Euro zone economy shrinks, worst since 2009

The euro-area recession deepened more than economists forecast with the worst performance in almost four years as the region’s three biggest economies suffered slumping output.

 The recession in the 17-nation euro zone deepened sharply in the fourth quarter of 2012 as the debt crisis continued to sap growth and confidence as jobs are lost. Photo: AFP

Gross domestic product fell 0.6 percent in the fourth quarter from the previous three months, the European Union’s statistics office in Luxembourg said today. That’s the most since the first quarter of 2009 in the aftermath of the collapse of Lehman Brothers Holdings Inc. and exceeded the 0.4 percent median forecast of economists in a Bloomberg survey.

The data capped a morning of releases showing that the economies of Germany, France and Italy all shrank more than forecast in the fourth quarter.

European Central Bank President Mario Draghi said last week that confidence in the 17-nation bloc has stabilized and the ECB sees a gradual recovery beginning later this year, though the situation is “fragile.”

“The outlook for 2013 remains subdued,” said Peter Vanden Houte, an economist at ING Group NV in Brussels. “While a gradual improvement of the world economy is likely to support European exports, domestic demand is bound to remain very weak as fiscal tightening and rising unemployment will take their toll on household consumption.”

The euro extended its decline against the dollar after the data were released. It fell 0.9 percent to $1.3328 as of 10:34 a.m. London time. The single currency also weakened versus the pound and the yen. European stocks erased gains, U.S. equity- index futures fell, and German bunds advanced.

Japanese Surprise

The European data chimed with statistics in Japan, where the economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption. GDP fell an annualized 0.4 percent, following a 3.8 percent fall in the previous quarter. That bolsters Prime Minister Shinzo Abe’s case for more monetary stimulus to end deflation.

The euro-area economy shrank 0.9 percent in the fourth quarter from a year earlier, the statistics office said. In 2012, it contracted 0.5 percent.

Data earlier today showed the German economy, Europe’s largest, shrank 0.6 percent in the fourth quarter, while French GDP fell 0.3 percent. Both contractions exceeded the median forecasts of economists. Italy’s economy shrank 0.9 percent, also more than expected and a sixth straight contraction.

Ninth Contraction

Other releases today showed that Portugal’s GDP fell by 1.8 percent in the ninth successive quarter of contraction, while in Austria and the Netherlands, it dropped 0.2 percent. In Greece, which doesn’t publish quarter-on-quarter data, GDP fell 6 percent in the fourth quarter from a year earlier.

Measures by the ECB to stem the debt turmoil have eased the worst strains and helped to reduce sovereign bond yields. The yield on Spain’s 10-year debt is about 5.2 percent, down from more than 7.5 percent in July.

Some reports have also pointed to an easing in the recession in the euro area since the start of this year. While industrial production fell 2.4 percent in the fourth quarter, it rose 0.7 percent in December, more than economists forecast. Surveys of manufacturing and services improved in January.

Downside Risks

Still, the ECB has predicted that the euro zone’s economy will shrink 0.3 percent this year. The appreciation of the euro, which gained 8.2 percent in the past six months, is also threatening to hurt exports.

The ECB said today that professional forecasters cut their growth and inflation estimates. They predict inflation of 1.8 percent in 2013 and 2014, down from the 1.9 percent estimated for both years three months ago, the central bank said, citing a quarterly survey. Forecasters foresee zero growth this year and expansion of 1.1 percent next year.

Heineken NV, the world’s third-biggest brewer, said yesterday it sees volume weakness this year in European markets “affected by continued economic uncertainty and government-led austerity measures.” ThyssenKrupp AG, Germany’s biggest steelmaker, said on Feb. 8 that it intends to make savings in its European steel business by cutting more than 2,000 jobs.

In the 27-nation European Union, GDP fell 0.5 percent in the fourth quarter from the previous three months and 0.6 percent on the year. The statistics office is scheduled to publish a breakdown of fourth-quarter GDP next month.

“While sentiment towards the region has improved, the hard news on the economy remains distinctly weak,” said Jonathan Loynes, chief European economist at Capital Economics in London. Surveys have pointed to an “improvement in sentiment and activity in the early part of 2013. But for now at least, they are not strong enough to suggest that the euro zone has pulled out of recession.” - Bloomberg

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Japan's economy contracts

Japan's economy contracts

Aggressive: Japan has been warned that its expansionary monetary policy could affect that country’s future growth as a weak yen could undercut Korean exporters’ competitiveness. — EPA

TOKYO: Japan's economy unexpectedly contracted in the fourth quarter, failing to escape a mild recession and playing into the hands of a government pushing for more aggressive monetary expansion that's drawn international criticism.

While a 0.1% drop in output defied expectations of a slight uptick after two quarters of contraction, economists expect the economy will slowly recover this year with the help of bolder monetary and fiscal stimulus and an improving global economy.

The Bank of Japan also struck a more positive note on the economy while keeping its policy on hold after it boosted its monetary stimulus and doubled its inflation target to 2% a month ago.

Markets, however, have no doubt that Prime Minister Shinzo Abe will keep pushing the central bank for more, given the still fragile state of the economy. A return to rising prices also appears far off after nearly two decades of low-grade deflation.

Those expectations for further easing have sent the yen into retreat, driving it down nearly 20% against the dollar since November and stirring an international debate over whether Japan was effectively using aggressive money printing to steer the yen lower.

Tokyo has defended its action, saying its policies are aimed at pulling the country out of deflation, not at nudging down the yen, and governor Masaaki Shirakawa is expected to reinforce that argument when he will attend his last Group of 20 finance leaders' meeting in Moscow this weekend.

Japan has said the Group of Seven rich nations accepted Tokyo's view when it declared in a statement on Tuesday that fiscal and monetary policies would not be directed at devaluing currencies.

But remarks from former BoJ governor Kazumasa Iwata yesterday are likely to rekindle the international debate on Tokyo's true motives.

The yen is still overvalued from a trade perspective and the reversal of the currency's strength is essential for the BoJ to achieve its 2% inflation target, Iwata was quoted as saying by a Japanese ruling party official.

Iwata, considered one of the leading candidates to replace Shirakawa when he leaves his post in March, said the dollar at 95 yen was appropriate. Iwata heads a private economics think-tank and now has no policymaking role.

Abe and his cabinet have the right to fill three top BoJ posts when Shirakawa and his two deputies leave on March 19 and is widely expected to pick advocates of more aggressive central bank action than the cautious outgoing chief, keeping downward pressure on the yen.

The dollar traded around 93.50 yen yesterday after hitting a 33-month high of about 94.47 yen on Monday.

South Korea's central bank has warned that Japan's expansionary monetary policy could affect that country's future growth as a weak yen could undercut Korean exporters' competitiveness.

As widely expected, the central bank maintained its overnight call rate target at a range of zero to 0.1% by a unanimous vote, and held off expanding its asset buying and lending programme, while offering a rosier view of the economy than just a month ago.

“Japan's economy appears to be bottoming out,” it said. In January, the BoJ said the economy was weakening.

The world's third largest economy contracted for the third consecutive quarter in October-December, showing Japan was taking longer to escape from a mild recession. - Reuters

Ad strategy wins sweethearts

 

Proposa l placement: Xteven and Rachel looking through The Star.

IPOH: A 29-year-old company manager proposed to his sweetheart by declaring his love through a newspaper advertisement.

Xteven Teoh Hoe Seong (sic), from Gunung Rapat here, said he got the idea after finding out that one could place an advertisement in the Celebrations page in The Star.

Teoh, who works in Shah Alam, Selangor, said he believed the advertisement was more romantic than going down on bended knee to propose to the love of his life, Rachel Choo Lai Ying.

Teoh and Choo, 27, who have been courting for nine years, will marry on Sept 15. They first met when they were cadets with St John Ambulance in their respective schools.

“About three years ago, we broke up for about six months due to some misunderstanding, but deep down we knew we were made for each other and got back together.

“At that time she was studying in Australia, and during the mooncake festival I sent her four pieces, ” he said here yesterday.

On Feb 10, the Sunday Star published Teoh's advertisement with the couple's photograph and his proposal to Choo: “Will you marry me? Let me take care of you for the rest of our life.”

Teoh also made a short video-clip on his Facebook page declaring his love for her.

The clip starts with Teoh coming up with the words “Most of the Chinese newspaper companies are shut, and the only newspaper I can find in 7-11 is The Star, so go to page 47 and Rachel Choo you will find this” (referring to the ad).

Choo, a sales executive working in Puchong, Selangor, said she was shocked to see the advertisement in The Star.

“I was a bit suspicious when a few friends persuaded me to look out for an advertisement. After flipping page after page, I saw the ad. I was so touched by the proposal that I immediately said Yes',” said Choo who is from First Garden, near here.

By MANJIT KAUR manjit@thestar.com.my

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Why North Korea conducts nuclear test?

The fallout from North Korea’s nuclear test will reach beyond its neighbours to the south. AAP/Yonhap



Overnight North Korea conducted its third nuclear weapons test. The test came in the wake of a successful long-range rocket launch in December and resulting condemnation from the United Nations Security Council via UNSC Resolution 2087.

This latest development raises two obvious questions: Why did North Korea conduct the test, and how might the international community react?

Pyongyang’s motives

The seismic signature of this blast registered 4.9 on the Richter scale, larger than a reading of 4.52 from a similar explosion in 2009.

There are several ways of interpreting the larger yield of the most recent blast.

It could have been a bigger bomb, ergo the larger explosion. This seems unlikely given Pyongyang’s need for a miniaturised weapon to demonstrate its deterrent capability.

It may have been North Korea’s first test of a uranium-based weapon using fissile material from Pyongyang’s advanced High Enriched Uranium (HEU) program. Uranium-based nuclear devices are more technologically sophisticated than plutonium bombs, but the uranium feedstock does not have to pass through the numerous processes of the nuclear fuel cycle to be weaponised. HEU installations are more efficient in producing fissile material and harder to detect because they bypass the reactor burn process, hence their appeal.

Or the test may have been of a smaller device packing a stronger punch. Miniaturisation is the next technological milestone for the North’s nuclear scientists in order to produce a nuclear warhead that is deliverable atop a missile. To confirm itself as a nuclear weapons power, North Korea must demonstrate it has developed a deployable nuclear device. A nuclear bomb has no deterrence value unless it can be reliably and accurately delivered to an enemy target.

International reaction

After every North Korean provocation, journalists and colleagues usually ask me how the international community is likely to react.

The international reaction is the most predictable variable in the equation. The answer is: more sanctions.

Why sanctions? Military force is essentially off the table. A casual glance at a map of the Korean peninsula will show that Seoul is essentially indefensible against North Korean rockets and artillery due to its close proximity to the Demilitarized Zone (DMZ).

The estimated cost of war and reunification should an American military action escalate to full-scale war is estimated in the trillions of dollars and millions of lives, borne largely by South Korea. For any rational military strategist, the risks of an armed response to North Korea’s pin-prick provocations are prohibitive.

China fears the potential for economic and social dislocation in its northeastern provinces cause by large refugee flows from North Korea in the event of war or state collapse.

The pre-existing sanctions regime imposed by previous Security Council resolutions and domestic legal instruments includes measures such as restrictions on North Korean exports, asset freezes applied to specific North Korean citizens and enterprises, and controls on North Korean imports of dual-use technologies. The sanctions regime is enforced via the Proliferation Security Initiative, a global naval interdiction effort aimed at disrupting WMD trafficking.

Despite its stern rhetoric, the expansion of sanctions in UNSC 2087 was relatively mild. It placed travel bans and asset freezes on four officials and six state-owned enterprises from the North Korean space program and Pyongyang’s amorphous network of foreign exchange banks and dummy companies. This network exists to subvert international sanctions and fund North Korea’s nuclear and missile proliferation activities.

The sanctions regime has been largely ineffective in controlling North Korea’s nuclear and missile proliferation activities. There is a limit to the number of individuals and state-owned entities in North Korea that can be targeted for sanctions. One would therefore expect a new round of sanctions to include a crackdown on foreign entities thought to be assisting North Korean sanction-busting.

A stronger sanctions regime also requires cooperation from Beijing, as China is the country with the greatest economic leverage over the DPRK. Chinese foreign policy elites have been engaged in intense debate over the appropriate approach to North Korea for some time, however it is likely that the official policy of restrained disapproval will continue to carry the day.

Determined proliferation

The inability to prevent North Korea testing a nuclear device is evidence of its weak leverage over Pyongyang. Indeed it is the international community’s weak hand that creates the strategic space for relatively scot-free North Korean provocations.

North Korea is a determined nuclear weapons and ballistic missile proliferator, driven by a number of economic, strategic, political and bureaucratic motivations all linked to the regime’s over-arching goal of survival.

The successful test sends a powerful strategic signal that North Korea is serious about expanding its nuclear arsenal.

A South Korean official said that North Korea had notified the US and China of its nuclear test plan a day earlier.

Source: The Conversation - An independent analysis and commentary from academics and researchers.

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Bloggers doing their bit to champion a good cause

BLOGGER Dr Angelo Nino M. Santos brought his eight-year-old son to visit three children’s homes so that the little boy would appreciate what he had in his life.



“My son Antonio Gabriel was so excited to come.

“He packed his old toys and clothes to be donated to the children here,” he said while at Ramakrishna Orphanage in Scotland Road, Penang.

The visit was in conjunction with the ‘Responsible Blogging 2013: Time To Give Back’ programme.

A total of 40 bloggers visited Rama-krishna Orphanage, Children’s Pro- tection Society and Shan Children’s Home to give away food and other items.

The programme was organised by Crowdpot Sdn Bhd, a social media marketing company.

Crowdpot director Leslie Loh said they planned to help educate bloggers about safe blogging and to achieve one million ‘responsible actions’.

“For example, if each blogger who posted about this event in his or her blog receives about 100 comments, we consider that we have generated responsible action,” he explained.

Dr Angelo, 36, a lecturer at the Allianze University College of Medical Sciences, said it was the first time he was taking part in such a programme.

He said he started blogging in 2007 and his blog mainly focuses on the 3Fs — family, food and fun.

Also present was Penang Health, Welfare, Caring Society and Environ­ment Committee chairman Phee Boon Poh.

Loh said Crowdpot was also giving away prizes for those who helped to blog about the homes.

“The prizes include three iPad Minis sponsored by Crowdpot and six Ninetology Black Pearl 2 dual-core Android smartphones sponsored by Ninetology Malaysia,” he said.

The contest is until March 23.

For details, visit www.responsibleblogging.my. - The Star

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