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Markets News Friday: IMF says interest rate on Irish bailout loan may fall; ECB says potential economic growth is unlikely to return to its pre-crisis path for many years
By Finfacts Team
Jan 21, 2011 - 9:03 AM
IMF: David Hawley, Senior Advisor, External Relations Department,
International Monetary Fund, on Thursday
a press conference in Washington DC, said that the Irish bailout loan, as
with any IMF loan, is made at the SDR (the IMF's own internal currency known as a Special
Drawing Right) interest rate, a rate that does move with the markets, but which
is currently about 3.1%. He said there is a further dimension to this question,
which refers to the possibility of the Irish interest rate falling, if there
were an increase in the Irish quota in the Fund.
Hawley said there was a quota review agreed in 2008,
"which we are hopeful
will be approved shortly following consideration by the membership. Ireland is
one of those countries whose quota stands to increase under this agreement. As a
consequence of that, the amount of its loan relative to its quota would fall,
and that would have a bearing on the interest rate that Ireland paid on its
borrowing from the Fund."
The IMF portion of the €85bn IMF/EU rescue for Ireland was €22.5bn. The composite interest rate was 5.8%.
On Greece, Hawley said: "You asked also about debt restructuring for Greece.
I would note only that the Government of Greece has repeatedly stated that debt
restructuring is not their intention, nor is it in their interest, and we agree
with them on this point."
Eurozone: The European Central Bank says in its latest monthly bulletin that the financial crisis could have a lasting effect on the
potential output, and warned that potential economic growth is unlikely to
return to its pre-crisis path for many years.
“It is likely that the financial crisis has led to a one-off permanent loss
in the level of potential output, owing to the economic effects of the
downsizing of some sectors, such as the financial and construction sectors,
following their disproportionate expansion during the boom,” the
wrote in its January bulletin.
The ECB says longer-term factors, particularly the aging of the Eurozone population, could
also hold down potential growth for many years to come, officials warn. “Without
far-reaching structural reforms supporting long-term economic growth, it appears
unlikely that the euro area will achieve the previously measured potential
growth rates of 2% or above in the coming decade,” according to the
Potential growth is a measure of an economy’s ability to expand without
inflationary pressures. It is usually estimated by adding annual growth in
productivity plus growth in the labour force.
Using estimates by the International Monetary Fund,
Organization for Economic Co-operation and Development and
European Commission, the ECB said potential growth in the common
currency area was
about 1.9% from 2000 to 2007. It fell to 0.9% from 2008 to 2010, while the U.S. is estimated to have had a 2.5% growth potential
from 2000 to 2007, the ECB said, and 1.8% from 2008 to 2010.
China president Hu Jintao calls for deeper engagement with the United States. Insight with Boone Pickens, BP Capital Management founder/chairman and Gordon Chang, "The Coming Collapse of China" author:
Economic View: Countdown to the election now underway; Goodbody chief
economist, Dermot O’Leary, comments - - "We could be in for an interesting
and insightful seven weeks in Ireland. Under pressure from the junior coalition
partner, the Taoiseach (Irish Prime Minister) has announced that a general
election will take place on Friday 11th March.
Political risk in passing vital legislation over recent months has been
present ever since the Government’s ultra-slim majority in the Dail became
apparent. It was our view that this risk should have been done away with by the
holding of a general election before the four-year plan, the Budget and the
agreement with the IMF/EU was complete at the end of last year.
It is, therefore, not before time that we now know when these political
risks will be removed. At the time of Ireland’s last election in 2007, the
economy was only showing very early signs of a slowdown and thus parties were
campaigning on how prosperity and growth can be maintained and the best way to
share those gains. This time around the key issue will be the economy but for
very different reasons.
Fine Gael and Labour, the two opposition parties that look most likely to
be forming the next government have made it clear that some sort of
re-negotiation of the EU/IMF aid package is required, with particular focus on
the interest rate charged on the loans and the plans for the banking sector.
Policies on the latter issue are likely to prove the most controversial. Whether
these political promises will come to anything when that party gets into
government is another matter, but the policies that will be laid out and
possibly implemented post-March 11th will have important implications for
Ireland over the coming years."
"China is practically growing at 10%...at least they've got the right kind of inflation which is generated by demand," David Bloom, global head foreign exchange at HSBC told CNBC:
Eurozone consumer sentiment falters; Ireland sets date for
general election; Davy's Barry Dixon comments --
prospects of a slowdown in Chinese growth rates remains the main
concern in global markets, latest consumer sentiment data in Europe
suggest that a recovery in consumer demand could be bumpy. The
January reading of euro zone consumer confidence fell to -11.4 from
-11.0 in December, the second month in a row in which the reading
has declined. This slight decline may reflect the impact of fiscal
austerity measures kicking in across the region or it may simply
reflect the impact of post-Christmas blues! Today's IFO in Germany
is likely to give a more positive outlook for the manufacturing
sector which will have a positive knock-on impact on employment and
ultimately consumption. However, the positive impact may take longer
than expected to be felt.
Meanwhile, the date for Ireland's general election has been
set for Friday, March 11th. It is widely believed that the current
Fianna Fail-led government will be replaced by a Fine Gael-Labour
coalition. This is unlikely to lead to any significant changes to
Ireland's four-year fiscal recovery plan, although Fine Gael has
indicated that it intends to renegotiate the terms of the EU-IMF
package. This is more likely to focus on the cost of funding rather
than the actual amount.
The current meeting of European finance ministers may already
be addressing this issue."
US health care costs rose 6.27 percent from November 2009 to November 2010, with David Blitzer, S&P 500 Index Committee chairman:
In New York Thursday, the
Dow fell 3 points or 0.02% to 11,823.
The S&P 500 fell 0.13% and
the Nasdaq slid 0.77%.
MSCI Asia Pacific lost 1.1% Friday after it sank 1.5% on Thursday.
Europe, the Dow Jones Stoxx 600 is up 0.30% in early trading Friday.
ISEQ has risen 0.88% in Dublin.
up 1.22%; Elan has risen 1.59%; Dragon Oil added 1.92% and Kenmare Resources has
Aer Lingus (Buy,
Closing Price €1.04): Hoping to operate a full schedule today; Goodbody's
Eamonn Hughes comments - - "As the week progressed, the number of cancelled
flights in the dispute with the cabin crew escalated. However, we note this
morning that the airline is hoping to operate a full schedule as it continues to
source wet leases from a number of airlines, having hired nine aircraft by last
the number of cabin crew on suspension had reached c.80 and now appears around
the 100 mark. The airline appears resolute in taking on the cabin crew, so there
is always the possibility of industrial action. However, should the unions back
down, the move would represent a substantial step forward towards delivering on
the Greenfield project."
closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index
averaged 59% lower in 2009 than a year earlier.
Thursday, July 15, 2010, the index fell for the 35th straight session, by 9
points, or 0.537%, to 1,700 points,
On Friday July16th, the BDI rose 20
points or 1.12% to 1,700 to break the 35-session losing streak.
Thursday this week, the BDI fell 18 points or 1.30% to 1,393.
The Financial Times reported on
Thursday that Australia’s flooding and fears of ship oversupply has pushed down
a gauge of the cost of hiring ships to carry coal, iron ore and other dry bulk
by nearly half since October to the lowest level since the aftermath of the
financial crisis. The Baltic Dry index, the widely watched measure of dry bulk
charter rates, fell to 1,453, nearly half the 2,784 peak reached on October 27,