Eurozone emerges from recession

 

Germany, the world’s biggest exporter, has seen a pick-up in exports

The eurozone economy has emerged from recession after growing between July and September, figures have shown.

The 16 nations that use the euro collectively grew 0.4%, after shrinking by 0.2% between April and June.

The French and German economies both grew for a second consecutive quarter, confirming the eurozone’s two largest economies are out of recession.

However, both France and Germany grew by less than expected, a sign of how tentative signs of recovery remain.

The European Union as a whole – which includes non-eurozone countries such as the UK and Sweden – also emerged from recession, growing 0.2% in the third quarter.

Germany’s economy grew by 0.7% in the quarter, while France grew by 0.3%. Both economies and Japan ended year-long contractions in the second quarter of the year, while the US has since joined them after its economy grew in the third quarter.

However, the UK remains in recession, having contracted by 0.4% between July and September.

The UK, Europe’s second largest economy, has now contracted for six consecutive quarters, the first time this has happened since quarterly figures were first recorded in 1955.

Faster recovery

Economists had expected Germany to grow by 0.8% in the third quarter, and France’s growth was only half what had been predicted.

Germany’s Desatis statistics office also revised upwards its estimate for growth in the second quarter, to 0.4% from 0.3%.

Though the data on Friday was weaker than expected, few analysts had even predicted at the start of the year Germany and France would start to recover so soon.

"The German economy has emerged from the deep recession earlier and faster than many had thought," ING economist Carsten Brzeski said.

French Finance Minister Christine Lagarde told Europe 1 radio that while the country’s economy would have contracted during 2009 overall, it would enter next year "with elan".

France and Germany may have been less hard hit than the UK by the global economic slowdown because their financial sectors, which were at the heart of the crisis, account for a smaller proportion of their economies.

Stronger exports and consumer spending, as well as government stimulus packages, have contributed to the growth in the eurozone’s largest economies.

The data released on Friday showed that Italy, Austria and Slovakia had also emerged from recession in the third quarter.

However, Spain’s troubled economy contracted further in the quarter.

Rising inflation threat seen in South Asia

WASHINGTON: Rising inflation is posing a threat to South Asia, with the situation most worrying in the Maldives where a foreign currency black market has emerged, a senior World Bank economist has warned.

Pakistan was set to have the highest rate in the region at at 20.7 per cent, followed by Nepal at 13.2 per cent and Bangladesh at 5.2 per cent this year, the International Monetary Fund said. Above: People try to get subsidized sacks of flour provided by the government in Rawalpindi during Ramadan —Photo by AP

Noting that the median inflation rate in South Asia was more than twice that of Latin America and the Caribbean, economist Eliana Cardoso asked whether policymakers in the region should be concerned ‘and wonder whether they are doing something wrong.’

In the third quarter of 2009, inflation in South Asia, which aside from the Maldives comprises India, Pakistan, Nepal, Bangladesh, Afghanistan, Sri Lanka and Bhutan, hit an average 10.9 per cent, the World Bank said.

It compares with just 2.9 per cent in Latin America and the Caribbean.

‘From the price stability perspective the most worrying situation is that of the Maldives,’ Cardoso, the bank’s chief economist for the South Asian region, wrote on the ‘World Bank’s End Poverty in South Asia’ blog.

She said that the budget deficit in Maldives, the region’s most exotic tourist destination, was projected to reach 33 per cent by the end of the year and ‘a black market for foreign currency has emerged.’

Cardoso noted that the Maldives government had promised fiscal adjustment.

President Mohamed Nasheed has said that his atoll nation was facing its worst economic crisis ever because of a sharp fall in tourist numbers and chronic government overspending.

While Afghanistan, despite raging violent conflicts, has been able to keep its macroeconomic policy under control, fiscal slippage in Nepal could undermine macroeconomic stability, Cordoso said.

She proposed tightening of monetary policy in the Himalayan nation since real interest rates were negative at present.

In India, the South Asian giant, widening budget deficits are the most visible obstacle to stable and sustainable growth, Cardoso said.

New Delhi has forecast that inflation could hit 6.5 per cent by the end of the financial year to March 2010 amid speculation the central bank could be forced to raise benchmark borrowing rates early in the new year in an attempt to check rising prices.

But the Indian government is keen for the bank to hold off on rate rises for as long as possible in order to sustain India’s fragile economic recovery.

The International Monetary Fund expects the inflation rate in India to be 8.6 per cent in 2009.

Pakistan was set to have the highest rate at 20.7 per cent, followed by Nepal at 13.2 per cent and Bangladesh at 5.2 per cent this year, the fund said.

Cardoso said that in general, the recipe for hyperinflation was the monetization of budget deficits in countries afflicted by political instability or conflict.

Monetization usually refers to the printing of money by central banks.

‘Even if the threat of mega inflation is far removed from the South Asia scenarios, the combination of big budget deficits and loose monetary policy seems to be present in some countries of the region,’ Cardoso said.

She pointed out that it was possible that the higher inflation in South Asia was ‘just a passing cloud blown by the spike in food prices.’

The Brazilian economist recalled the days when Latin America was the land of inflation with hyperinflation in Bolivia, Brazil and Argentina hogging the news in the 1980s and early 1990s.

‘At that time, Asia was seen as immune to the Latin disease. Since then, much water has gone under the bridge.’ —Reuters

IMF sees recovery for Pakistan, with risks

By Amin Ahmed
Friday, 13 Nov, 2009

ISLAMABAD: The International Monetary Fund announced on Thursday that while risks to Pakistan’s economy remained, the early signs of recovery in some sectors were encouraging.

A statement issued at the end of the IMF mission’s talks with a Pakistani delegation in Dubai said the fund welcomed the efforts being made by the authorities to stabilise the economy, to advance structural reform and lay the foundations for high and sustainable growth.

The statement said: ‘Discussions between the authorities and the IMF staff on the third review of the economic programme supported by the SBA are scheduled to be completed shortly.

‘The IMF mission held constructive discussions with government and State Bank officials, focussing on Pakistan’s recent economic performance, the outlook for the rest of the fiscal year 2009-10, and policies needed to consolidate macroeconomic stability and reduce poverty.

‘The discussions took place against the background of changing security conditions and delays in donor disbursement of financial aid.

‘The IMF staff mission led by Adnan Mazaeri met the Pakistan economic team led by Finance Minister Shaukat Tarin to initiate discussions on the third review under Pakistan’s Stand-by Arrangement (SBA).

‘The SBA of SDR 5.169 billion (about $7.6 billion) was approved by the Executive Board of the IMF on November 24, 2008. The SBA was augmented to SDR 7,235.9 million (about $11,327 million) and extended through end-2010.

‘A first disbursement of SDR 2.067 billion (about $3.1 billion) was made on November 26, 2008 and a second one of SDR 568.5 million (about $847 million) on April 1, 2009, after completion of the  first programme review.

‘The third disbursement of SDR 766.7 million (about $ 1,200 million) was made on August 7, 2009, after completion of the second programme review. Total disbursements thus far amount to SDR 3,402.6 million (about $5,327 million).’