Wednesday, December 30, 2015

IMF chief sees disappointing global growth in 2016; Subsidy reform hits Saudi industry; India mobile subscribers cross 1 billion

1 IMF chief sees disappointing global growth in 2016 (The Guardian) Global economic growth will be disappointing next year and the outlook for the medium-term has also deteriorated, the head of the International Monetary Fund has warned.

The IMF managing director, Christine Lagarde, said the prospect of rising interest rates in the US and an economic slowdown in China were feeding uncertainty and a higher risk of economic vulnerability worldwide.

Added to that, growth in global trade has slowed considerably and a decline in raw material prices was posing problems for economies reliant on commodities, while many countries still had weak financial sectors as the financial risks increase in emerging markets, she said.

“All of that means global growth will be disappointing and uneven in 2016,” Lagarde said, noting that mid-term prospects had also weakened as low productivity, ageing populations and the effects of the global financial crisis dampened growth. In October, the IMF forecast that the world economy would grow by 3.6% in 2016.

The US Federal Reserve hiked interest rates for the first time in nearly a decade this month and made clear that was a tentative beginning to a “gradual” tightening cycle. There are “potential spillover effects”, with the prospect of increasing interest rates there already having contributed to higher financing costs for some borrowers, including in emerging and developing markets, Lagarde said.

Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the Fed begins what is expected to be a series of interest rate increases. Lagarde warned that rising US interest rates and a stronger dollar could lead to companies defaulting on their payments and that this could “infect” banks and states.

But she said the risks associated with these changes could be overcome by supporting demand, maintaining financial stability and reforming structures. “Most highly developed economies, except the USA and possibly Britain, will continue to need loose monetary policy, but all countries in this category should comprehensively factor spillover effects into their decision-making,” Lagarde said.

2 Subsidy reform hits Saudi industry (Gulf News) Due to the recent energy subsidy reforms in Saudi Arabia, many companies have announced to the Saudi stock exchange that they are expecting a cut in profitability in the first quarter of 2016.

Saudi Arabia released the budget for 2016 with a predicted deficit of $87 billion, which includes reforms that cut energy subsidies. This has resulted in an increase in gasoline prices and electricity tariffs. A meagre blanket increase in water has been applied as well, and energy prices have been increased for industrial customers.

Five companies have released their expected costs following the budget announcement. Saudi Arabia Fertilizers Co (SAFCO) said the announcement has brought in an 8 per cent increase in production costs, Saudi Basic Industries Corp (SABIC) costs will increase 5 per cent, and Saudi Arabia’s Yanbu National Petrochemical Co (Yansab) said it will see an increase of 6.5 per cent. Saudi Arabia’s National Industrialisation Co (Tasnee) and Saudi Cement Co said the changes will cost them 190 million riyals (Dh186 million) and 68 million riyals respectively.

Farouk Soussa, Citi’s head of Middle Eastern economics said, “Privatisation is positive, it can create a source of funding and let the private sector do more of the heavy lifting for growth. But this is a rather inopportune moment, markets are depressed, and there could be a tussle later when the market recovers.”

3 India mobile subscribers cross 1 billion (Khaleej Times) India's mobile phone subscriber base peaked to more than 1 billion users for the first time, data released by the telecom regulator has shown, making India the only country after China to achieve that milestone.

China's subscriber base is approximately 1.2 billion users, according to the country's Bureau of Statistics. Total wireless subscribers in India, Asia's third-largest economy, rose to more than 1 billion at the end of October from 996.7 million at September-end, the data showed.

Mobile subscriptions in India have surged in recent years, helped by the launch of cheaper smartphones and record low call rates as a result of a cut throat competition among mobile phone operators to expand customer base.

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