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POLITICAL ECONOMY
IMF chief warns over slowing global growth
by Staff Writers
Tokyo (AFP) July 6, 2012


International Monetary Fund chief Christine Lagarde Friday warned the global economy was slowing and said the situation could get worse because Europe was not doing enough to fix its debt crisis.

Lagarde said the IMF would cut its growth forecast in its global outlook to be released later this month.

"What I can tell you is that it will be tilted to the downside and certainly lower than the forecast that was published three months ago," she told an economic forum in Tokyo during a week-long Asian tour.

"And that is predicated on the right set of actions being taken in Europe in order to avoid very significant deterioration and to eliminate major threats."

In April, the IMF hiked its global growth forecasts to an annual rate of 3.5 percent this year, accelerating to 4.1 percent in 2013, up from the January forecast of 3.3 percent and 4.0 percent respectively.

Lagarde declined to elaborate on the IMF's new assessment due later this month, but said conditions since the last forecast had "regrettably" become "more worrisome", although she hailed recent steps to tackle Europe's woes.

The IMF chief cited measures adopted after a European leaders' meeting in Brussels last week and the European Central Bank's move on Thursday to cut interest rates to historic lows as proof of progress.

Stimulus measures and emergency aid to troubled Italy and Spain were "significant steps in the right direction", Lagarde said.

But "from the IMF perspective, we believe that more needs to be done in order to really complete the architectural job of the eurozone: a monetary union, a banking union followed by a fiscal union".

"It's also a question of implementation -- diligent, rigorous, steady implementation," Lagarde added.

On Thursday, central banks in Europe and China ushered in easing and stimulus moves in a bid to help power the global economy, just days after the IMF pared its growth forecast for the US economy.

The Washington-based organisation estimated 2012 US economic growth at 2.0 percent, down from an April forecast of a 2.1 percent expansion for the world's biggest economy -- and warned that the Obama administration may be slicing the deficit too fast for the weak economy.

Lagarde's comments came a day after Beijing's second interest rate cut in less than a month surprised markets and stoked worries about the world's second-biggest economy.

Then, the European Central Bank cut its main interest rate to a record low 0.75 percent, while the Bank of England kept its rate even but announced 50 billion pounds ($78 billion) in additional stimulus.

Lagarde applauded Asian nations, particularly China, for turning their focus away from depending on exports to measures that boost demand at home, adding that the "rebalancing that came with the crisis shouldn't go with the crisis".

She also acknowledged that the yen was "moderately overvalued" after Prime Minister Yoshihiko Noda told her earlier Friday that Japan's economy was "suffering a serious, adverse impact" over the currency's strength.

The Japanese unit hit record highs against the dollar last year, and remains strong as traders eye safe-haven currencies amid worries about the euro and greenback.

But the strong currency hurts Japanese exporters, who were already struggling after last year's quake-tsunami disaster, by making products pricier overseas while shrinking the value of repatriated foreign earnings.

Lagarde will be in Jakarta on July 8-10, and in Bangkok on July 11-12, where she will participate in a seminar organised by the IMF, the Bank of Thailand and the Asian Development Bank.

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China cuts interest rates: central bank
Beijing (AFP) July 5, 2012 - China on Thursday cut interest rates for the second time in a month, a surprise move that analysts said may indicate the world's second-biggest economy was slowing more quickly than expected.

The changes, which take effect from Friday, will see the benchmark one-year lending rate drop by 0.31 percentage points and the deposit rate fall by 0.25 percentage points, the central bank said in a statement on its website.

The cut will effectively adjust the one-year deposit rate to 3.0 percent and the one-year loan rate to 6.0 percent, the bank said.

The central bank did not immediately provide a reason for the rate cut, but analysts said China's economic planners may have acted after analysing data for the second quarter that is due to be released next week.

"On the one hand, the move shows inflation in June may not be high," said Liao Qun, chief economist of Citic Bank International in Hong Kong.

"On the other this implies that economic data may turn out to be weaker than expected, with the second quarter recording slower economic growth than the first quarter."

Ting Lu, a Hong Kong analyst for Bank of America-Merrill Lynch, agreed the central bank's aggressive move could signal that June's second quarter data "might be worse than expected".

China's economy grew an annual 8.1 percent in the first quarter of 2012 -- its slowest pace in nearly three years.

Among the more recent evidence to show China's economy was struggling, manufacturing activity contracted for the eighth consecutive month in June, British bank HSBC reported on Monday.

Mark Williams, chief Asia economist for Capital Economics, also pointed to reports this week suggesting that lending by the major banks was lower in June than in May, and that economic recovery depended on a rebound in credit growth.

The Chinese government had already reduced its economic growth target for this year to just 7.5 percent, down from actual growth of 9.2 percent last year and 10.4 percent in 2010.

China last cut interest rates on June 7, which was then the first move down in more than three years, and Ting said there could be similar moves in the second half of the year.

Andy Xie, an independent Shanghai-based economist, described China's current economic situation as "pretty dire".

"So they (the central bank) want to signal to the market that they care, this is a confidence measure," Xie said.

The European Central Bank announced a cut at the same time as China, bringing rates there to a new all-time low, and Xie said the moves were likely part of a joint effort by world leaders to boost growth.

"There is a global effort to stimulate growth and China wants to join this effort, so this is probably coordinated, China wants to show that it is a team player," he said.

China had previously hiked interest rates five times from October 2010, in an effort to control surging inflation due to worries of social unrest.



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College Park, Md. (UPI) Jul 5, 2012
Friday, forecasters expect the U.S. Labor Department to report the economy added only 90,000 jobs in June, not even enough to keep up with growth in the working-age population. Most analysts see the unemployment rate remaining staying at 8.2 percent, while some anticipate an increase. The wildcard is the number of adults actually working or seeking jobs - the measure of the labor force ... read more


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