[NYTr] Crashing Economy: China boom 'cushions world slump'

[All the News That Doesn't Fit]

southnews - Jan 9, 2008
http://southmovement.alphalink.com.au/southnews/ 


BBC - Jan 9, 2008
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7177397.stm

China boom 'cushions world slump'

by Steve Schifferes
BBC News economics reporter

The World Bank says global economic growth will slow in 2008 as the 
credit crunch hits the richest nations. But it says that the 
"resilience" of developing countries will cushion the slowdown, with 
China still booming.

Overall, the Bank projects annual world economic growth to slow to 3.3% 
in 2008, compared with 3.6% in 2007.

Yet it warns that developing country growth, projected at 7.1% this 
year, could still be derailed by further financial turmoil or
over-heating.

Risks remain

The World Bank's Global Economic Prospects is the first economic 
forecast to look specifically at how the credit crunch has affected 
developing countries.

A sharper US slowdown is a real risk that could weaken medium-term 
prospects in developing countries
Uri Dadush, World Bank

It follows other international organisations like the IMF and the OECD 
in suggesting a relatively benign scenario, with swift action by
central banks limiting the damage caused by the credit crunch to the US
economy.

It expects US growth to slow sharply to 1% in the first half of 2008, 
but recover quickly by 2009. Overall, the industrialised countries are 
expected to grow by 2.2% this year, down around 0.5% compared with the 
previous year.

In contrast, China is expected to grow by more than 10% over the next 
two years, with India not far behind.

Overall, the two biggest emerging market countries give a strong boost 
to total growth in developing nations.

Without their contribution, developing country growth would be a much 
more modest 5.5%, and substantially less on a per capita basis, 
Professor Jim Rollo of Sussex University pointed out.

He warned that the World Bank might be too optimistic about the ability 
of policy markers to respond to the highly uncertain economic situation.

Decoupled economies?

The World says that so far developing countries have been relatively 
insulated from the turmoil in world financial markets.

The stock markets in many developing countries, after an initial slump 
in August, have continued their long boom.

And in the bond markets, the interest rates on bonds issued by 
developing countries have only risen modestly (by less than 1%), 
compared to a sharp increase in interest rates in corporate bonds in 
industrial countries.

But it warns that a bigger slowdown in the US, for example a housing 
market crash that pushed the American economy into outright recession, 
would have a bigger impact on developing countries.

"A sharper US slowdown is a real risk that could weaken medium-term 
prospects in developing countries," says the World Bank's Uri Dadush.

The Bank says that middle income countries such as Brazil would be most 
affected, both by a reduction in their trade and a fall in foreign 
investment.

However, the Bank points out that less than 20% of China's exports now 
go to the US, so that even a US slowdown would not substantially slow 
its rate of growth.

The Bank says there is also a risk on the "upside", with the economic 
boom leading to accelerating inflation and an over-valued stock market 
in China and other emerging markets.

Commodity boom

In the past few years, oil prices have risen fourfold, while the price 
of grains and other internationally traded foodstuffs such as oils has 
doubled.

The Bank points out that the commodity boom has had both positive and 
negative consequences for developing countries.

The increased price of commodities like oil and copper has boosted the 
income of the some of the world's poorest countries in Africa, such as 
Sudan and Angola.

However, the higher price of foodstuffs such as grains has also had a 
negative impact on the income of non-oil developing countries, with the 
urban poor especially hard-hit.

The Bank estimates that this has reduced growth by 0.5% in non-oil 
developing countries.

Poverty and technology

The report also looks at the long-term prospects of developing 
countries, and the importance of technology transfer.

It says that over the past 15 years, between 1990 and 2005, developing 
countries closed some of the technology gap between rich and poor
countries.

But middle income countries still only have reached 50% of the 
technological level of rich countries, it estimates, while low income 
countries are at only 25%.

The Bank says that further technology transfer should allow developing 
countries to grow by 3.9% in per capita terms over the next decade, 
which should reduce poverty substantially.

It estimates that the numbers in global poverty (based on the $1 per
day standard) will fall from 1.2 billion people in 1990 to 970 million
in 2004 and 624 million in 2015.

However, 30% of people in sub-Saharan Africa will still be below that 
poverty line, compared with 10% in the developing world as a whole.

And it says that further technology transfer depends on improvements in 
the domestic conditions in developing countries, such as better 
education and technical literacy, more support for innovation, and 
greater efforts to diffuse technology to rural areas.

Foreign investment and transfers of money and skill from migrants who 
returned home have been the most important means of technology transfer 
so far, the Bank said.

                           ***

The Age - Jan 9, 2008
http://business.theage.com.au/market-reaches-another-milestone/20080108-1kuz.html

Market reaches another milestone

by Vanessa Burrow

AS SHAREMARKET milestones go, a technical correction is not all that 
desirable. But the Australian market yesterday had its second in just a 
few months, with the benchmark S&P/ASX 200 Index now more than 10%
below its November peak.

The index rose early in the day, but by the close had lost a further 
33.5 points, or 0.5%, to 6128. On November 1 it closed at 6828.7.

Tolhurst technical analyst Violeta Todorova said the S&P/ASX 200 Index 
was trading in a long-term up trend, even though the medium and 
short-term outlook was negative. "We are very, very far away from the 
August lows," she said.

In contrast, Ms Todorova said the Dow Jones Industrial Average was
close to the "critical" August low of 12,518 points.

"A breach of that level would be a very negative sign and officially a 
long-term down trend would be under way, with much lower levels ahead
in the coming months," she said.

Benchmark oil fell to $US95.09 on the dimmer growth outlook and 
US-reliant Westfield Group lost 34" to $18.95. But plasma supplier CSL 
gained 84" to $35.34 as analysts suggested buying stocks that would be 
less affected by a US economic downturn.

Centro Retail Group, which has been severely affected by lack of 
affordable credit, lost 10.5", or 11.2%, to 83". And iron ore explorer 
Sundance Resources lost 4", or 9.9%, to 36.5".

Fortescue Metals lost 8", or 1.2%, to $6.60 but contrary to yesterday's 
report, which used incorrect Bloomberg data, its loss on Monday was
only 52".

The banks were mixed. National Australia Bank fell 29" to $36.01 but 
Commonwealth Bank rose 53" to $57.73. Westpac gained 10" to $27.25 and 
St George and ANZ also gained.

ABN Amro banking analyst Jarrod Martin said the decision by NAB and ANZ 
to raise their standard variable rates  and the likelihood that other 
banks would follow  would "restore previous profitability levels".

He said ANZ's decision to raise its standard variable rate by 20 basis 
points would probably stop the Reserve Bank from increasing rates on 
February 5, whereas NAB's increase of 12 basis point would not.

"I don't think they would see that as a de facto interest rate 
increase," he said.

The market's biggest gain was notched by medical technology research 
company Benitec, which announced it had agreed to work with US 
pharmaceutical giant Pfizer to commercialise a drug to fight hepatitis 
C. Benitec shares gained 7.5", or 71.4%, to 18" (see graph below).

On the economic front, November building approvals jumped a better than 
expected 8.9%. Economists expected little change but the number of 
apartments approved rose by a stunning 30% on the previous month. The 
total number of houses approved rose just 0.2%.

The figures, which suggested the economy is growing faster than 
anticipated, helped the dollar rise from below US87" to a high of
US87.95".

Construction activity also showed improvement, with the Australian 
Industry Group-Housing Industry Association Performance of Construction 
Index rising 6 points to 59.2 points. Australian Industry Group 
associate director, economics and research, Tony Pensabene said the 
non-residential markets were providing a major stimulus to activity 
because of a backlog on infrastructure projects and increased
investment in commercial property.