Even as US jobless claims continued to rise, retail sales slipped and businesses slashed inventories for the fifth continuous month, JPMorgan reported some signs of recovery. According to Larry Cudlow, consumer incomes, after tax and adjusted for inflation, have increased for five straight months, which is largely from the tax-cut effect of plunging energy prices. Housing affordability is at a record high. Purchasing-manager surveys are now bottoming out and the Treasury curve has been normalizing from its inverted shape, usually taken preceding a recession. Barclays too reported that commodity prices, including oil, have started to bottom out and are likely to rise in the second quarter. China's economic leaders held that according to economic statistics, the economy was already reviving in response to swift action to counter the shock of the global financial crisis. In India too, even though Industrial output dipped in January, but a strong double digit (15.4%, yoy) growth reported by the Consumer Goods sector hinted at recovery in demand and easy credit availability. FDI to India has shot up by 90% during the April-November period of the current fiscal, despite the global crisis conditions. One can only hope that Indian infrastructure would be toned up in the near future with strong government investment, as more than a third of corporate heads have gone on to say in a study conducted by KPMG and EII, that Indian infrastructure is very much inadequate to support their growth plans. Govt spending in this sector would also help to revive demand as earnings of workers in labour-intensive sectors are falling; average earnings was down by 3.5% per month in the third quarter of this fiscal. With the INR plunging to record lows, the labour-intensive Indian textile industry hopes to gain, as this export-oriented industry as these goods become cheaper in the international market due to the falling rupee.
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Friday, March 13, 2009
Monday, March 9, 2009
Market Meltdown in Early March
The markets slipped to over three-year lows this week, in tandem with world markets, which also tumbled to multi-year lows. The Sensex, which began the week with a negative gap of 129 points at 8,763, hit a low of 8,047. However, the index recovered partially and closed the week with a loss of 6.4 per cent (566 points) at 8,326. With the stock market buckling under negative global cues* and heavy selling by foreign investors, shares of over 160 firms, including Reliance Communications, Ranbaxy Labs and Suzlon Energy, plunged to their all-time lows. FIIs have sold as much as Rs 458.30 crore in Indian equities in the first week of March and their total sell off in 2009 amounting to Rs 2,114.60 crore. Trading volumes in index options have been steadily rising, as a result of investors seeking a hedge against volatility in a declining market. In December, the average daily contracts in index options (NIFTY, MINIFTY AND BANKNIFTY options) on NSE was 10,07561. This rose in January to 10,60,784 and in February to 11,30,273. The first few trading days of March have seen index option volumes rise on a daily basis; on Friday index options reached a record 16,77,878 contracts on the exchange. The open interest positions in Nifty options are also high, indicating a bearish view on the Nifty according to brokers. *The number of US bank failures is mounting as 17 lenders went bankrupt so far this year amid the deepening recession in the world's largest economy; in February 2008, 10 banks were closed down, making it the highest for any month since 2000. A total of six banks had failed in January and one in March. The US unemployment rate has moved to a record high of 8.1% in February.
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Tuesday, March 3, 2009
India’s External Sector Suffers the Brunt of Global Meltdown
The global recession has impacted India’s external demand in strong way; the deceleration in export began in October 2008 and every month since then growth has been negative with the worst decline of 16 per cent now in January 2009. The hardest-hit sectors include handicrafts, carpets, cotton yarn & fabrics, gems & jewellery, computer software, coal and minerals, oil meals and rice. Foreign trade figures compiled by the DGCI&S and released by the Department of Commerce show exports in January at $12.38 billion were 15.9 per cent lower than $14.71 billion in the corresponding month of 2008, while imports at $18.45 billion were 18.2 per cent lower than $22.56 billion in the comparable month. Oil imports during January 2009 were lower by 47.5 per cent at $4.46 billion (compared with $8.50 billion), reflecting the steep drop in global crude prices. The sharp drop in imports had a flattering effect on the trade deficit, which at $6.07 billion in January 2009 was lower than $7.84 billion in the same month a year ago. The outlook for exports and employees working in export industry continues to be perilous unless bold measures are put in place such as increase in drawback and the DEPB rates, abolition of fringe benefit tax and exemption from service tax and neutralisation of higher costs of credit through interest subvention, as pointed out by FIEO.
The cumulative value of exports in April-January 2008-09 at $144.26 billion shows a growth of 13.2 per cent compared to $127.45 billion in the corresponding month of 2007-08. While imports at $243.35 billion was 25.3 per cent higher than the corresponding amount of $194.28 billion. In rupee terms, the growth in import was 39.4 per cent higher (at Rs 10, 90,182 crore as against Rs 7, 82,207 crore). As the rupee has been steadily depreciating against the dollar, exports in rupee terms registered a modest 4.3 per cent increase at Rs 60,460 crore against Rs 57, 948 crore. With overall import growth registering a 25.3 per cent spurt in the first 10 months of the current fiscal and exports growing at 13.2 per cent, the trade deficit has zoomed to $99 billion, against $66.83 billion in the comparable months of 2007-08.
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The cumulative value of exports in April-January 2008-09 at $144.26 billion shows a growth of 13.2 per cent compared to $127.45 billion in the corresponding month of 2007-08. While imports at $243.35 billion was 25.3 per cent higher than the corresponding amount of $194.28 billion. In rupee terms, the growth in import was 39.4 per cent higher (at Rs 10, 90,182 crore as against Rs 7, 82,207 crore). As the rupee has been steadily depreciating against the dollar, exports in rupee terms registered a modest 4.3 per cent increase at Rs 60,460 crore against Rs 57, 948 crore. With overall import growth registering a 25.3 per cent spurt in the first 10 months of the current fiscal and exports growing at 13.2 per cent, the trade deficit has zoomed to $99 billion, against $66.83 billion in the comparable months of 2007-08.
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Tuesday, February 24, 2009
The Third Stimulus Package
The Indian Govt has announced a slew of indirect tax concessions to bolster sagging demand for industrial goods and services. The stimulus includes the reduction of the excise duty rate to 8 per cent from the existing 10 per cent for sectors such as auto, steel, consumer durables, FMCG, and IT hardware & peripherals; (about 96 per cent of the country’s excise revenues hitherto came under the 14 per cent rate, which was recently lowered to 10 per cent and now to 8 per cent.) Also, excise duty on bulk cement has been reduced; bulk cement prices may be reduced by Rs.4 per 50-kgs. Service tax rate on taxable services have been brought down from 12 per cent to 10 per cent, so utility services may cost less, telecom, hospitality, tourism and aviation sectors should lower charges. The tax concessions would entail revenue sacrifice to the tune of Rs.30,000 crore (in a financial year) and has not been factored in the Budget estimates for 2009-10.
Standard & Poor’s (S&P) changed its outlook on India’s long-term sovereign credit rating from stable to negative. This outcome is expected given the slowdown in growth and rising fiscal deficit. In fact, the global credit rating agency reasoned that the revision in outlook reflects its view that India’s fiscal position has deteriorated to a level that is unsustainable in the medium term. S&P, however, affirmed its ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings on India.
Standard & Poor’s (S&P) changed its outlook on India’s long-term sovereign credit rating from stable to negative. This outcome is expected given the slowdown in growth and rising fiscal deficit. In fact, the global credit rating agency reasoned that the revision in outlook reflects its view that India’s fiscal position has deteriorated to a level that is unsustainable in the medium term. S&P, however, affirmed its ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings on India.
Tuesday, February 10, 2009
To Dr. Jalal Alamgir
Thanks for joining our blog. Your concerns are indeed well placed. Year 2009 or at least the first half of fiscal 2009-10 is going to be a difficult phase for the Indian economy. To emphasize the problems recent data on the domestic manufacturing sector which is the second largest employment generator after agriculture shows that —of the 96 manufacturing segments covered under the CII-Ascon survey, 32 recorded a negative growth.
The worst hit segments include fertiliser, polymers, steel, pig iron, motor starters, castings, textile machinery, distribution transformer, HCV's, LCVs, rubber footwear and auto cycle tubes. These numbers could indeed worsen in the next 2/3 quarters.
However, as you know, the government and the central bank have acted several times and are continuously monitoring the situation. The consequent high fiscal deficit should not hamper the flow of foreign investments, according to the Deputy Chairman of the Planning Commission, as high fiscal deficit due to the current economic downturn is a global phenomenon and not particular to India. The positives are: despite slowing down in the recent months as rightly pointed out by you, FDI has increased 75% in the current calendar year and 90% in the current fiscal year (over the same period, till November 2008); for 2008-09 the Indian economy will possibly turn in the second-fastest growth rate in the world at 7.1%, after China’s 8%, keeping India as an attractive destination for new FII and FDI flows; the February 16 interim budget is expected to contain more spending plans to support the economy for the first four months of the next fiscal; interest rates may be reduced further keeping alive the FII flows to the Indian debt market, which has indeed played an important role during the equity market meltdown; PSBs have reduced their lending rates to encourage industry and particularly the real estate sector. So as and when the global or even US downturn shows signs of bottoming out, India should recover and recover faster than many other economies. The political environment is not likely to cause divergence from the growth orientation of India’s economic policies.
For detailed FDI data see
www.ecofin-surge.co.in/database.html
The worst hit segments include fertiliser, polymers, steel, pig iron, motor starters, castings, textile machinery, distribution transformer, HCV's, LCVs, rubber footwear and auto cycle tubes. These numbers could indeed worsen in the next 2/3 quarters.
However, as you know, the government and the central bank have acted several times and are continuously monitoring the situation. The consequent high fiscal deficit should not hamper the flow of foreign investments, according to the Deputy Chairman of the Planning Commission, as high fiscal deficit due to the current economic downturn is a global phenomenon and not particular to India. The positives are: despite slowing down in the recent months as rightly pointed out by you, FDI has increased 75% in the current calendar year and 90% in the current fiscal year (over the same period, till November 2008); for 2008-09 the Indian economy will possibly turn in the second-fastest growth rate in the world at 7.1%, after China’s 8%, keeping India as an attractive destination for new FII and FDI flows; the February 16 interim budget is expected to contain more spending plans to support the economy for the first four months of the next fiscal; interest rates may be reduced further keeping alive the FII flows to the Indian debt market, which has indeed played an important role during the equity market meltdown; PSBs have reduced their lending rates to encourage industry and particularly the real estate sector. So as and when the global or even US downturn shows signs of bottoming out, India should recover and recover faster than many other economies. The political environment is not likely to cause divergence from the growth orientation of India’s economic policies.
For detailed FDI data see
www.ecofin-surge.co.in/database.html
Tuesday, February 3, 2009
The financial crisis has triggered a larger than expected fall in world trade growth according to the WTO; Global trade which had grown 8.5% in 2006, slowed to 5.5% in 2007 and is estimated to be down to 4.0% in 2008. Growth in dollar terms exceeded 20% in the first half of 2008, started contracting in the third quarter and turned negative in November. Currency valuations and commodity price rises inflated growth in value terms in the first half, and also accentuated the decline in the second half of 2008.
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Monday, February 2, 2009
US consumer spending slid for an unprecedented sixth straight month in December, feeding the already painful recession as households opted to save rather than buy. The 1 per cent drop in consumer spending, the economy's key driver, means little help in sight for struggling retailers, homebuilders and automakers. The Institute for Supply Management's benchmark factory activity index rose to 35.6 in January from 32.9 in December; however, this may not yet be the beginning of a recovery.
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Friday, January 30, 2009
More on Financial Crisis
According to the IMF, World growth is projected to fall to just ½ percent in 2009, its lowest rate in 60 years; advanced economies will experience their sharpest contraction in the post-war period, while, emerging and developing economies, though more resilient than in previous global downturns will also suffer serious setbacks. Despite wide-ranging policy actions by governments and central banks around the world, financial strains remain acute, pulling down the real economy. The IMF has raised its estimate of the potential deterioration in US originated credit assets held by banks and others from $1.4 trillion last October to $2.2 trillion in end January.
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Tuesday, January 27, 2009
Unfolding of the Global Financial Crisis
Financial Crisis & the Global Economy
The global economy is now facing its worst prospects in more than half a century, with increasing financial losses, falling asset prices, and a deep downturn in real economic activity. Several developed economies including the US, UK, Japan and Germany are already in recession. Overall global GDP growth is projected to decline by the World Bank, from 2.5 per cent in 2008 to 0.9 per cent in 2009, the weakest since records became available in 1970. International trade would decelerate sharply, with global export volumes declining for the first time since 1982. As labor market conditions have deteriorated, consumer spending, business investment, and industrial production have also declined, the Federal Reserve lowered the target for its benchmark interest rate and established a target range for the federal funds rate of 0 per cent and 0.25 per cent. The European Commission in November unveiled an economic recovery plan worth €200bln.with aims to save further job losses, stimulate spending and boost consumer confidence. The ECB has reduced its key policy rate from 4.25 per cent in September to 2 per cent by mid-January. The British central bank has reduced interest rates four times since April from 5.0 per cent to 1.5 per cent. The latest half-percentage point cut in January 2009, that brings the rate to its lowest level in the central bank's 315-year history, was necessitated by weakening consumer spending, a tightening credit market for households and businesses, and a deteriorating business and residential investment outlook. Bank of Japan has cut interest rates from 0.5 per cent to 0.3 and then to 0.1 per cent by mid-December, and has adopted several liquidity enhancing measures. The Bank of Korea lowered its Base Rate from 5.00 per cent in early October to 2.50 per cent by January 2009. China has cut lending rates considerably since mid-September and unveiled a 4 trillion-yuan fiscal stimulus package in early November to rejuvenate the weakening economy. The Bank of Thailand cut the benchmark interest rate by 75 basis points to 2 per cent in January, the decision, which follows a 1-percentage point reduction in December, is more aggressive than expected.
In early September, mortgage lenders Fannie Mae and Freddie Mac, which account for nearly half of the outstanding mortgages in the US, were rescued by the US government in one of the largest bailouts in US history. Lehman Brothers filed for bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis. . During this time US bank Merrill Lynch, agreed to be taken over by Bank of America for $50mln. to avoid bankruptcy. The US Federal Reserve announced an $85mln. rescue package for AIG, the country's biggest insurance company, to save it from bankruptcy, in return for an 80 per cent public stake in the firm. Following a run on its shares Britain's biggest mortgage lender HBOS was taken over by Lloyds TSB in a £12mln. deal creating a banking giant holding close to one-third of the UK's savings and mortgage market. Soon after, Washington Mutual, the giant mortgage lender which had assets valued at $307mln., hit by mortgage defaults was closed down by regulators and sold to JPMorgan Chase. By the end of September, the credit crunch hit Europe's banking sector as the European banking and insurance giant Fortis is partly nationalised to ensure its survival. This was followed by a wave of nationalisations and government bailouts, as well as increased deposit gurantees for major European banks and mortgage lenders.
The UK government announced plans to pump £37bln. In to three UK banks Royal Bank of Scotland (RBS), Lloyds TSB and HBOS, in one of the UK's biggest nationalisations. The US government unveiled a $250mln. plan to purchase stakes in a wide variety of banks in an effort to restore confidence in the sector. South Korea announced a $130mln. financial rescue package to stabilise its markets - by offering a state guarantee on banks' foreign debts and promising to inject capital into struggling financial firms if necessary. The Dutch government injected €10bln into the banking and insurance company ING; the government had earlier announced the establishment of a €20bln fund to protect the financial sector from the credit crisis. Sweden's government announced credit guarantees to banks and mortgage lenders up to 1.5 trillion kroner ($205 bln.) and also set aside 15 bln. kroner as a bank stabilisation fund. In end November again, the US government announced a $20 bln. rescue plan for troubled banking giant Citigroup after its shares plunged by more than 60 per cent in a week. The US Treasury created the capital purchase program as part of the Troubled Asset Relief Program (TARP) and allocated $250 bln. under the program to invest in US financial institutions; this is the first time the US Treasury has recapitalized private banks. Towards end November, Pakistan and Iceland received emergency loans from IMF, Iceland being the first western European nation to require an IMF loan since 1976, due to the failure of of Landsbanki and Ghitmir, the second and third largest Iceland banks.
See www.ecofin-surge.co.in to read about the unfolding of the Financial crisis.
The global economy is now facing its worst prospects in more than half a century, with increasing financial losses, falling asset prices, and a deep downturn in real economic activity. Several developed economies including the US, UK, Japan and Germany are already in recession. Overall global GDP growth is projected to decline by the World Bank, from 2.5 per cent in 2008 to 0.9 per cent in 2009, the weakest since records became available in 1970. International trade would decelerate sharply, with global export volumes declining for the first time since 1982. As labor market conditions have deteriorated, consumer spending, business investment, and industrial production have also declined, the Federal Reserve lowered the target for its benchmark interest rate and established a target range for the federal funds rate of 0 per cent and 0.25 per cent. The European Commission in November unveiled an economic recovery plan worth €200bln.with aims to save further job losses, stimulate spending and boost consumer confidence. The ECB has reduced its key policy rate from 4.25 per cent in September to 2 per cent by mid-January. The British central bank has reduced interest rates four times since April from 5.0 per cent to 1.5 per cent. The latest half-percentage point cut in January 2009, that brings the rate to its lowest level in the central bank's 315-year history, was necessitated by weakening consumer spending, a tightening credit market for households and businesses, and a deteriorating business and residential investment outlook. Bank of Japan has cut interest rates from 0.5 per cent to 0.3 and then to 0.1 per cent by mid-December, and has adopted several liquidity enhancing measures. The Bank of Korea lowered its Base Rate from 5.00 per cent in early October to 2.50 per cent by January 2009. China has cut lending rates considerably since mid-September and unveiled a 4 trillion-yuan fiscal stimulus package in early November to rejuvenate the weakening economy. The Bank of Thailand cut the benchmark interest rate by 75 basis points to 2 per cent in January, the decision, which follows a 1-percentage point reduction in December, is more aggressive than expected.
In early September, mortgage lenders Fannie Mae and Freddie Mac, which account for nearly half of the outstanding mortgages in the US, were rescued by the US government in one of the largest bailouts in US history. Lehman Brothers filed for bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis. . During this time US bank Merrill Lynch, agreed to be taken over by Bank of America for $50mln. to avoid bankruptcy. The US Federal Reserve announced an $85mln. rescue package for AIG, the country's biggest insurance company, to save it from bankruptcy, in return for an 80 per cent public stake in the firm. Following a run on its shares Britain's biggest mortgage lender HBOS was taken over by Lloyds TSB in a £12mln. deal creating a banking giant holding close to one-third of the UK's savings and mortgage market. Soon after, Washington Mutual, the giant mortgage lender which had assets valued at $307mln., hit by mortgage defaults was closed down by regulators and sold to JPMorgan Chase. By the end of September, the credit crunch hit Europe's banking sector as the European banking and insurance giant Fortis is partly nationalised to ensure its survival. This was followed by a wave of nationalisations and government bailouts, as well as increased deposit gurantees for major European banks and mortgage lenders.
The UK government announced plans to pump £37bln. In to three UK banks Royal Bank of Scotland (RBS), Lloyds TSB and HBOS, in one of the UK's biggest nationalisations. The US government unveiled a $250mln. plan to purchase stakes in a wide variety of banks in an effort to restore confidence in the sector. South Korea announced a $130mln. financial rescue package to stabilise its markets - by offering a state guarantee on banks' foreign debts and promising to inject capital into struggling financial firms if necessary. The Dutch government injected €10bln into the banking and insurance company ING; the government had earlier announced the establishment of a €20bln fund to protect the financial sector from the credit crisis. Sweden's government announced credit guarantees to banks and mortgage lenders up to 1.5 trillion kroner ($205 bln.) and also set aside 15 bln. kroner as a bank stabilisation fund. In end November again, the US government announced a $20 bln. rescue plan for troubled banking giant Citigroup after its shares plunged by more than 60 per cent in a week. The US Treasury created the capital purchase program as part of the Troubled Asset Relief Program (TARP) and allocated $250 bln. under the program to invest in US financial institutions; this is the first time the US Treasury has recapitalized private banks. Towards end November, Pakistan and Iceland received emergency loans from IMF, Iceland being the first western European nation to require an IMF loan since 1976, due to the failure of of Landsbanki and Ghitmir, the second and third largest Iceland banks.
See www.ecofin-surge.co.in to read about the unfolding of the Financial crisis.
Tuesday, January 20, 2009
In the New Year we again invite you to visit our renewed website www.ecofin-surge.co.in which now offers a collection of latest Economic and Financial News and Reports and Tools for your convenience.
www.ecofin-surge.co.in is an endeavour to provide data support to anyone who is interested in tracking the trends in the Indian and Global Economy as well as Financial markets. The website offers a comprehensive collection of macro-economic and financial markets' data, both Indian and International compiled from official websites of relevant countries. The website provides part of its collection of the basic data, free of cost, while, some other series like historical time-series and crucial rates and ratios or bond yields are estimated and provided at request (as Excel files .xls worksheets/PDF/HTML files) at a reasonable charge.
Do save this mail and spare some of your valuable time to visit the site occasionally. We sincerely hope that you will find it useful. We look forward to receiving your valuable comments and suggestions.
Regards,
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for EcoFin-Surge..
Please click on the url:
http://www.ecofin-surge.co.in
Also explore
http://www.ecofin-surge.co.in/terminology.html —for lucid exposition of terms.
http://www.ecofin-surge.co.in/yield.html —for GSec/Corporate bond secondary market yields for different tenures/risk.
http://www.ecofin-surge.co.in/at-a-glance.html — for updates on major global economic indicators.
http://www.ecofin-surge.co.in/kiosk.html - for E-UpDates the monthly statistical bulletin with a comprehensive database of economic and financial market indicators.
www.ecofin-surge.co.in is an endeavour to provide data support to anyone who is interested in tracking the trends in the Indian and Global Economy as well as Financial markets. The website offers a comprehensive collection of macro-economic and financial markets' data, both Indian and International compiled from official websites of relevant countries. The website provides part of its collection of the basic data, free of cost, while, some other series like historical time-series and crucial rates and ratios or bond yields are estimated and provided at request (as Excel files .xls worksheets/PDF/HTML files) at a reasonable charge.
Do save this mail and spare some of your valuable time to visit the site occasionally. We sincerely hope that you will find it useful. We look forward to receiving your valuable comments and suggestions.
Regards,
The SURGERS (SURGE Research Support)
for EcoFin-Surge..
Please click on the url:
http://www.ecofin-surge.co.in
Also explore
http://www.ecofin-surge.co.in/terminology.html —for lucid exposition of terms.
http://www.ecofin-surge.co.in/yield.html —for GSec/Corporate bond secondary market yields for different tenures/risk.
http://www.ecofin-surge.co.in/at-a-glance.html — for updates on major global economic indicators.
http://www.ecofin-surge.co.in/kiosk.html - for E-UpDates the monthly statistical bulletin with a comprehensive database of economic and financial market indicators.
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