Fed study puts ideal US interest rate at -5%
By Krishna Guha in Washington

Published: April 27 2009 03:06 | Last updated: April 27 2009 03:06

The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve’s last policy meeting.

The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation.

A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to an interest rate of minus 5 per cent.

Fed staff separately estimated what size and type of unconventional operations, including asset purchases, might provide this level of stimulus. They suggested that the Fed should expand its asset purchases by even more than the $1,150bn (€885bn, £788bn) increase policymakers authorised at the last meeting, which included $300bn of Treasury purchases.

The assessment that the US central bank needs to provide stimulus equivalent to a substantially negative interest rate is unlikely to have changed ahead of this week’s policy meeting.

The Fed is not likely to embark on any substantial new programmes at this meeting, in large part because it will not have downgraded its economic forecasts since the last meeting. Indeed, Fed officials may see the risks to the economy as a little more balanced than they were in March, though policymakers probably still see these risks as overall weighted to the downside.

This could set the stage for a more detailed discussion of the framework that will ultimately govern the Fed’s exit strategy.

There is, though, a small but intriguing possibility that the Fed could follow the Bank of Canada in setting out an explicit timeframe over which it expects to keep short-term rates at virtually zero.

While this novel strategy is likely to at least provoke debate within the US central bank, which has shown itself willing to adopt measures first deployed elsewhere, many policymakers would probably be wary of adopting the Canadian approach, following their own unsatisfactory experience in providing guidance on interest rates after the dotcom bubble burst.

Others may feel the Canadian approach would be ineffective as it may not be seen as credibly binding the central bank’s future decisions.

Still, many Fed officials expect they may well keep rates near zero for another 18 months to two years and some might see value in making this more explicit.

Ben Bernanke, chairman, sees the massive expansion of bank reserves caused by the Fed’s unconventional operations as already providing a way to assure the market that the Fed will not be in a position to raise rates for quite some time to come.

The last meeting saw the Fed buy long-term treasuries for the first time in decades. The large initial impact of the move on markets is no longer visible, but officials think the policy was reasonably successful.

Previous staff analysis suggested the $300bn purchase would reduce the yield on 10-year treasuries by 25-35 basis points, and officials think the rate today is about this much lower than it would have been if they had not started buying.

Further purchases are possible, particularly if the Fed again downgrades its economic forecasts. The staff analysis comparing unconventional operations to interest rate cuts suggests more might be needed anyway.

However, policymakers are likely to watch how financial conditions respond to the already-authorised interventions before deciding whether to step up much further.
Copyright The Financial Times Limited 2009

Borrowing costs hit fresh low
By Aline van Duyn in New York

Published: April 27 2009 20:02 | Last updated: April 27 2009 20:02

The cost of borrowing for the riskiest companies has fallen to its lowest level in more than six months and prompted a surge in new debt issues, increasing hopes that the worst stage of the financial crisis may be over.

The ability of a growing number of companies – including those seen as having a higher risk of default and whose debt is classified as “junk” or “high yield” – to raise money signals an increased willingness by investors to lend money.

EDITOR’S CHOICE
‘Fallen angels’ total highest since 1997 - Apr-16High-yield bonds feel thaw - Apr-27US plan raises the pressure on junk bonds - Apr-02For many months, private investors have shied away from lending money to risky companies and banks amid concerns that financial markets might again revert to crisis mode and that the value of investments would fall sharply.

But in recent weeks the stabilisation of parts of the banking sector, following huge injections of government funds, has allowed parts of the capital markets to thaw.

Companies with high credit ratings and low risks of default have been able to borrow in the debt markets for most of this year, but riskier companies have only returned in recent weeks.

The rally in the equity markets has been further fuelled by this development, as access to funding is an important factor in potential future growth.

The amount of new debt borrowed in the US junk bond market has risen to more than $7bn so far in April, its highest level since July last year, according to Dealogic data. However, analysts said the improvements did not yet signal a complete turnround in the credit markets, which will still be affected by the economic environment and the probable further deterioration in economic fundamentals.

Default rates are also expected to keep rising for much of 2009.

“Economic growth is still deeply negative, which translates into very negative cash flows,” said analysts at Goldman Sachs.

“And despite improvements in the high-yield, new-issue market on the back of this rally, funding prospects remain very challenging,” the Goldman Sachs analysts continued.

Specifically, it remains very difficult for the riskiest companies – those whose credit ratings signal a very high chance of default – to borrow money from investors.

Until there is a shift in the ability of these companies to raise money needed to avoid defaulting on their debts, or to complete debt exchanges which can be vital for their survival, it is too early for the credit markets to be given the “all clear”.

“The ability for more levered credits in high yield to access the markets will be a clear signal that credit rationing has waned,” said Greg Peters, global head of fixed income research. “While we have seen a meaningful rally in the lower quality credits, there are clear signs of credit differentiation that we expect to persist.”
Copyright The Financial Times Limited 2009

IMF and World Bank meetings

Springing into action
Apr 25th 2009
From Economist.com

Finance ministers gather for unusually significant spring meetings of the World Bank and IMF


LESS than a month after leaders of the biggest economies met in London, the action shifts this weekend to Washington, DC, where many finance ministers and central bank governors attend joint meetings of the World Bank and the IMF. These gatherings occur twice a year (in the spring and autumn) but this one probably matters more than most.
경제장관들이 자주 만나고 있다.

The global economic crisis has helped to give more relevance to the institutions—in particular the IMF—after many years of decline. The G20 meeting boosted the IMF, promising it an extra $500 billion in cash and the permission to print $250 billion-worth of its quasi-currency, the SDR. Another $100 billion of lending to developing and emerging countries (battered by the speedy exit of foreign capital after years of capital inflows) is supposed to come from the multilateral banks, led by the World Bank.
경제장관들이 만난 후로 IMF에서는 현금을 확보할 수 있었다. IMF를 지원하기 위해 3개국 이상이 힘을 합쳤다.
SDR:특별인출권

But it is still not entirely clear where all this money will come from, nor how it will be deployed quickly. Finance ministers may try to provide some answers this weekend.
그러나 돈을 어디서 확충할 지, 어떻게 쓸지는 정해지지 않았다.

Where, for example, will the full $500 billion in extra money for the IMF be found? Before the G20 meeting Japan and the European Union had each promised $100 billion and the summit ended with a promise from China of another $40 billion. In the weeks since Canada and Switzerland have each pledged $10 billion and Norway has pitched in with about $4.5 billion. The Indian press reports that the country might contribute $11 billion to the fund, and Brazil has offered $4.5 billion. All together that still leaves the IMF about $220 billion short of the G20’s target.
세계 각국이 돈을 내놓겠다고 했으나 여전이 2,200억 달러가 부족하다.

America may have to provide a big chunk of the remainder. Barack Obama has proposed a loan of $100 billion to the fund in a letter to Congress, which must approve an American contribution. France is likely to press EU countries to raise their contribution by $60 billion. The fund will also pass the hat to other possible contributors (perhaps including Saudi Arabia) with formal announcements of contributions possible over the weekend, along with confirmations of tentative offers (such as those from India or Brazil).
세계 각국이 돈을 내놓으라는 압박에 시달리고 있다.

Next is the question of what donors might expect in return. Brazil has already said that it wants reforms to how the IMF is run. All the big emerging economies want to see more detailed proposals on changes to voting power within the IMF, and they want the reform process speeded up. (The G20 encouraged the fund to implement the last round of changes, which were agreed in October last year, but did not set a date, which emerging economies will be keen to see announced). A recent suggestion from an IMF reform committee was for a larger role for finance ministers in the daily running of the fund, to give it greater political legitimacy. The idea may be discussed this weekend.

The IMF will also be keen to announce more emerging-economy interest in its Flexible Credit Line, which has now found three takers: Mexico, Poland and Colombia. Another country or two signing up will boost the fund’s claim that it is emerging as a credible source of insurance against crises, which is the purpose of its new “no-strings-attached” facility.

For the World Bank, too, much is at stake. It has not been showered with extra funds, but officials say that it has raised lending in response to the crisis, yet is in no danger of running out of money. But some in the institution argue that it should have pushed more aggressively for extra money to fund projects. Some poor countries’ finance ministers are expected to raise this issue at the meetings, and call for more capital for the bank. They may point to the IMF's announcement on Thursday April 23rd that it is doubling the upper limits on amounts that very poor countries can borrow on concessional terms, something that it is only possible because of all the extra money it has received.

Pressure may also increase on the bank to push for an early replenishment of the pot of money for the International Development Association, which is then used to fund zero-interest loans and grants to the world’s poorest countries. The current pot of $41 billion is supposed to last until 2011, but some argue that an early replenishment will enable more lending to the poorest countries, which the bank has argued are being hit badly by the decline in trade and slowing remittances.

Consumer psychology

From buy, buy to bye-bye
Apr 2nd 2009 | NEW YORK AND SAN FRANCISCO
From The Economist print edition

The recession will have a lasting impact on the way people shop


“WANT IT!” screamed the words plastered on the walls, counters and shopping bags in the flagship emporium of Saks, a big American retailer, on Fifth Avenue in New York. The same exhortation was emblazoned in huge letters on a giant red and white ball that revolved slowly in the middle of the main sales floor. Saks’s spring marketing campaign, which came to an end on April 1st, made its brazen appeal to greed in a bid to drum up sales in a dire market. But the exclamation mark in its “Want It!” tagline should perhaps have been a question mark instead.

Asked whether they want more stuff, consumers in rich countries have responded with an emphatic “No”. The breathtaking speed with which retail sales have plummeted in both America and Europe (see chart) has caught retailers and manufacturers by surprise. In response, companies have tried desperately to prop up revenues using a variety of promotions, advertising and other marketing ploys, often to no avail.

But as they battle with these immediate problems, marketers are also pondering what longer-term changes in consumer behaviour have been triggered by the recession. It is tempting to conclude that, once economies rebound, customers will start spending again as they did before. Yet there are good reasons to think that what promises to be the worst downturn since the Depression will spark profound shifts in shoppers’ psychology.

The biggest changes will take place in America and parts of Europe, where housing and stockmarket bubbles have imploded and unemployment has soared. As well as seeing their incomes fall as employers cut wages and jobs, households have also seen the value of their homes and retirement savings shrink dramatically. Although the threat to wages will fade as growth picks up, the damage done to housing and other assets will linger.

This has already led to a swift tightening of purse strings by shoppers and a wave of discounting by companies. Inmar, an American firm that processes discount coupons, says that redemptions in America were 17% higher in the first quarter of 2009 than in the same period last year, as consumers hunted for bargains. Many companies have launched lower-priced products in order to avoid losing customers as they trade down. Danone, a French food group, has created a line of low-cost yogurts in Europe, called “€co Packs”, that come in smaller tubs and fewer flavours than its standard products.

The trend towards thrift will not disappear when the economy picks up. For one thing, those banks left standing after the bust will be far more parsimonious with consumer credit. For another, many people will still be intent on rebuilding their nest-eggs, which is reflected in sharply rising rates of saving. Sociologists also detect a distinct change in people’s behaviour. Until the downturn, folk had come to assume that “affluence” was the norm, even if they had to go deeply into debt to pay for gadgets and baubles. Now many people no longer seem consumed by the desire to consume; instead, they are planning to live within their means, and there has been a backlash against bling.

So for years to come, many more households will be firmly focused on saving, splashing out only occasionally on a big-ticket item. Some firms are already trying to capitalise on this new mood. Sears, another American retailer, recently revived a savings plan it used many years ago, known as the “Layaway programme”, under which a consumer can make a down payment on an item that is then held for him for a fixed period while he saves the rest of the cash needed to buy it.

A second shift in consumer psychology has been prompted by fallout from the global banking crisis and the furore over huge bonuses paid by firms rescued with public money; by a wave of financial scandals, such as the Madoff affair in America; and by multibillion-dollar bail-outs of carmakers in many countries. All this seems to be denting trust in business more generally. The Boston Consulting Group recently completed a global survey of consumer sentiment involving 15,000 consumers. The results, to be published this month, show that over half of respondents from America and Europe say the crisis has intensified their distrust of big business.

Past downturns have also stoked anti-business feeling, which dissipated as growth returned. But the sheer scale of the failings that have come to light recently mean that suspicion and wariness will not vanish so easily this time around. In response, firms will need to be even more transparent in their dealings with customers, who will punish them severely if they fail to keep their promises. Bain, another consulting firm, says it has seen several firms appoint executives recently with a specific brief to ensure that price adjustments and service cuts do not damage loyal customers’ experience of brands.

Companies will also need to show they empathise with consumers’ new concerns. “There will need to be a move from passion to compassion in marketing,” reckons John Gerzema of Young & Rubicam, a marketing-services firm. Hyundai, a South Korean carmaker, has taken the hint. In January it said that for a 12-month period it would allow car buyers to return vehicles without incurring a penalty if they lose their jobs. On March 31st Ford and General Motors followed Hyundai’s example, saying they would make payments on car loans and leases for a limited period on behalf of buyers who are laid off.

Both the shift towards greater thrift and greater scepticism about brands will influence other consumer trends, too. Interest in things such as green products and healthy foods will continue to grow in a post-crisis world, but customers will be less willing to pay a premium for them, and will demand more value for money when they do.

The downturn will also accelerate the use of social media, such as blogs and social-networking sites, by consumers looking for intelligence on firms and their products. As trust in brands is eroded, people will place more value on recommendations from friends. Social media make it harder for brands to pull the wool over consumers’ eyes, but they also offer canny companies a powerful new channel through which to promote their wares and test new products and pricing strategies.

Marketers ignore the messages that emanate from these groups at their peril. For one thing is clear: this recession has triggered a wholesale reappraisal by shoppers of the value that their habitual brands deliver. The winners will be those that adapt intelligently to the new reality. The losers will be those who think they can win simply by telling consumers to “Want It!”

China's economy

Bamboo shoots of recovery
회복의 죽순

Apr 16th 2009 | HONG KONG
From The Economist print edition

Signs that a giant fiscal stimulus is starting to work


THE Chinese consider eight to be a lucky number because it sounds like the word meaning “prosperity”. And luck, combined with a massive fiscal stimulus, may yet help the government to achieve its growth target of 8% in 2009. Earlier this year, most economists thought such growth was impossible at a time of deep global recession, but some are now nudging up their forecasts.
prosperity: 재무적으로 건전함.
중국은 연초만 해도 8%성장하기 어려울 것으로 보였으나 현재는 가능할 것 같다.

At first sight, the GDP figures published on April 16th were disappointing. China’s growth rate fell to 6.1% in the year to the first quarter, less than half its pace in mid-2007. On closer inspection, however, the economy is starting to perk up. Comparing the first quarter with the previous three months, GDP rose at an estimated annualised rate of around 6%, after nearly stalling in the fourth quarter (see chart). By March the economy was gaining more speed, with the year-on-year increase in industrial production rising to 8.3% from an average of 3.8% in the previous two months. Retail sales were 16% higher in real terms than a year ago, and fixed investment has soared by 30%, signalling that the government’s infrastructure-led stimulus is starting to work.

Exports, on the other hand, tumbled by 17% in the year to March and global demand is widely expected to remain weak this year. This is the main reason why some economists expect GDP growth of “only” 5% for 2009 as a whole. But the gloomier forecasts tend both to overstate the importance of exports and to understate the size of the government’s stimulus.

Contrary to conventional wisdom, China’s sharp economic slowdown was not triggered by a collapse in exports to America. Its growth began to slow in 2007, well before exports stumbled, driven by a collapse in the property market and construction. This was the result of tight credit policies aimed at preventing the economy from overheating. The global slump dealt a second blow late last year, but China is less dependent on exports than is commonly believed. Exports account for nearly 40% of GDP but they use a lot of imported components, and only make up about 18% of domestic value-added. Less than 10% of jobs are in the export sector.

If a collapse in domestic demand led China’s economy down, it can also help lead it up again. Not only is China’s fiscal stimulus one of the biggest in the world this year, but the government’s ability to “ask” state-owned firms to spend and state banks to lend means that the government’s measures are being implemented more rapidly than elsewhere. To take one example, railway investment has tripled over the past year.

Only about 30% of the government’s 4 trillion yuan ($585 billion) infrastructure package is being funded by the government. Most of the rest will be financed by bank lending, which had already soared by 30% in the 12 months to March, twice its pace last summer. JPMorgan thinks that this credit and investment boom could lift GDP growth to an annualised pace of over 10% in each of the next three quarters.

Jonathan Anderson, an economist at UBS, argues that the property market could be as important as the fiscal stimulus in determining China’s fate. After falling sharply last year, housing sales rose by 36% in value in the year to March. Housing starts are still down, but if sales continue to strengthen, construction could pick up in the second half of 2009. That would also help to support consumption: about half of China’s job losses among migrant workers have been in the building industry.

If construction does recover and infrastructure spending continues to rise, then even if exports remain weak, China could see growth of close to 8% this year—impressive stuff when rich economies are expected to contract by 4-5%. There are growing concerns about the quality of that growth, however. The World Bank estimates that government-influenced spending will account for three-quarters of China’s GDP growth this year. The clear risk is that politically directed lending creates more overcapacity, poor rates of return and future bad loans for banks.

These are valid concerns. But Andy Rothman, an economist at CLSA, a brokerage, reckons that state-owned firms mainly plan to increase their spending on upgrading existing production facilities, rather than expanding capacity. Also, about half of the increase in investment is on public infrastructure. This will inevitably include some white elephants but, in a poor country, the return on infrastructure investment is generally high. There is no need to build “bridges to nowhere” when two-fifths of villages lack a paved road to the nearest market town.

Reuters

Bridge urgently neededWhat about the risks to banks? The last time they were forced to support the government’s stimulus policy, during Asia’s financial crisis in 1998, Chinese banks were left with large non-performing loans. Bad loans will rise again this time, but Tao Wang, also at UBS, argues that banks are in a stronger position than in 1998. China is one of the few countries in the world where bank credit has fallen relative to GDP over the past five years. Banks have an average loan-to-deposit ratio of only 67%, low by international standards, and less than 5% of banks’ loans are non-performing, down from 40% in 1998.

The biggest task for China is to find a new engine for future growth. It cannot rely on exports, nor can the investment stimulus be sustained for long. Without stronger consumer spending, China’s growth will be much slower than in recent years. Reforms to improve health care and the social safety net will take many years to encourage people to save less.

Andy Xie, an independent economist based in Shanghai, suggests that the quickest way to boost consumption would be for the government to distribute the shares that it holds in state-owned enterprises to households, and to force those firms to pay larger dividends. But the authorities in Beijing are unlikely to take his advice. How else could they lean on big firms to support the economy in times like these?

A chancellor flying on a wing and a prayer
By Martin Wolf

Published: April 22 2009 14:37 | Last updated: April 22 2009 14:37

Only Alistair Darling, most emollient of politicians, could manage to make this Budget boring. He is telling his country that its prosperity was as fraudulent as a collateralised debt obligation, that Gordon Brown’s boasts of “no more Tory boom and bust” are a joke, that the forecasts he gave only last November were nonsense, that the public finances are deteriorating at a rate never seen in peacetime and that, to cover these failures, he is indulging in populist attacks on the highly paid. To make this feel boring is an achievement.


Yet is the government at last being realistic about the scale of this disaster? Can Labour hope to get away with it, economically or politically? Does it deserve to do so? These are the questions for markets and analysts now, and for voters at some point in the next 12 months. My answers are, briefly: No, No and No.

In terms of the overall picture, the salient figures were already well known: instead of an economic contraction of 1 per cent this year forecast in the pre-Budget report, the Treasury now forecasts a decline of 3.5 per cent; instead of public sector net borrowing of 8 per cent of gross domestic product this financial year and 6.8 per cent next year, falling to 2.9 per cent in 2013-14, we now have 12.4 per cent this year, followed by 11.9 per cent next year and 5.5 per cent in 2013-14; and instead of net debt at 57 per cent of GDP in 2013-14, we now have net debt at 79 per cent.

This is a horror story. But it could, of course, be worse: the economy may not recover as hoped; losses on support for the banks could, as the International Monetary Fund suggests, be far bigger than the 3.5 per cent of GDP now expected; and, above all, the creditworthiness of the British government could come into question, with devastating consequences. The government is flying on a wing and a prayer. Can it – or its successor – land the aircraft? As a British citizen, I do hope so. But nobody can now be sure of this. Can a government that made large claims for the quality of its stewardship survive such a debacle?

Perhaps the most striking single figure in the Budget is that the Treasury now believes cyclically adjusted net borrowing will be 9.8 per cent of gross domestic product this financial year (see chart). In other words, virtually all of the overall net borrowing requirement of 12.4 per cent of GDP is structural.


The Treasury’s implicit view is that this is a sudden and unexpected event, consequent on the collapse of corporate profitability, particularly in the financial sector, and of the housing market: it shows the structural net borrowing requirement at only 2.7 per cent in 2007-08 and 5.7 per cent in 2008-09. But this view is highly implausible. More realistic is that, as happened in the boom of the late 1980s, but on a bigger scale, the Treasury confused a super-boom with a sustainable economic position. Now, after the collapse, the Treasury admits that the structural fiscal position is far worse than it thought. If it – and, we must admit, many others – had realised how fragile the economic and fiscal position was, they would have recognised that deficits and net public debt were far too high.

So the big question is how – and how quickly – the Treasury expects this appalling structural position to improve. The answer is: very slowly. By 2013-14, structural net borrowing is still expected to be 4.5 per cent of GDP and the structural current budget (supposed to be in balance “over the cycle” under now discarded fiscal rules) will still run a deficit of 3.2 per cent of GDP. In this Budget, the cyclically adjusted current budget returns to balance only in 2017-18, instead of 2015-16, the date chosen in the November pre-Budget report.

Yet any notion of the structural as opposed to the cyclical position is heroic guesswork. It may be sensible, therefore, to ignore the distinction and focus on the plausibility of actual numbers. In essence, the Budget forecasts that, as a result of the collapse in GDP and the recession, particularly the huge rise in spending on benefits, total spending will peak at 48.1 per cent of GDP next year, but then fall to 39 per cent by 2017-18. Meanwhile, receipts make a modest recovery, from a crisis-hit 35.1 per cent of GDP this financial year and 36.2 per cent next year, to 38 per cent in 2013-14 and, presumably, thereafter.

Behind this forecast is a promise and a hope: the promise is that real public spending will remain roughly constant between 2010-11 and 2013-14 and then rise at only about 0.5 per cent a year over the rest of that parliament and, implicitly, well into the next; the hope is that the economy will recover vigorously, with GDP already growing at 3.5 per cent in 2011, after 1.25 per cent next year. These are not impossible forecasts. But they imply a resolution that can hardly be expected of any UK elected government, a vigour that can no longer be assumed of the storm-tossed British economy and an amount of luck, on the world economy and losses in the raddled banking system, that cannot be taken for granted. The horrible truth is that the government’s forecasts are still very far from the worst imaginable.

I have no idea whether the government can both get away with this optimism and postpone the moment of truth at least until after the general election. Markets have been forgiving. The difficulty with assuming that this will continue is that this is how markets tend to behave – until they cease to do so. Should investors decide that a return to fiscal stability has become a remote prospect, they may turn against the UK suddenly and brutally. The populism of the Budget, with its fiscally futile attack on relatively high earners, makes this even more likely.

Finally, does the government deserve to get away with it? It is true that this is a global crisis in which many economies have been as hard hit as the UK. But, according to the Organisation for Economic Co-operation and Development, no other big member has suffered as large a deterioration in its structural fiscal position as the UK. In retrospect, the government was far too optimistic about the structural solidity of the UK economy and its finances. While many others were equally blind, it is hard for a government to escape responsibility for so huge a mistake.

I have sympathy for the decision not to tighten fiscal policy during the worst of a recession. But I would also want to see determination to take the measures needed to return the fiscal position to health by the end of the next parliament. This will require action on both revenue and spending. Understandably, perhaps, the chancellor failed to spell out the scale of the challenges that lie ahead even if the economy were to recover robustly. Yet what is in prospect is year after miserable year of austerity.

The challenge for both government and the opposition is to show how they will bring the budget back under control. Neither side is being honest about what this means. If this failure leads to a collapse of confidence, that will prove the worst mistake of all.


Copyright The Financial Times Limited 2009

Tesco annual profits top £3bn
By Adam Jones

Published: April 21 2009 07:50 | Last updated: April 21 2009 15:05

Tesco on Tuesday reported a 10 per cent rise in underlying annual pre-tax profits to £3.13bn, as strong growth from Asia supported its more mature British operations.

However, Britain’s biggest retailer also said that its net debt had increased to £9.6bn – about £1.6bn more than it had predicted last September.


In addition, Tesco said it would conditionally allocate £500m of property to its pension fund to bolster the security of the scheme, whose post-tax accounting deficit almost doubled to £1.1bn in the year to February 2009.

Investors welcomed the results, sending Tesco shares 4.85 per cent higher to 348.2p in afternoon London trading, though still below the 373.2p they reached in February.

The record underlying profit — which strips out volatile non-cash charges — was better than the £3.02bn mean expectation of analysts polled by Reuters. The statutory pre-tax profit rose 6 per cent to £2.95bn, less than the £3.06bn consensus forecast.

A final dividend of 8.39p has been proposed, making a total of 11.96p for the year, an increase of 10 per cent.

In the UK, Tesco’s biggest market by far, like-for-like sales rose 2.7 per cent in the fourth quarter of its financial year, up from 2 per cent in the third quarter and making 3 per cent for the year.

Laurie McIlwee, finance director, said it was very hard to tell whether the UK market would improve.

“On a week by week basis, it is very volatile... I couldn’t say that it has definitely bottomed out. We are planning for a tough year.”

He acknowledged the renewed prowess of some of Tesco’s domestic competitors, but added: “We are still growing faster than the market. We are not losing [market] share.”

Overall, Tesco said it had made a good start to the new financial year. In the UK, like-for-like sales growth, excluding petrol, improved to 3.4 per cent in the first six weeks of March and April.

Sales for the 53 weeks to February 28 were £59.4bn including VAT, an increase of 15 per cent on the prior 52-week period, or 11 per cent when favourable currency movements were stripped out.

During the year, international sales rose 14 per cent at constant exchange rates, reflecting an acceleration of sales growth in Asia that was aided by recently-acquired stores in South Korea.

However, losses from its Fresh & Easy grocery chain in the US were £142m, rather than the predicted £100m, mainly because of adverse currency movements. Tesco said it would hold off from a planned acceleration in Fresh & Easy store openings.

The increase in net debt to £9.6bn — which had been anticipated by analysts — partly resulted from higher capital expenditure, including Chinese shopping centre investments.

It was also affected by adverse currency movements and property market weakness, which made sale-and-leasebacks and other capital-raising measures more difficult.

Mr McIlwee said: “We are looking to bring [net debt] down to about £8.5bn but that will be dependent on property prices and a more stable currency outlook.” Tesco also pledged to rein in capital spending substantially this year.

The pension scheme’s accounting deficit was marginally higher than the figure reported at the retailer’s interim results. The transfer of property assets would only take place if Tesco ceased to be a going concern.






Copyright The Financial Times Limited 2009

Patience will help to grease M&A wheels
M&A할려면 인내력이 필요하다
By Lina Saigol

Published: April 19 2009 19:32 | Last updated: April 19 2009 19:32

Eight months ago, investment bankers were geared for a flood of asset disposals from distressed companies struggling to meet their short-term capital needs.
8달 전만해도 기업들이 단기자금 조달하기 위해 힘들었다.

Banks beefed up their sell-side operations, bringing together M&A and restructuring specialists, to double the chances of winning mandates to sell businesses. The thinking was that rather than tap investors for cash, chief executives would try to raise capital by divesting anything non-core.

But so far, companies have favoured rights issues and selling corporate bonds over the sale of even underperforming divisions.

This is mainly due to the vast gulf that still exists between buyers and sellers over how much an asset is worth. Both Royal Bank of Scotland and AIG pulled the sale of their insurance assets after balking at the prices bidders were offering.

But if the last downturn provides any clues, the disconnect between bidders and targets should start to narrow soon.

It was two years after the collapse of the dotcom boom in late 2000 before companies started selling assets to reduce debt accumulated from expensive acquisitions. Asset disposals accounted for half of all M&A activity in the European technology, media and telecoms sector in 2003.

That level of activity was due largely to private equity groups’ willingness to buy big assets such as Yell, BT’s yellow pages business that Apax and Hicks, Muse, Tate & Furst acquired in 2001.

This time around, private equity has stayed on the sidelines as it writes down many investments acquired at the height of debt boom in 2006/07 and struggles to find the leverage to make acquisitions work.

But at some stage private equity groups will spend the cash they are sitting on and take the plunge – as CVC Capital Partners recently demonstrated when it bought Barclays’ iShares exchange-traded fund unit for $4.4bn (£3bn).

The UK bank’s shares rose 7 per cent on the sale and that should encourage other companies to look at the structure of their businesses and dispose of anything they will not miss when the upturn comes.

lina.saigol@ft.com

US prices drop for first time since 1955

US prices drop for first time since 1955
By Alan Rappeport in New York

Published: April 15 2009 14:19 | Last updated: April 15 2009 14:47

Prices in the US declined in the year to March for the first time since 1955, the labour department said on Wednesday, easing fears that aggressive government stimulus measures could kick-start inflation.

The 0.1 per cent monthly decline in March was largely due to falling energy prices and was the first fall after two months of increases. Consumer prices were down by 0.4 per cent year-on-year.

The monthly figure trailed the 0.1 per cent rise that economists had forecast and compared with a 0.4 per cent increase in February.

The drop in prices could renew fears of a deflationary trap that were stoked after prices were flat or declined during the final five months of 2008. As the economic recession deepened in the second half of last year companies slashed prices to clear stocks.

However, core prices, which exclude food and energy and is the measure by which economists judge the risk of general deflation, rose by 0.2 per cent and were 1.8 per cent higher than in March 2008. Core prices also rose by 0.2 per cent in February.

“The economy is suffering from disinflation but not outright deflation pressures in the goods and services sectors,” said Alan Ruskin, strategist at RBS Greenwich Capital.

Energy prices fell by 3 per cent last month after climbing by 3.3 per cent in February. Prices of energy were pulled back by falling petrol prices which were off by 4 per cent in March after rising by 8.3 during the previous month.

Prices fell across most sectors last month, while the cost of medical care, education and communication rose in March.

The slide in consumer prices follows a report on Tuesday that US wholesale prices fell in March after two months of gains due to falling energy prices. The producer price index for finished goods fell by 1.1 per cent last month, trailing economists forecasts that prices would be flat.

Compared with March 2008, wholesale prices were down by 3.5 per cent.

The decline was due to a 13.1 per cent drop in petrol prices. Excluding food and energy, core producer prices were flat last month. Weak capital spending also blunted any inflation as business investment has stalled amid diminished demand.

Separately on Wednesday the Federal Reserve said that US industrial production fell for the fifth month running in March, dropping by 1.5 per cent on weak factory and manufacturing output as global demand has continued to erode.

The monthly decline was worse than economists expected and was driven by falling production of business equipment and construction supplies. Industrial output was off by 12.8 per cent compared with the same month in the prior year.

Economists expected industrial production would fall by 0.9 per cent last month after a 1.4 per cent decline in February. Output has declined in 11 out of the last 13 months.

Utility output rose by 1.8 per cent in February after a 7.7 per cent drop the prior month, as cold temperatures replaced unseasonably mild weather. Mining output was off by 3.2 per cent.

Meanwhile, the capacity utilisation rate, a measure of the proportion of plants in use, across all industries, fell to 69.3 from a revised 70.3 per cent. The figure was lowest since 1967, when the Federal Reserve began keeping such records.
Copyright The Financial Times Limited 2009

[FT]Cutting back financial capitalism is America’s big test

Cutting back financial capitalism is America’s big test
By Martin Wolf

Published: April 14 2009 21:47 | Last updated: April 14 2009 21:47

Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point.
미국이 러시아인가? 조롱하는 질문은 아니다. 이렇게 질문한 사람은 MIT 슬론의 존슨교수다. 그는 금융과두제를 신흥국가의 엘리트경영과 비교했다. 슬론이 그 둘을 비교하는 게 상식적인가? 답은 그렇다이다. 그러나 포인트만 집어냈을 뿐이다.

“In its depth and suddenness,” argues Prof Johnson, “the US economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets.” The similarity is evident: large inflows of foreign capital; torrid credit growth; excessive leverage; bubbles in asset prices, particularly property; and, finally, asset-price collapses and financial catastrophe.
미국의 행보는 신흥국가와 매우 유사하다. 막대한 외국자본의 유입, 신용상승, 레버리지증가, 자산가격거품, 특정한 재산, 마지막으로 자산가격몰락과 금융대참사.

“But,” adds Prof Johnson, “there’s a deeper and more disturbing similarity: elite business interests – financiers, in the case of the US – played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.” Moreover, “the great wealth that the financial sector created and concentrated gave bankers enormous political weight.”
그러나 그보다 더 유사한점이 있다. 엘리트들이 금융업에 종사하면서 위기를 유발했다는 것이다. 막대한 자금으로 도박을 하고, 정부는 이를 뒷받침한다. 결국 모두가 파멸한다. 금융부분이 창출한 막대한 부는 은행가들에게 거대한 정치적 힘을 주었다.

Now, argues Prof Johnson, the weight of the financial sector is preventing resolution of the crisis. Banks “do not want to recognise the full extent of their losses, because that would likely expose them as insolvent ... This behaviour is corrosive: unhealthy banks either do not lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and, as it does, bank assets themselves continue to deteriorate – creating a highly destructive cycle.”

Does such an analysis make sense? This is a question I thought about during my recent three-month stay in New York and visits to Washington, DC, now capital of global finance. They are why Prof Johnson’s analysis is so important.

Unquestionably, we have witnessed a massive rise in the significance of the financial sector. In 2002, the sector generated an astonishing 41 per cent of US domestic corporate profits (see chart). In 2008, US private indebtedness reached 295 per cent of gross domestic product, a record, up from 112 per cent in 1976, while financial sector debt reached 121 per cent of GDP in 2008. Average pay in the sector rose from close to the average for all industries between 1948 and 1982 to 181 per cent of it in 2007.

In recent research, Thomas Philippon of New York University’s Stern School of Business and Ariell Reshef of the University of Virginia conclude that the financial sector was a high-skill, high-wage industry between 1909 and 1933. It then went into relative decline until 1980, whereupon it again started to be a high-skill, high-wage sector.* They conclude that the prime cause was deregulation, which “unleashes creativity and innovation and increases demand for skilled workers”.

Deregulation also generates growth of credit, the raw stuff the financial sector creates and on which it feeds. Transmutation of credit into income is why the profitability of the financial system can be illusory. Equally, the expansion of the financial sector will reverse, at least within the US: credit growth and leverage masked low or even non-existent profitability of much activity, which will disappear, and part of the debt must also be liquidated. The golden age of Wall Street is over: the return of regulation is cause and consequence of this shift.

Yet Prof Johnson makes a stronger point than this. He argues that the refusal of powerful institutions to admit losses – aided and abetted by a government in thrall to the “money-changers” – may make it impossible to escape from the crisis. Moreover, since the US enjoys the privilege of being able to borrow in its own currency it is far easier for it than for mere emerging economies to paper over cracks, turning crisis into long-term economic malaise. So we have witnessed a series of improvisations or “deals” whose underlying aim is to rescue as much of the financial system as possible in as generous a way as policymakers think they can get away with.

I agree with the critique of the policies adopted so far. In the debate on the Financial Times’s economists’ forum on Treasury secretary Tim Geithner’s “public/private investment partnership”, the critics are right: if it works, it is because it is a non-transparent way of transferring taxpayer wealth to banks. But it is unlikely to fill the capital hole that the markets are, at present, ignoring, as Michael Pomerleano argues. Nor am I persuaded that the “stress tests” of bank capital under way will lead to action that fills the capital hole.

Yet do these weaknesses make the US into Russia? No. In many emerging economies corruption is egregious and overt. In the US, influence comes as much from a system of beliefs as from lobbying (although the latter was not absent). What was good for Wall Street was deemed good for the world. The result was a bipartisan programme of ill-designed deregulation for the US and, given its influence, the world.

Moreover, the belief that Wall Street needs to be preserved largely as it is now is mainly a consequence of fear. The view that large and complex financial institutions are too big to fail may be wrong. But it is easy to understand why intelligent policymakers shrink from testing it. At the same time, politicians fear a public backlash against large infusions of public capital. So, like Japan, the US is caught between the elite’s fear of bankruptcy and the public’s loathing of bail-outs. This is a more complex phenomenon than the “quiet coup” Prof Johnson describes.

Yet decisive restructuring is indeed necessary. This is not because returning the economy to the debt-fuelled growth of recent years is either feasible or desirable. But two things must be achieved: first, the core financial institutions must become credibly solvent; and, second, no profit-seeking private institution can remain too big to fail. That is not capitalism, but socialism. That is one of the points on which the right and the left agree. They are right. Bankruptcy – and so losses for unsecured creditors – must be a part of any durable solution. Without that change, the resolution of this crisis can only be the harbinger of the next.


*Wages and Human Capital in the US Financial Industry 1909-2006, January 2009, www.nber.org

Goldman push to repay $10bn
By Greg Farrell and Francesco Guerrera in New York

Published: April 13 2009 23:39 | Last updated: April 13 2009 23:39

Goldman Sachs signalled its determination to be the first major bank to emerge from the financial crisis, revealing plans late on Monday to raise $5bn to pay back government funds and reporting stronger-than-expected first-quarter earnings of $1.81bn.

The bank said that, pending government approval, it would use the $5bn raised through the sale of common stock to help pay back the $10bn allocated to it last year as part of the Troubled Asset Relief Programme.

If it succeeds, Goldman would be the first major US bank to pay back Tarp funds and would free itself from restraints on compensation and business activities imposed by regulators.

The early repayment would also raise the stakes for other big US banks, which would find themselves torn between the need to maintain strong capital levels and the desire not to be seen as “weaker” than Goldman.

Adding a touch of drama to its earnings announcement, Goldman released its figures late on Monday, after markets closed, rather than on Tuesday as originally scheduled. The announcement of the capital raising, dilutive to existing shareholders, sent the bank’s shares down slightly in after-hours trading following a day in which Goldman stock jumped $5.82 to $130.15.

The firm’s $1.81bn of net profits marked a 20 per cent increase from a year ago, and a sharp reversal from the $2.1bn loss in the fourth quarter of 2008.

The performance was driven by a record showing in fixed income, commodities and currencies activities, which generated $6.56bn in revenues, more than double the total from a year ago.

Revenues in Goldman’s equities business were $2bn, a 20 per cent decline from a year ago. Investment banking revenues, at $823m, were also off from levels of a year ago and late 2008.

Goldman’s principal investments generated a net loss of $1.41bn for the quarter, evidence of the continuing decline in real estate assets, as well as a loss of $151m related to the firm’s holdings in the Industrial and Commercial Bank of China.

Goldman benefited from a quirk in its reporting schedule. Its fourth quarter ended in November 2008, but after converting to a bank holding company last year, Goldman adopted a calendar-year earnings period starting in 2009. As a result, the company did not have to include December in its first quarter earnings, a month in which it sustained $1.3bn in pre-tax losses.

In a statement regarding the Tarp repayment, Goldman said that “after the completion of the stress assessment, if permitted by our supervisors and if supported by the results of the stress assessment, Goldman Sachs would like to use the capital raised plus additional resources to redeem all of the Tarp capital”.
Copyright The Financial Times Limited 2009

골드만이 자본을 확충해서 정부로부터 빌린 자금을 갚겠다고 함.
골드만은 1분기에 18억달러 순이익을 올림
주로 채권분야였음

[FT]Lessons from the 1997 Asian economic crisis

Lessons from the 1997 Asian economic crisis
By Paul Beamish

Published: January 22 2009 19:29 | Last updated: January 22 2009 19:29

In the midst of an economic downturn, there is a tendency by some to think that things have never been so bad and that extraordinary new approaches are needed. But is this true? The current downturn is neither the only economic crisis that most managers will face during their careers. Nor is it the first downturn that business school scholars have studied.

Together with Chris Chung from Florida International University and Jane Lu from National University of Singapore, I have investigated whether there are any lessons from the 1997 Asian economic crisis for the managers of multinational corporations. We conducted a series of studies using a longitudinal database on Japanese subsidiaries worldwide, and report here on the managerial implications of two of them.

First, a quick recap. In 1997, the Asian economic crisis broke out in Thailand and abruptly spread to the rest of the region. The crisis resulted in rapid contractions in which real output was severely damaged. Coming after more than two decades of high growth and frequent claims of an impending Asian economic boom, the 1997 crisis was a major shock to foreign companies operating in south-east and east Asian countries. A number of observers suggested that the extent of the damage created by the crisis was comparable only to that of the Great Depression.

In our analyses of the impact of the crisis, we considered two distinctive time periods. The first was the crisis time period (1997-99), during which Asian countries underwent more than four consecutive quarterly declines in real gross domestic product. The second was the stable time period (1993-96), during which they maintained consistent real GDP growth.

The first study compared the subsidiary performance implications of being part of a multinational network during times of economic crisis versus times of stability. The aim was to assess the value of being part of a parent-subsidiaries network, to determine whether there were conditions under which organisational links matter most.

The multinational network model conceptualises a foreign subsidiary as an equal, rather than a subordinate, of a company’s headquarters  that is, an active agent that becomes integrated with its parent business and other subsidiaries via organisational links that give it access to network-based resources to address dynamic environmental demands.

A multinational network model highlig¬¬hts the fact that multinational networks are able to provide their subsidiaries with a range of operating options that allow them to avoid downside risks and take advantage of upside opportunities by shifting value chain activities across networks. Can the greater flexibility inherent in a multinational network allow subsidiaries to modify and reconfigure operating routines in the pursuit of effectiveness and survival? If one geographic area is hit by economic crisis, can affected subsidiaries tap into their multinational networks and respond to adverse environmental changes by modifying their operations?

We found that strategic drivers such as multinational organisation links allow foreign subsidiaries to capitalise on the flexibility inherent in a multinational network. When local markets collapse, such strategic and operational flexibility holds the greatest positive implication for foreign subsidiary performance. Managers should, therefore, invest in the development of such networks, especially when they make investments in emerging economies whose dominant characteristic is uncertainty. Furthermore, managers should be aware of performance implications for different types of multinational networks, and configure their networks to meet specific strategic objectives.

Subsidiary profitability is more likely to benefit from a tightly linked intra-company network (ie subsidiary network) than from a distant inter-company network (ie keiretsu affiliation), since it is easier for a subsidiary to have common skills and knowledge to link various parts of value chains with sister subsidiaries within the business than with keiretsu-affiliated subsidiaries outside of it. Intra-company trade allows subsidiaries to adjust more quickly to abrupt changes than inter-business trade. This is important given that intra-company trade currently accounts for one-third of all world trade.

With respect to how performance ought to be measured during a crisis, many would argue that what really matters during times of economic crisis in host countries is survival rather than profitability. But facing unanticipated economic turmoil, subsidiaries in crisis-stricken countries have to secure their survival first before moving towards profitability.

In sum, foreign subsidiaries in multinational networks have access to resources in heterogeneous institutional environments. By taking advantage of these links, they can capitalise on the latent flexibility that resides in being part of a multinational network.

Investment mode strategy versus expatriate strategy

The second study examined the performance implications of investment mode strategy and expatriate strategy during the Asian economic crisis. We considered how these strategies, as alternatives in implementing and exercising control on the operation of subsidiaries, complemented and interacted with each other to bring about improved subsidiary performance.

In an investment mode strategy, a company can choose from a range of organisational modes: exporting, licensing, franchising, joint venture, or wholly owned subsidiary. In particular, foreign direct investment (FDI) is an important way for companies to compete internationally. FDI can occur in various mutually exclusive forms: greenfield or newly-established; wholly owned subsidiary (a greenfield operation in which 95 per cent or more of the equity is possessed by one foreign firm); greenfield joint venture (a greenfield operation in which two or more firms each possess at least 5 per cent of the subsidiary’s equity); and acquired wholly owned subsidiary (the purchase of a controlling interest in an existing domestic enterprise). The choice of FDI mode strategy is likely to affect the survival of subsidiaries because each strategy differs both in expected risk level and in the importance of various co-ordination costs and resources.

Expatriate strategy refers to the utilisation of a multinational’s expatriate staffing practices to achieve learning, innovation, flexibility, and corporate integration in foreign subsidiaries. The higher level of expatriate staffing in a foreign subsidiary is a means of exerting more influence on the implementation of strategy and daily operations.

Organisations tend to learn from experience and behave in a path-dependent manner. Even if acquired wholly owned subsidiaries and greenfield joint ventures attempt to integrate themselves into the multinational networks once their local markets begin to collapse, they will still fall short in terms of timing because of their structural and knowledge distance from the multinational networks. When local markets collapse, acquired wholly owned subsidiaries and greenfield joint ventures are less capable than greenfield wholly owned subsidiaries of capitalising on multinational flexibility to reap the benefits of integration through multinational networks.

Similarly, the more distant the operational structures of foreign subsidiaries are from the parent networks, the more the integration benefit could be realised by the greater utilisation of expatriates. Since the operational structure of greenfield wholly owned subsidiaries is already close to that of the parent network, the impact of an additional number of expatriates may be marginal.

By staffing acquired wholly owned subsidiaries and greenfield joint ventures with more expatriates, foreign companies can ensure those subsidiaries conform to parent goals or targets through the exercise of power, authority, or indoctrination of corporate values and norms. By doing so, they can exert more control over the implantation of strategy and daily operations.

Conclusion

We first observed that in the crisis period, both joint ventures and acquisitions were significantly more likely to fail than wholly owned subsidiaries. Overall, acquisitions were most likely to fail, followed by joint ventures and wholly owned subsidiaries in that order.

Second, the presence of a greater number of expatriates was positively related to subsidiary survival during times of crisis.

Third, a greater number of expatriates increased the survival likelihood of acquisitions the most, followed by joint ventures, then by wholly owned subsidiaries, in that order.

Our study suggests that managers of multinationals can adjust and change subsidiary staffing at each phase of a crisis to influence the typical evolutionary path of investment modes. When local markets collapse, the presence of a greater number of expatriates is more likely to enhance the performance of foreign subsidiaries that have been structured to integrate into the local markets but are distant from the multinational networks. As a parallel but more fluid strategy in exercising control over the operations of foreign subsidiaries, expatriate strategy can complement the deficiency of investment mode strategy in capitalising on multinational flexibility when local markets crash. Some managers of multinationals have paid little attention to the interaction effect of expatriate strategy and investment mode strategy on subsidiary performance to date.

Based on the results of our study, we suggest that managers of multinationals consider investment mode and expatriate strategies in a more holistic manner in order to promote value creation from the operations of foreign subsidiaries.

Paul W. Beamish is director of the Asian Management Institute at Ivey Business School, University of Western Ontario
Copyright The Financial Times Limited 2009

[FT] Brands look east as western wallets close

Brands look east as western wallets close

By Jamil Anderlini in Beijing

Published: April 8 2009 19:46 | Last updated: April 8 2009 19:46

On Shanghai’s trendiest shopping street a glittering pink monument to the west’s faith in the Chinese consumer has just opened.
서양브랜드들이 중국으로 눈을 돌리고 있다.

Inside the six-story Barbie flagship store an escalator carries curious Shanghainese up a long, pink illuminated tunnel echoing with recordings of giggling children and disgorges them into a plastic wonderland of frills and accessories. “100per cent plastic beauty” reads a sign on the wall of the Barbie spa and beauty salon on the second floor.
럭셔리한 바비샵들도 생겼다.

With much of the world expected to remain in recession this year, big consumer brands are pinning their hopes on China’s billion customers to prop up sales amid the global downturn.
세계경기가 침체기에 들어가면서 10억인구가 있는 중국이 새로운 시장으로 떠오르고 있다.

Beijing’s confident predictions that gross domestic product will grow 8 per cent in 2009 are convincing global companies open stores conceived in the boom days of 2007.
베이징이 8%성장할 것이라는 예상때문에 각국의 기업들이 지점을 열고 있다.

The optimism is backed with figures that show retail sales grew 15.2 per cent in the first two months of this year from the same period a year earlier – down from 20 per cent growth recorded every month last year but still very strong in the current environment. “What’s amazing is that Chinese consumption has held up so well,” says Frank Gong, chief China economist at JPMorgan. “China is the only place in the world where retail sales are growing.”
올 해 2달간 소비성장률이 작년대비 15.2%성장.
작년에 20%씩 성장했던 것에 비하면 낮지만 불황인 요즘을 생각해 본다면 높은 수치
중국은 세계에서 유일하게 소비가 늘어나고 있는 국가

There are questions about the accuracy of consumption statistics in a country as vast as China. The World Bank predicts GDP growth will hit just 6.5 per cent this year but the government is intent on boosting private consumption, which made up 38 per cent of GDP last year, compared with about 70 per cent in developed economies such as the US.
중국이 내놓는 통계치는 의심간다.
세계은행은 중국성장률이 6.5%라고 예상
정부는 경기부양책을 내놓아 소비를 늘릴생각
작년에는 전체 GDP중 정부지출이 38%차지

As part of efforts to avoid the worst of the economic downturn Beijing has promised to spend huge sums on improving the country’s woeful health, education and social welfare safety nets. This is intended to convince anxious citizens to spend more of their historically high savings rates to rebalance economic growth away from investment to a more consumption-led model.
정부는 사회보장제도를 확충해서 역사상 가장 높은 저축률을 보이고 있는 소비자들의 소비를 늘리려고 함
이로인해 소비는 늘어나더라도 투자는 줄어들 것

  Ben Simpfendorfer, an RBS economist based in Hong Kong, says the resilience of retail growth figures masks the fact many retailers have begun slashing prices, which they would not do unless they were worried about falling sales.
많은 유통업체들이 가격을 낮추고있다. 이는 매출이 줄고 있기 때문이다.

In an upscale mall not far from the Shanghai Barbie headquarters, Giorgio Armani opened a store two weeks ago, bringing the number of Armani-branded shops in the city to six. An hour after a ribbon-cutting ceremony it was deserted.
알마니 개장

The Barbie emporium appears to be suffering from a different problem, with crowds of sightseers but very few people making big purchases. “Attracting large numbers of people to your store in China is not hard but getting them to walk out with a bag with your name on it is a different story,” according to Paul French, founder of Access Asia, a market research company.
매장에 오는 사람은 많아도 사는 사람은 적다.
소비자들을 매장에 끌어올 수는 있지만 물건을 사게 하기는 어렵다.

The glitz of Shanghai belies the fact that China is still a poor country, where the average urban disposable income rose 8 per cent last year to Rmb15,781 ($2,310, €1,740, £1,575). China’s 750m rural citizens survive on a total average income of Rmb4761. That means they can afford to buy 19 Barbie dolls a year each, as long as they do not buy anything else.
중국은 여전히 빈국이다.
도시생활자의 가처분소득은 작년대비 8%올라서 2,310달러이다.
7억 5천만명 되는 중국의 농민들은 800달러로 생활하고 있다.
그들은 바비인형을 19개 사면 1년 내내 아무것도 못산다.

Copyright The Financial Times Limited 2009

[Economist]The incredible shrinking economy

The incredible shrinking economy
Apr 2nd 2009 | TOKYO
From The Economist print edition

Japan is in danger of suffering not one but two lost decades

Illustration by S. Kambayashi
TO LOSE one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan’s economy stagnated in the 1990s after its stockmarket and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan’s GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery.

If that turns out to be true, Japan’s economy will have grown at an average of 0.6% a year since it first stumbled in 1991 (see top chart). Thanks to deflation as well, the value of GDP in nominal terms in the first quarter of this year probably fell back to where it was in 1993. For 16 years the economy has, in effect, gone nowhere.

Was Japan’s seemingly strong recovery of 2003-07 an illusion? And why has the global crisis hit Japan much harder than other rich economies? Popular wisdom has it that Japan is overly dependent on exports, but the truth is a little more complicated. The share of exports in Japan’s GDP is much smaller than in Germany or China and until recently was on a par with that in America. During the ten years to 2001, net exports contributed nothing to Japan’s GDP growth. Then exports did surge, from 11% of GDP to 17% last year. If exporters’ capital spending is included, net exports accounted for almost half of Japan’s total GDP growth in the five years to 2007.

Exports boomed on the back of a super-cheap yen and America’s consumer binge. Japan did not have housing or credit bubbles, but the undervalued yen encouraged a bubble of a different sort. Japanese exporters expanded capacity in the belief that the yen would stay low and global demand remain strong, resulting in a huge misallocation of resources.

As foreign demand collapsed and the yen soared last year, Japan’s export “bubble” burst. Total exports have fallen by almost half in the past year. Japan’s high-value products, such as cars and consumer electronics, are the first things people stop buying when the economy sours.

Richard Jerram, an economist at Macquarie Securities, argues that the worst may soon be over for industrial production. This year, output and exports have fallen by much more than the drop in demand, because firms have temporarily closed plants in order to slash excess stocks. For instance, Japan’s vehicle production in the first two months of 2009 was 50% lower than a year before, but global car sales fell by only 25%.

Mr Jerram reckons that the inventory rundown is coming to an end, which will lead to a short-term bounce in output as factories reopen. If so, car output in June could be around 50% higher than in March (but still down by 25% on a year earlier). This means that GDP growth might turn positive in the second quarter even if foreign demand remains weak.

Unfortunately, the economy is likely to totter again as the second-round effects of tumbling profits and rising unemployment squeeze investment and consumer spending. According to the latest Tankan survey of the Bank of Japan (BOJ), in March business sentiment among big manufacturing firms was the gloomiest since the poll began in 1974. Manufacturers say they plan to cut investment by 20% this year. They are also trimming jobs and wages. The seemingly modest unemployment rate of 4.4% in February understates the pain. The ratio of job offers to applicants has declined to only 0.59, from around one at the start of 2008, and average hours worked have also fallen sharply. Average wages (including bonuses and overtime pay) went down by 2.7% in the 12 months to February. Household spending fell by 3.5% in real terms over the same period; department store sales plunged by 11.5%.

The weakening domestic economy has prompted the government to man the fiscal pumps. A stimulus of 1.4% of GDP is already in the pipeline for 2009, and a further boost of perhaps 2% of GDP is expected to be unveiled in mid-April. The package is likely to include measures to strengthen the safety net for the unemployed and so ease concerns about job security. There will also be new infrastructure spending. Much of the expenditure on public works in the 1990s is now considered wasteful, so this time the focus is meant to be on projects that boost productivity, such as an expansion of Tokyo’s Haneda airport. Better crafted stimulus measures which raise long-run growth are also less likely to spook bond markets concerned about the government’s vast debt.

So long as the extra measures are not delayed by an early election (which must be called by September), Japan’s total fiscal stimulus in 2009 could be the largest among the G7 economies. But it would not be enough to prevent a sharp widening of the output gap (the difference between actual GDP and what the economy could produce at full capacity). This had already risen to 4% of GDP in the fourth quarter of 2008, and it is likely to approach 10% by the end of 2009, twice as much as in the 1990s downturn (see bottom chart, above).

This gaping economic hole is again putting downward pressure on prices. By late summer consumer prices could be more than 2% lower than a year before—a faster decline than during Japan’s previous bout of deflation. The risk is that deflation will squeeze profits and hence jobs, thereby further depressing demand and prices. The BOJ cut interest rates to 0.1% in December and it has introduced several measures to keep credit flowing, such as buying commercial paper and corporate bonds, as well as shares held by banks, which boosts their capital ratios. In contrast to the 1990s, bank lending is still growing.

The BOJ has also stepped up its purchases of government bonds, but after its experience in 2001-06, the bank remains sceptical that such “quantitative easing” can lift inflationary expectations and spur demand. One big difference is that the previous episode of quantitative easing coincided with stringent budget-tightening under Junichiro Koizumi, the then prime minister. The budget deficit was reduced from 8% of GDP in 2002 to 1.4% in 2006 (which partly explains why domestic demand was weak). The combination of fiscal expansion and government-bond purchases by the BOJ should work better.

The OECD predicts that public-sector debt will approach 200% of GDP in 2010, so the scope for further fiscal stimulus will be limited. Nor can Japan rely on exports for future growth; to the extent that it had enjoyed an export bubble, foreign demand will not return to its previous level. Japan needs to spur domestic spending.

One possible option, which the government is exploring, is to unlock the vast financial assets of the elderly. Japanese households’ stash of savings is equivalent to more than five times their disposable income, the highest of any G7 economy, and three-fifths of it is held by people over 60 years old. Gifts to children are taxed like ordinary income, but if this tax were reduced, increased transfers could boost consumption and housing investment since the young have a much higher propensity to consume. In theory, this could give a much bigger boost to the economy than any likely fiscal stimulus.

Of course, one reason why the elderly are cautious about running down their assets is concern about the mismanaged pension system and future nursing care. Services for the elderly should be among Japan’s fastest growing industries and create lots of new jobs, but they are held back by regulations which restrict competition and supply. Deregulation of services would not only help to improve the living standards of an ageing population, but by helping to unlock savings might also drag the economy out of deep recession.

Japan’s second lost decade holds worrying lessons for other rich economies. Its large fiscal stimulus succeeded in preventing a depression in the 1990s after its bubble burst—and others are surely correct to follow today. But Japan’s failure to spur a strong domestic recovery a decade later suggests that America and Europe may also have a long, hard journey ahead.

요약: 일본경제가 곤두박질 치고있다. 여타 국가보다 심각하다. 엔화강세와 외국수요하락으로 인한 수출부진이 원인이라는 주장도 있으나 사실은 더욱 복잡하다.
일본은 10년간의 부진을 벗어나기 위해 경기부양책을 시행했다. 이자율을 낮추고 돈을 찍어낸 결과 엔화는 약세로 돌아섰고 2001-2006년 세계경제호황기에 수출로 돈을 벌 수 있었다. 당시 수출업자들은 앞으로도 호황기가 계속 될 것으로 보고 생산시설을 늘렸다. 불황기가 다가오자 재고는 쌓여갔고, GDP는 급격히 떨어지고 있다.
유휴생산시설이 늘어나면서 실업률 또한 늘어나고 있다. 디플레이션으로 실물투자도 부실하다. 투자, 소비가 발생하지 않으니 정부는 경기부양책을 쏟아내고 있다. 1조엔에 달하는 자금은 비정규직지원, 사회안전망확충에 쓰일 것이다. 수출이 안되니 내수를 살리겠다는 생각이다.
경제전문가들은 일본의 경기부양책이 경기하락을 늦출수는 있어도 죽어가는 경제를 살리지는 못할 것이라고 한다. GDP의 2배에 달하는 정부 빛도 미래세대에 부담으로 돌아온다. 이코노미스트지의 기자는 새로운 전략을 내놓았다. 저축을 쥐고 있는 60세 이상 노인들이 돈을 쓰게 만들자는 것이다. 실질적인 정책도 제시한다. 노인들이 손자들에게 선물을 살 때 세금을 없에는 방안이다. 거시적으로는 노인복지시설에 대한 규제를 없에 복지산업을 미래성장동력으로 만들자고 주장한다.

[FT]Japan to launch $99bn fiscal stimulus

Japan to launch $99bn fiscal stimulus
By Michiyo Nakamoto in Tokyo

Published: April 6 2009 09:00 | Last updated: April 6 2009 19:17

Japan’s prime minister on Monday told his government to prepare a record Y10,000bn ($99bn) fiscal stimulus to lift the world’s second-biggest economy from its deepening gloom.
일본이 10조엔의 경기부양책을 내놨다.

Taro Aso said that the stimulus must focus on healthcare and medical services, subsidies to local governments, a new social safety net for non-regular workers, more use of government financial institutions to ease the credit crunch and solar energy.
지원대상은 의료, 지방정부지원, 비정규직지원, 금융기관 유동성지원, 태양에너지이다.

The government plans to unveil details of the package on Friday, and aims to submit legislation to the Diet before the Golden Week holidays in late April to early May.
정부는 황금연휴기간 이전에 구체적인 내용을 발표할 예정이다.

Japan has already implemented a range of stimulus measures totalling Y12,000bn, or 2 per cent of gross domestic product, as recommended by the International Monetary Fund.
일본은 이전에 IMF의 권고대로 12조엔의 부양책을 내놓았다

However, the Japanese economy has remained under severe stress, with exports plunging over the past few months. GDP fell by 3.3 per cent quarter-on-quarter in the last three months of 2008, and the most recent business sentiment survey by the Bank of Japan, released last week, showed optimism had deteriorated to a record low.
그러나 일본경제는 수출부진으로 어려움을 겪고 있다. GDP는 3.3%감소했고, 부정적인식이 팽배해졌다.

The measures come amid mounting suggestions that Mr Aso may be preparing for a general election.
이번 부양책은 아소가 총선을 대비해야 한다는 제안에 따라 나왔다.

The prime minister must call an election for the powerful lower house of parliament by the end of September, but popular discontent with his ruling Liberal Democratic party has complicated the timing.
총리는 하원을 강력하게 하기 위해 선거를 요청해야 하지만 자민당에 대한 대중의 불신때문에 상황이 복잡하다.

The stimulus package “stops things from getting worse . . . [but] it doesn’t necessarily make things better”, said John Richards, head of research at Royal Bank of Scotland in Tokyo.
경기부양책은 상황이 악화되는 것을 막을 것이나 나아지게 할 수는 없다.

Masaaki Kanno, chief economist at JPMorgan in Tokyo, said: “Japan has been doing the same things since the 1990s.”
일본은 90년대 부터 똑같은 일을 반복하고 있다.

Copyright The Financial Times Limited 2009