The Irish Independent reports that figures for the European economy again beat expectations yesterday, with news that industrial orders grew by more than 3pc during June.
The growth, which was well above the 1.8pc median estimate from 20 economists surveyed by Bloomberg, added strength to the view that a recovery is under way.
But ECB officials attending a meeting in the US indicated that there would be no early reversal of the low interest rates being used to support the economy.
Even the inflation-wary Bundesbank President Axel Weber said it is "too early to say it won't be a bumpy road ahead".
Economists say government stimulus programmes have contributed to the upturn. "Without stimuli such as the car-scrappage programmes, neither the German nor French economy would have grown in the second quarter," said Nick Kounis, chief European economist at Fortis Bank Nederland in Amsterdam.
"But there is certainly an industrial recovery on the cards, on the back of a pick-up in the global economy."
Bank of Austria Governor Ewald Nowotny said he expected some growth in the euro area next year, although current ECB forecasts show a 0.3pc fall. He declined to say whether the ECB will raise its forecasts when new ones are published next week, but said: "It will be a rather sluggish growth after a sharp decline."
Warnings about the dangers of complacency came from Nouriel Roubini, the New York University professor who predicted the financial crisis. He said the chance of a "double-dip" recession is increasing because of the risks related to growth when governments and central banks end their monetary and fiscal stimuli.
"There are risks associated with exit strategies from the massive monetary and fiscal easing," Prof Roubini wrote. "Policy makers are damned if they do and damned if they don't."
The global economy will bottom out in the second half of 2009, Prof Roubini wrote in the 'Financial Times'.
But governments and central banks may tip their economies back into "stagdeflation" as they raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits, he said.
The Bank of Israel yesterday became the first central bank to increase interest rates in the current downturn, when it moved them from 0.5pc to 0.75pc.
"The decision strikes a balance between the need to moderate inflation and the need to continue to support the recent recovery in economic activity," the bank said.
The end of Britain's recession was called by the Institute of Chartered Accountants in England and Wales, after business confidence rose to the highest level in two years.
The institute said the turnaround was the most dramatic jump since its survey was introduced in 2003.
"It suggests that the UK recession is at an end," said the institute's chief executive Michael Izza.
The Irish Independent also reports that Irish-based pharmaceutical firm Warner Chilcott is to acquire the pharmaceutical division of Procter & Gamble (P&G) for a cash payment of $3.1bn (€2.2bn).
The company, which focuses on women's healthcare products, is being backed by a number of US banking giants, led by JP Morgan Chase and Bank of America, that are expected to put up as much as $4bn, with the remainder going towards refinancing the firm's existing debt.
The deal also includes a $250m revolving debt facility.
The move will give Warner global reach, as well as a foothold in the western European pharmaceutical market and access to P&G's osteoporosis drug Actonel and colitis treatment Asacol.
There will also be tax benefits for the newly formed firm as Warner moved its tax base from Bermuda to Ireland last week.
Warner Chilcott was acquired by Northern Ireland firm Galen in 2000. Galen had been headed by John King and Allen McClay.
Floated
The company was later taken over by private equity firms and floated in 2006.
Private equity firms Bain Capital and Thomas H Lee Partners, and the buyout units of JP Morgan Chase and Credit Suisse remain the firm's biggest shareholders. Yesterday, Warner president and chief executive Roger Boissonneault said in a conference call that the company had "considered a large number of acquisitions" before focusing on the P&G business.
He added that the business was "complementary" and a "strong fit" for Warner.
Chief financial officer Paul Herendeen added that "obviously there's a tax arbitrage", with the deal expected to generate substantial cash flow for the Ardee, Co Louth-based firm over the next five years.
The deal means a tripling in the size of the firm.
P&G's pharmaceutical unit had about $2.3bn in sales for the year ended June 30, compared with just under $1bn in 2008 sales for Warner.
A majority of P&G's 2,300 pharmaceutical staff will transfer to Warner, which had about 1,100 workers at the end of 2008.
The deal "helps to diversify and strengthen Warner Chilcott's portfolio", said Jeffries analyst David Windley in a research note.
Other analysts said the price being paid by Warner was a bargain, although Asacol and Actonel won't be permanent cash generators for Warner as their US patents expire in the mid 2010s and there is also the threat of early generic challengers.
Still, P&G has a pipeline of experimental drugs that could contribute down the line and the arbitrage benefits will also be positive in the future.
The deal is expected to be finalised by the end of the year pending regulatory approval.
Yesterday, Warner shares gained close to 30pc on the news, while P&G added 1pc.
The Irish Times reports that Labour Party leader Eamon Gilmore yesterday claimed that the Government does not enjoy popular public support for its controversial plans to establish the National Asset Management Agency (Nama).
Mr Gilmore said public opposition to Nama was “growing by the day”, and again urged the Government to adopt his party’s alternative proposal to temporarily nationalise the banks.
The intervention by the Labour Party leader came as Green Party chairman Dan Boyle said on Sunday that his party’s support for Nama was not a given.
He said the Green Party leadership would have to respect the views and decisions of its membership at the two meetings it will convene on the legislation, in September and in October.
A number of prominent members of the party have been critical of the legislation. The latest, Dublin Central Green candidate Gary Fitzgerald, told RTÉ yesterday that nationalisation had to be part of the Nama process.
Minister for Finance Brian Lenihan will brief his ministerial colleagues at tomorrow’s Cabinet meeting, the first after the summer break.
Mr Lenihan and Taoiseach Brian Cowen are also expected to spearhead a high-profile Government campaign to defend the legislation in anticipation of more vocal criticism of the agency from the Opposition and commentators.
This will involve an intensive round of media interviews and briefings over the next fortnight in the run-up to the special debate on the Nama legislation. The Dáil has been recalled early for the debate which begins on September 16th.
In a statement yesterday, Mr Gilmore said that with the level of public opposition and many economists continuing to voice concern, the Government needed to look again at proposals made by his party.
“I have rarely seen such strong opposition from the public to any proposition from a government and I believe that every other TD in the Dáil is experiencing a similar response from concerned constituents.
“I believe that there is overwhelming public opposition to the Nama plan,” he said.
Mr Gilmore honed in on Mr Lenihan’s acceptance that the Government may have to take the banks into public ownership eventually.
“Surely it would be prudent to take this action now, rather than taking a huge gamble with taxpayers’ money on Nama.”
Fianna Fáil TD for Tipperary North Mattie McGrath also said yesterday that he had been contacted by many constituents about Nama and had “worries” about the agency that needed to be allayed by Mr Lenihan.
“The main issue I have is will it work? And what exposure is the taxpayer going to face? I have many people contacting me about this.
“At this point of time, the banks are not giving a shilling out to anybody in loans,” Mr McGrath told The Irish Times.
Mr Boyle, who is the Greens’ finance spokesman, said that Nama was “difficult” for many Green supporters as it ran contrary to his party’s philosophical outlook.
“Given the scale of what’s being proposed, the likely cost, the potential risk, I don’t think anyone in the country is going to be worried about a matter of additional weeks or a month or two in making sure we get this legislation right,” Mr Boyle told RTÉ.
Both main opposition parties, Fine Gael and the Labour Party, have voiced concern about the Nama proposal.
Fine Gael leader Enda Kenny said last week that his party would vote against the measure in the Dáil.
While Labour will not formally announce its position on the legislation until the parliamentary party meets in Waterford on September 9th and 10th, the vote to oppose the Bill is expected to be a formality.
The Irish Times also reports that pessimism about Ireland’s economic prospects has been overplayed and the economy will rebound much more sharply than consensus opinion believes, according to a new report.
A special report on Ireland by BCA Research, a Canadian-based investment research company which advises international investors on investing in Europe, found that the Irish economy is “much more flexible than its euro area counterparts”.
It predicts that although economic activity will contract by 4 per cent next year, the Irish economy will rebound by 2011.
The report compares Ireland’s present economic situation to that of Hong Kong in the late 1990s. It argues that Ireland’s decision to adopt the euro currency mirrors Hong Kong’s creation of a peg system to the dollar in 1983, which left both with an interest rate structure well below levels dictated by its potential growth rate. This in turn led to rapid economic expansion, an explosion of the property market, and a loss of competitiveness. In a case analogous with Ireland currently, Hong Kong was highly exposed when the Asia financial crisis hit in 1997. But, by 2004, Hong Kong’s economy had begun to recover vigorously.
The report argues that Ireland can mirror Hong Kong’s recovery, but “policymakers must rein in government spending and get the banking system working again”.
Although the report welcomes the creation of a “bad bank”, it believes the current banking crisis in Ireland is worse than the Swedish banking crisis of the early 1990s.
It points out that Ireland has one of the highest private sector debt/GDP ratios ever experienced in the industrialised world; the banks have higher property exposure; and participation in the European single currency precludes the use of a “currency relief valve”.
The report believes that there is a strong case for additional government intervention in the Irish banking system, arguing that, without it, future losses at the Irish banks are “more than enough” to wipe out remaining capital.
On the subject of investment opportunities in Irish banks, it recommends Irish banking debt over bank equities, pointing out that the Government’s decision to buy loans from the banks at “economic value” rather than market value, means that ‘it is impossible to objectively value Irish bank stocks’. In contrast, it says that senior Irish bank bonds remain attractive, offering high yields at lower risk levels.
In terms of government policy, the report recommends that recovery should be dependent on fiscal rather than monetary policy.
The Government should avoid undue reliance on the revenue side in the future, it says. “The biggest gains would be made by further cutting public-sector pay and employment.”
The Irish Examiner reports that banks have been accused of refusing to lend money to potential homeowners who have secured cut-price property deals.
Banks introduced minimum property value (MPV) limits during the height of the housing boom, which experts say was a way of avoiding taking on properties in less desirable areas. This practice is illegal in the US.
Director of the Irish Mortgage Corporation, Frank Conway, said in recent months they have been running into problems where banks are refusing to lend where the property price is too low.
"Today, with property prices falling steadily and some liquidators initiating ‘fire-sales’, we now face the unusual situation where consumers who are receiving or negotiating excellent deals on property price are being denied by lenders because the properties are below their minimum price thresholds," he said.
He said that in "a roundabout way", banks are encouraging buyers to pay more for properties than they need to.
Mr Conway said there are a growing number of properties in good areas where listed minimum prices make "absolutely no sense whatsoever".
"The presence of the property price minimums acts as business prevention where buyers secured a really good deal. Where banks should be welcoming these deals, they are rejecting security that protects their bottom line even more," he said.
Meanwhile, Respond, the country’s biggest housing charity also recently accused banks of keeping property prices "artificially high" by refusing to fund mortgages for low-cost homes.
It said that people hoping to buy affordable properties and who had mortgage approval and deposits were being refused credit.
The Financial Times reports that China’s exports narrowly edged ahead of those from Germany in the first six months of the year, new figures showed on Monday, in a fresh sign that the latter’s status as the world’s leading exporter is at risk.
China exported goods worth $521.7bn (€364.9bn, £318.1bn) in the first six months of this year, while Germany’s total was $521.6bn, the Geneva-based World Trade Organisation reported.
Such export figures are closely followed in Germany, Europe’s largest economy, which has national elections next month.
Sales of its industrial products have largely powered the economic growth in recent years, and throughout the economic crisis the government of Angela Merkel, chancellor, has strongly defended the country’s export-driven economic model.
Germany has long been braced for the much faster-growing Chinese economy to assume its “world export champion” title.
However, the likely value of German and Chinese exports for the full year remains uncertain and will depend heavily on exchange rate movements in coming months. A strong euro would help flatter Germany’s figure. Germany’s export businesses have also shown signs of reviving in recent months.
“It is too close to say for the whole year and who knows for next year,” said Patrick Low, the WTO’s chief economist.
Germany’s exports were badly hit by the collapse in global confidence that followed the failure of Lehman Brothers investment bank last year.
But signs of a strong recovery have emerged. In June, the latest month for which data are available, German exports leapt by 7 per cent compared with the previous month. Nevertheless they were still 22.3 per cent lower than a year before. Chinese exports have followed a similar pattern.
The surge in exports helped explain why Germany was able to report a rise in gross domestic product in the second quarter, compared with the previous three months – meaning it emerged from recession ahead of the US, the UK and most of the other large European economies.
In turn, Germany’s rebound is helping lift the overall performance of the eurozone. Eurozone industrial orders surged by 3.1 per cent in June compared with the previous month, according to data on Monday from Eurostat, the European Union’s statistical office.
The FT also reports that Angela Merkel, German chancellor, will run what could be the shortest re-election campaign yet seen in Germany ahead of the September 27 poll in a bid to woo the country’s 20m undecided voters, her campaign manager has said.
The decision by the chancellor’s Christian Democratic Union to hold off until three weeks before the vote reflects the fact that “more and more people make up their mind on the week of the election. It is one of our main goals to get through to those voters,” Klaus Schüler said.
The CDU is rewriting Ms Merkel’s campaign script after an analysis of her protracted 2005 campaign, a near-failure that saw her lead collapse shortly before the vote and left her party and its centre-right allies without an outright majority in parliament.
Ms Merkel’s Social Democratic opponents have accused her of dodging the electoral confrontation and of adopting a presidential, non-partisan posture to try to retain the authority – and the popularity bonus – she enjoys as chancellor.
Mr Schüler conceded that the incumbent had an in-built advantage over her contenders, “but only if the chancellor is doing a good job in people’s eyes”.
With their confrontational approach – both Frank-Walter Steinmeier, the SPD candidate, and Franz Müntefering, the party’s chairman, have attacked Ms Merkel’s elusiveness as indecision – the chancellor’s opponents were courting a popular backlash, Mr Schüler said.
The SPD’s credibility, he added, was also suffering from the fact that Ms Merkel and Mr Steinmeier, who holds the foreign affairs portfolio in her grand coalition government, were still sitting at the same cabinet table every Wednesday.
“They have worked together in government ... In such a situation, it’s very hard to be convincing when you lash out at the other candidate. That’s one reason the SPD is in trouble.”
Ms Merkel’s restrained style, another departure from her more acerbic campaign four years ago, was more in tune with the times, he said.
“We have just experienced the biggest crisis in 60 years. People are not interested in personal attacks. They want to see and be convinced, that we are doing our job with all effort needed to pull the economy out of the crisis.”
The latest opinion poll, published on Monday by GMS, suggested Ms Merkel’s softer approach was paying off. The survey credited the SPD with 23 per cent of votes, 15 points behind Ms Merkel’s CDU.
The sole attempt to enliven the CDU’s hitherto invisible campaign came from Berlin MP Vera Lengsfeld. Her posters, which have become a collector’s item, show the candidate and Ms Merkel sporting identical cleavage-revealing dresses with the slogan: “We have more to offer.”
The New York Times reports that President Obamaon Tuesday will nominate Ben S. Bernanketo a second term as chairman of the Federal Reserve, administration officials said.
The announcement is a major victory for Mr. Bernanke, a Republican who was appointed by President George W. Bush almost four years ago and who had briefly served as chairman of Mr. Bush’s Council of Economic Advisers.
A top White House official said Mr. Obama had decided to keep Mr. Bernanke at the helm of the Fed because he had been bold and brilliant in his attempts to combat the financial crisis and the deep recession.
“The president thinks that Ben’s done a great job as Fed chairman, that he has helped the economy through one of the worst experiences since the Great Depression and that he has essentially been pulling the economy back from the brink of what would have been the second Great Depression,” the White House chief of staff, Rahm Emanuel, said Monday night.
Mr. Obama will announce his decision, with Mr. Bernanke at his side, at 9 a.m. at an appearance at Oak Bluffs School on Martha’s Vineyard, where the Obama family is vacationing this week.
White House officials said that Mr. Obama had effectively decided four or five weeks ago that he wanted Mr. Bernanke to continue, and that he formally discussed the job with him last week at a meeting with the Fed chairman in the White House.
The senior official said Mr. Obama did not offer the job to anyone else, even though a number of high-powered Democratic economists were considered potentially strong candidates to replace him.
Mr. Bernanke, who spent most of his career as a professor of economics, most recently at Princeton, took over the Fed in February 2006. His current four-year term as chairman will expire on Jan. 31.
When Mr. Obama was elected, many Democrats considered one of the most likely contenders for Fed chairman to be Lawrence H. Summers, a former Treasury secretary under President Bill Clinton and currently director of the National Economic Council in Mr. Obama’s White House.
Other rumored candidates included Alan S. Blinder, a professor of economics at Princeton and a former vice chairman of the Federal Reserve under Alan Greenspan; Janet L. Yellen, president of the Federal Reserve Bank of San Francisco; and Roger Ferguson, another former vice chairman of the Federal Reserve who is currently president of TIAA-CREF, the giant pension fund company.
Mr. Bernanke was a clear favorite among economists, especially those specializing in central banking and monetary policy.
A quiet and often unprepossessing person, Mr. Bernanke was a leading scholar of the Depression who had broken important ground on the links between financial crises and the real economy. In his work on what he called the “financial accelerator,” Mr. Bernanke argued that a run on banks or other disruptions in financial markets could turn a relatively mild downturn into a severe one.
Supporters of Mr. Bernanke, including many current and former Fed officials, said his academic background provided almost perfect preparation for the financial crisis that began when panic over mortgage-backed securities began spreading through the broader credit markets in late July 2007.
Unless the economy suffers another big shock, Mr. Bernanke is all but certain to win Senate confirmation for another term.
The financial system, which nearly collapsed last September after the bankruptcy of Lehman Brothers, is now in far better shape and credit markets have been operating much closer to normal for the last several months.
Nonetheless, some analysts caution that the economy is still so fragile that financial markets would react badly if President Obama decided to install new leadership at the Fed anytime soon.
“He’s the best person for the job,” John Makin, a senior fellow at the American Enterprise Institute, said of Mr. Bernanke. “Why would anyone want to change the Fed chairman now?”
Most economists now predict that the United States recession either has already ended or is about to end very soon. Although unemployment is 9.4 percent, higher than at any time since the early 1980s, a wide array of indicators suggest that the economy has hit bottom and is about to begin a slow if painful recovery.
The Dow Jones industrial average has soared since hitting bottom in March, and the stock index hit a new high for the year last Friday after new data indicated that sales of existing homes jumped much more sharply last month than most analysts had expected. On the same day, Mr. Bernanke cautiously delivered his most optimistic assessment in the last year, saying that prospects for a resumption of economic growth were good for both the United States and the global economy.
But Mr. Bernanke will not have an entirely easy time in winning Senate confirmation. Many lawmakers in both parties have been highly critical of the Federal Reserve’s efforts to bail out major financial institutions over the last year.
Senator Christopher Dodd of Connecticut, a Democrat and the chairman of the Senate Banking Committee, has repeatedly chastised the Fed for failing to recognize the dangers in reckless mortgage lending and inflated housing prices that set off the financial crisis.
Mr. Dodd has been skeptical if not flatly opposed to giving the Federal Reserve more authority to regulate “systemic risk” and to supervise giant institutions deemed too big to fail. Yet, he said he supported the decision to reappoint Mr. Bernanke.
Mr. Dodd also told Mr. Bernanke, in a Senate hearing last month, that his complaints about the Fed were primarily institutional rather than aimed personally at the chairman himself.
Representative Barney Frank of Massachusetts, a Democrat and chairman of the House Financial Services Committee, has also praised Mr. Bernanke.
“I think Bernanke has done a very good job,” he said last week, praising his decisiveness in introducing emergency credit programs and in cutting interest rates to fend off the crisis.
The NYT also reports that President Obamawants to make the United States “the world’s leading exporter of renewable energy,” but in his seven months in office, it is China that has stepped on the gas in an effort to become the dominant player in green energy — especially in solar power,and even in the United States.
Chinese companies have already played a leading role in pushing down the price of solar panels by almost half over the last year. Shi Zhengrong, the chief executive and founder of China’s biggest solar panel manufacturer, Suntech Power Holdings, said in an interview here that Suntech, to build market share, is selling solar panels on the American market for less than the cost of the materials, assembly and shipping.
Backed by lavish government support, the Chinese are preparing to build plants to assemble their products in the United States to bypass protectionist legislation. As Japanese automakers did decades ago, Chinese solar companies are encouraging their United States executives to join industry trade groups to tamp down anti-Chinese sentiment before it takes root.
The Obama administration is determined to help the American industry. The energy and Treasury departments announced this month that they would give $2.3 billion in tax credits to clean energy equipment manufacturers. But even in the solar industry, many worry that Western companies may have fragile prospects when competing with Chinese companies that have cheap loans, electricity and labor, paying recent college graduates in engineering $7,000 a year.
“I don’t see Europe or the United States becoming major producers of solar products — they’ll be consumers,” said Thomas M. Zarrella, the chief executive of GT Solar International, a company in Merrimack, N.H., that sells specialized factory equipment to solar panel makers around the world.
Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States.
Suntech, based here in Wuxi, is on track this year to pass Q-Cells of Germany, to become the world’s second-largest supplier of photovoltaic cells, which would put it behind only First Solar in Tempe, Ariz.
Hot on Suntech’s heels is a growing list of Chinese corporations backed by entrepreneurs, local governments and even the Chinese military, all seeking to capitalize on an industry deemed crucial by China’s top leadership.
Dr. Shi pointed out that other governments, including in the United States, also assist clean energy industries, including with factory construction incentives.
China’s commitment to solar energy is unlikely to make a difference soon to global warming. China’s energy consumption is growing faster than any other country’s, though the United States consumes more today. Beijing’s aim is to generate 20,000 megawatts of solar energy by 2020 — or less than half the capacity of coal-fired power plants that are built in China each year.
Solar energy remains far more expensive to generate than energy from coal, oil, natural gas or even wind. But in addition to heavy Chinese investment and low Chinese costs, the global economic downturn and a decline in European subsidies to buy panels have lowered prices.
The American economic stimulus plan requires any project receiving money to use steel and other construction materials, including solar panels, from countries that have signed the World Trade Organization’s agreement on free trade in government procurement. China has not.
In response to this, and to reduce shipping costs, Suntech plans to announce in the next month or two that it will build a solar panel assembly plant in the United States, said Steven Chan, its president for global sales and marketing.
“It’ll be to facilitate sales — ‘buy American’ and things like that,” Mr. Chan said, adding that the factory would have 75 to 150 workers and be located in Phoenix, or somewhere in Texas.
But 90 percent of the workers at the $30 million factory will be blue-collar laborers, welding together panels from solar wafers made in China, Dr. Shi said.
Yingli Solar, another large Chinese manufacturer, said on Thursday that it also had a “preliminary plan” to assemble panels in the United States.
Western rivals, meanwhile, are struggling. Q-Cells of Germany announced last week that it would lay off 500 of its 2,600 employees because of declining sales. It and two other German companies, Conergy and SolarWorld, are particularly indignant that German subsidies were the main source of demand for solar panels until recently.
“Politicians might ask whether this is still the right way to do this, German taxpayers paying for Asian products,” said Markus Wieser, a Q-Cells spokesman.
But organizing resistance to Chinese exports could be difficult, particularly as Chinese discounting makes green energy more affordable.
Even with Suntech acknowledging that it sells below the marginal cost of producing each additional solar panel — that is, the cost after administrative and development costs are subtracted — any antidumping case, in the United States, for example, would have to show that American companies were losing money as a result.
First Solar — the solar leader, in Tempe — using a different technology from many solar panel manufacturers, is actually profitable, while the new tax credits now becoming available may help other companies.
Even organizing a united American response to Chinese exports could be difficult. Suntech has encouraged executives at its United States operations to take the top posts at the two main American industry groups, partly to make sure that these groups do not rally opposition to imports, Dr. Shi said.
The efforts of Detroit automakers to win protection from Japanese competition in the 1980s were weakened by the presence of Honda in their main trade group; they expelled Honda in 1992.
Some analysts are less pessimistic about the prospects for solar panel manufacturers in the West. Joonki Song, a partner at Photon Consulting in Boston, said that while large Chinese solar panel manufacturers are gaining market share, smaller ones have been struggling.
Mr. Zarrella of GT Solar said that Western providers of factory equipment for solar panel manufacturers would remain competitive, and Dr. Shi said that German equipment providers “have made a lot of money, tons of money.”
The Chinese government is requiring that 80 percent of the equipment for China’s first municipal power plant to use solar energy, to be built in Dunhuang in northwestern China next year, be made in China.
Dr. Shi said his company would try to prevent similar rules in any future projects.
The reason is clear: almost 98 percent of Suntech’s production goes overseas.
