goldissima
02-24-2006, 06:50 PM
Twin set of data cast gloom on Britain's economy
By Gary Duncan, Economics Editor
February 24, 2006
A SHARP fall in investment by businesses and news that Britain’s productivity is lagging still farther behind its international rivals inflicted a double setback yesterday on Gordon Brown’s ambitions to boost the country’s economic performance. Disappointing official figures showed that business investment by corporate Britain fell by 1 per cent in the final quarter of last year, its steepest decline for more than 2 years.
The broadly based drop in companies’ capital spending cut their annual rate of investment growth to a meagre 0.3 per cent, the weakest since the end of 2003.
The figures dealt another blow to the Bank of England’s hopes that some revival in business investment will help to guarantee the stronger growth that it has forecast for this year.
The lacklustre data will lend weight to arguments by Steve Nickell, the chief dove on the Bank’s Monetary Policy Committee, that an investment shortfall will contribute to weaker growth than the Bank expects, creating pressure for the MPC to cut interest rates.
The City has struggled to explain a continuing puzzle over the persistent weakness of investment, despite good rates of return and despite low interest rates and rising equity markets making for cheap costs of capital.
Explanations offered include the heavy burden on companies of trying to eliminate pension deficits, worries over potential tax increases, and uncertainty over domestic and world economic prospects.
Although some analysts believe that the investment data could yet be revised up, Vicky Redwood, of Capital Economics, argued that these factors were likely to continue to curb companies’ capital spending. She said: “We think that, even if firms have money to invest, they will remain unwilling to do so in the face of uncertainty about demand, the outlook for energy prices, and the future of the tax regime.”
Economists argued yesterday that low corporate investment was a key factor in Britain’s continued failure to raise its productivity performance.
The latest international comparisons from the Office for National Statistics yesterday showed that, measured by annual output per worker, UK productivity last year was 11 per cent behind the average for other members of the Group of Seven leading economies, and 27 per cent behind that in the US. The productivity gap with the rest of the G7 was up from 10 per cent in 2003, while that with the US widened from 24 per cent. The gap with France narrowed a little, however.
The productivity picture was a little better based on the alternative measure of output per hour worked, but still showed that Britain lagging 8 per cent behind the rest of the G7, and 16 per cent behind the US.
Some analysts also pinned much of the blame for the country’s poor productivity showing on the drag on performance from an inefficient state sector, in which the amount of output being produced for a given input of resources was actually declining in some public services.
Michael Saunders, of Citigroup, said: “The UK’s productivity problem largely lies with the public sector.”
John Philpott, chief economist of the Chartered Institute of Personnel and Development, argued that while about half of Britain’s gap in productivity compared with the US was because of to low investment, the remainder was “due in large part to inferior UK management practice, especially people management”.
George Osborne, the Shadow Chancellor, seized on the figures, meanwhile. He said: “Gordon Brown described productivity as ‘the fundamental yardstick of economic performance’ and he is fundamentally failing on his own measure.”
AND
Germany ‘cannot save its way out of deficit’
By Hugh Williamson in Berlin
February 23 2006 19:57
Germany must revive its economy and labour market if it is to resolve its crushing fiscal problems, the country’s finance minister said on Thursday, rejecting proposals to rely solely on budget cuts to reduce near-record borrowing.
In remarks seen as a harsh rebuttal of economists in the Bundesbank – Germany’s central bank – and elsewhere, Peer Steinbrück said: “We can’t save our way out of our budget problems. That’s a hopeless prospect. There will only be progress if there is also movement on the economy, in the labour market and regarding our social security system.”
In an interview at his ministry, Mr Steinbrück rejected being pigeon-holed like his predecessor, Hans Eichel, as a Sparkommissar – or “savings commissar” – arguing that he would focus on promoting “future-oriented” business sectors.
Net new borrowing will reach €38bn ($45bn, £26bn) this year, up from €31bn in 2005, according to the budget adopted by Chancellor Angela Merkel’s cabinet this week. :hahaha: The Bundesbank said extra savings could have been made.
Mr Steinbrück also distanced himself from the confrontational tactics employed by former chancellor Gerhard Schröder towards the European Commission, arguing that such an approach these days would be damaging to Europe as a whole.
The comments suggest that Mr Steinbrück, a Social Democratic party ally of both the former chancellor and Mr Eichel, intends to make a clean break with the Schröder era, heralding closer co-operation with European partners and a broader reform role for the finance ministry.
In November 2003 Mr Schröder’s government, in alliance with France, pushed the European Union into crisis by blocking Commission proposals to discipline Berlin for breaking the EU’s stability and growth pact.
Even though Germany will breach the pact’s limits on budget deficits again this year, Mr Steinbrück does not intend to repeat the stand-off. He prefers striking a deal with Joaquín Almunia, EU monetary affairs commissioner, and using Germany’s weight to shore up the bloc’s institutions.
“We have to take a different approach than in November 2003, because a repeat of that situation would lead to the stability pact losing its credibility entirely. If that happened, we in Europe would have another problem on our hands,” he says. Other concerns he listed were the stalled draft EU constitution, the bloc’s long-term budget and the stability of the euro.
The deal with Mr Almunia is likely to involve the Commission next week launching disciplinary proceedings against Berlin but suspending them in July, when the minister presents a draft 2007 budget that – for the first time since 2001 – is likely to return a budget deficit of less than 3 per cent of gross domestic product.
This approach is in tune with Mr Steinbrück’s pragmatic political style, and his reputation as the most market-friendly SPD minister in Angela Merkel’s “grand coalition” government.
A dry north German with an ironic sense of humour, Mr Steinbrück, 59, has already struck up a close working relationship with Ms Merkel, another northerner who shuns showy political gestures.
Tough times lie ahead, he admits. “The pressure to solve the budget problems is bigger than in the past, and this means the whole cabinet, including the chancellor, is aware of the consequences if this political task fails.”
http://news.ft.com/cms/s/0e23ee8c-a49b-11da-897c-0000779e2340.html
<hr>
bear in mind: The Aussie Bust Getting Closer
http://goldismoney.info/forums/showthread.php?t=29597
By Gary Duncan, Economics Editor
February 24, 2006
A SHARP fall in investment by businesses and news that Britain’s productivity is lagging still farther behind its international rivals inflicted a double setback yesterday on Gordon Brown’s ambitions to boost the country’s economic performance. Disappointing official figures showed that business investment by corporate Britain fell by 1 per cent in the final quarter of last year, its steepest decline for more than 2 years.
The broadly based drop in companies’ capital spending cut their annual rate of investment growth to a meagre 0.3 per cent, the weakest since the end of 2003.
The figures dealt another blow to the Bank of England’s hopes that some revival in business investment will help to guarantee the stronger growth that it has forecast for this year.
The lacklustre data will lend weight to arguments by Steve Nickell, the chief dove on the Bank’s Monetary Policy Committee, that an investment shortfall will contribute to weaker growth than the Bank expects, creating pressure for the MPC to cut interest rates.
The City has struggled to explain a continuing puzzle over the persistent weakness of investment, despite good rates of return and despite low interest rates and rising equity markets making for cheap costs of capital.
Explanations offered include the heavy burden on companies of trying to eliminate pension deficits, worries over potential tax increases, and uncertainty over domestic and world economic prospects.
Although some analysts believe that the investment data could yet be revised up, Vicky Redwood, of Capital Economics, argued that these factors were likely to continue to curb companies’ capital spending. She said: “We think that, even if firms have money to invest, they will remain unwilling to do so in the face of uncertainty about demand, the outlook for energy prices, and the future of the tax regime.”
Economists argued yesterday that low corporate investment was a key factor in Britain’s continued failure to raise its productivity performance.
The latest international comparisons from the Office for National Statistics yesterday showed that, measured by annual output per worker, UK productivity last year was 11 per cent behind the average for other members of the Group of Seven leading economies, and 27 per cent behind that in the US. The productivity gap with the rest of the G7 was up from 10 per cent in 2003, while that with the US widened from 24 per cent. The gap with France narrowed a little, however.
The productivity picture was a little better based on the alternative measure of output per hour worked, but still showed that Britain lagging 8 per cent behind the rest of the G7, and 16 per cent behind the US.
Some analysts also pinned much of the blame for the country’s poor productivity showing on the drag on performance from an inefficient state sector, in which the amount of output being produced for a given input of resources was actually declining in some public services.
Michael Saunders, of Citigroup, said: “The UK’s productivity problem largely lies with the public sector.”
John Philpott, chief economist of the Chartered Institute of Personnel and Development, argued that while about half of Britain’s gap in productivity compared with the US was because of to low investment, the remainder was “due in large part to inferior UK management practice, especially people management”.
George Osborne, the Shadow Chancellor, seized on the figures, meanwhile. He said: “Gordon Brown described productivity as ‘the fundamental yardstick of economic performance’ and he is fundamentally failing on his own measure.”
AND
Germany ‘cannot save its way out of deficit’
By Hugh Williamson in Berlin
February 23 2006 19:57
Germany must revive its economy and labour market if it is to resolve its crushing fiscal problems, the country’s finance minister said on Thursday, rejecting proposals to rely solely on budget cuts to reduce near-record borrowing.
In remarks seen as a harsh rebuttal of economists in the Bundesbank – Germany’s central bank – and elsewhere, Peer Steinbrück said: “We can’t save our way out of our budget problems. That’s a hopeless prospect. There will only be progress if there is also movement on the economy, in the labour market and regarding our social security system.”
In an interview at his ministry, Mr Steinbrück rejected being pigeon-holed like his predecessor, Hans Eichel, as a Sparkommissar – or “savings commissar” – arguing that he would focus on promoting “future-oriented” business sectors.
Net new borrowing will reach €38bn ($45bn, £26bn) this year, up from €31bn in 2005, according to the budget adopted by Chancellor Angela Merkel’s cabinet this week. :hahaha: The Bundesbank said extra savings could have been made.
Mr Steinbrück also distanced himself from the confrontational tactics employed by former chancellor Gerhard Schröder towards the European Commission, arguing that such an approach these days would be damaging to Europe as a whole.
The comments suggest that Mr Steinbrück, a Social Democratic party ally of both the former chancellor and Mr Eichel, intends to make a clean break with the Schröder era, heralding closer co-operation with European partners and a broader reform role for the finance ministry.
In November 2003 Mr Schröder’s government, in alliance with France, pushed the European Union into crisis by blocking Commission proposals to discipline Berlin for breaking the EU’s stability and growth pact.
Even though Germany will breach the pact’s limits on budget deficits again this year, Mr Steinbrück does not intend to repeat the stand-off. He prefers striking a deal with Joaquín Almunia, EU monetary affairs commissioner, and using Germany’s weight to shore up the bloc’s institutions.
“We have to take a different approach than in November 2003, because a repeat of that situation would lead to the stability pact losing its credibility entirely. If that happened, we in Europe would have another problem on our hands,” he says. Other concerns he listed were the stalled draft EU constitution, the bloc’s long-term budget and the stability of the euro.
The deal with Mr Almunia is likely to involve the Commission next week launching disciplinary proceedings against Berlin but suspending them in July, when the minister presents a draft 2007 budget that – for the first time since 2001 – is likely to return a budget deficit of less than 3 per cent of gross domestic product.
This approach is in tune with Mr Steinbrück’s pragmatic political style, and his reputation as the most market-friendly SPD minister in Angela Merkel’s “grand coalition” government.
A dry north German with an ironic sense of humour, Mr Steinbrück, 59, has already struck up a close working relationship with Ms Merkel, another northerner who shuns showy political gestures.
Tough times lie ahead, he admits. “The pressure to solve the budget problems is bigger than in the past, and this means the whole cabinet, including the chancellor, is aware of the consequences if this political task fails.”
http://news.ft.com/cms/s/0e23ee8c-a49b-11da-897c-0000779e2340.html
<hr>
bear in mind: The Aussie Bust Getting Closer
http://goldismoney.info/forums/showthread.php?t=29597