Fiscal Study

U.S. Federal Reserve Chairman Ben Bernanke said that subprime mortgage losses could hit $100 billion and threaten consumer spending, but he sought to reassure lawmakers that the central bank was working quickly to strengthen lending regulations, Reuters reports:

"The credit losses associated with subprime have come to light and they are fairly significant," Bernanke told the Senate Banking Committee in a second day of testimony on the Fed's twice-yearly economic report.

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China raised interest rates in the latest of a series of tightening steps aimed at keeping inflation in check and preventing the world's fourth-largest economy from overheating, Reuters reports:

The increase came a day after the government reported that annual growth accelerated to 11.9 percent in the second quarter, the fastest rate in 11- years, from 11.1 percent in the first quarter.

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The government said that it had sent a long-awaited bill to the State Duma that defines strategic industries and restricts direct foreign investment in them -- two years after President Vladimir Putin called for a clear tightening of the rules, The Moscow Times reports:

The bill, however, does not cover the lucrative energy sector, where foreign companies have had to yield to varied means of government pressure and hand over control of major oil and gas projects to state companies.
Prime Minister Mikhail Fradkov earlier this week ordered that the bill be sent to the Duma, the government announced.
"We think this can be a major positive here, and that is clarification," Andrew Somers, president of the American Chamber of Commerce in Russia, said of the U.S. business community's attitude toward the legislation.

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Federal Reserve Chairman Ben S. Bernanke predicted American economic growth will pick up ``a bit'' next year and inflation will recede, Bloomberg reports:

``The U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening'' in 2008, he told the House Financial Services Committee in Washington. ``Core inflation should edge a bit lower, on net, over the remainder of this year and next year.''

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The relationship between Malaysia and China is by mutual consent the best it has ever been, Asia Times reports:

On the economic front, two-way trade is expanding by 20-25% per year, and Malaysia looks set to cash in on China's growing appetite for natural gas. Politically, the two sides have established a high level of trust based on regular meetings and shared perspectives across a range of international issues. Malaysia's current prime minister, Abdullah Badawi, has repeatedly said that
his government does not view China as a strategic threat.

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Posted by fiscalstudy at 11:14 AM | Permalink | Comments (0)

Growth in the service sector rose unexpectedly in June, while the job market also appeared to pick up some steam, according to reports that signaled strength in the economy, Reuters reports:

The Institute for Supply Management's services index rose to 60.7 in June from 59.7 in May. Analysts had expected the index to ease to 58.0. A number above 50 indicates growth in the sector.

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Bank Indonesia said its consumer confidence index dropped to 95.8 in June from 98.5 in May, reflecting pessimism about the economy in the next six months among respondents to the central bank's monthly survey, ANTARA News reports:

BI was quoted by Thomson Financial as saying there was a decline in the number of respondents who were confident that their income will rise in the next six months.

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It is a truism in US foreign-policy circles that China would never risk its profitable economic ties with the United States by working more closely with Russia to frustrate US initiatives around the world. But the recovery of the Russian economy has led to reinvigorated commercial ties between Moscow and Beijing. In 2006, China became Russia's fourth-largest trading partner, while Russia moved up to become China's eighth-largest partner, Asia Times reports:

Chinese Vice Premier Wu Yi and Russian Deputy Prime Minister Alexander Zhukov have called for bilateral trade between the two states to reach US$60 billion by 2010. Yes, this will still only amount to one-fifth of the value of Sino-US trade at current levels. But China is clearly going to diversify its trading options so as to reduce its dependency on US markets.

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Posted by fiscalstudy at 11:19 AM | Permalink | Comments (0)

The main priority for the ruling Chinese Communist Party (CCP) over the next two years will be to maintain political stability in order to ensure the success of both the 17th party congress, due in late 2007, and the Olympic Games in the capital, Beijing, to be held in August 2008, The Economist Intelligence Unit reports:

As the party congress approaches, the president, Hu Jintao, will continue to strengthen his influence through the appointment of allies to important positions. Real GDP growth will slow slightly from 10.7% in 2006 to a forecast 10.5% in 2007 and 9.6% in 2008.

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Posted by fiscalstudy at 11:34 AM | Permalink | Comments (0)

The U.S. Federal Reserve did as expected by economists and left its key interest rate steady at 5.25 per cent, CBC News reports:

The U.S. central bank also changed its tone on inflationary pressures, dropping the word "elevated" from its description of core inflation in the commentary that accompanied the decision.

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Posted by fiscalstudy at 11:12 AM | Permalink | Comments (0)

Asian countries were warned against complacency that another Asian financial crisis could not hit the region, International Business Times reports:

"It is important that we make sure that we do not become overconfident that a crisis can never happen," said Thailand's finance minister, Chalongphob Sussangkarn.
He was speaking at a forum in Manila to mark the 10th anniversary of the Asian financial crisis, which was triggered by a large outflow of capital toppling an overvalued Thai baht.

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Ten years after Asia's financial crisis, the region is booming again. Has it fully recovered or are economic mistakes being repeated?
IT IS an unhappy anniversary: July 2nd 1997, the official start of the catastrophic Asian financial crisis. On that day Thailand ran out of foreign-exchange reserves trying to defend its currency from a huge speculative attack. It was forced to float the Thai baht, which promptly plunged. The meltdown quickly spread as investors pulled their money out of countries with similar economic symptoms—especially Indonesia, Malaysia and South Korea, The Economist reports:

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Those who keep a close eye on the state of America’s economy might be forgiven for being puzzled: there are reasons aplenty to feel both gloom and cheer, The Economist reports:

On June 28th revised first-quarter GDP figures showed that the economy has not been growing all that briskly (it expanded at an annualised pace of just 0.7%). A report from the Federal Reserve noted that price increases have been moderating of late. Despite this, its main concern remains inflation, rather than stimulating the economy.

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