Saturday, February 28, 2015

China central bank cuts rates again; India budget tries to have it both ways; Life is a big deal

1 China central bank cuts rates (San Francisco Chronicle) China's central bank has cut interest rates for the second time in three months, adding to signs the country's leaders are worried the economic slowdown is deepening too sharply. The People's Bank of China announced a rate cut on one-year loans by commercial banks by 0.25 percentage point to 5.35 percent. The interest rate paid on a one-year deposit was lowered by 0.25 point to 2.50 percent.

Last year, China's economic growth fell to 7.4 percent — the lowest since 1990. It is expected to decline further this year, and a steep economic decline can raise the risk of politically dangerous job losses. The latest round of cuts follow a string of tax reductions and other measures aimed at propping up growth. The government cut business taxes last week and has announced a pay hike for civil servants.

The lower rates are expected to reduce financial costs for state companies and are a signal to state-owned banks to boost lending to them. Economic growth in the world's second-largest economy has slowed down steadily over the past two years, mostly as a result of government efforts to steer the economy to more self-sustaining growth based on domestic consumption and to reduce reliance on trade and investment.

The impact of the slowdown will vary depending on a country's exposure to China. In the US, most people won't notice the impact at all. While US exports to China total about $100 billion a year, that's less than 1 percent of the gross domestic product of the US, which has a $17 trillion economy.

2 India budget tries to have it both ways (Geeta Anand in The Wall Street Journal) India Prime Minister Narendra Modi’s budget balanced the need for fiscal responsibility with the imperative of greater public-sector investment to lay the groundwork for economic growth. As he unveiled next year’s budget in Parliament, Finance Minister Arun Jaitley said the government would hit its deficit target of 4.1% of gross domestic product for the year ending March 31.

But Mr. Jaitley said that in following years, the administration would give itself more latitude to spend than it had originally promised. It would “not be pro-growth to stick to fiscal consolidation,” following the government’s earlier, aggressive plan, Mr. Jaitley said. So, instead of aiming for 3.6% in the coming fiscal year, it will shoot for 3.9%. “The additional fiscal space will go toward funding infrastructure investment,” he said.

That is a welcome change. In recent years, capital expenditures have been trimmed to meet fiscal deficit targets – with serious consequences. India needs better transport, power, sanitation, health and education to facilitate business expansion. The young country’s demographic dividend will be a liability, not a boon, if India can’t create enough jobs and give its youth the training needed to do them.

Mr. Modi should also have given himself additional room for spending by expanding the country’s tax revenues, something he shied away from doing – at least in a big way. India is massively undertaxed, with total tax revenue as a percentage of GDP at 10%, a far lower ratio than among its peers. Instead, Mr. Jaitley announced a reduction in the corporate tax rate to 25% from 30% over the next four years.

On the positive side, the Modi government avoided the politically expedient move of exempting more people from paying the income tax. That is welcome, considering only about 3 percent of Indians get an income tax bill, far less than in most countries, including China, where the income tax is levied on 20 percent of the population.

3 Life is a big deal (Asha Iyer Kumar in Khaleej Times) I am becoming increasingly aware of the ‘mutual back-scratching’ phenomenon that dictates relationships. We may hurry to deny it, but how many times have we taken a person’s card and coordinates because it might be of use sometime! How many times have we extended help in the expectation that it will be returned when we have a need! And how many times we have dropped people out of our lives because we have no more use for them! Bare it, folks, we do it quite regularly.

The imperatives of our connections are based on a simple question — what’s in it for me? At least three people have told me in the days following the recent publication of my book that they will buy mine if I bought theirs. Fair enough, because, as writers we are all struggling, and if we can get buyers for our books even if by conning and cajoling, why not? We are after all in the business of life, aren’t we? So let us put our ethics aside and talk commerce.

Why, after all, should we do favours? What’s the value addition to my life and my economy if I use my influence to your benefit? Favours need to be reciprocated, buddy, so tell me what my incentive is. Be my friend, by all means, but not with the sole intention to further your cause. Let us exchange good turns in the course of our friendship, and let not motives govern our ties.

We are all victims of this indiscretion in equal measure, and culprits in varying degrees. It is preposterous that we inflict the same wounds that we ourselves nurse. We are caught in our own web of delinquencies. It will take immense effort for us to break the shackles of self-love that reduces our personal alliances to mere marriages of conveniences. Relations without reasons — how quixotic that sounds to my own ears in this age of love bartered for business!

Friday, February 27, 2015

US economy slows in fourth quarter; Choking in China; Retreating Antarctic ice may reshape earth

1 US economy slows in fourth quarter (The Guardian) The US economy slowed more sharply in the final three months of the year than initial estimates, reflecting weaker business stockpiling and a bigger trade deficit.  The Commerce Department said that the economy as measured by the gross domestic product grew at an annual rate of 2.2% in the October-December quarter, weaker than the 2.6% first estimated last month.

Economists, however, remain optimistic that the deceleration was temporary. Many forecast that growth will rise above 3% in 2015, which would give the country the strongest economic growth in a decade. They say the job market has healed enough to generate strong consuS emer spending going forward.

For all of 2014, the economy expanded 2.4%, up slightly from 2.2% growth in 2013. Sal Guatieri, senior economist at BMO Capital Markets, said that “while the economy ended the year with less momentum than in the summer and fall, average annual growth of 2.9% in the past six quarters still denotes a meaningful upward shift from 2.1% in the first four years of the recovery”.

2 Choking in China (Rahul Goswami in Khaleej Times) During the winter months especially, the anti-pollution face mask in China is as essential as the mobile phone. For all of the last decade, grim statistics of coal emissions and readings of airborne particulate concentrations have become commonplace in China, as much inside the country as outside.

The appalling levels of air pollution in the People’s Republic — together with widespread environmental degradation and the exposure of human and animal populations to chemicals and pesticides — are said to cause 1.2 million premature deaths per year, caused by cardiovascular disease, respiratory ailments and virulent cancers of the liver, bone, lung, breast and blood.

These are the casualties of China’s rapid economic ‘growth’, and the legion of multinational corporations which have outsourced manufacturing jobs to China on such a vast scale must be considered complicit. Solutions will certainly not come easily. The central government in Beijing recently announced a ban on all coal use in the capital by 2020, but China’s existing coal plants will spew out carbon pollution elsewhere for decades to come.

So central to life has pollution in China become that a work of fiction, written by Li Chunyuan, the deputy head of the environmental protection bureau in the Hebei city of Langfang, has become extremely popular. Li’s fictional work owes it popularity to how accurately it describes the real world of pollution in China and the official responses to it — all too often diversionary and clumsy. Air pollution levels in and around Beijing remained dire all through 2014.

Change has come at last to China in the official recognition that to breathe the very air in the People’s Republic is hazardous to health. It is now time for China to translate that recognition into a concerted programme away from polluting industry, power generation, and chemicals and pesticides use.

3 Retreating Antarctica ice may reshape earth (San Francisco Chronicle) From the ground in this extreme northern part of Antarctica, spectacularly white and blinding ice seems to extend forever. What can't be seen is the battle raging thousands of feet below to re-shape Earth.

Water is eating away at the Antarctic ice, melting it where it hits the oceans. As the ice sheets slowly thaw, water pours into the sea — 130 billion tons of ice (118 billion metric tons) per year for the past decade, according to NASA satellite calculations. That's the weight of more than 356,000 Empire State Buildings, enough ice melt to fill more than 1.3 million Olympic swimming pools. And the melting is accelerating.

In the worst case scenario, Antarctica's melt could push sea levels up 10 feet (3 meters) worldwide in a century or two, recurving heavily populated coastlines. Parts of Antarctica are melting so rapidly it has become "ground zero of global climate change without a doubt," said Harvard geophysicist Jerry Mitrovica.

Just last month, scientists noticed in satellite images that a giant crack in an ice shelf on the peninsula called Larsen C had grown by about 12 miles (20 kilometers) in 2014. Ominously, the split broke through a type of ice band that usually stops such cracks. If it keeps going, it could cause the breaking off of a giant iceberg somewhere between the size of Rhode Island and Delaware, about 1,700 to 2,500 square miles (4,600 to 6,400 square kilometers), said British Antarctic Survey scientist Paul Holland.

The world's fate hangs on the question of how fast the ice melts. At its current rate, the rise of the world's oceans from Antarctica's ice melt would be barely noticeable, about one-third of a millimeter a year. The oceans are that vast. But if all the West Antarctic ice sheet that's connected to water melts unstoppably, as several experts predict, there will not be time to prepare.

Thursday, February 26, 2015

Cyber attacks top US threat list; Facebook claims 2m advertisers; Punishing big banks

1 Cyber attacks top US threat list (BBC) US intelligence agencies have placed cyber attacks from foreign governments and criminals at the top of their list of threats to the country. Online assaults would increasingly undermine US economic competitiveness and national security, said Director of National Intelligence James Clapper.

A report issued by his office said Russia's military was setting up a cyber command to carry out attacks. The report also describes China, Iran and North Korea as leading threats. In testimony to a congressional committee, Mr Clapper said he no longer believed the US faced "cyber Armageddon". The idea that major infrastructure such as financial networks or power grids could be disabled by hackers now looked less probable, he said.

However he warned: "We foresee an ongoing series of low-to-moderate level cyber attacks from a variety of sources over time, which will impose cumulative costs on US economic competitiveness and national security." Over the past year there have been a series of high-profile cyber attacks against US targets.

2 Facebook claims 2m advertisers (San Francisco Chronicle) Facebook has said it has more than 2 million active advertisers, double its amount from a year and a half ago. “Our mission is to make the world more open and connected, and an important part of that is helping people connect with businesses,” said Facebook’s Chief Operating Officer Sheryl Sandberg and CEO Mark Zuckerberg in a blog post.

Facebook has tried to woo small businesses, encouraging them to pay to promote their posts on the social network, narrowing their audience by interests, location and age. In 2013, it got complaints from small businesses upset that the network’s algorithms made it harder for their posts to be seen on Facebook’s news feed without paying for an ad.

Facebook continues to grab global digital ad revenue. Last year, it had nearly 8 percent market share in this category, up from about 6 percent in 2013, according to research firm eMarketer. Rob Enderle of the advisory services firm Enderle Group, warned that Facebook does face challenges from smaller, niche social networks such as Nextdoor, which focuses on neighborhoods, or LinkedIn for business people.

3 Punishing big banks (Khaleej Times) Often claimed to be too big to fall (or to fail), the world’s biggest banks are now in the eyes of the public too big to be honest. And that absence of honesty is why HSBC chairman Douglas Flint has failed to take responsibility for the bank’s alleged criminal transgressions in Switzerland.

More infuriating still for the British public, who have followed the workings of a Treasury Select Committee taking evidence about HSBC and its possible role in tax evasion, is that neither Flint nor the bank’s CEO, Stuart Gulliver, have mentioned personal responsibility for the transgressions.

HSBC is Britain’s largest — and the world’s second largest — bank, and has been caught quite red-handed facilitating industrial-scale tax evasion, committed by some of its wealthiest clients. In keeping with the appalling absence of honesty, integrity and responsibility that HSBC has displayed from at least 2008 the bank’s chairman initially denied HSBC’s Swiss subsidiary had facilitated tax avoidance.

There is now a clear signal that the latest transgression by HSBC, and the widespread vociferous public reaction to the leak, has moved the authorities in the UK to act. Under the circumstances, better late than never may be some comfort to the public in Britain and elsewhere. The impunity of big banks has indeed been galling. The Libor scandal was exposed in 2012, implicating a cartel of banks in the fraudulent manipulation of the average interest rate of London banks.

And, in November 2014 five of the world’s biggest banks — JP Morgan Chase, UBS, Citigroup, the Royal Bank of Scotland, and HSBC — were collectively fined US$4.25bn by British, Swiss and American authorities for fixing foreign exchange rates. It is well past high time for strict, long-lasting penalties on those who keep the hard-earned monies of the public.

Wednesday, February 25, 2015

A billion viewers and no profit for YouTube; Zero-hour contracts swell in UK; Oil boom end spells pain for Latin America

1 A billion viewers and no profit for YouTube (Rolfe Winkler in The Wall Street Journal) Google nurtured YouTube into a cultural phenomenon, attracting more than one billion users each month. Still, YouTube hasn’t become a profitable business.

The online-video unit posted revenue of about $4 billion in 2014, up from $3 billion a year earlier, according to two people familiar with its financials. But while YouTube accounted for about 6% of Google’s overall sales last year, it didn’t contribute to earnings. After paying for content, and the equipment to deliver speedy videos, YouTube’s bottom line is “roughly break-even,” according to a person with knowledge of the figure.

By comparison, Facebook generated more than $12 billion in revenue, and nearly $3 billion in profit, from its 1.3 billion users last year. The results reflect YouTube’s struggles to expand its core audience beyond teens and tweens. Most YouTube users treat the site as a video repository to be accessed from links or embedded video players posted elsewhere, rather than visiting daily.

Google bought YouTube in 2006 for $1.65 billion, but generated little revenue in the early years. Past efforts to make YouTube more of a regular destination bore little fruit. One reason is that it caters to a narrow audience of young viewers. The narrow audience means advertisers typically reach far fewer people than via television, says Pivotal’s Mr. Weiser. He estimates that 9% of viewers account for 85% of online-video views.

2 Zero-hour contracts swell in UK (Phillip Inman in The Guardian) Nearly 700,000 people are on zero-hours contracts in their main job - a rise of more than 100,000 on a year ago - according to new official figures. The rise is likely to trigger renewed debate over the widespread use of contracts that offer no guarantee of hours and only those benefits guaranteed by law, such as holiday pay.

The Office for National Statistics said the number of people estimated to be employed on a zero-hours contract in their main job was 697,000, representing 2.3% of all people in employment. In the same period in 2013, the figure was 1.9% of all people in employment, or 586,000.

Some of Britain’s largest employers offer zero-hours contracts to employees. High street giants such as JD Wetherspoon, Burger King, Domino’s Pizza, Sports Direct and McDonald’s all use the deals. The ONS said over half of businesses in the hotel and catering sectors used the contracts. Universities and colleges have become large-scale users of zero-hours contracts, while an estimated 160,000 care staff are also on similar deals.

University and College Union general secretary, Sally Hunt, said: “The use of zero-hours and other forms of casualised contracts in education is one of the great scandals of our time. Without a proper contract staff cannot plan their lives on a month-to-month or even a week-to-week basis.”

3 Oil boom end threatens pain for Latin America (San Francisco Chronicle) Soaring oil prices the past decade transformed a rural backwater into Colombia's richest city as nearby fields pumped black gold, drawing new businesses, international pop stars and vanity art projects. Now, crashing crude prices have the 45,000 residents of Puerto Gaitan bracing for a big fall, or already packing their bags. Many are questioning how the windfall was spent.

Similar upheaval is taking place across much of Latin America, where oil prices have fallen by nearly half since September, threatening to pull the rug out from under a decade-long economic boom. And the region's leftist governments, which used the bonanza to lavish spending on social programs that entrenched them in power, now find themselves in the position of having to slash budgets amid rising social tensions.

Colombia isn't the only country in the line of fire. By far the most pain is felt in Venezuela, whose socialist government earns 95 percent of its export income from oil. In recent months, lines at supermarkets have grown and shortages have worsened as the government, trying to avert a default, tightens its grip on scarce dollars needed to import everything from food to auto parts. Also at risk, analysts say, is OPEC member Ecuador, which last month secured a $7.5 billion credit line from China to cope with the crisis.

Tuesday, February 24, 2015

A lifeline for Greece; Shocking how vital oil still is; 'Deforestation king' of Amazon detained

1 A lifeline for Greece (Ian Traynor in The Guardian) Greece’s new leftwing government faces months of fraught negotiations with its creditors over how to ease its unsustainable debt levels and austerity programmes after securing - but only conditionally - a eurozone lifeline on Tuesday that wins it time until the end of June.
Alexis Tsipras, the Greek prime minister and leader of the Syriza movement, had to bow to German-led pressure to stick to the broad terms of its €240bn bailout in order to obtain a four-month extension to the rescue he repeatedly pledged to scrap.

The new finance minister, Yanis Varoufakis, sent a six-page list of proposed economic reforms to Brussels which held to some of Tsipras’s election campaign pledges, but largely diluted or abandoned them to win the support of the other 18 governments in the eurozone, and of the troika of bailout overseers from the European commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).

Despite Tsipras’s assertions, for domestic consumption, that the hated troika is dead and that the bailout programme has been ditched, both remain very much in play, with the troika grudgingly blessing Tuesday’s proposals from Athens and mandated to deliver a more detailed verdict by the end of April.

With €7.2bn remaining to be tapped from the bailout funds, another €10bn reserved by the Europeans for recapitalising Greek banks and Athens having to make big debt repayments by next month, it is not clear whether any money will be disbursed before the troika verdict at the end of April. In the meantime, Tsipras is also under pressure to make start negotiations on a third rescue programme to take effect in July, when even bigger debt repayments are due.

2 Shocking how vital oil still is (Kamal Ahmed on BBC) Why is oil so important? It is so straightforward a question that it sounds faintly ridiculous. Ryan Carlyle, the US engineer, wrote about why oil is vital. "You can't move anything, anywhere faster than about 25mph without oil," he said. "You can't operate a modern military, and you can't run a modern economy. There is no doubt in my mind whatsoever that modern civilisation would collapse in a matter of months if oil stopped flowing. Oil is about as important to the developed world as agriculture."

Oil and food (and let's include water in that, to avoid argument) are the two most important resources on the planet. The US consumes 19 million barrels of oil a day. A barrel of oil is about a bath's worth. China consumes 10.3 million, Japan 4.5 million and the UK 1.5 million. Every day, the world consumes 91.2 million barrels of oil, according to the US Energy Information Administration. That's a lot of bathfuls.

And that consumption figure will go up, not down. Every week, 1.5 million people are added to the world's urban population. And that tends to add to our consumption of oil as societies move from an agrarian economy to a consumption and manufacturing economy. The growth of the "emerging seven" countries (China, India, Brazil, Russia, Indonesia, Mexico and Turkey) will only add to this upward pressure on demand.

The global vehicle fleet (commercial vehicles and passenger cars) is predicted to more than double from about 1.2 billion now to 2.4 billion by 2035. Most of that growth - 88% - is in the developing world and nearly all of it - just under 90% - will be fuelled by oil. Of course, there are alternatives to oil. But those developments are only slowing the increase in demand. They are nowhere significant enough to reverse it.

Peak oil - that is the theoretical moment when oil extraction will reach its height and inevitably decline - has been long predicted and never arrived. In fact, you can go back to the 19th Century to hear predictions oil would run out during the "lives of young men". More than 100 years later, we are still waiting.

3 ‘Deforestation king’ of Amazon detained (San Francisco Chronicle) Brazil has detained a land-grabber thought to be the Amazon's single biggest deforester, the country's environmental protection agency said. The Brazilian Institute of Environment and Renewable Natural Resources said Ezequiel Antonio Castanha, who was detained in the state of Para, operated a network that illegally seized federal lands, clear-cut them and sold them to cattle grazers.

The agency blames the network for 20 percent of the deforestation in Brazil's Amazon in recent years, though the statement did not provide the estimated scale of the devastation. Castanha will face charges including illegal deforestation and money laundering, and could be sentenced to up to 46 years in prison, the statement said.

Officials said late last year that 1,870 square miles (4,848 square kilometers) of rain forest were destroyed between August 2013 and July 2014. That's a bit larger than the US state of Rhode Island. In addition to holding around one-third of the planet's biodiversity, the Amazon is considered one of the world's most important natural defenses against global warming because of its capacity to absorb huge amounts of carbon dioxide.

Rain forest clearing is responsible for about 75 percent of Brazil's emissions as vegetation is burned and felled trees rot. The Amazon extends over 3.8 million square miles (6.1 million square kilometers), with more than 60 percent of the forest within Brazil.

Why a small dip in oil prices mean an awful lot; BHP Billiton profits fall by nearly a third; The myth of Europe

1 Why a small dip in oil price matters an awful lot (Phillip Inman in The Guardian) After a mini rally, oil prices are falling again. From $62 a barrel 10 days ago, Brent crude has slipped to $58.43. It may not seem like much of a cut after the collapse in world oil prices that sent Brent tumbling from $115 to $45 a barrel between last June and January, but it is still significant.

The reason this turn in the price of oil matters can be seen in every corner of the world economy: when fear of a new cold war or a eurozone break-up hangs over every corporate and government decision, cheap energy lightens the load. Manufacturers have benefited from cheap imports of oil. Households have more spare cash after lower costs at the pumps. There are unwelcome side-effects, and nothing written here takes into account the climate change effects, but for the developed economies it is a boon.

Many economists expected last year’s slump to prove temporary. The forecast rested on the assumption that a low oil price would force out firms involved in costly extraction. But they were wrong that this alone would squeeze the supply of oil to such an extent that prices would start to rise. Analysts have pointed out that the fracking rigs left in operation have become more efficient – extracting more oil and gas out of the ground than before.

More importantly, the countries outside Opec (which has maintained output levels) are pumping more oil to make up for lost income. Russia is a case in point. So looking ahead, should prices start to climb again, the ceiling will be much lower than the $110 price common from 2009 onwards. And the carbon-fuelled growth that most economies rely on will continue for a little while yet.

2 BHP Billiton profits down by nearly a third (BBC) Profits at mining giant BHP Billiton have been hit by the falling price of iron ore, coal, copper and other commodities. Underlying profit for the half-year to 31 December fell by 31% to $5.35bn, but that was better than industry analysts were expecting. To compensate for falling prices BHP has made deep cuts in its spending on exploration and other investment.

"We started to prepare for a sustained period of lower prices almost three years ago by increasing our focus on efficiency and lowering our investment," chief executive Andrew Mackenzie said in a statement accompanying the latest results. BHP is planning to move its aluminium, manganese into a separate company, which will also hold nickel and silver mines and some coal mines in Australia and South Africa.

The company has also been hit by falling oil prices. Last month BHP Billiton announced a 40% reduction in its US shale oil operation. By the end of June it plans to have reduced the number of shale rigs from 26 to 16.

3 The myth of Europe (Omaira Gill in Khaleej Times) Crisis, economy, catastrophe, Europe. These are all Greek words, and today I’ll share with you how the continent of Europe got its name, which has its roots in the Greek myth of Europa. The story of Europa always makes me feel a little sad, seeing as at the heart of it is a woman born in Asia who is taken to another continent by force, never to see her homeland again.

In the Greek myth, Europa was a beautiful maiden. One day, the god Zeus noticed Europa among some other young women and was struck by her beauty and grace. He devised a cunning plan to lure Europa away. One day, when Europa and her female companions were playing on a shore and collecting wild flowers, Zeus transformed himself into a dazzling white bull, swimming up to the shore and grazing placidly nearby.

Europa was taken by the bull, and in time approached it to admire it more closely. Eventually, she was persuaded to sit on the bull’s back for a ride, which is when Zeus in the guise of the bull took off at great speed, running through the meadows and swimming into the sea.

Eventually the bull arrived on the island of Crete, where he let Europa disembark and revealed his true identity as Zeus. Europa remained in Crete for the rest of her life and became another of the greedy god’s many conquests. She gave birth to three sons, Minos, Rhadamanthys and Sarpedon.

Europa’s brothers searched high and low for her, ending up in Asia Minor, but they were unable to locate their sister. As a sign of his love for her, Zeus named the continent of Europe after her. When I read the myth of Europa for the first time, it left me feeling despondent.All I could think about was poor Europa pining for her homeland, for Asia, the places and people she grew up with.

She was made to give up everything she knew just because a god couldn’t take no for an answer. Not all Greek myths are happy, although this one probably falls into the ‘Happy’ category for nearly everyone reading it except me. To me, it reads like a tragedy. No one I’ve ever spoken to in Greece has felt sorry for Europa. It just goes to show what perspective can do.

Sunday, February 22, 2015

Greece scrambles to finalise fiscal reform; HSBC chief holds Swiss bank account; India air pollution cuts 660m lives short by 3 years

1 Greece scrambles to finalise fiscal reform (Helena Smith in The Guardian) Greek government officials are racing to complete a list of reform proposals that will be scrutinised by the country’s international creditors this week as Athens seeks an extension to its €240bn bailout.

Yanis Varoufakis, the Greek finance minister, sent draft proposals to creditors at the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) on Sunday, in order to receive feedback before making a formal submission by Monday’s deadline. If the reforms are accepted, Friday’s tentative agreement for a vital four-month loan extension will go ahead.

Claiming Greece was “at the start of a new phase” as it prepares for a four-month reprieve that will allow it to devise its own economic agenda, the politician said the inventory would include labour law reforms and changes to legislation regarding non-performing loans. Both are seen as especially sensitive for a nation worn down by five years of gruelling austerity – the price of its rescue funds.

Alexis Tsipras’s government, catapulted into power a month ago, is playing a delicate balancing act between placating the bodies keeping Greece afloat and sticking to the anti-austerity policies on which it was elected. Highlighting the difficulties the government would almost certainly face, the German finance minister, Wolfgang Schäuble, conceded that Athens would have “a hard time explaining the deal to Greek voters”.

2 HSBC chief holds Swiss bank account (BBC) HSBC has confirmed that its chief executive Stuart Gulliver uses a Swiss bank account to hold his bonuses. The bank was responding to a report in the Guardian that Mr Gulliver has £5m in the account which he controls using a Panamanian company. The bank pointed out that Mr Gulliver lives in Hong Kong and pays taxes there and has also paid any taxes required in the UK. The statement did not mention the Panamanian company.

The Guardian article does not suggest any wrongdoing on Mr Gulliver's behalf, but it will add to the questions over HSBC's activities in the tax advisory business. Allegations emerged earlier this month that HSBC had helped people evade UK tax using hidden HSBC accounts in Geneva. The Financial Conduct Authority, HMRC, Swiss prosecutors and MPs on the Treasury Committee are looking into the allegations.

Last weekend the bank published an apology - signed by Stuart Gulliver - to its customers and staff adding that it had completely overhauled how it conducted its business since 2008. The former director of public prosecutions, Lord Ken Macdonald, has said HSBC has left itself open to criminal charges in the UK over the tax-dodging scandal. The QC said there were strong grounds to investigate the bank for "cheating" HM Revenue and Customs (HMRC).

3 India air pollution cuts 660m lives short by 3 years (San Francisco Chronicle) India's filthy air is cutting 660 million lives short by about three years, according to research that underlines the hidden costs of the country's heavy reliance on fossil fuels to power its economic growth with little regard for the environment.

While New Delhi last year earned the dubious title of being the world's most polluted city, India's air pollution problem is extensive, with 13 Indian cities now on the World Health Organization's list of the 20 most polluted.

That nationwide pollution burden is estimated to be costing more than half of India's population at least 3.2 years of their lives, according to the study, led by Michael Greenstone of the University of Chicago and involving environmental economists from Harvard and Yale universities. It estimates that 99.5 percent of India's 1.2 billion people are breathing in pollution levels above what the WHO deems as safe.

"The extent of the problem is actually much larger than what we normally understand," said one of the study's co-authors, Anant Sudarshan, the India director of the Energy Policy Institute of Chicago. "We think of it as an urban problem, but the rural dimension has been ignored." Added up, those lost years come to a staggering 2.1 billion for the entire nation, the study says.

Thursday, February 19, 2015

Germany rejects Greece plea for loan extension; French inflation turns negative after five years; Walmart to raise wages

1 Germany rejects Greece plea for loan extension (Jennifer Rankin & Helena Smith in The Guardian) Germany and Greece are on a collision course ahead of crucial bailout talks on Friday after Berlin knocked back a Greek compromise proposal and insisted the country stick to its existing austerity plan.

Setting the scene for a make-or-break meeting in Brussels, the eurozone’s largest economy dismissed as “not substantive” a proposal from Greek finance minister Yanis Varoufakis,which appeared to have all but capitulated to creditors’ demands. The rebuff from Berlin came just hours after Greece filed a formal request to its eurozone partners to extend its loan agreement, in the hope of averting a cash crisis.

A Greek government spokesman insisted that the eurogroup had only two options: either to accept or reject the Greek request. “It will then be clear who wants to find a solution and who doesn’t.” The European commission welcomed the Greek proposal – widely seen as a climbdown on some of Greece’s key demands – as a positive sign that could pave the way for compromise.

But in a sign of divisions within the EU, Germany said the Greek plan failed to meet eurozone ministers’ demands that Greece stick to its bailout programme – a set of conditions laid out on Monday at an acrimonious meeting in Brussels that failed to end the deadlock. Greece needs unanimous backing from the other 18 eurozone finance ministers to secure a deal.

2 French inflation turns negative after five years (BBC) Inflation in France, the eurozone's second-biggest economy, turned negative in January, adding to worries over deflation in the eurozone. Prices fell 0.4% from a year earlier, with energy costs down 7.1% following the drop in global oil prices. It is the first time in more than five years that inflation in France has turned negative.

Last month, the European Central Bank announced a stimulus programme to try to boost growth and avoid deflation. Figures released last month suggested deflation in the eurozone was gathering pace, with prices across the currency bloc in January down 0.6% from a year earlier.

While falling energy costs have provided a one-off cut to prices, the worry is that weak economic growth in the eurozone will lead to deflation becoming entrenched. Falling prices can be harmful to an economy if it leads to consumers and businesses delaying spending and investment decisions in the hope of lower prices in the future. The last time annual inflation was negative in France was in October 2009, when it hit -0.2%.

3 Walmart to raise wages (Straits Times) Global retail giant Walmart, which has faced criticism over low wages and skimpy benefits for years, has announced it would raise wages for 500,000 workers in the US. The largest single employer in the US said salaries for about 40 per cent of its US staff would be lifted to at least $9 an hour in April, $1.75 above the federal minimum wage. By Feb 1, 2016, US staff will be paid at least US$10 an hour.

The company also unveiled a training and education programme that will allow employees to earn a high school degree at no cost as well as pursue higher education at more affordable prices.

There was criticism by labour unions and other groups that the company's low wages have pressured some staff to seek public assistance to make ends meet. President Barack Obama has also made the issue of low pay and a growing income gap across the country a key policy focus.

Walmart said the increased spending on wages and education would weigh on future profits. The new programme will shave 20 cents per share from earnings in fiscal 2016. Walmart projected fiscal 2015 earnings of $4.70-$5.05 a share compared with the $5.19 expected by analysts.

Wednesday, February 18, 2015

Return of the 'Made in America' label; Home-owning was a one-generation blip; Diets worldwide are worsening

1 Return of the ‘Made in America’ label (Linda Yueh on BBC) Is American manufacturing undergoing a renaissance? Manufacturing jobs have come back in force, and advanced industries are leading the US recovery, according to the Brookings Institution. Since 2010, nearly 800,000 manufacturing jobs have been created, reversing a decade-long trend where the industry lost a staggering one-third of its workers.

Tennessee is leading the revival of manufacturing in America. The home of country music and southern barbecue is now surprisingly being called the new Detroit. The largest car factory in North America, owned by Japanese firm Nissan, is located here and not in Michigan. Nissan recently tripled its workforce in the plant, which exports to over 60 countries around the world.

After decades when production was leaving the US, American companies like Stanley Black & Decker, which has been manufacturing in countries like China, are returning. It recently produced its first power tool in the US in over 25 years. An almost perfect storm of factors is boosting American manufacturing. The shale revolution has lowered energy costs and made the US look competitive again. Rising wages in emerging markets like China is another reason.

But US students don’t see their future in manufacturing. Some want to finance those plants while others say that they aren't good enough at mathematics to work in advanced industries. They all agree that manufacturing has an image problem - it might have been a good job for their parents' generation, but it was not for them.

After all, the US economy is almost entirely made up of services like the music industry, restaurants, and banking. Manufacturing accounts for only around 12% of GDP, down from nearly 30% in 1950. De-industrialisation is associated with a loss of good blue-collar jobs, rising inequality and less innovation.

2 Home-owning was a one-generation blip (Danny Dorling in The Guardian) As newspapers rejoice upon learning that the average UK home rose in value by about £22,000 last year, it is about time we recognised that the average young UK family is never going to be able to afford to buy that home. To find out when a home of your own was last as unaffordable as it is today, and to come up with some ways of exploring that new reality, one could do worse than turn towards the UK’s best-housed family: the royals.

Since 1983, the British social attitudes survey has made an annual record of the proportion of people who own a home or who have a mortgage. Back then, Queen Elizabeth was in her late 50s, and only 53% of her contemporaries – those aged 55 to 64 – were homeowners or buyers. When they were young, members of older generations had mostly rented privately or managed to secure a council home. Today we are returning to those times: homes are again too expensive to buy.

Ten years later, in 1993, the majority of people aged 35 to 60 had a mortgage or owned outright. The 1990s appeared to be the start of a home-owning democracy; what no one at the time realised was that it was, in fact, the peak of home ownership.

Ten years later, in 2003 – by the time the Queen’s eldest son, Prince Charles, was aged 55 – about 90% of people his age were living in a home they either owned outright or had a few years left of a mortgage on. Charles had been born slap bang in the middle of the home-owning generation.
Ten years on again, in 2013, the picture is very different. Charles’s eldest son, William, turned 31 in the summer of 2013. Only 36% of his contemporaries had a mortgage by then, with 64% renting. 

William’s generation is “generation rent”, and there is little sign that this will not be the tenure of the majority of his cohort – for life. Home ownership remains common among older people, but that wealth cannot be passed on in full to younger generations. As people age, they will use up a great deal of their wealth in retirement.

What will happen 10 years on again, when young Prince George of Cambridge turns 10, in the summer of 2023? By then it is possible that a majority of his contemporaries, now young children, will be growing up in social or private rented accommodation. Their parents will have no hope of ever having a home they own.

3 Diets worldwide are worsening (San Francisco Chronicle) There may be more fruit, vegetables and healthy options available than ever before, but the world is mostly hungry for junk food, according to a study of eating habits in nearly 190 countries.

International researchers combed through self-reported diet surveys from 1990 to 2010 and looked at how often people said they ate 17 common foods, drinks and nutrients. Experts found that even though people are eating more healthy foods including whole grains and fish, there has been an even bigger jump in the amount of junk food eaten. The study was paid for by the Bill & Melinda Gates Foundation and Britain's Medical Research Council and published in the journal, Lancet Global Health.

Some of the study's key findings: Older adults ate better than younger adults and women ate healthier than men. Some of the best nutritional improvements were seen in Mongolia, Latin America and the Caribbean. Countries needing to curb their junk food habits included Bosnia, Armenia and the Dominican Republic.

There was a mixed picture in the US, with increases both in the amount of healthy and unhealthy foods eaten. Dr Dariush Mozaffarian, of the Friedman School of Nutrition at Tufts University said that despite Westerners being among the biggest eaters of junk food, China and India were catching up and that governments should step in. Researchers found in some countries in Africa and Asia, there has been no improvement in their diet during the past 20 years.

Tuesday, February 17, 2015

'Uneven, fragile global growth' a challenge for Asia; Greece may seek loan extension; Deciding on college versus dropping out

1 ‘Uneven, fragile global growth’ a challenge for Asia (Straits Times) Global growth remains uneven and fragile, and the weaker-than-envisaged global economy poses important challenges to developing Asia, a senior IMF official said, citing weak investment as a key negative factor in the region.

The global economy faces the prospect of subpar growth, despite a boost from the recent drop in oil prices, with diminished prospects in China, Russia, the euro area and Japan, IMF Deputy Managing Director Naoyuki Shinohara said.

Shinohara flagged the risk of high dollarization in emerging Asia, which has drawbacks, such as limiting exchange rate flexibility to mitigate against external shocks and constraining the central bank's ability as lender of last resort. He called for consideration towards actively promoting "de-dollarization".

2 Greece may seek loan extension (BBC) Greece is expected to request a six-month extension of its loan agreement, according to reports. The loan would not be an extension of the current bailout agreement, which includes strict austerity measures, Greek government officials were quoted as saying. On Monday night, Greece rejected a plan to extend its €240bn (£178bn) bailout, describing it as "absurd".

Without a deal, Greece is likely to run out of money. The eurozone has given Greece until Friday to decide if it wants to continue with the current bailout deal. Greece wants to replace the bailout with a new loan that it says would give it time to find a permanent solution to the debt crisis.

Greece's current bailout expires on 28 February. Any new agreement would need to be approved by national governments, so time is running out to reach a compromise. Earlier Greek Prime Minister Alexis Tsipras called for a vote to scrap its austerity programme on Friday, the same day as the eurozone deadline.

Earlier, Germany's Finance Minister, Wolfgang Schaeuble, said that Greece needed to make up its mind whether it wanted to extend the bailout programme. US investment bank JP Morgan claimed over the weekend that €2bn worth of deposits was flowing out of Greek banks each week and estimated that if that were to remain the case, they would run out of cash to use as collateral against new loans within 14 weeks.

3 Deciding on college versus dropping out (Kristen V Brown in San Francisco Chronicle) The notion of ditching college for startup life has become romanticized, rather than stigmatized, ever since PayPal co-founder Peter Thiel first introduced his fellowship that gives dropouts $100,000 each to start companies of their own five years ago.

The Chronicle of Higher Education asked members of the inaugural Thiel fellowship class one crucial question: Was dropping out really worth it?

Interviews of nine members of the first class netted a mixed bag of results. Two fellows left the program early. Six others wound up going back to school anyway. Six others returned to their studies after their fellowship ended. Most have since moved on from their initial ideas.  Of the four classes of fellows — 83 fellows in all — their ventures raised $72-million in investments and just $29 million in revenue.

All but one of nine fellows interviewed said they learned more in the fellowship than they would have in college. One fellow, Dale J. Stephens went on to found UnCollege, which provides resources for self-directed learning to students. Still, “most people would be better off going to college,” another fellow, Paul Gu, said.

A report released last summer by LinkedIn suggests that Gu is probably right. It found the majority of venture capital-backed entrepreneurs had a college degree. “Dropping out of college to make millions of dollars sounds like a pretty great proposition,” the report said, “but as we discovered, the data paint a starkly different picture.”

Monday, February 16, 2015

Ultimatum to Greece after debt talks break down; Global dividend income at record; Test for GCC's non-oil economy

1 Ultimatum to Greece after talks break down (Jennifer Rankin & Larry Elliott in The Guardian) Talks between Greece and its eurozone creditors collapsed in disarray on Monday night, heightening concerns that the country is edging closer to a disruptive exit from the single currency.

The Greek delegation was told in no uncertain terms that further talks would recommence only if the country was willing to extend its bailout package, which carries a list of austerity measures that the new left-wing government in Athens has vowed to pare back.

Effectively presenting Greece with an ultimatum, the eurogroup of eurozone finance ministers said Athens had until Friday to agree to maintain the current bailout under the auspices of the European Union, the European Central Bank and the International Monetary Fund – something that Greece has said is unacceptable.

Greece’s finance minister, Yanis Varoufakis, made it clear in the acrimonious discussions in Brussels on Monday that Greece would not accept prolonging the bail out for six months unless the other 18 members of the eurozone agreed to water down the austerity conditions attached to the deal.

The Syriza-led coalition in Athens is convinced that, despite the tough language used by Germany, it can secure more favourable terms by holding out until closer to the 28 February deadline when its current €172bn (£127bn) bailout expires. Varoufakis, an economics professor, who specialises in game theory, insisted Greece is not bluffing about its negotiating tactics.

2 Global dividend income at record (BBC) The total dividend income paid to shareholders around the world rose by 11% last year to $1.167 trillion, according to investment firm Henderson Global Investors. The biggest increase in cash payouts came from US firms at $52bn.

Henderson said global dividends would rise by just 1% this year because of lower oil prices and slowing economies. Another factor acting as a drag on dividends would be the recent rise in the value of the dollar, the firm said. This will depress the value of dividend income from around the world once it has been translated into the US currency.

"2014 was a superb year for income investors, with developed markets leading the charge," said Alex Crooke at Henderson Global Investors. About one-third of global dividend income came from firms on the US stock market.

Global dividend income has now risen by 60% in the five years since 2009, far outstripping inflation and savers' interest rates in the UK, and also the growth of economies around the world. That underlines the vital importance to investors of dividend income, especially when share prices have stagnated, as reinvesting the dividends increases the value of a shareholding in a similar fashion to compound interest.

Just 10 firms accounted for 11% of all global payouts in 2014, and the top 20 accounted for 18% of all dividends. They were led by Vodafone whose huge special dividend early last year meant it was responsible for 20% of all UK dividend payments.

3 Test for GCC's non-oil economy (N Janardhan in Khaleej Times) Oil prices have crashed from over $100 to sub-$60 a barrel in just five months. While this is good news for consumer countries, it also means only half the revenue for the energy producers, especially the Gulf Cooperation Council (GCC) countries. Hydrocarbon incomes are set to reduce from $743 billion in 2012 to about $410 billion in 2015. The bloc may, therefore, record a current account deficit for the first time since the late 1990s.

However, rather than worry, it is business as usual because they have accumulated about $2.3 trillion in current account surpluses since 2003. GCC countries will be able to weather the storm better than the low oil price era in the 1980s and 1990s because of the conscious policy to invest in a diversified economy. It is a matter of irony that the GCC governments pursued economic diversification during the high oil price era of the last decade, rather than attempt it when prices slumped.

To facilitate non-oil economic growth, projects worth about $2.4 trillion were reportedly planned in the region. Many of these may be complete before 2020, including the Gulf railway project, the first nuclear energy plant, economic cities and a regional electricity grid, among others.  It is interesting to note that sports, tourism, airlines, real estate, hospitality, and hi-tech chip-making industries, among others, are part of the diversification mix.

The most ironical diversification is in the renewable energy sector – Abu Dhabi is now the headquarters of the International Renewable Energy Agency. The West Asia and North Africa region is expected to see solar projects worth $2.7 billion unveiled in 2015, six times more than in 2014. Saudi Arabia, the world’s largest oil exporter, announced in 2012 that it would install 17 giga-watts of nuclear power by 2032 and around 41 GW of solar capacity.

Overall, the GCC countries learnt a lesson after squandering oil wealth during the 1970s. The stability in the GCC region has not just been a consequence of possessing oil wealth, but ensuring pragmatic politics while disbursing it. Finally, how the diversification process and the creation of an economic state intersects with the ongoing ‘knowledge economy’ development will not only determine the health of the non-oil economy in the near future, but also condition long-term sustainable growth.