Aussie Q4 growth at lowest pace in a year

(SYDNEY) Australia’s economy grew at the slowest pace in more than a year in the fourth quarter as construction declined and bottlenecks at ports cut exports.

Gross domestic product rose 0.6 per cent from the third quarter, when it increased a revised 1.1 per cent, the Bureau of Statistics said yesterday. The gain matched the median estimate of economists. The US$1 trillion economy grew 3.9 per cent from a year earlier.

A slowdown in Australia’s economy, now in its 17th year of expansion, plus the potential fallout from the global credit crisis, gives the central bank scope to delay further interest rate increases after raising borrowing costs to a 12-year high on Tuesday to stem inflation.

Yesterday’s report showed imports surged as the lowest unemployment in more than three decades spurred spending.

‘It’s still a strong economy story,’ said David de Garis, senior markets economist at National Australia Bank. ‘The question is whether domestic demand will hold up in the face of rising interest rates.’

Rising borrowing costs, tighter lending standards, the local currency’s gain and the global slowdown are ’significant dampening forces’ that will cool Australia’s economic expansion, central bank assistant governor Malcolm Edey said yesterday.

Australia’s stock market was cut to ‘underweight’ by Merrill Lynch & Co yesterday on concern rising interest rates will ‘hit consumer and banking stocks’. The nation’s benchmark S&P/ASX 200 Index has declined 21 per cent since its Nov 1 peak, meeting the definition of a bear market.

Exports fell 0.6 per cent in the three months through December from the previous quarter as miners were hampered by port and rail constraints, yesterday’s report shows. By contrast, government spending rose 1.7 per cent and household consumption climbed 1.6 per cent.

Source: Bloomberg (Business Times 6 Mar 08)

2008 not necessarily like 2007: UBS

(ZURICH) UBS AG does not expect 2008 to be a year like 2007, when the Swiss bank wrote down US $18 billion in bad credits and posted the first loss since its creation, its chief executive was quoted as saying yesterday.

‘I view the environment as difficult due to great uncertainties related to the US economy. Nervousness will remain high in the markets. But you cannot conclude from that that 2008 will be a year like 2007 for UBS,’ UBS chief executive Marcel Rohner told newspaper NZZ am Sonntag.

UBS, the world’s largest manager of affluent people’s money, is Europe’s biggest casualty of the credit crunch by far. Investors fear the possibility of billions of dollars in new sub-prime writedowns.

Mr Rohner said UBS’s investment banking business would concentrate in 2008 on its strengths in customer business, such as equities and mergers and acquisitions advisory business.

‘Our goal is to give the businesses that do excellent work the space to develop further, while isolating the problem portfolios in the US mortgage market, managing them separately and quickly reducing the risks,’ he said.

UBS has published details of its exposure to problem areas in US debt, totalling US$88 billion at the end of 2007, including US$27.5 billion in sub-prime debt.

But Mr Rohner said the figure could not be used to predict losses, as it comprised highly diverse positions and risks. ‘The quality of our investment in leveraged buyouts, for example, is much better than in complex securities based on mortgages with poor debtor quality,’ he noted.

Mr Rohner said it was not currently possible to sell intact structured products. But where a collateralised debt obligation structure had become insolvent, UBS had been able to reduce its risks by selling the underlying securities at prices in line with their current valuation by the bank.

UBS’s private banking business has not been affected by the blow to the bank’s reputation, Mr Rohner said. Private banking recorded net inflows of more than 30 billion Swiss francs (S$38.8 billion) in the fourth quarter of 2007, and net inflows continued in January.

Mr Rohner defended the continuing payment of bonuses amid the losses, as the losses arose from real estate loans handled by a small part of the bank. Other areas of the bank had worked well and it was important to continue to motivate staff producing these results by treating them fairly.

 

Source: Reuters (Business Times 18 Feb 08)

IMPROVING OUTLOOK: UBS expects this year to be a better one

ZURICH – UBS does not expect this year to be like the last, when the Swiss bank wrote down US$18 billion (S$25.5 billion) in bad credits and posted the first loss since its creation, its chief executive officer (CEO) was quoted as saying yesterday.

‘I view the environment as difficult due to great uncertainties related to the United States economy. Nervousness will remain high in the markets. But you cannot conclude from that that 2008 will be a year like 2007 for UBS,’ CEO Marcel Rohner told Swiss daily newspaper NZZ am Sonntag.

UBS, the world’s largest manager of affluent people’s money, is Europe’s biggest casualty of the credit crunch by far. Investors fear the possibility of billions of dollars in new sub-prime write-downs.

Mr Rohner said UBS’ investment banking business would this year concentrate on its strengths in customer business, such as equities and mergers and acquisitions advisory business.

‘Our goal is to give the businesses that do excellent work the space to develop further, while isolating the problem portfolios in the US mortgage market, managing them separately and quickly reducing the risks.’

UBS has published details of its exposure to problem areas in US debt, totalling US$88 billion at the end of last year, including US$27.5 billion in sub-prime debt. But Mr Rohner said the figure could not be used to predict losses, as it comprised highly diverse positions and risks.

Last December, the Government of Singapore Investment Corp bought a 9 per cent stake in UBS for 11 billion Swiss francs (S$14.2 billion).

On Jan 30, UBS announced a 12.5 billion Swiss franc loss for the final three months of last year and a full-year loss of 4.4 billion Swiss francs, a record for the bank. This was due to a higher-than-expected US$14 billion write-down on assets connected to sub-prime mortgages in the US.

UBS was formed in 1998 after the Union Bank of Switzerland took over local rival Swiss Banking Corp.

 

Source: REUTERS (The Straits Times 18 Feb 08)

Taxes to be cut despite rising inflation: Rudd

Govt is optimistic about growth prospects: minister

(SYDNEY) Australian Prime Minister Kevin Rudd said the government will go ahead with promised tax cuts, even as inflation rises at the fastest pace in 16 years.

‘There will be absolutely no change to people having tax cuts to take as additional income,’ Mr Rudd said on the Nine television network’s ‘Sunday’ programme. He said inflation remains the government’s greatest challenge.

Australia’s annual core inflation accelerated to 3.8 per cent in the fourth quarter, the fastest since 1991. The central bank aims to keep price gains between 2 per cent and 3 per cent on average.

Treasurer Wayne Swan said he remained optimistic about the outlook for the Australian economy amid the highest borrowing costs in 11 years and concern the United States is headed for recession.

‘We do face substantial challenges but I think our growth prospects are very solid,’ Mr Swan said yesterday on channel Ten’s ‘Meet the Press’ programme. ‘It’s a very big inflation problem. We have to deal with it because inflation pushes up interest rates, erodes living standards and, in the end, inflation is a threat to growth.’

The economy is showing few signs of cooling as rising consumer spending and exports to China help Australia ride out a global financial market slump. It grew 4.3 per cent in the third quarter from a year earlier, the fastest pace in three years.

The Reserve Bank of Australia last week increased the overnight cash rate target to an 11-year high of 7 per cent.

A US recession would probably curb global economic growth, cooling demand for Australia’s exports. Increased borrowing costs, rising living costs and declining share prices may also damp consumer spending in coming months.

Mr Swan said measures allowing customers to more easily switch banks will bolster competition in the sector and help keep borrowing costs lower. Cuts to public spending will also curb inflation.

‘We have to really take the axe to public spending given the inflation problem that we’ve inherited,’ he said. ‘And that will mean that we will go through the budget looking at all areas of the budget to make the savings that are absolutely essential if we’re going to put downward pressure on inflation and downward pressure on interest rates.’

 

Source: Bloomberg (Business Times 11 Feb 08)

Soros warns of worst financial crisis since WWII

(VIENNA) Billionaire investor George Soros said the world was facing the worst financial crisis since World War II and the United States was threatened with recession, according to an interview by the Austrian daily Standard.

‘The situation is much more serious than any other financial crisis since the end of World War II,’ Mr Soros was quoted as saying.

He said that, over the past few years, politics had been guided by some basic misunderstandings stemming from something which he called ‘market fundamentalism’ – the belief financial markets tended to act as a balance.

‘This is the wrong idea,’ he said. ‘We really do have a serious financial crisis now.’

Asked whether he thought the US was headed for a recession, he said: ‘Yes, this is a threat in the United States.’

He added that he was surprised how little understanding there had been on how recession was also a threat to Europe.

European shares fell nearly 6 per cent on Monday, their biggest one-day slide since the Sept 11 attacks of 2001, as fears of a US recession and more writedowns in the financial sector sparked a broad-based selloff.

In Washington, US Treasury Secretary Henry Paulson said that the US economy remained resilient and has healthy long-term fundamentals, but has slowed ‘materially’ in recent weeks.

Warning that, in the short term, risks were clearly to the downside, he said that Congress and the administration need to agree quickly on a package of tax cuts and other measures to boost the economy.

‘Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible,’ Mr Paulson said in remarks to the US Chamber of Commerce as House Speaker Nancy Pelosi and leaders in both parties prepared to meet President George W Bush at the White House to discuss a stimulus bill.

Such legislation presumably would involve tax rebates, business tax cuts and funding for a Democraticled call for additional food stamp and employment aid.

 

Source: AP, Reuters (Business Times 23 Jan 08)

Recession in US, Europe could shake Asia, S’pore

Region still relies heavily on world’s biggest markets, say economists

A RECESSION in the United States and Europe would badly hurt Asian economies, including Singapore’s, which still rely heavily on these two export markets for growth, according to economists.

Indeed, analysts at Lehman Brothers believe economic growth in Singapore could slump to as low as 2.5 per cent this year, if the worst-case scenario of a recession occurs. The official forecast is for growth of 4.5 per cent to 6.5 per cent.

Economists said yesterday that while the region’s economies have managed to stand on their own feet in recent years, their fortunes are still closely tied to external conditions.

Most economists are maintaining forecasts for a more benign slowdown, but they concede that risks of a severe downturn are on the rise.

‘We are probably only one shock away from the US economy tipping into a recession,’ said Lehman chief global economist Paul Sheard. ‘One thing that we will be thinking about the next week or so: Are we seeing that one shock now hitting the US economy in the form of this equity market meltdown that is unfolding this week?’

Global share prices have crashed since the start of the year and are accelerating their declines amid rising fears that a US recession may send the world economy into a tailspin.

Earlier theories that Asia’s booming economies are plotting their own destinies and escaping this plight are dissipating fast.

‘We don’t really buy the decoupling idea in its strong form,’ said Dr Sheard, adding that it is very unlikely that demand from Asia and other emerging markets can offset a slowdown in the US and Europe.

Singapore is especially vulnerable, given its small and open economy, said Mr Robert Subbaraman, who heads Lehman’s economic research for Asia, excluding Japan.

He believes overall Asian growth this year could fall by 4.5 percentage points from last year’s 8.7 per cent, if the rest of the world goes into recession. Singapore’s growth could come down to between 2.5 per cent and 3 per cent, he said.

For the moment, Mr Subbaraman is still hoping that aggressive US interest rate cuts will avert a recession to support a 5.3 per cent growth in Singapore and a 7.6 per cent expansion in the region.

This scenario, however, brings risks of an overheating economy, as foreign capital inflows drive up inflation to form possible asset bubbles in the region, he warned.

United Overseas Bank economist Ho Woei Chen said a US recession would hit Singapore’s export sector very hard.

‘Although exports to China have increased, enddemand is largely still in the US,’ he said.

Citigroup economist Chua Hak Bin said a 1-percentage-point reduction in US growth would cut Singapore growth by 1.7 percentage points.

He said a contraction in the US and Europe could lower Singapore growth from his current forecast of 5.6 per cent to between 3 per cent and 4 per cent. ‘Ultimately, manufacturing will be hit, as well as trade-related services such as wholesale and transport.’

Barclays economist Leong Wai Ho, though, is much more sanguine.

He tips Singapore growth at 6.5 per cent this year, purely on the strength of the domestic economy.

‘We already expect exports to contribute very little to growth,’ he said, pointing out that last year’s strong growth came amid a weak export performance.

Instead, private consumption, fuelled by record tourist arrivals and investments in the construction sector, should provide a buffer.

Projects, like the integrated resorts, are highly unlikely to be disrupted, while the record new manufacturing investments that Singapore won last year will provide support, Mr Leong said.

‘We have never entered a US recession from such a strong position. We are going into this with good quality, broad-based growth.’

 

Source: The Straits Times 23 Jan 08

Australia caught in Asian boom and US bust

PM Rudd vows to cut govt spending among other plans to curb inflation

SYDNEY – BOOM in Asia and bust in the United States are buffeting Australia’s economy, Prime Minister Kevin Rudd warned yesterday as he outlined plans to rein in inflation.

‘The most pressing economic challenge domestically is inflation,’ he told a meeting of business leaders in the west coast city of Perth, in his first major speech on the economy since his Labor party swept former prime minister John Howard’s conservatives out of office last November.

Announcing a new government strategy to curb prices, Mr Rudd promised to slash government spending to help dampen inflation.

Inflation is expected to exceed the Reserve Bank of Australia’s target range of 2 per cent to 3 per cent this year, raising the prospect of further interest rate rises by the central bank.

Rates are at an 11-year high of 6.75 per cent, and the effect on mortgage-belt voters is believed to have played a part in the ouster of the previous government.

‘This will be a tough fight, but unless we engage in this fight, the consequences for businesses, employees and families will be very negative indeed,’ the Prime Minister said.

He set a new target of maintaining Australia’s budget surplus at a minimum of 1.5 per cent of gross domestic product – or about A$18 billion (S$23 billion) – from the next fiscal year which starts on June 1.

‘We will ensure the government takes the pressure off demand by running a strong budget surplus,’ he said. ’The sensible thing for government to do is not contribute to demand through excessive spending.’

Mr Rudd also promised incentives to encourage Australians to save rather than spend.

He said that Australia faced ‘conflicting economic currents’. These were: ‘A global economy (led by the US) which appears to be slowing. An ongoing terms of trade boom driven by Asia-Pacific economies. ‘And significant domestic inflationary pressures at home.’

He noted that the downturn in the economic outlook in the US, Europe and Japan comes as strong growth in the Asia-Pacific region is continuing to drive demand for Australia’s rich mineral and energy resources.

‘Over coming years, developments in China will increasingly shape both global and Australian economic conditions,’ he said.

‘The Indian economy has become one of our fastest growing export markets and is expected to continue to post impressive rates of economic growth.

‘Combined, China and India accounted for around 40 per cent of Australia’s export value growth in 2006/2007.’

This economic expansion in the region had heightened the need for careful management of the domestic economy, he said.

Mr Rudd’s speech came after the Australian stock market lost ground for a 10th successive day – its worst losing streak since 1982.

Australia’s benchmark S&P/ASX 200 Index was down more than 2 per cent in early afternoon trade yesterday in Sydney.

 

Source: AGENCE FRANCE-PRESSE, ASSOCIATED PRESS (The Straits Times 22 Jan 08)

Developing nations to lift world economy amid US slowdown

They will be the biggest drivers of global growth as pace slows to 3.3% this year: World Bank

DEVELOPING nations will be key in helping the global economy mitigate the drag from a slowing United States.

With their domestic economies coming into their own, poor countries will be the world’s biggest growth driver this year, the World Bank said in a report yesterday.

And Singapore is especially well-poised to take advantage of this as it is located amid the hottest of the world’s emerging economies.

‘I do believe that there is an impact from whatever happens in the US economy on the developing regions,’ World Bank lead economist Hans Timmer said at a press conference to present the bank’s outlook for the world economy.

‘But the result is not that the world economy will be on its knees.’

The bank is predicting global economic growth will moderate to 3.3 per cent this year, due mainly to a slowdown in the US, the world’s biggest economy.

The US, mired in a severe housing market downturn that has caused much financial turmoil worldwide, is widely expected to decelerate further this year.

While the World Bank has estimated that the US should manage a modest 1.9 per cent expansion this year, fears of a recession appear to be rising, prompted by recent economic data.

‘We can certainly smell a US recession although we can’t taste one yet,’ said United Overseas Bank economist Thomas Lam.

Against this ominous backdrop, developing economies are emerging as a bright spot for the year. They are expected to grow 7.1 per cent this year, with East Asia’s growth stars clocking in at an average of 9.7 per cent.

‘Singapore benefits from its location in Asia, which has shown the strongest dynamism in the world,’ said Mr Timmers, who cited the region’s red-hot economies of China and Vietnam. He pointed out that developing nations have become much more resilient to external demand shocks in the past few years.

The US housing slowdown, for instance, began two years ago and has been hurting US imports of goods made in poorer countries.

But that has not derailed the developing world from its growth path as its robust domestic economies – bolstered by better economic policies, open borders and stronger supply-side structures – have been picking up the slack.

Many emerging economies have also been largely unscathed by financial problems caused by the US subprime crisis as their direct exposure to the crisis has been limited.

‘With that resilience, with their strong performance, developing countries are now mitigating the slowdown that is occurring in the US,’ said Mr Timmers.

He noted that the developing economies together equal the US economy in size.

‘But they are growing more than three times as fast. That means their contribution to global demand is more than three times as important as the contribution of the United States.’

Still, a sharp and drastic slowdown in the US remains a key risk to the developing world and the global economy.

Also, an overreaction by policymakers might result in bigger problems down the road.

The World bank warned that if central banks overstimulate the economy with over-aggressive rate cuts, asset bubbles could be created.

‘Commodity markets could tighten further, inflationary pressures would mount and financial imbalances would increase rather than recede.

‘Such a scenario could sow the seeds of a much sharper downturn in the medium term.’

 

Source: The Straits Times 10 Jan 08

Bombs, security fears mar revelry as world greets 2008

(NEW YORK) Millions staged midnight parties at iconic landmarks around the world to ring in 2008, but bomb attacks and security fears quickly darkened New Year festivities in places.

In New York, hundreds of thousands of revellers crowded the fabled Times Square, braving cold temperatures and stringent security measures to see Mayor Michael Bloomberg release the New Year’s Eve ball on its 100th lowering, with a dazzling display of new environmentally-friendly lights.

But it was Sydney that got the global party going as more than a million people lined the harbour for fireworks. The giant steel archway of the Sydney Harbour Bridge was again the centrepiece of the traditional display in Australia’s main city, with a giant neon hourglass illustrating the theme of time passing.

An estimated 700,000 people were out on the damp London streets and crammed on riverbanks to watch the 10-minute fireworks display on the Thames, which focused on the giant London Eye observation wheel, police said.

However, bombs planted by suspected separatist rebels at discos and other entertainment centres rocked Thailand’s troubled south as revelry was at its peak. In Pakistan’s biggest city, Karachi, police stopped thousands from attending a traditional gathering on a beach overlooking the Arabian Sea amid security fears after the assassination of Opposition leader Benazir Bhutto.

Belgian authorities cancelled a traditional fireworks show in Brussels as the country went on maximum alert over possible terror threats. French authorities put 13,000 police on the streets of Paris and its troubled suburbs to deter any repeat of riots last month. But an estimated 400,000 French and foreign visitors still turned the Champs Elysees into a mass of car-honking festivities. Even more people – around one million according to police – packed streets around the Brandenburg Gate in what German media billed as the world’s biggest New Year’s party.

In China – set to host the 2008 Olympics in Beijing – President Hu Jintao called for world peace and development in his New Year address. ‘We sincerely hope people of all nations live under the same blue sky freely, equally, harmoniously and happily, and enjoy the achievements in peace and development of the humankind,’ he said. Thousands in Hong Kong ignored unusually low temperatures to see the fireworks in Victoria Harbour. In the northern Chinese city of Harbin, tourists strolled through a display of ice structures and some toasted the New Year in a bar made from ice blocks.

As tens of thousands of people flocked to Moscow’s Red Square, Russia’s President Vladimir Putin used his final New Year address as president to congratulate Russians on a ‘national renaissance’ driven by ‘colossal resources’, in a pre-recorded broadcast.

In Iraq, crowds surged into the streets of strife-torn Baghdad, setting off firecrackers and firing weapons and dancing in a rare moment of freedom from the daily violence that has recently eased.

 

Source: AFP (Busines Times 2 Jan 08)

Global economy facing threat of stagflation

Growth may slow to 4-year low and inflation could hit 10-year high

WASHINGTON – THE world economy is facing the risk of stagflation – the double whammy of suffering both recession and faster inflation.

Global growth this quarter and next may be the slowest in four years, while inflation might be the fastest in a decade, say economists at JPMorgan Chase.

The worst United States housing slump in 16 years, coupled with a tightening of credit by banks, have brought the world’s largest economy ‘close to stall speed’, according to former US Federal Reserve chairman Alan Greenspan.

At the same time, rapid growth in China and other emerging markets is driving energy and food prices higher worldwide.

‘What lies ahead is a period of stagflation – slow or no growth combined with rising inflation – in the advanced economies,’ says Morgan Stanley co-chief global economist Joachim Fels.

Harvard University economist Martin Feldstein is among those who say it would be just a mild case of what the world endured in the 1970s and early 1980s, when a tenfold increase in oil prices drove both unemployment and inflation above 10 per cent.

Mr Feldstein, who heads the national bureau that serves as the arbiter of when US recessions begin and end, said the combination of a stalled economy and rising inflation could be seen as a form of stagflation.

‘It depends on how you want to define it,’ he said. ‘If you say an inflation rate of 3.5 per cent and a recession is stagflation, then we could have stagflation.’

Mr David Hensley, director of global economic coordination at JPMorgan, sees global growth of 2.4 per cent this quarter and next, and inflation at 3.5 per cent.

That is a far cry from the bad old days more than a generation ago, when world growth slowed to just 0.7 per cent in 1982 while inflation ran at an annual rate of 13.7 per cent, according to data compiled by the International Monetary Fund.

Even so, no less an authority than Mr Greenspan himself expressed concerns.

Speaking on ABC’s This Week programme aired last Sunday, he said a period of ‘remarkable disinflation’ is ending.

‘We are beginning to get not stagflation, but the early symptoms of it,’ he said.

The situation poses a dilemma for the Fed and other central banks as they struggle to decide which problem they should tackle first. How they respond will go a long way in determining which danger proves to be bigger: a slumping global economy or rising prices worldwide.

For now, traders in futures markets are betting the Fed will remain focused on supporting growth, even after the latest government inflation reading last week showed consumer prices rose last month at the fastest pace in more than two years.

As of last Friday, investors put a 74 per cent probability on another quarter percentage-point cut in the Fed’s benchmark overnight rate next month, down from 100 per cent the day before.

If the global economy faced only the risk of faster inflation, the policy prescription would be clear: higher interest rates.

Yet, with growth slowing in the US and Europe, central banks remain under pressure to cut rates

 

Source: BLOOMBERG NEWS (The Straits Times 18 Dec 07)

IMF expects to lower global growth outlook

(ZURICH) The International Monetary Fund will lower its growth outlook as the continued credit crisis hurts the US and European economies, while global imbalances also weigh on growth, its top economist was quoted as saying.

‘Given this background, the numbers will indeed be weaker than in our latest World Economic Outlook,’ IMF chief economist Simon Johnson told Switzerland’s Finanz und Wirtschaft business newspaper in an interview on Saturday.

The IMF already lowered the forecasts from its July World Economic Outlook in October. But the numbers would in all likelihood have to be revised down again at the Fund’s next update in January, when it gives a preview of its April official forecasts. ‘We will not be able to stick to 1.9 per cent 2008 gross domestic product growth for the United States, nor to 2.1 per cent for Europe,’ Mr Johnson said. ‘By how much we will have to lower our GDP forecasts, we will know in January.’

The Fund already warned in November that the global economic growth outlook had dimmed, because of a troublesome mix of tighter credit terms and rising energy prices. The US dollar remained overvalued despite its continued drop since 2002, Mr Johnson said, which could be an obstacle for the US trade deficit to gradually diminish. Too high oil prices and the undervalued Chinese currency boosting exports in US trading partners formed the other side of the trade imbalance equation, he added.

The IMF did not have a foreign exchange target in mind for the greenback, but it should fall even further despite its persistent decline, to help diminish the US trade deficit and the chance of disorderly currency movements.

 

Source: Reuters (Business Times 17 Dec 07)

Aussie trade deficit widens to A$2.98b

Oct shortfall due to soaring Aussie $, port congestion dampening exports

(SYDNEY) Australia’s trade deficit unexpectedly widened in October as a surge in the nation’s currency and bottlenecks at ports disrupted exports of minerals and coal.

The shortfall expanded to A$2.98 billion (S$3.82 billion) from a revised A$1.92 billion in September, the Bureau of Statistics said in Sydney yesterday. The median estimate of 25 economists surveyed by Bloomberg News was for a A$1.8 billion gap. Exports dropped 3 per cent and imports rose 2 per cent.

Australia has reported a trade deficit every month for five years as exporters such as Rio Tinto Group struggle to overcome congestion at mines, ports and railways, and as drought curbs farm production. The government cut its wheat-harvest forecast in October for the third time this year, suggesting exports may decline further.

‘It’s very disappointing to see the extreme weakness in non- rural commodities’ such as metal ore exports, said Kieran Davies, an economist at ABN Amro Australia Ltd in Sydney. ‘Some weakness had been anticipated given the strength of the Australian dollar, but this seems to be as much about weaker volumes.’

The government will publish its third-quarter gross domestic product report tomorrow. The median estimate in a Bloomberg News survey of economists is for 1 per cent growth in the three months through September from the previous quarter, when the economy expanded 0.9 per cent.

Total exports fell to A$17.24 billion in October, yesterday’s report showed. Overseas sales account for 20 per cent of the economy. Farm shipments, such as meat, sugar and wool, slumped 5 per cent and exports of non-rural goods, which include minerals and ores, slid 7 per cent.

‘We seem to be suffering from more disruptions to exports,’ said Brian Redican, senior economist at Macquarie Bank Ltd in Sydney. ‘Net exports may hold back fourth-quarter growth,’ he added.

Australia’s government cut its estimate for exports of minerals and energy in September because of transport delays. Shipments of commodities are expected to be A$112.2 billion in 2007-08, down from the A$117.5 billion forecast in June.

BHP Billiton Ltd, the world’s biggest mining company, reported production growth that missed some analysts’ forecasts in October, a sign that capacity constraints and maintenance requirements will make it harder to meet surging demand.

‘Sooner or later, the considerable investment in resources over the last five years will turn up as increased exports,’ said John Edwards, HSBC Bank Australia Ltd’s chief economist in Sydney.

Exports have also been hurt by the Australian dollar’s surge to a 23-year high against its US counterpart in October.

The local currency has climbed 12 per cent this year.

Australian company profits declined in the third quarter for the first time in more than two years, a separate report published yesterday by the Bureau of Statistics showed. That contrasts with imports, which have risen amid a jump in consumer spending. An economic expansion, a shortage of skilled workers, and rising employment have boosted households’ disposable income.

Total imports climbed to A$20.22 billion in October. Inbound shipments of gasoline and lubricants surged 16 per cent, and imports of consumer goods declined 1 per cent.

 

Source: Bloomberg (Business Times 4 Dec 07)