S Korea says time for more G20 policy coordination

FEB 15, 20168:11 AM

[SEOUL] South Korea will push for more policy cooperation from G20 nations at the group's upcoming summit in response to current challenges in global financial markets, an official from the country's finance ministry said.

"The G20 members need to show greater policy coordination regarding issues like interest rates and foreign exchange rates. Right now everyone tends to do their own thing," Hwang Kunil, director general of the ministry's international financial policy bureau, told Reuters on Friday.

Mr Hwang, who was referring to the meeting of finance ministers at the end of February in Shanghai, was appointed to his spot which oversees international financial movements early this month in a regular ministry shuffle.

The comments echoed those made by Japanese Finance Minister Taro Aso last week, who hopes the meeting participants will consider a global policy response in the wake of recent market turmoil.

"As the G20 chair, I hope China can show good leadership in helping all the countries overcome this ongoing turmoil," Mr Hwang said.

The South Korean won and local shares have experienced severe volatility from the start of the year after a US rate hike in December, rocky stock markets in China and the adoption of negative interest rates in Japan.

Local bond prices have soared with treasury bond yields skidding to new record lows as investors seek safe-haven assets.

South Korean Finance Minister Yoo Il-ho is also planning to attend the meeting in Shanghai and seek greater coordination between member countries, Mr Hwang said.

As for measures inside the country against excessive financial turbulence, Mr Hwang said policymakers are in the process of fine-tuning contingency plans that may be used in times of a financial crisis.

He stated the government is also considering tweaking its existing capital controls, which were established in previous years to curb capital inflows, but said there are no announcements of changes imminent.

Up until recently, market conditions have not been severe enough to activate the government's contingency plans, the director general added, although foreign exchange officials are watching the situation very closely.

"In case of severe turbulence in markets we are ready to act firmly," Mr Hwang said.

REUTERS

    
 

Japan economy shrinks more than expected, adds to fears of global slowdown

Japan's economy contracted an annualised 1.4 per cent in the final quarter of last year as consumer spending slumped, adding to headaches for policymakers already wary of damage the financial market rout could inflict on a fragile recovery. 

PHOTO: AFP

FEB 15, 20168:15 AM

[TOKYO] Japan's economy contracted an annualised 1.4 per cent in the final quarter of last year as consumer spending slumped, adding to headaches for policymakers already wary of damage the financial market rout could inflict on a fragile recovery.

The data underscores the challenges premier Shinzo Abe faces in dragging the economy out of stagnation, as exports to emerging markets fail to gain enough momentum to make up for soft domestic demand.

Market speculation of additional monetary easing simmers, although the Bank of Japan's policy ammunition appears to be dwindling, analysts say, after it deployed negative interest rates last month.

The contraction in gross domestic product (GDP) was bigger than a median market forecast for a 1.2 per cent decline and followed a revised 1.3 per cent increase in the previous quarter, Cabinet Office data showed on Monday. It matched a fall marked in April-June last year.

Private consumption, which makes up 60 per cent of GDP, fell 0.8 per cent, more than a median market forecast for a 0.6 per cent decline, a sign Abe's stimulus policies have so far failed to nudge households into boosting spending.

In a glimmer of hope for policymakers, however, capital expenditure rose 1.4 per cent, confounding market expectations for a 0.2 per cent decrease.

While domestic demand shaved 0.5 per centage point off GDP growth, external demand, or net exports, added 0.1 point due to a decline in the value of imports caused by falling oil prices.

Last month the Bank of Japan unexpectedly cut a benchmark interest rate below zero, stunning investors with another bold move to stimulate the economy as volatile markets threatened its efforts to overcome deflation.

REUTERS

    
 

UK employers plan to rein in wage increases in 2016

FEB 15, 20168:17 AM

[LONDON] British employers expect to raise wages this year by far less than the Bank of England forecasts earnings will increase, due to low inflation and rising employment costs, an industry survey showed on Monday.

Employers plan to increase their staff's average basic pay by just 1.2 per cent in the 12 months to 2016, down from a planned rise of 2 per cent in a survey three months ago, the Chartered Institute of Personnel and Development said.

This is the lowest wage rise planned in more than two years, and the CIPD - a professional body for human resources staff - said it raised doubt about BoE forecasts that average earnings would rise by 3 per cent by the end of 2016. "The feedback we're seeing from employers suggests that official forecasts for wage inflation for 2016 are too optimistic," CIPD labour market analyst Gerwyn Davies said.

Near-zero inflation, greater pension costs, a big rise in the minimum wage and a new government levy to fund apprentices all limited employers' willingness to offer pay rises for the average employee, the CIPD said.

The Confederation of British Industry urged finance minister George Osborne on Monday not to introduce any measures that push up employment costs further in his annual budget next month. "In the context of a more fragile global economy ... any more could tip investment decisions, could tip growth plans, could tip job creation," CBI Director-General Carolyn Fairbairn said.

CIPD said employers still planned to hire strongly in the first three months of 2016.

Last week the CBI forecast earnings growth of 2.2 per cent for 2016 and 2017, while a BoE survey showed firms planned to raise wages by 2.8 per cent this year, up from 2.4 per cent in 2015.

The BoE is keeping a close eye on wage growth as it mulls its first interest rate hike in nearly a decade, and has thus far kept its powder dry thanks to sluggish wage growth and inflation which has hovered around zero for months.

Official wage data due on Wednesday are forecast to show British average earnings rose just 1.9 per cent in the last three months of 2015, down from 3 per cent in the middle of the year, despite record employment levels.

The official average weekly earnings measure - which the BoE and CBI forecast - does not necessarily track pay rises exactly, due to changes in the mix of jobs and hours worked.

The CIPD forecast was based on polling more than 1,000 human resources staff and employers, whose responses were weighted to reflect Britain's mix of private, public and voluntary sector employers.

REUTERS

    
 

Most UK firms seriously weighing risks of Brexit, says CBI head

FEB 15, 20168:20 AM

[LONDON] Most major British firms are seriously considering the risk of Britain leaving the European Union (EU) and many are making contingency plans, according to the head of the Confederation of British Industry.

Speaking to reporters at a briefing, CBI Director-General Carolyn Fairbairn said the prospect of a British referendum around the middle of the year on whether to leave the EU was a growing concern for business.

Prime Minister David Cameron hopes to reach a deal to reform the European Union at a summit of EU leaders this weekend, which he can put to voters in a referendum many analysts expect to be held in late June.

Recent opinion polls have shown a narrow but growing lead for campaigners who want to leave the EU.

"You are now seeing a number of companies recently that have had contingency plans (and) are debating important questions of what it means for their suppliers and their exports and so on," Ms Fairbairn said.

"I would say it is most, now, that have given the issue serious thought," she added, based on having met almost 100 businesses since she took the CBI's helm in November.

No firms have spoken publicly in any detail about how they would react if Britain decided to leave the 28-member bloc and had to renegotiate a raft of global trade deals.

But behind closed doors, some companies - including major international banks based in London's financial district - have spent tens of millions of dollars considering their options, according to firms advising them.

Ms Fairbairn's comments show contingency planning is now common, and she said it was not concentrated in any one sector.

The Bank of England has confirmed that it has looked at what might happen if Britain voted to leave the EU, although finance minister George Osborne has said the government is wholly focused on ensuring reform of the bloc.

The CBI said most of its members wanted to stay in a reformed EU, and it has generally pointed to the benefits of staying in, drawing criticism from 'leave' campaigners.

Last week the CBI said firms' investment intentions had not been affected by the prospect of the vote. But at the briefing Ms Fairbairn said this could change, given Scotland's experience of a referendum on independence in 2014.

"We are not surprised not to see an impact now," she said.

"One of the things we saw from the Scottish referendum is that those decisions around investment tended to be quite late, at the point at which a date was actually announced."

REUTER
S

Airbus, Boeing count on China to buffer Southeast Asia slowdown

Asia's biggest airshow kicks off in Singapore this week amid a rout in the global financial markets. You can't tell any of that looking at plane orders for Airbus Group SE and Boeing Co. 

PHOTO: REUTERS

FEB 15, 20167:48 AM

[NEW DELHI] Asia's biggest airshow kicks off in Singapore this week amid a rout in the global financial markets. You can't tell any of that looking at plane orders for Airbus Group SE and Boeing Co.

The hey days of multi-billion orders from India and nations in Southeast Asia is giving way to concerns about airlines in the region delaying delivery of planes. The lone bright spot - China.

China Southern Airlines Co, Air China Ltd and other carriers in the nation will require about 6,330 new planes worth US$950 billion in the next two decades, according to Chicago-based Boeing. That's about 17 per cent of the global total. During last year alone, Chinese airlines and leasing companies announced orders for some 780 planes valued at about US$102 billion.

"China's aviation outlook is not just bright, but arguably the strongest it has been in its history," said Will Horton, a Hong Kong-based analyst at CAPA Centre for Aviation. "Chinese airlines are waking up to their potential." As China re-balances its economy toward consumer spending after its slowest annual growth rate in 25 years, the government is trying to encourage more air travel by building 66 airports as part of its current five-year plan. That good news for the aerospace and airline industries contrasts with overcapacity and losses among airlines in Southeast Asia and India.

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MOMENTUM SWING

From Brazil's Embraer SA to Bombardier Inc of Canada, aerospace manufacturers will chase hard to come by orders during the Singapore Airshow, which starts on Tuesday.

United Technologies Corp's engine-maker Pratt & Whitney will open its engine fan- blade manufacturing facility in the city state this week. No major Chinese airline executive will be at the show. China's future as the world's biggest travel and aircraft market and a gradual shift in momentum toward Asia are among themes aerospace manufacturers and airlines will discuss.

Airbus's and Boeing's 20-year outlooks are dependent on Asia Pacific for new fleet sales, with estimates that 39 per cent of their total deliveries will be to that region through 2034.

ORDER SPREE

China is poised to displace the US as the world's biggest aircraft and travel market in two decades, according to Boeing. The Chicago-based company announced its largest industrial investment in China and received US$38 billion in orders from its carriers and lessors when President Xi Jinping visited Boeing's Seattle factory in September. Airbus already has a final jet assembly facility near Beijing.

"The overall Chinese economy has slowed down," Tony Tyler, head of the International Air Transport Association, said in Singapore Sunday. "However, air travel in China has remained quite robust."

It's a different story in Southeast Asia and India, two other regions that saw a surge in air travel and aircraft orders. Many carriers are mired in losses, some have shut shop and a few have already delayed delivery of new planes.

India is home to a fare war and the industry has long remained unprofitable.

Airlines in this region have over-ordered aircraft, according to Shukor Yusof, founder of Endau Analytics in Malaysia. Given Airbus's bigger exposure to budget airlines in Southeast Asia, the European planemaker has a higher risk of having to confront deferrals or cancellations, Mr Shukor said.

AIRBUS'S CHALLENGE

Airbus has the greatest Asia Pacific concentration in its narrow-body backlog at 30 per cent, 15 percentage points higher than Boeing's, Bloomberg Intelligence analysts George Ferguson and Ian McFarlane wrote in a report this month.

It's most exposed to carriers in Southeast Asia and India, with Lion Air (463 aircraft), Indigo (430) and AirAsia (307) accounting for 51 per cent of Asian orders.

The Bloomberg Asia Pacific Airlines Index has fallen 16 per cent this year amid concerns of a global economic slowdown even as oil prices are down. Boeing shares have fallen 25 per cent and Airbus has declined 17 per cent.

"As long as fuel prices stay low, disposable income is with the consumer and air travel is still in reach," said Mark Martin, founder of Dubai-based Martin Consulting LLC.

That's prompting China to allocate about 77 billion yuan (S$16.5 billion) for investment in civil aviation this year. The nation is planning to build new airports to boost the national total to 272 by 2020, according to a summary of 2015 figures released by the aviation regulator.

"China is not heading for a downturn," Mr Horton said. "It's heading for an upturn."

BLOOMBERG

    
 

Focus on partisan advantage has rendered modern democracies ineffective: Ng Eng Hen

By

Kelly Taykellytay@sph.com.sg@KellyTayBT

FEB 14, 201610:59 PM

MODERN democracies have been unable to govern effectively, in part because they have focused on partisan advantage, said Minister for Defence Ng Eng Hen in Germany on Sunday.

"We all understand how modern democratic, liberal democratic systems work - checks and balances to counter the concentration of power of dictators. But modern democracies focused on partisan advantage and interests, and have not been able to govern effectively," said Dr Ng.

Using the example of the US - because it is the richest democracy - Dr Ng noted how in recent years, the US federal government faced shutdown when its budget could not be passed.

"Coalition governments compromise themselves into ineffectiveness. So citizens become disenfranchised and cynical about the entire political process," said Dr Ng.

He was speaking at the 8th Munich Young Leaders Round Table on the sidelines of the 52nd Munich Security Conference.

    
 

Yen off highs on calmer sentiment, eyes on China

The yen nursed losses early on Monday, having retreated from its highest in over a year as a rally in European and US stocks late last week dulled demand for the safe-haven currency. 

PHOTO: BLOOMBERG

FEB 15, 20167:57 AM

[SYDNEY] The yen nursed losses early on Monday, having retreated from its highest in over a year as a rally in European and US stocks late last week dulled demand for the safe-haven currency.

But there was not much follow-through yen selling in Asia yet as investors kept a nervous eye on Chinese financial markets, which reopen after a week-long holiday.

The dollar was up a touch at 113.64 yen, having pulled away from a 15-month trough just under 111.00. The euro fetched 127.61 yen, up from a 2-1/2 year low of 125.795. "The China equity market's reaction to last week's turmoil as well as the degree, if any, of a lower USD/CNY fixing could set the tone for the week," said Rodrigo Catril, FX strategist at National Australia Bank.

Adding to the suspense is China's trade data due later in the day. A disappointing outcome could easily re-ignite flight-to-safety flows.

Perhaps in an effort to head off any adverse reaction from Chinese investors, central bank governor Zhou Xiaochuan said there was no basis for the yuan to keep depreciating.

In the well-timed interview, carried in the Chinese financial magazine Caixin over the weekend, Mr Zhou also said China would keep the yuan basically stable versus a basket of currencies while allowing greater volatility against the US dollar.

For now though, investors were still soothed by a welcome bounce in US consumer spending last month, which offered hope the economy was picking up after slowing to a crawl at the end of 2015.

The data helped the greenback regain some ground versus the euro. The common currency was last at US$1.1233, having slipped from a 3-1/2 month peak of US$1.1377.

Commodity currencies put in a mixed performance. The Australian dollar kept its head above 71 US cents, while the kiwi was at US$0.6625, having slipped from Friday's high of US$0.6740.

REUTERS