The Star Online: Business
The Star Online: Business |
- Politics call the tune in U.S, China and Europe
- Siemens to take further writedown on solar business
- Analysis: Waiting for housing to drive the U.S. economy
| Politics call the tune in U.S, China and Europe Posted: 04 Nov 2012 06:05 PM PST LONDON: In the politically packed days ahead, an election, a coronation and a two-part parliamentary vote each has the potential to alter the course of the global economy for years to come. The election, of course, is on Tuesday for the White House and Congress. Two days later, China's ruling Communist party begins the 18th congress in its history. Barring one of the biggest political surprises in modern times, the carefully choreographed gathering will culminate a week later in the crowning of Xi Jinping as successor to Hu Jintao. He will hold the reins of power for the next decade. That the world's two biggest economies are choosing their leaders at the same time is unprecedented. Investors are right to be transfixed. Yet arguably it is a pair of votes in Greece, an economic minnow, on whether to accept labor reforms and more austerity that could have a greater short-term impact on financial markets. In the U.S. election, markets are pricing in the status quo - victory for Barack Obama in enough swing states to return him to the presidency to renew battle over tax and spending with a hostile House of Representatives and a bitterly divided Senate. The outcome of talks over the fiscal cliff' - a package of tax increases and spending cuts that will take effect in January if there is no long-term pact to cut the budget deficit - is already a major uncertainty for markets. Tuesday's voting could muddy the waters even further. "It's not easy to map out what the outcome of the election will mean for policy, both immediately afterwards and also for next year," Bruce Kasman, an economist with J.P. Morgan, said on a conference call. In any event, Bill Adams, an economist at PNC Financial Services Group in Pittsburgh, said negotiations on the fiscal cliff would have a greater impact on growth for 2013 than Tuesday's election itself. "Similarly, with the 18th Party Congress in China, we know who's going to win THAT election. The odds for an upset coming out of those two events are relatively small," Adams said. GREEK VOTES ON KNIFE EDGE As for Greece, the assumption is that Prime Minister Antonis Samaras's coalition will muster enough support on Wednesday to win a vote on structural reforms and a follow-up vote on Sunday on an austerity budget for 2013. But it will be a close call. Holger Schmieding, an economist with Berenberg Bank in London, said it might take the defection of just three more coalition lawmakers to doom the reform package. "In this unlikely but not completely impossible case, the euro zone could be headed for a period of turmoil," Schmieding said in a note. "The Grexit debate could be back with a vengeance despite the clear desire of Germany to keep Greece in the euro." He saw a 25 percent chance of Grexit - Greece's exit from the euro - in the next six months. At the very least, the tight votes will show that Greece is reaching the limit of its capacity to accommodate its international creditors, who are demanding ever more austerity to hit deficit goals that grow ever more distant the longer the economy contracts. Greece is now in its sixth year of recession. "There isn't an effective pro-growth policy for the euro zone right now," Adams said. "Sooner or later the political process will have to acknowledge that this policy mix isn't working, and that will open a lot of rifts." NO CHANGE FROM ECB, BOE The financial crisis in the euro zone, which is flirting with recession, is still the biggest obstacle to global growth, according to a senior U.S. official. Nevertheless, a Reuters survey of 73 economists saw an 80 percent chance that the European Central Bank would hold its main refinancing rate unchanged at 0.75 percent on Thursday. In the same vein, economists attached just a 40 percent probability to a further round of asset purchases from the Bank of England, which also meets on Thursday. The odds on extra monetary easing have lengthened since the British economy grew more strongly than expected in the third quarter. The biggest day for data could be Friday, when China issues investment, retail sales and industrial output figures for October. But this is a week for the political economy, and the main focus will be on any signals from the party congress in Beijing that a change at the top might augur a quick shift in economic policy to spur consumption. Nothing is impossible, but China-watchers reckon gradualism will remain the hallmark of what is a collective leadership. The new team will need time to consolidate its grip on power. Economists at Barclays Capital led by Yiping Huang said consideration of systemic policy changes is probably a year away, but the new leaders could show their reformist credentials by picking low-hanging fruit in areas such as resource pricing, income distribution and tax policy. "We might start to hear such discussions at the annual economic work conference in early December or at the National People's Congress in early March," they said in a report. - Reuters |
| Siemens to take further writedown on solar business Posted: 04 Nov 2012 06:03 PM PST FRANKFURT: German engineering conglomerate Siemens will have to take additional gross writedowns of more than 250 million euros ($321.13 million) on the solar business that it is exiting, a German paper reported. The additional amount is made up of writedowns on the value of company units, operational losses and writedowns on solar projects that have already been started, Financial Times Deutschland reported in a story to be published on Monday, citing company sources. In total, the company is booking losses of 800 million euros on its solar business, which it started in 2009, the paper added. Siemens announced last month it was pulling the plug on its loss-making solar business as part of plans to improve profitability. Siemens was not immediately available for comment. As part of its plans to quit solar, Siemens is exiting the Desertec project, which envisages Europe will import up to a fifth of its electricity from solar and wind parks in North Africa and the Middle East by 2050. FTD reported in a separate story also to be published on Monday that State Grid Corporation of China and First Solar were considering taking stakes in Desertec. ($1 = 0.7785 euros) - Reuters |
| Analysis: Waiting for housing to drive the U.S. economy Posted: 04 Nov 2012 06:00 PM PST NEW YORK: The U.S. housing market is on the mend, but the so-called "missing piston" of the world's biggest economy doesn't have enough power to get the broader recovery firing on all cylinders any time soon. Construction and related activity will help rather than hinder U.S. economic growth this year for the first time since 2005. That was before the housing bust helped push the United States into recession, triggering the global financial crisis. Higher sales, prices and building, albeit modest so far, are a welcome boost as other drivers of the economy falter. Nonetheless, housing still accounts for only a small part of gross domestic product compared with the boom years. The housing sector "would have to be on steroids to significantly boost GDP growth," Paul Dales, an economist with Capital Economics, wrote in a recent research note. Neither presidential candidate has signaled any new plans to help housing, although the Federal Reserve, aware of the important role of the sector in underpinning the economy, is focusing its latest stimulus efforts in mortgage bonds. Typically, housing leads the U.S. economy out of recession. But the vast equity losses have stymied the market this time. Housing's most direct impact on growth is via construction, remodeling and associated services, known as residential investment. Its contribution to GDP has shrunk from a historical average of about 5 percent, and over 6 percent in 2005, to 2.5 percent in the third quarter of this year. Economists expect residential investment will add two- to three-tenths of a percentage point to GDP in 2013, helping the economy maintain this year's pace of growth. Americans are likely to spend more on home renovations - probably $134.2 billion in the 12 months to June 2013, up from $115.3 billion at the end of September this year, according to Harvard University's Joint Center for Housing Studies. That would still be 8 percent off the peak in mid 2007 when borrowing against home values was still soaring. Now, homeowners remain wary of taking on debt. Most prefer to save for renovations rather than borrow, said Adi Tatarko chief executive of Houzz, a home remodeling online platform. Jim O'Sullivan, chief U.S. economist at High Frequency Economics says housing-related jobs have grown by an average of 11,000 a month this year. That contrasts with an average monthly decline of 1,000 in 2011 and they should speed up to 30,000 a month by early 2013 as new home construction picks up, he estimates. Superstorm Sandy, which hammered the U.S. Northeast last week, could put more people to work in construction. Analysts estimate the U.S. economy needs to create roughly 150,000 jobs a month just to hold the unemployment rate steady. 'EVERY LITTLE BIT HELPS' The influence of housing reaches further than just construction jobs; it can be a big jolt for consumer spending, which makes up two-thirds of the economy. Michael Gapen, chief U.S. economist at Barclays Capital, said real estate wealth should begin to boost consumer spending again next year. That would mark an important turning point for households' finances, badly damaged by the housing market collapse and the drop in stock prices during the financial crisis. "As the consumer goes, so will the broader economy," Gapen said. The swath of homeowners who owe more on their mortgage than the value of their home is a big factor that has held back the housing recovery. Many "underwater" Americans have been unable to sell their home and buy something more expensive. Such upward mobility in housing has traditionally fueled the market. More than 20 percent of U.S. mortgages were underwater at the end of June, amounting to 10.8 million homes. Of those, 1.8 million borrowers would recover if prices rose 5 percent, according to data analysis firm CoreLogic . Price gains like that may not be such a tall order. Economists expect prices to have risen 1.7 percent this year and pick up a further 3.1 percent next year, according to a Reuters poll. Rising home prices helped 1.3 million homeowners get out from under water in the first half of this year, CoreLogic says. Those are more homeowners who could potentially refinance their mortgages, putting more spending money in their pockets. A number of factors suggest the recovery will be slow and modest, like that of the broader economy. These factors include a backlog of pending foreclosures, the large amount of distressed homes up for sale, often at low prices, and the difficulty in getting a mortgage. In the meantime, the Fed will buy $40 billion in mortgage-related debt each month as it tries to bolster the housing sector which Fed Chairman Ben Bernanke has called the "missing piston" of the U.S. economic recovery. "Every little bit helps," Scott Brown, chief economist at Raymond James, said of housing. "People always ask, 'What's going to drive the recovery?' It's never usually one particular thing, but a lot of little things getting better at the same time." - Reuters |
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