World set to end year in brittle economic state

Monday, 22 December 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The global economy is ending the year in a fragile state with factory activity shrinking in China, euro zone business growth remaining weak, and emerging market giant Russia in a spiraling currency crisis. “These are uncertain times again and there is a risk of another global downturn,” said Stephen Webster, chief European economist at 4CAST.

A man uses a cash dispenser to receive roubles in central Moscow - REUTERS Poor to mediocre business surveys in Asia and Europe released last week are likely to put pressure on both the European Central Bank and People’s Bank of China to come up with more stimulus. They also threaten the overall 2015 outlook give the two economies’ huge global reach. Data for the United States was due later in the day. But it was events in Russia that were most eye-catching. Russia’s central bank took drastic action to defend its rouble currency in a surprise midnight raising of interest rates by 650 basis points to 17%. But despite that the rouble was some down 4% against the dollar, having opened about 9% stronger, and the dollar-denominated RTS share index fell more than 11%. It has lost around 50% to the dollar this year. A relentless slide in oil prices -- Brent crude has almost halved in price since June - while a blessing to most rich world consumers, is becoming a curse for countries reliant on resource exports. The Russian economy still depends in large measure on sales of oil and gas, which account for about two-thirds of exports and Indonesia became the latest Asian casualty when its currency caved to fresh 16-year lows. Russia, however, is also being hit by Western sanctions over its relations with Ukraine. Moody data Euro zone businesses are ending 2014 in slightly better shape than thought but growth remains weak and firms are still cutting prices to encourage trade, surveys showed. Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and seen as a good growth indicator, rose to 51.7 from a 16-month low of 51.1. That beat the forecast in a Reuters poll for a rise to 51.5 but was the second-lowest reading in over a year. “Although the PMI has not been a perfect guide to GDP over recent quarters, that suggests that the euro-zone economy probably barely expanded in Q4, if at all,” said Jonathan Loynes, chief European economist at Capital Economics.

EU leaders agree investment package to boost economy

Reuters: European Union leaders endorsed a new investment programme intended to kick-start economic growth in the bloc at a summit in Brussels.

“We agreed three things: one, we call for the urgent establishment of a European fund for strategic investments; two, a renewed commitment to intensify structural reforms; three, continued efforts to ensure sound public finances,” European Council President Donald Tusk said in a video statement. “The three together form our strategy to speed up the recovery,” added Tusk. Tusk, the former Polish prime minister hosting his first summit in his new role, did not go into details of the agreement on the economic plans. But draft conclusions of the meeting showed that governments contributing to the investment fund would not get into trouble if such contributions resulted in their deficits breaching EU budget rules set out in the Stability and Growth Pact. “The European Council takes note of the favourable position the Commission has indicated towards such capital contributions in the context of the assessment of public finances under the Stability and Growth Pact,” the text read.