ECB to launch one trillion euro bond buying scheme on March 9

5 Mar9:54 PM

[NICOSIA] The European Central Bank said it will start its new government bond-buying programme on March 9, hoping that pumping new cash into the sagging eurozone economy will boost growth and lift inflation.

The ECB will purchase sovereign debt until at least September 2016.

"We will on 9 March 2015 start purchasing euro-dominated public sector securities in the secondary market. We will also continue to purchase asset-backed securities and covered bonds which we started last year," ECB President Mario Draghi told a news conference after the bank's policy meeting in Cyprus.

The buying will start as the eurozone shows signs of accelerating growth with major consumption and leading indicators beating forecasts since the ECB unveiled the asset purchase plan on Jan 22.

Mr Draghi said that the ECB's moves would support the emerging data.

The ECB plans to spend 60 billion euros (S$91.19 billion) a month on buying sovereign bonds, and some private sector assets.

REUTERS

     

Harper: economy will continue to grow despite oil slump

Andrea Hopkins, Reuters
2:31 PM, E.T. | March 4, 2015
Canadian

Tags: Stephen Harper

Follow this

The Canadian economy will continue to grow despite a sharp fall in the price of oil, but there is plenty of concern in the energy-producing province of Alberta, Prime Minister Stephen Harper said on Wednesday.
Harper, speaking to reporters after an event in Toronto, also repeated a promise that his Conservative government would balance the budget in the 2015-16 fiscal year. Canada is a major oil exporter.
The price of U.S. West Texas Intermediate crude, the North American benchmark, dropped by more than half between June 2014 and January because of abundant supply. It has recently been trading close to the $50 mark, up from a low of $45.
"The economy will continue to grow this year in Canada, albeit at less of a rate than we would have expected a year ago, and under those circumstances the government will balance the budget," said Harper.
The Canadian economy grew at a 2.4 percent annualized rate in the fourth quarter of 2014, down from 3.2 percent in the third quarter, Statistics Canada said on Tuesday.
The slump has prompted Alberta energy firms to lay off workers and slash spending.
"There is plenty of concern about this (in Alberta) and there will be effects and people understand that. People can see some of that," said Harper, who represents a parliamentary constituency in Alberta.
The prime minister though said the province's energy industry was resilient and would remain strong.
Harper, who faces an election this October, has long lauded what he calls the Conservatives' competent management of the economy, especially after the 2008 recession.
But amid sluggish growth and persistently high unemployment, as well as polls suggesting he could lose power to the opposition Liberals, he has recently put more focus on the fight against crime and terror.
Separately, at Wednesday's event in Toronto, Harper said the government would soon introduce legislation to ensure that what he called "the most heinous criminals" would have no choice of parole if sentenced to life in prison.

What's eating China's economy?

PUBLISHED ON MAR 5, 2015 11:30 AM

Pedestrians walking in the central business district of Beijing, China, on March 4, 2015. -- PHOTO: BLOOMBERG

• 
• 
• 
• 
• 

BY ANN WILLIAMS

China surpassed Japan as the world's No. 2 economy by gross domestic product in 2010 after three decades of rapid growth, fuelled by the largest urbanisation in history.

But its progress since has been increasingly rocky. Since recording its last double-digit growth (10.4%) in 2010, the Chinese economy has effectively decelerated 30 per cent in five years.

In 2014, the economy grew 7.4 per cent, its slowest expansion in 24 years.

On Thursday, Premier Li Keqiang at the National People's Congress cut the official growth target this year to around 7 per cent - the lowest goal in more than 15 years.

Here are 5 things that are troubling China's economy:

---

1. Credit boom and bad loans

Pedestrians walk in the central business district of Beijing, China, on March 4, 2015. -- PHOTO: BLOOMBERG

When Chinese exports collapsed in the wake of the global financial crisis five years ago, Beijing launched a credit-fuelled investment boom that reignited growth. In what was intended to be a temporary measure, it lifted controls on credit and flooded the economy with cash, much of which was funnelled into an expanding property and construction bubble.

The result is a mounting debt pile that includes souring loans to local government financing vehicles, or LGFVs, which funded the boom in construction.

Doubts about the creditworthiness of LGFV debt deepened last year, when Beijing started to pare back implicit guarantees for the regional financing units.

China's total debt pile - including borrowing by households, banks, governments and companies - ballooned to 282 per cent of national output in mid-2014 from 121 per cent in 2000, according to an estimate by the McKinsey Global Institute.

2. Property bubble

A man sits near apartment blocks in central Beijing, on Dec 22, 2014. -- PHOTO: REUTERS

Housing alone makes up 15 per cent of China's economy and falling prices represent one of the biggest risks to Chinese growth.

The entire real estate sector - including upstream and downstream industries such as steel, cement, glass, furniture, and appliances - accounts for 25-30 per cent of China's GDP so it is impossible for the economy to regain momentum without reviving this vital industry.

Even with last year's 4.5 per cent drop in housing prices, the first in two decades, the unraveling of the overbuilt real estate sector has hardly begun, Fortune magazine reported.

Underlining the fundamental mismatch in supply and demand, Goldman Sachs economists in a report in November last year estimated that around one-fifth of urban housing in China is empty. Fortune said last month that more than 60 million empty apartments await buyers.

Housing prices need to fall further to entice buyers. Unfortunately, plunging housing prices will not only hurt affluent Chinese who have poured their fortunes into investment properties, but will also trigger defaults by overleveraged real estate developers who can no longer service or repay their bank loans.

Some signs of stress are already emerging: Kaisa Group Holdings, a Shenzhen-based property developer that must repay billions of dollars in borrowings this year and whose bonds are traded in Singapore, rattled investors by missing payment deadlines on a loan and a bond after the local government blocked several of its projects late last year.

3. Industrial overcapacity and zombie firmsA bullet train runs past buildings under construction in Wuhan, Hubei province, on Feb 28, 2015. -- PHOTO: REUTERS

According to official estimates, industry in China is operating at 70 per cent of its capacity - compared with a healthy 80 per cent in the US. What this means is that China's key manufacturing sector will not return to financial health unless there is a huge increase in demand that can absorb an extra 10 percentage points of its potential industrial output - not so likely with the sluggish global economy.

The only way to restore vitality to China's industrial sector is to kill off its zombie firms - mainly large state-owned enterprises that have negative cash flows because their profit margins have been destroyed by excess capacity.

But China has been slow to killing off its zombies because this would result in unemployment, debt restructuring, and negative growth. Instead, many zombies are still being kept on life support with credit.

Some smaller companies have also resorted to borrowing at high rates to roll over old loans and keep their gates open for a few months longer.

4. Rising risk of deflation

An employee of the Industrial and Commercial Bank of China Ltd (ICBC) counts money at one of the bank's branches on Sept 24, 2014. -- PHOTO: REUTERS

The newest of all threats to China's economy, government officials last month warned of the rising deflation risk as consumer inflation fell to five-year lows.

It's a global trend triggered by the plunge in oil prices that began last year against weak demand for commodities and manufactured goods.

During periods of deflation, consumers may delay purchases based on anticipation of prices falling further and companies may put off investments due to declining sales, leading to the economy contracting.

To ease the deflation risk, China's central bank has further eased its monetary policy, cutting interest rates and increasing money supply, to spur economic growth.

5. Precarious balancing act

A woman holds Chinese yuan banknotes as she buys pork at a market stall in Beijing, China, on March 4, 2015. -- PHOTO: BLOOMBERG

Advocates of painful reform believe that China's economy will not be able to return to a sustainable growth path unless the government aggressively tackles the interconnected mess of a real estate bubble, excess industrial capacity, and financial deleveraging, said Fortune.

But doing so will likely cause an outright recession and civil and political unrest.

Instead, China's leaders are trying to balance the need to cushion the economy's slowdown with monetary and fiscal stimulus against the longer-term goal of shifting the economy from reliance on debt-fuelled investment towards greater consumption and services.

It's a difficult balancing act

China's central bank has cut interest rates and bank reserve requirements to make more credit available, increased government spending, reversed property cubs and put on hold financial deleveraging.

Without such policy support, China's GDP growth would fall further.

Sources: Fortune, Financial Times, Bloomberg News

Poll finds a majority of Canadians pessimistic about economy

Richard Blackwell, The Globe and Mail
2:50 PM, E.T. | March 3, 2015
Canadian

Tags: Economy

Follow this

Canadians are more pessimistic about the economy than they have been since late 2009, and are cutting back their spending as a result, a new survey suggests.
A poll conducted by Toronto advertising agency Bensimon Byrne shows that 55 per cent of those who responded think the economy is in decline. That’s the first time negative sentiment has outweighed positive views in the agency’s quarterly survey since November, 2009.
While a large majority of Canadians were understandably discouraged about the state of the economy during the recession, those with optimistic views have outnumbered the pessimists for the past five years.
Essentially “Canadians are feeling tapped out,” said Bensimon Byrne president Jack Bensimon. Several years of a limping economy has taken its toll, he added, as people deal with stagnating wages, higher costs of necessities, and high debt levels.
Ninety per cent of those surveyed said the cost of living is increasing faster than their incomes.
The sudden drop in oil prices, and the resultant fall in the Canadian dollar, has also put people on edge, Mr. Bensimon said. Even though many people will benefit from lower gasoline prices, they have been taken aback by the quick change in some key numbers. “A shock is a shock, and it reminds people of how precarious everything is,” he said. “People feel anxious about the future because unexpected things are happening.”
As a result of their pessimistic views, Canadians at all income levels are planning to reduce their spending, the poll suggests. That’s a move that could potentially dent the economy further.
Those surveyed plan to spend less than they did last year on almost all “discretionary” items, such as restaurant meals, liquor, cosmetics and vacations. They do, however, plan to spend more on essentials such as groceries, electricity, Internet fees and car maintenance.
“The increasing cost of essentials is crowding out discretionary spending on non-essentials,” Mr. Bensimon said. That could have a significant impact on the marketers who are his clients, and for many companies that count on consumer spending.
The worries about the economy could also have a significant impact on the federal election campaign later this year, Mr. Bensimon said, especially as all three major parties are courting the middle class. Significantly, his firm’s polling shows that health care has fallen behind economic issues – including the cost of living, retirement saving and income inequality – as key issues that people are concerned with. “Two-thirds of Canadians think that Canada needs a different perspective on economic development,” he said.

Household saving rate nears five-year low as financial risks increase

Tavia Grant, The Globe and Mail
7:26 AM, E.T. | March 4, 2015
Canadian

Tags: Household Debt

Follow this

Fissures are starting to show in the Canadian economy, and they’re not just from oil prices.
Canada’s household saving rate eased to a near five-year low of 3.6 per cent in the fourth quarter of 2014, the third-straight quarterly decline, Statistics Canada said Tuesday as it released gross domestic product data. The saving rate is defined as the ratio between net saving of the household sector and household disposable income.
Consumers have long buoyed Canada’s economy. In the fourth quarter, the country’s GDP expanded by a 2.4-per-cent annual pace, topping forecasts though slower than the 3.2-per-cent rate of the prior quarter. Consumer spending along with a buildup in inventories underpinned growth.
Lower gasoline prices and still-low borrowing costs should have given breathing room to consumers in the quarter. Instead, they had to dip into their savings to finance consumption. At the same time, household debt is near a record. As a result, Canadians are getting squeezed, leaving them with little to cushion against an unexpected event, such as a job loss.
“The decline in the savings rate to the lowest since 2010 is … not good news for consumption this year,” said Krishen Rangasamy, senior economist at National Bank Financial.
The report comes as the Bank of Canada is set to announce its rate decision Wednesday.
Most analysts expect the central bank will stand pat after it unexpectedly cut its key lending rate in January.
The central bank, which cautioned that lower oil prices will have an “unambiguously negative” impact on the Canadian economy, is trying to balance that against the indebtedness of Canadian households.
Lower oil prices mean lower Canadian income, Bank of Canada Governor Stephen Poloz said last week, adding that the oil-price shock will worsen the debt-to-income ratio of households, “thereby increasing financial stability risks.”
Business investment and trade, two areas the central bank is counting on to propel growth going forward, both slumped in the fourth quarter.
Given that the Canadian dollar has weakened further since then, making Canadian exports more competitive, the sector “should eventually be poised for a revival if global demand does not falter,” noted Arlene Kish, senior principal economist at IHS Global Insight.
For now, the buildup in inventories “doesn’t bode well for production and hence growth in early 2015,” Mr. Rangasamy said. That, combined with an expected slowdown in consumption, point to soft growth in the first half of this year, he added.
Momentum will also slow as the impact of lower oil prices starts to bite.
“The true damage to the Canadian economy caused by crude’s collapse will only be understood in upcoming data releases given the lags involved in employment and capital spending,” CIBC economists Avery Shenfeld and Nick Exarhos noted.
The household saving rate is the lowest since the first quarter of 2010. The current household saving rate, at 3.6 per cent, has ebbed from 5.9 per cent in early 2013. By contrast, in 1982, the rate was as high as 19.9 per cent.
For last year as a whole, household disposable income – in current dollars – grew 3.4 per cent, the slowest pace in five years, the agency said. Consequently, the household saving rate ebbed to 4 per cent from 5.2 per cent a year earlier. That decline came in the same year that the household debt-to-income ratio rose to a record 162.6 per cent.
All told, Canada’s economy grew 2.5 per cent last year, the strongest showing since 2011. Ms. Kish, at IHS, believes growth this year will be “considerably” lower than last year’s pace.

Vienna again tops survey of world's nicest cities

PUBLISHED ON MAR 4, 2015 11:31 PM

The Belvedere palace is pictured behind an advent market in Vienna on Dec 15, 2014. Vienna, Austria's elegant capital on the Danube river, has again been commended as offering the best quality of life of any city in the world. -- PHOTO: REUTERS

VIENNA (REUTERS) - Vienna, Austria's elegant capital on the Danube river, has again been commended as offering the best quality of life of any city in the world.

Baghdad, once more, was deemed the worst to live in.

The consulting firm Mercer said German and Swiss cities also performed well in its annual quality of living rankings. Zurich, Munich, Duesseldorf and Frankfurt remained in the top 10.

Mercer's survey helps companies and organisations determine compensation and hardship allowances for international staff.

It uses dozens of criteria such as political stability, health care, education, crime, recreation and transport.

With a population of 1.7 million, Vienna topped the survey for the sixth year in a row, boasting a vibrant cultural scene alongside comprehensive health care and moderate housing costs.

The Austrian capital's extensive public transport system costs just one euro (S$1.52) a day for an annual pass.

Its Habsburg-era coffee houses, architecture, palaces, operas and other cultural institutions make it a prime tourist destination.

Europe has seven of the world's top 10 cities in the 2015 survey.

New Zealand, Australia and Canada each have a city in the top 10.

Baghdad, the Iraqi capital, was again ranked lowest in the world. Waves of sectarian violence have swept through the city since the American-led invasion in 2003.