Source : The Business Times, August 20, 2008
US economy has not seen the worst, says former IMF chief economist
The worst is yet to come for the US economy, which is likely to see more bank failures, including the collapse of a big Wall Street investment bank, said Kenneth Rogoff, a former chief economist at the International Monetary Fund yesterday.
And as policymakers around the world try to prop up slowing economic growth by keeping interest rates low, inflation will become harder to control, he warned.
The US financial sector has grown 'bloated' and needs to shrink before the broader economy can make a full recovery, he said. As it contracts, more financial firms will fail.
'We're going to see one of the big investment banks go under,' he predicted.
Mr Rogoff, an economics professor at Harvard University, was speaking yesterday at a conference on market liquidity and its implications for the world economy, held here.
With falling house prices, a weakening labour market, and poor consumer confidence, 'the red lights are blinking - the US is going to experience a major financial crisis', he said.
Despite the extensive damage already suffered by the banking sector in the US, the crisis is only 'halfway' through, he said. 'I'd go further and say that the worst hasn't come.'
Banking crises 'don't happen out of the blue, they happen because the economy's slowing down', he added.
Just last month, US Treasury Secretary Henry Paulson led a government rescue of mortgage finance giants Fannie Mae and Freddie Mac, promising that the US Treasury and other government agencies would provide liquidity and capital funding to the firms, if needed, to keep them afloat.
And in March, the US Federal Reserve extended emergency funding to investment bank Bear Stearns, paving the way for its takeover by bigger rival JPMorgan.
'I was very disturbed by Hank Paulson's bailout of Fannie Mae and Freddie Mac,' said Mr Rogoff. Like several other critics, he believes that the rescue has merely delayed a necessary consolidation in the US financial sector, which will see unviable companies collapse. Both firms should be taken over by the government and eventually broken up, he added.
State-owned investment funds, which have poured billions of dollars into US and European banks since the crisis in the US housing market erupted last year, will not be able to stop all banks from failing, he said. 'You can't save them all.'
Unlike some other economists, Mr Rogoff does not believe that the economic slowdown in the US, Europe and Asia will be enough to cap surging price inflation, unless governments and central banks tighten their monetary policy significantly.
'The underlying money growth that's taken place over the last few years is going to lead to sharp inflation in the US, Asia ... many parts of the world are going to have inflation for two or three years at least, until they sharply raise interest rates.'
'I don't think recession is going to make inflation go away - interest rates are just too low.'
Wednesday, August 20, 2008
Echoes Of Lost Decade Haunt Japan Again
Source : The Business Times, August 20, 2008
Fears of prolonged stagnation back in the frame as BOJ warns of sluggish growth, high prices
IN an attempt to shore up crumbling confidence, Bank of Japan (BOJ) governor Masaaki Shirakawa claimed yesterday that the world's second largest economy is not in immediate danger of recession or stagflation. But the Tokyo stock market was not reassured and the Nikkei 225 average plummeted 349.02 points or 2.7 per cent to 12,816.02 after the BOJ downgraded its official view of short-term prospects for the economy.
Plunging stocks in Asia generally reflected growing fears that the fallout from the US sub-prime mortgage crisis is not yet over and that a global recession is possible with the US, Europe and Japan already slowing and other Asian economies under threat.
The BOJ meanwhile warned of instability in global financial markets and threats to overseas economies, particularly the US. Rising commodity prices could hurt consumer demand, it said.
Japan's economy is being watched closely in the rest of Asia because of its strong trade and investment links with the region and fears that Japan could be sliding back into a prolonged stagnation of the kind that dogged the economy throughout the 'lost decade' of the 1990s. Fears were heightened by news last week that Japanese banks are facing new problems with bad loans, especially to the property sector.
Prime Minister Yasuo Fukuda's government has been sufficiently rattled by the speed and scope of Japan's economic downturn to have ordered ministers to come up with a package of stimulus measures, despite Japan's already precarious fiscal position. The emergency measures are expected to be unveiled some time this week.
'The possibility of a serious downturn (in Japan) in the near future is likely small,' Mr Shirakawa claimed after the BOJ's Policy Board decided to keep the central bank's short- term lending rate at 0.5 per cent. At the same time, however, the BOJ downgraded its institutional view of the economy, saying that growth is 'sluggish against a backdrop of high energy and materials prices and weaker growth in exports'.
The BOJ also predicted that inflation in Japan, which has soared to its highest level in more than a decade, will accelerate in coming months as a result of high energy and food prices. Despite the inflation threat, analysts predicted yesterday that the BOJ will be unable to raise interest rates until well into next year because of the sharp economic slowdown in Japan .
'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention,' the BOJ said in a statement after the latest two-day meeting of its Policy Board.
Despite the measured language of the BOJ's remarks, and those of the governor, fears of imminent recession in Japan have been growing since last week when the government reported that the nation's economy contracted at its fastest pace in seven years during the second quarter of this year, with gross domestic product (GDP) registering a 2.4 per cent annualised decline.
The Japanese Cabinet Office also offered a bleak assessment in its report for August in which it acknowledged that 'the economy is recently weakening', while warning of weak exports, disappointing corporate profits and capital investment, along with soft private consumption.
The main drivers of growth during Japan's economic recovery from 2002 until the second quarter of this year were exports (especially to China, as well as to the US) and high levels of corporate capital investment based mainly upon external demand. Until recently, these were able to keep the economy growing even while consumer demand was softening, analysts noted.
But exports fell in June for the first time in nearly five years while imports rose sharply, resulting in a near-90 per cent drop in Japan's trade surplus to 139 billion yen (S$1.78 billion) compared with June 2007. While the rise in import costs was inevitable (given surging commodity prices), the fall in exports was unexpected and showed that the global economic slowdown is impacting not only demand from North America and Europe but also that from some Asian destinations that Japan exports to.
Corporate sentiment and capital expenditure plans in Japan have declined, in line with export prospects. The Bank of Japan's quarterly 'tankan' survey of business prospects for June showed sentiment to be at its lowest level in five years across a wide spectrum of businesses, and subsequent surveys have shown conditions to be worsening.
Adding to the gloom, data published this week showed that non-financial companies listed on the Tokyo Stock Exchange's first sector suffered a near 15 per cent drop in consolidated pre-tax profit during the second quarter of this year. This was the second consecutive quarterly decline and reflects the cost squeeze on the corporate sector, analysts said.
Fears of prolonged stagnation back in the frame as BOJ warns of sluggish growth, high prices
IN an attempt to shore up crumbling confidence, Bank of Japan (BOJ) governor Masaaki Shirakawa claimed yesterday that the world's second largest economy is not in immediate danger of recession or stagflation. But the Tokyo stock market was not reassured and the Nikkei 225 average plummeted 349.02 points or 2.7 per cent to 12,816.02 after the BOJ downgraded its official view of short-term prospects for the economy.
Plunging stocks in Asia generally reflected growing fears that the fallout from the US sub-prime mortgage crisis is not yet over and that a global recession is possible with the US, Europe and Japan already slowing and other Asian economies under threat.
The BOJ meanwhile warned of instability in global financial markets and threats to overseas economies, particularly the US. Rising commodity prices could hurt consumer demand, it said.
Japan's economy is being watched closely in the rest of Asia because of its strong trade and investment links with the region and fears that Japan could be sliding back into a prolonged stagnation of the kind that dogged the economy throughout the 'lost decade' of the 1990s. Fears were heightened by news last week that Japanese banks are facing new problems with bad loans, especially to the property sector.
Prime Minister Yasuo Fukuda's government has been sufficiently rattled by the speed and scope of Japan's economic downturn to have ordered ministers to come up with a package of stimulus measures, despite Japan's already precarious fiscal position. The emergency measures are expected to be unveiled some time this week.
'The possibility of a serious downturn (in Japan) in the near future is likely small,' Mr Shirakawa claimed after the BOJ's Policy Board decided to keep the central bank's short- term lending rate at 0.5 per cent. At the same time, however, the BOJ downgraded its institutional view of the economy, saying that growth is 'sluggish against a backdrop of high energy and materials prices and weaker growth in exports'.
The BOJ also predicted that inflation in Japan, which has soared to its highest level in more than a decade, will accelerate in coming months as a result of high energy and food prices. Despite the inflation threat, analysts predicted yesterday that the BOJ will be unable to raise interest rates until well into next year because of the sharp economic slowdown in Japan .
'Although (Japan's) economy is under no pressure to adjust production capacity and labour, these downside risks to the economy demand attention,' the BOJ said in a statement after the latest two-day meeting of its Policy Board.
Despite the measured language of the BOJ's remarks, and those of the governor, fears of imminent recession in Japan have been growing since last week when the government reported that the nation's economy contracted at its fastest pace in seven years during the second quarter of this year, with gross domestic product (GDP) registering a 2.4 per cent annualised decline.
The Japanese Cabinet Office also offered a bleak assessment in its report for August in which it acknowledged that 'the economy is recently weakening', while warning of weak exports, disappointing corporate profits and capital investment, along with soft private consumption.
The main drivers of growth during Japan's economic recovery from 2002 until the second quarter of this year were exports (especially to China, as well as to the US) and high levels of corporate capital investment based mainly upon external demand. Until recently, these were able to keep the economy growing even while consumer demand was softening, analysts noted.
But exports fell in June for the first time in nearly five years while imports rose sharply, resulting in a near-90 per cent drop in Japan's trade surplus to 139 billion yen (S$1.78 billion) compared with June 2007. While the rise in import costs was inevitable (given surging commodity prices), the fall in exports was unexpected and showed that the global economic slowdown is impacting not only demand from North America and Europe but also that from some Asian destinations that Japan exports to.
Corporate sentiment and capital expenditure plans in Japan have declined, in line with export prospects. The Bank of Japan's quarterly 'tankan' survey of business prospects for June showed sentiment to be at its lowest level in five years across a wide spectrum of businesses, and subsequent surveys have shown conditions to be worsening.
Adding to the gloom, data published this week showed that non-financial companies listed on the Tokyo Stock Exchange's first sector suffered a near 15 per cent drop in consolidated pre-tax profit during the second quarter of this year. This was the second consecutive quarterly decline and reflects the cost squeeze on the corporate sector, analysts said.
Marina Bay Suites May Be Delayed
Source : TODAY, Tuesday, August 19, 2008
Maintaining target price of $3000 psf, project may only launch in 2012
IF THE market for luxury homes fails to pick up, the launch of Marina Bay Suites may be held off until 2012 when the project is completed, Mr Wilson Kwong, the general manager of Raffles Quay Asset Management said in an interview with Lianhe Zaobao yesterday.
Marina Bay Suites was scheduled for launch during Chinese New Year this year but the date has since been put off indefinitely amid softening property market sentiment in the wake of the United States sub-prime mortgage crisis that has sent markets plunging worldwide.
Marina Bay Suites, located near One Raffles Quay, will feature 218 three- and four-bedroom apartments, and three penthouse units.
The project, which is part of the Marina Bay Financial Centre, is a joint venture between three developers — Cheung Kong/Hutchison Whampoa, Hongkong Land and Keppel Land.
Raffles Quay Asset Management oversees the asset management aspects of the project.
Mr Kwong said it would not be lowering prices in order to boost sales. Maintaining its target price of $3,000 or more per square foot for Marina Bay Suites, it will wait for the most opportune time to launch the project.
At present, it is keeping all options open, and these include launching the development after it is completed.
Mr Nicholas Mak, consultancy and research director of property firm Knight Frank, said: “It is a wise and prudent move. The market is going through a period of uncertainty now, but the chances of the market picking up in the next four years is quite high.”
Mr Kwong said the three joint developers have a robust capital base that will allow them to hold back the launch until market sentiment improves.
“They certainly have the capacity to wait it out and the four years gives them the option of working out the best possible strategy,” Mr Mak said.
Marina Bay Suites’ sister project Marina Bay Residences attracted strong interest when it was launched towards the end of 2006 in the midst of the property market boom, with all units sold within three days.
Although some property analysts expect the luxury segment of the market to fall by as much as 40 per cent from its highs last year, Raffles Quay Asset Management points out that there are only three luxury developments — Marina Bay Suites, Marina Bay Residences and The Sail @ Marina Bay — in the area.
So, compared to Districts 9, 10 and 11, prices will remain relatively firm in the foreseeable future.
Units in the Marina Bay Residences and The Sail achieved prices exceeding $3,000 psf at the peak of the market but have since retreated to around $2,000 psf in recent months.
Maintaining target price of $3000 psf, project may only launch in 2012
IF THE market for luxury homes fails to pick up, the launch of Marina Bay Suites may be held off until 2012 when the project is completed, Mr Wilson Kwong, the general manager of Raffles Quay Asset Management said in an interview with Lianhe Zaobao yesterday.
Marina Bay Suites was scheduled for launch during Chinese New Year this year but the date has since been put off indefinitely amid softening property market sentiment in the wake of the United States sub-prime mortgage crisis that has sent markets plunging worldwide.
Marina Bay Suites, located near One Raffles Quay, will feature 218 three- and four-bedroom apartments, and three penthouse units.
The project, which is part of the Marina Bay Financial Centre, is a joint venture between three developers — Cheung Kong/Hutchison Whampoa, Hongkong Land and Keppel Land.
Raffles Quay Asset Management oversees the asset management aspects of the project.
Mr Kwong said it would not be lowering prices in order to boost sales. Maintaining its target price of $3,000 or more per square foot for Marina Bay Suites, it will wait for the most opportune time to launch the project.
At present, it is keeping all options open, and these include launching the development after it is completed.
Mr Nicholas Mak, consultancy and research director of property firm Knight Frank, said: “It is a wise and prudent move. The market is going through a period of uncertainty now, but the chances of the market picking up in the next four years is quite high.”
Mr Kwong said the three joint developers have a robust capital base that will allow them to hold back the launch until market sentiment improves.
“They certainly have the capacity to wait it out and the four years gives them the option of working out the best possible strategy,” Mr Mak said.
Marina Bay Suites’ sister project Marina Bay Residences attracted strong interest when it was launched towards the end of 2006 in the midst of the property market boom, with all units sold within three days.
Although some property analysts expect the luxury segment of the market to fall by as much as 40 per cent from its highs last year, Raffles Quay Asset Management points out that there are only three luxury developments — Marina Bay Suites, Marina Bay Residences and The Sail @ Marina Bay — in the area.
So, compared to Districts 9, 10 and 11, prices will remain relatively firm in the foreseeable future.
Units in the Marina Bay Residences and The Sail achieved prices exceeding $3,000 psf at the peak of the market but have since retreated to around $2,000 psf in recent months.
Aust Economy On Track For Sharp Slowdown
Source : The Business Times, August 20, 2008
SYDNEY - Australia's economy is on track to slow sharply in the next three to nine months, burdened by tight financial conditions and evaporating household wealth, a private index released on Wednesday suggested.
The annualised growth rate of the Westpac Institutional Bank-Melbourne Institute leading index of economic activity slowed to 2.0 per cent in June, from 2.4 per cent in May and 4.0 percent at the start of the year.
The June pace was the slowest since July 2001 and well below the long term trend of 3.9 percent.
Westpac's chief economist, Bill Evans, said the slowdown was mainly due to sharp falls in the local share market, tighter financial conditions, weak dwelling approvals and soft data for US industrial production.
Mr Evans said the slowdown only added to the case for the Reserve Bank of Australia (RBA) to cut its 7.25 per cent cash rate at its next policy meeting on Sept 2.
Indeed, Mr Evans argued that a hefty cut of 50 basis points was needed, rather than the 25 basis points widely expected.
'Our view is that the first move in an easing cycle should be larger than the average once the case has been made to move,' said Mr Evans.
'With rates well into the contractionary zone and global liquidity conditions deteriorating there is a strong case for a larger first cut.' The level of the leading index rose 0.3 points in June to 256.3, while the coincident index also firmed by 0.3 points to 243.1. Annualised growth in the coincident index, which tries to take the pulse of the economy right now, slowed to 2.4 per cent, from 2.7 per cent in May. -- REUTERS
SYDNEY - Australia's economy is on track to slow sharply in the next three to nine months, burdened by tight financial conditions and evaporating household wealth, a private index released on Wednesday suggested.
The annualised growth rate of the Westpac Institutional Bank-Melbourne Institute leading index of economic activity slowed to 2.0 per cent in June, from 2.4 per cent in May and 4.0 percent at the start of the year.
The June pace was the slowest since July 2001 and well below the long term trend of 3.9 percent.
Westpac's chief economist, Bill Evans, said the slowdown was mainly due to sharp falls in the local share market, tighter financial conditions, weak dwelling approvals and soft data for US industrial production.
Mr Evans said the slowdown only added to the case for the Reserve Bank of Australia (RBA) to cut its 7.25 per cent cash rate at its next policy meeting on Sept 2.
Indeed, Mr Evans argued that a hefty cut of 50 basis points was needed, rather than the 25 basis points widely expected.
'Our view is that the first move in an easing cycle should be larger than the average once the case has been made to move,' said Mr Evans.
'With rates well into the contractionary zone and global liquidity conditions deteriorating there is a strong case for a larger first cut.' The level of the leading index rose 0.3 points in June to 256.3, while the coincident index also firmed by 0.3 points to 243.1. Annualised growth in the coincident index, which tries to take the pulse of the economy right now, slowed to 2.4 per cent, from 2.7 per cent in May. -- REUTERS
US Mortgage Applications At Lowest Since 2000: MBA
Source : The Business Times, August 20, 2008
NEW YORK - Applications for US home mortgages last week fell to their slowest pace since December 2000, hurt by refinancing loan requests that are now just a quarter of March levels, an industry group reported on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity declined 1.5 per cent to 419.3 in the week ended August 15.
The MBA's seasonally adjusted index of refinancing applications dropped 3.7 per cent to 1,034.5 last week, marking the fourth drop in five weeks. The measure has roughly followed a rise in interest rates, which stand nearly three-quarters of a percentage point above March levels.
Average 30-year fixed mortgage rates last week fell to 6.47 per cent from 6.57 per cent.
Applications for mortgages mirror the slump in US housing that is now in its third year, according to the drop in home prices as measured by the Standard & Poor's/Case Shiller indexes. In addition to rising rates, lenders have sharply tightened requirements for obtaining a loan, squeezing out borrowers without strong credit ratings.
Fannie Mae and Freddie Mac, the largest providers of mortgage financing via lenders, have steadily boosted the cost of selling loans into the bond market, forcing lenders to boost costs or turn away borrowers.
The MBA's index for loan requests for home purchases also bumped along near historic lows, falling 0.4 per cent to 314. -- REUTERS
NEW YORK - Applications for US home mortgages last week fell to their slowest pace since December 2000, hurt by refinancing loan requests that are now just a quarter of March levels, an industry group reported on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity declined 1.5 per cent to 419.3 in the week ended August 15.
The MBA's seasonally adjusted index of refinancing applications dropped 3.7 per cent to 1,034.5 last week, marking the fourth drop in five weeks. The measure has roughly followed a rise in interest rates, which stand nearly three-quarters of a percentage point above March levels.
Average 30-year fixed mortgage rates last week fell to 6.47 per cent from 6.57 per cent.
Applications for mortgages mirror the slump in US housing that is now in its third year, according to the drop in home prices as measured by the Standard & Poor's/Case Shiller indexes. In addition to rising rates, lenders have sharply tightened requirements for obtaining a loan, squeezing out borrowers without strong credit ratings.
Fannie Mae and Freddie Mac, the largest providers of mortgage financing via lenders, have steadily boosted the cost of selling loans into the bond market, forcing lenders to boost costs or turn away borrowers.
The MBA's index for loan requests for home purchases also bumped along near historic lows, falling 0.4 per cent to 314. -- REUTERS
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