bizzXceleration: Performance, Value and Profit

World Economic Outlook 

OECD Forecasts Sharper Slowdown for G-7 The world's leading developed economies are set to slow more sharply in the months ahead, according to the OECD's indicators of future activity. The world's leading developed economies are set to slow more sharply in the months ahead, according to the Organization for Economic Cooperation and Development's indicators of future activity. The OECD Friday said its composite leading indicator fell to 96.8 in June from 97.4 in May and was down five points from June 2007. The leading indicators for six economies of the Group of Seven leading developed nations fell from a month earlier; Japan's was unchanged. From a year earlier, indicators for all seven were down sharply. "OECD composite leading indicators...for June 2008 indicate a continued weakening outlook for all the major seven economies," the Paris-based think tank said.Over the rest of this year and into 2009, the OECD said, its leading indicators point to slowdowns in the U.S., Japan, Germany, the U.K. and Canada. They point to "strong" slowdowns in France and Italy. Italy Friday became the first big euro-zone country to report its economy contracted in the second quarter, raising expectations that Germany or France, and perhaps the euro zone as a whole, could follow when they report gross domestic product Thursday. Istat, the Italian statistics agency, said Italian GDP fell 0.3% in the second quarter, worse than expected, returning the country to the brink of recession after a narrow escape earlier this year. A recession is usually defined as a contraction of GDP for two or more successive quarters. Italy's GDP contracted 0.4% in the fourth quarter of last year, followed by a 0.5% rise in the next quarter. With at least two of the three big euro-zone economies set to slow sharply, the OECD said leading indicators also point to a strong slowdown in the currency area as a whole. That will help cement investors' expectations that the European Central Bank won't raise its key interest rate again. The ECB Thursday left its key rate unchanged at 4.25%, having raised it from 4% in July.

• U.K. July Producer Prices Increase at the Fastest Pace Since at Least 1986
• French Industrial Output Unexpectedly Fell in June, Led by Car Production
• Japan's Economy Shrank 2.4% in Second Quarter as Exports, Spending Dropped
• Soft industrial output dims euro-zone outlook
• Indian government sees growth approaching 8%
• Slower Growth Is Seen in Hong Kong
• Bank of England Says Economy Is Likely to Stagnate
• German, French economies contract in second quarter
• China's Industrial-Output Growth Slows on Olympic Closures, Weaker Exports

Global Economic Picture Darkens (WSJ) The global economy -- which had long remained resilient despite U.S. weakness -- is now slowing significantly, with Europe offering the latest evidence of trouble. On Thursday, the European Union's statistics agency said gross domestic product in the euro zone contracted 0.2% in the second quarter, the equivalent of a 0.8% annual rate of decline. It marked the first time since the early 1990s that GDP has fallen overall in the 15 countries that use the euro. In a fresh sign of the pressures facing the American economy, the Labor Department said Thursday that U.S. consumer-price inflation hit a 17-year high in July, rising 5.6% from a year earlier. With the European growth report, four of the world's five biggest economies -- the U.S., the euro zone, Japan and the U.K. -- are now flirting with recession. China, the world's fourth-largest economy, is still expanding strongly, as are India and other large developing economies. Still, weak growth elsewhere in the world is tempering the torrid rise in prices of commodities such as oil, copper and corn, giving relief to consumers from high gasoline and food costs and cutting manufacturers' raw-materials bills. U.S. benchmark crude on Thursday closed at $115.01, down roughly 20% from its July 3 peak of $145.29 a barrel. Easing inflation pressures could also make it easier for the world's central banks to lower rates in an attempt to fan flagging growth.

The global weakness marks a sharp reversal of expectations for many corporations and investors, who at the year's outset had predicted that major economies would remain largely insulated from America's woes. For the U.S., economic sluggishness abroad is both a blessing and a curse. Lower commodity prices are giving welcome relief. In addition, the dollar has strengthened as other economies lose steam -- which benefits U.S. consumers by cutting the cost, in dollar terms, of imports ranging from flatware to flat-screen TVs. Yet at the same time, weaker foreign economies also undercut one of the few remaining bright spots in the U.S. economy: exports. Indeed, in a sign the world is dialing back its shopping spree of the past few years, the Baltic Dry Index, a measure of demand for shipping services, has fallen 37% since hitting a record on May 20, including a stretch of 23-straight down days. Dollar strength could also hurt U.S. exports by making U.S.-made goods pricier abroad. The dollar rose against the euro Thursday to levels unseen since February.

Economist World Data Tables:

·          Output, prices and jobs 

·          Trade, exchange rates, budget balances and interest rates 

Countries and  Cases

Cracks surface in Dubai Cracks are starting to show in Dubai's well-crafted and glitzy property-marketing machine. Flipping properties has reached such a feverish pace, driving up prices, that Dubai's Real Estate Regulatory Authority, or RERA, is looking at measures to crack down on the practice, which involves quickly reselling property at a profit. Meantime, a series of legal tussles and property-related scandals have rocked investor confidence, and analysts are forecasting that property prices, which have risen sharply in a matter of months, could tumble by as much as 10%, hurt by oversupply. Fitch says speculative real-estate investment, fueled by fast price rises, adds to the risks of the bubble inflating. Similar bubbles popped in the U.S., Spain and the U.K. after rampant flipping and other trends similar to those in Dubai. Lacking the huge oil reserves of neighbor Abu Dhabi, Dubai has worked hard to turn itself into the region's tourist, business and transport hub. Real-estate development has been at the heart of this effort. But the global economic slowdown has all kinds of markets teetering on an edge -- and while the cash-rich Emirates are considered havens for investors, they too may be vulnerable to slowing global growth. In the worst-case scenario, Morgan Stanley says, property prices could follow those of Singapore in the late 1990s, when real-estate prices plunged 80% in 18 months. The market also has recently been rocked by a series of scandals involving some of the emirate's biggest real-estate players. So far, a robust economy and favorable regional economic conditions have deferred any slowdown and extended the period of rising prices. But the number of real-estate projects facing delays or cancellations is rising as developers face soaring construction costs and rampant inflation.

China shares hit 19-month low on economic fears- China's benchmark Shanghai Composite Index fell 5.2 percent Monday following the release of economic data showing wholesale price inflation jumped to its highest level in 12 years in July. China's benchmark Shanghai Composite Index fell 5.2 percent Monday following the release of economic data showing wholesale price inflation jumped to its highest level in 12 years in July. The Shanghai index closed at 2,470.07 on Monday, down 135.65 points. That was its lowest close in more than a year and a half. The Shenzhen Composite Index of China's smaller, second market plunged 6.6 percent to 698.37. Airlines, textile exporters and refiners led the decline. Two of three major publicly traded airlines dropped by the daily maximum 10 percent. The government reported Monday that the producer price index rose 10 percent in July over a year earlier, its highest rate of increase since 1996 and a jump over June's 8.8 percent rate. Such increases, fueled by rising energy and raw materials costs, add to pressure on consumer prices, complicating Beijing's effort to rein in politically sensitive inflation. Chinese investors have become increasingly jittery over the economic outlook amid signs that the malaise afflicting the U.S. and Europe might be spreading to Asia, with corporate earnings bound to suffer. Analysts said the start of the Beijing Olympics last week had quashed any lingering hopes for a games-related rally.

The search for the new China Dongguan City is the the shoe capital of the world: more footwear is made there than anywhere else on the globe. From 2001 to 2007, the value of footwear exports from its province of Guangdong doubled from $4.3 billion to $9.2 billion, according to China's state-run news agency. But in the past year, hundreds of factories have left town, driven out by the rapidly rising cost of doing business in China. That story is being repeated throughout China's provinces as manufacturers confront sharp price shocks, sparked by stricter environmental and labor controls, higher land and commodity prices, and the Chinese government's moves to curb its trade surplus by reducing the tax incentives that helped the country become the world's low-cost production epicenter. "In my research of multinational companies, 17% of manufacturers are moving investments out of China," said Ron Haddock, the Shanghai-based vice president of consulting firm Booz Allen Hamilton. "The majority go to Vietnam and India."

Rising yuan crunches outsourcers' bottom line

Trade and Currencies 

Over There, U.S. Goods Ride a Weak-Dollar Wave AMERICAN exports are rising at the most rapid rate in decades, helped by a weaker dollar and by rising prices of food sent overseas. The trade figures for June, released this week, showed that the dollar value of total exports was running at a pace 19.2 percent higher than it was last year. Not since 1988, another year when exports were helped by a falling dollar, have exports grown so quickly. Those figures are not adjusted for inflation, and the real increase is undoubtedly smaller given the rapid rise in the price of grains. But the increase is nonetheless substantial, as is shown in the accompanying chart. Imports are also growing, however, despite expectations that the weakening American economy would slow them down. Expressed in dollars, imports in the three months through June were 14.1 percent higher than in the same period of 2007, and the trade deficit was 6.6 percent higher. Nonetheless, there are signs of a slowing economy in the figures. Imports of oil and petroleum products soared 57.3 percent when measured in dollars. But imports of crude oil, measured in barrels of oil rather than in dollars, were 5.8 percent lower than in the same period of 2007. Change in U.S. Exports

Dollar Bottom Against Yuan Gets Louder as Traders Discount China's Economy Just as the Bush administration prepares to take a bow for persuading China to let the yuan strengthen 18 percent against the dollar over the past three years, the gains are grinding to a halt. The yuan retreated in the last two weeks after government officials said supporting growth is as important as fighting inflation. That raised speculation that currency policy will be adjusted to bolster exports as the trade surplus shrinks. Legg Mason Inc.'s Western Asset Management Co. is trimming bets on the yuan after it rose in July by the smallest amount in a year. China is reining in yuan appreciation to help exporters weather a global slowdown and deter so-called hot money, speculative funds attracted by anticipated gains in the currency. The yuan recovered from earlier losses today after a government report showed export growth unexpectedly gathered pace in July and the trade surplus widened for the first time in four months. China's economy, the world's fourth largest, expanded 10.1 percent in the second quarter from a year earlier. While that is the slowest pace since 2005, it's still the fastest among the world's 20 biggest economies. The yuan is likely to strengthen 3.4 percent to 6.63 in the second half of the year, according to the median estimate of 25 analysts surveyed by Bloomberg. So-called non-deliverable forward contracts indicate investors have been scaling back bets on currency gains. They suggest the yuan will reach 6.6060 per dollar in the next 12 months, an advance of 3.8 percent from the current exchange rate. Two weeks ago the contracts, which allow traders to bet on the future value of China's currency, predicted an advance of 5.3 percent. At the start of last month, they priced in a 6 percent rise. Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non- deliverable contracts are used for currencies that can't be freely converted and are settled in dollars. China let the yuan strengthen against the dollar for the first time in a decade after mounting criticism from the U.S. and Europe that the nation had an unfair trade advantage. The U.S. trade deficit with China ballooned to a record $256 billion last year, equivalent to about a 10th of the Asian nation's gross domestic product. Yuan's Recent Retreats Spur Diminished Forecast

Why the Dollar Rally Ends Here The dollar has sprung off its deathbed, but a swift return to ruddy good health looks like a long shot. After years of steady depreciation, the U.S. currency has rallied strongly this month. The surge in the dollar's purchasing power - a euro now fetches $1.50, down from $1.57 near the end of July and $1.60 in April - is good news for U.S. consumers, because a stronger currency makes imported goods cheaper and helps to hold down inflation. And inflation, of course, can use some holding down: even after recent declines, the prices of commodities from crude oil to corn remain sharply above year-ago levels. Unfortunately, the dollar may not be much help there in coming months, because its run may be coming to an end. Big Funds Embrace Dollar

The riddle of the impossible surpluses One of the long-running riddles of the world economy is that international current account balances do not balance. During the last three years, the world has shown an arithmetical impossibility: ever-larger overall surpluses. Evidently a considerable amount of double-counting is going on, among both oil- and commodity-rich exporters and also other large surplus nations such as China, Japan and Germany. But, in lots of ways, the surpluses are real. Despite the credit crisis, signs of capital over-supply abound, seen for example in the almost daily news of sovereign wealth funds from Asia or the Middle East taking part in private equity transactions. The booming surpluses are mainly the result of climbing energy and commodity prices. They also reflect severe misalignments in international exchange rates, for instance between the Euro, renmimbi and dollar. Particularly among oil exporting states, the surpluses encourage profligacy. Plainly, far more money is being spent than is being earned. . In "normal" years over the last three decades, the total current account positions of the 181 members of the International Monetary Fund world added up to overall annual deficits, mainly ranging between $50 billion and $150 billion. Individual countries were plainly over-recording imports and other payments (for transfers and services) and understating exports and other receivables. In 2005, the world's current account balances - exceptionally - did actually balance. Since then, the surpluses have gained the upper hand. According to the IMF's latest estimates, the world will show an overall combined surplus of $265 billion this year. Large surpluses in China ($385 billion), Japan ($193 billion), Germany ($191 billion), Saudi Arabia ($145 billion) Russia ($99 billion), Kuwait and the United Arab Emirates (each $66 billion) more than compensate for the red ink in the deficit countries, led by the US ($614 billion), Spain ($171 billion), UK ($137 billion), France ($67 billion), and Italy ($56 billion). The world has never seen such a profusion of imbalances - a potent source of international liquidity as well as of potential financial instability. No one is sure how, when or why, but sooner or later these figures will have to come into better balance. If we are lucky, the correction will take place without too much damage to the global economy

Geo-Politics

Days of G-7 Running The Show Are Over  As the collapse of the trade talks in Geneva in July made clear, there is no longer any meaningful trade negotiation without the main nations from the emerging world. The year 2008 may go down in history as the one in which rich countries discovered that this applies to macroeconomic policies, too. In January it looked as if the opposite lessons could be drawn from events. For a while, Ben Bernanke at the US Federal Reserve and Jean-Claude Trichet at the European Central Bank seemed to be the only relevant policymakers in the world – and they were, as far as liquidity strains were concerned, if only because the US and Europe account for about two-thirds of the global supply of financial assets. But as months went by, it became clear that countries affected by the shock represented merely a half of world gross domestic product, two-fifths of global energy demand and not even a third of world cereal consumption. Furthermore, rich countries have significantly less weight at the margin: their contribution to world growth is about half their share of world GDP, so one-quarter of the total, and the same rule of thumb applies even more to the demand for oil and foodstuffs. So in the market for scarce commodities, the effects of the slowdown in the US and Europe were offset by domestic booms in the emerging world. By the end of spring, policymakers in the Group of Seven leading nations had awoken to an uncomfortable reality that focusing on a regional financial shock had led them to ignore a global commodity shock. Worse, thanks to the fact that most emerging and developing countries in Asia and the Gulf were part of a de facto dollar zone, actions taken by the Fed to address financial stress in fact compounded runaway domestic demand in those countries and fuelled global hunger for commodities. In spite of rising inflation, real interest rates in the main emerging countries are still inappropriately low or even negative. Stagflation is not here to stay. East Asia is unlikely to remain immune from current near-zero growth in Europe (to where it exports about 5 per cent of its GDP) or, even more, from forthcoming deterioration in the US (to where it exports almost 7 per cent of its GDP). Commodity prices have started to decline. However, the underlying issue will not go away, for two reasons.

Vladimir Putin makes Robert Maxwell look small-fry One of the curious trends of recent years has been the Western business community’s enduring love affair with the unlovely Russia. With every passing week, it becomes clearer that this is a country run by and for people little different from gangsters. The tanks rolling into Georgia have reminded us that they are gangsters with keys to a big arsenal. The largest Western companies, Shell and BP included, have been bullied, intimidated and forced into concessions by the Kremlin and its cronies. This week a Moscow court joined in the harassment, targeting the head of BP’s troubled joint venture in Russia. This is a country that defaulted on its overseas debts less than ten years ago; a country that, after its journey from feudalism to kleptocracy via totalitarian communism, has little truck with Western-style capitalism; a country alive with corruption and not averse, it has been suggested, to the occasional state-sponsored murder. Hardly the ideal recipient of Western capital, you might think. But Western companies have rushed to throw money at Russia, both in direct and indirect investment. But the idea that Russia can be seen as just another economy, and its businesses assessed purely in terms of dry p/e ratios, is folly. Western investors are mistaken if they think that Vladimir Putin would hesitate to expropriate their assets if it suited him.

• Georgia on the oil market's mind [08-15-2008 10:10PM]Friday The military conflict between Russia and Georgia has oil markets on the edge. Greg Priddy, global energy analyst, Eurasia Group tells BNN if supply concerns are well founded.