to agree to raise the debt ceiling could mean "catastrophe."
On Wednesday, Moody's Investors Services warned it might take away the United States' top-notch credit rating if it missed even one interest payment on its bonds. In testimony before Congress on Thursday, Federal Reserve Chairman Ben Bernanke said a U.S. default could throw the financial system into "chaos."
The Dow Jones industrial average closed at 12,437, down 0.4 percent. The S&P 500 closed at 1,308, down 0.7 percent.
The United States hit its current $14.3 trillion debt ceiling in May. For a new debt ceiling to last to the end of 2012 would require raising it by about $2.4 trillion.
A default would drive up the cost of government borrowing for years to come. That would translate into higher interest rates for everybody else, making it more expensive for corporations to finance spending projects and for Americans to take out mortgages or other loans.
The bigger fear is that a default could freeze the short-term lending markets that keep money moving throughout the global financial system. Treasurys and other government-backed debt are the most widely used collateral for loans in these markets.
A default and a downgrade of U.S. debt would lower the value of that collateral. Lenders might respond by forcing borrowers to sell other assets to post more collateral. The fallout could resemble what happened when Lehman Brothers collapsed in 2008.
The prospect of such terrible consequences may be exactly the reason investors aren't all that worried.
"There's just too much at stake politically and economically for a deal not to get done," says John Briggs, Treasury strategist at the Royal Bank of Scotland. "It seems hard to believe that any politician would want their name attached to a default of U.S. debt."
Many other investors are assuming the same thing. Tony Crescenzi, market strategist at money manager Pimco, says Wall Street has been expecting a deadline-beating deal since the debt-limit became a subject of debate earlier this year.
No one knows how close Washington can get to the deadline without triggering a sell-off. Sam Yake, a stock analyst at BGB Securities, is confident a deal will be struck. But he says that if enough investors start to worry, the fear could feed on itself.
"In financial markets, you're playing with people's confidence," he says. "If enough people start thinking it's a catastrophe, it could become so."
...
Wednesday, July 13, 2011
Property trends – where are we heading to?
Jul 11, 2011
There have been many speculation (and subsequent refuting by various parties) of a property bubble. Year 2009 marked an economic slowdown due to the global financial crisis, while year 2010’s economic recovery was largely boosted by the government’s economic stimulus package.
Some attributed the astronomical price increases in hot areas to the suppressed demand of year 2009. In that year, it was common for developers to offer 5% downpayment and 0% interest until upon completion of a development. Similarly, banks offered attractive rates, where the interest rates were at approximately the high 3% or low 4%.
Escalating prices
2011 came and property investors had to rethink their investment strategies. Prices of properties have surpassed the levels recorded before the crisis and in the first half of 2010 itself, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30%. Bank Negara Malaysia (BNM), in its “Financial Stability and Payment Systems Report 2010”, stated that house prices in selected locations within and surrounding urban areas had increased to four times higher than the national house price index.
BNM has been staying on the pulse of the market’s movements and implemented a loan to value ratio of 70% for third mortgage borrowers. However, crafty property buyers have resorted to using their spouse or relatives’ names when applying for loans. Some have opted to take the commercial route, as the required downpayment is at an average of 80% (as opposed to 70% if the buyer has more than two residential properties currently). Plus, the capital gains and rental yield are relatively higher than residential properties. Hence, some buyers have changed their strategy by investing in commercial properties.
Proceed with caution
In early May 2011, BNM raised the overnight policy rate (OPR) by 25 basis points to 3% and increased the statutory reserve requirement (SRR) by one percentage point to 3%, and as such, banks have raised their base lending rates (BLR) and base financing rates (BFR) by 30 basis points to 6.60% respectively. Banks that offer BLR minus 2%, means that effective interest rates are still below 5%.
However, property investors should look at the slight rate hike with caution. It is imperative that property buyers make decisions based on repayment capability, and also factor in expected rental yields.
New developments continues to mushroom especially in the Klang Valley and Greater Kuala Lumpur and reports have indicated that investors are still very much active, with investors snapping up units during property launches, despite the price increase. Analysts have indicated that it is still too early to measure the impact of current regulations.
Property Investment Convention 2011 (PIC 2011)
If current property trends and regulations are at the top of your mind, join the Property Investment Convention where current topics of interest will be analysed and shared by various speakers.
The convention will mainly be about movement in the property market, the current and future trends based on the MRT, how to purchase as regulations change, how to tweak your strategies in view of the changing regulations, managing your portfolio, diversifying into REITS, and many more.
The speakers include:
- Best-selling author and property investment coach, Milan Doshi
- Location researcher and map maker, Ho Chin Soon
- The master of lead generator and co-author of the first ‘Lease Options’ book in the UK, Vincent Wong
- International property investment trainer and co-founder of Wealth Dragon in the UK, John Lee
The Property Investment Convention is scheduled to be held on 6 and 7 August 2011 at The Gardens Ballroom, Mid Valley City. Register now at www.wealthmasteryacademy.com/starpic.
There have been many speculation (and subsequent refuting by various parties) of a property bubble. Year 2009 marked an economic slowdown due to the global financial crisis, while year 2010’s economic recovery was largely boosted by the government’s economic stimulus package.
Some attributed the astronomical price increases in hot areas to the suppressed demand of year 2009. In that year, it was common for developers to offer 5% downpayment and 0% interest until upon completion of a development. Similarly, banks offered attractive rates, where the interest rates were at approximately the high 3% or low 4%.
Escalating prices
2011 came and property investors had to rethink their investment strategies. Prices of properties have surpassed the levels recorded before the crisis and in the first half of 2010 itself, prices of landed houses in some popular areas in the Klang Valley, Penang and Johor have appreciated by 10% to 30%. Bank Negara Malaysia (BNM), in its “Financial Stability and Payment Systems Report 2010”, stated that house prices in selected locations within and surrounding urban areas had increased to four times higher than the national house price index.
BNM has been staying on the pulse of the market’s movements and implemented a loan to value ratio of 70% for third mortgage borrowers. However, crafty property buyers have resorted to using their spouse or relatives’ names when applying for loans. Some have opted to take the commercial route, as the required downpayment is at an average of 80% (as opposed to 70% if the buyer has more than two residential properties currently). Plus, the capital gains and rental yield are relatively higher than residential properties. Hence, some buyers have changed their strategy by investing in commercial properties.
Proceed with caution
In early May 2011, BNM raised the overnight policy rate (OPR) by 25 basis points to 3% and increased the statutory reserve requirement (SRR) by one percentage point to 3%, and as such, banks have raised their base lending rates (BLR) and base financing rates (BFR) by 30 basis points to 6.60% respectively. Banks that offer BLR minus 2%, means that effective interest rates are still below 5%.
However, property investors should look at the slight rate hike with caution. It is imperative that property buyers make decisions based on repayment capability, and also factor in expected rental yields.
New developments continues to mushroom especially in the Klang Valley and Greater Kuala Lumpur and reports have indicated that investors are still very much active, with investors snapping up units during property launches, despite the price increase. Analysts have indicated that it is still too early to measure the impact of current regulations.
Property Investment Convention 2011 (PIC 2011)
If current property trends and regulations are at the top of your mind, join the Property Investment Convention where current topics of interest will be analysed and shared by various speakers.
The convention will mainly be about movement in the property market, the current and future trends based on the MRT, how to purchase as regulations change, how to tweak your strategies in view of the changing regulations, managing your portfolio, diversifying into REITS, and many more.
The speakers include:
- Best-selling author and property investment coach, Milan Doshi
- Location researcher and map maker, Ho Chin Soon
- The master of lead generator and co-author of the first ‘Lease Options’ book in the UK, Vincent Wong
- International property investment trainer and co-founder of Wealth Dragon in the UK, John Lee
The Property Investment Convention is scheduled to be held on 6 and 7 August 2011 at The Gardens Ballroom, Mid Valley City. Register now at www.wealthmasteryacademy.com/starpic.
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