Euro zone GDP decline worst since Q1 2009

Updated 15 February 2013
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Euro zone GDP decline worst since Q1 2009

BRUSSELS: The euro zone slipped deeper than expected into recession in the last three months of 2012 after its largest economies, Germany and France, shrank at the end of a wretched year for the region.
It marked the currency bloc’s first full year in which no quarter produced growth, extending back to 1995. For the year as a whole, gross domestic product (GDP) fell by 0.5 percent
Economic output in the 17-country region fell by 0.6 percent in the fourth quarter, EU statistics office Eurostat said, following a 0.1 percent output drop in the third.
The quarter-on-quarter drop was the steepest since the first quarter of 2009 and more severe than the average forecast of a 0.4 percent drop in a Reuters poll of 61 economists.
Within the zone, only Estonia and Slovakia grew in the last quarter of the year, although there are no figures available yet for Ireland, Greece, Luxembourg, Malta and Slovenia.
The big economies set the tone.
Germany contracted by 0.6 percent on the quarter, official data showed, marking its worst performance since the global financial crisis was raging in 2009.
France’s 0.3 percent fall was also slightly worse than expectations.
Worryingly for Berlin, it was export performance — the motor of its economy — that did most of the damage, declining significantly more than imports, although economists expect it to bounce back quickly.
The euro hit a session low against the dollar after the weaker than forecast German reading and dropped again after the release of full euro zone figures.
Back revisions to the French figures showed its output fell by 0.1 percent in each of the first and second quarters of 2012, meaning the country has already experienced one bout of recession in the last twelve months.
While the European Central Bank’s pledge to do whatever it takes to save the euro has taken the heat out of the bloc’s debt crisis, even its stronger members are gripped by an economic malaise that could push debt-cutting drives off track.
French Prime Minister Jean-Marc Ayrault acknowledged for the first time on Wednesday that weak growth was putting his government’s deficit goal for 2013 out of reach.
Resilient Germany is expected to rebound and the bloc as a whole is expected to have improved in the first quarter, as suggested by a pick-up of factory orders in December, but it is not yet clear if growth has returned.
Nick Kounis, economist at ABN AMRO, said the decline of fears the euro could break apart and cheap credit had sown the seeds for the recovery.
“However, ongoing severe budget cuts, rising unemployment, bank deleveraging all point to the recovery being excruciatingly slow,” he said, adding the strong euro was also a threat.
The ECB has a wide-ranging projection for euro zone GDP growth in 2013 of between -0.9 and +0.3 percent. ECB Vice President Vitor Constancio said on Tuesday he expected no major change to the forecasts in March.
Dutch GDP dropped 0.2 percent over the quarter, keeping it in recession, and the Austrian economy shrank at the same rate.
For the more embattled members of the currency bloc, matters are worse. The greatest reported decline was in bailed-out Portugal, down 1.8 percent.
Italy suffered its sixth successive quarterly fall in GDP — this time by a sharp 0.9 percent — putting it into a longer slump than it suffered in 2008/2009.
Its recession has been deepened by austerity measures that outgoing Prime Minister Mario Monti introduced to stave off a debt crisis.
With an election due on Feb. 24/25, all sides in a three-way race between Monti’s centrist bloc, Pier Luigi Bersani’s center-left coalition and Silvio Berlusconi’s center-right are pledging to cut taxes to try to kickstart economic growth.
Spain, the euro zone’s fourth largest economy, released figures two weeks ago which showed it remained deep in recession after a 0.7 percent contraction in the fourth quarter.
Madrid is also pressing on with austerity measures to cut its debt but may be given more time to meet its deficit targets by the European Commission if its economy worsens further.
There are signs that countries like Spain are starting to benefit from internal devaluations — marked by wage falls and job losses aimed at making companies leaner and more productive.
The ECB predicts the euro zone will pick up later in the year although its currency, if it keeps strengthening, could quickly snuff out any of those hard-won competitive advantages for its high debt members.
More recent data for January have already suggested some upturn in the first months of 2013, in the bloc’s stronger members at least, and if improvement comes it is expected to be seen in Germany first.


Malaysia reviews China infrastructure plans

Malaysia’s former PM Najib Razak (AFP)
Updated 18 June 2018
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Malaysia reviews China infrastructure plans

  • Malaysia's scandal-mired former PM Najib Razak signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.
  • New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

KUALA LUMPUR: Malaysia has been a loyal partner in China’s globe-spanning infrastructure drive, but its new government is to review Beijing-backed projects, threatening key links in the much-vaunted initiative.

Kuala Lumpur’s previous regime, led by scandal-mired Najib Razak, had warm ties with China, and signed a string of deals for Beijing-funded projects, including a major rail link and a deep-sea port.

But the long-ruling coalition was unexpectedly voted out last month by an electorate alienated by allegations of corruption and rising living costs.

Critics have said that many agreements lacked transparency, fueling suspicions they were struck in exchange for help to pay off debts from the financial scandal which ultimately helped bring down Najib’s regime.

The new government, led by political heavyweight Mahathir Mohammed, has pledged to review Chinese deals seen as dubious, calling into question Malaysia’s status as one of Beijing’s most cooperative partners in its infrastructure push.

China launched its initiative to revive ancient Silk Road trading routes with a global network of ports, roads and railways — dubbed “One Belt, One Road” —  in 2013.

Malaysia and Beijing ally Cambodia were seen as bright spots in Southeast Asia, with projects in other countries often facing problems, from land acquisition to drawn-out negotiations with governments.

“Malaysia under Najib moved quickly to approve and implement projects,” Murray Hiebert, a senior associate from think-tank the Center for Strategic and International Studies, told AFP.

Chinese foreign direct investment into Malaysia stood at just 0.8 percent of total net FDI inflows in 2008, but that figure had risen to 14.4 percent by 2016, according to a study from Singapore’s ISEAS-Yusof Ishak Institute.

However, Hiebert said it was “widely assumed” that Malaysia was striking quick deals with China in the hope of getting help to cover debts from sovereign wealth fund 1MDB.

Najib and his associates were accused of stealing huge sums of public money from the investment vehicle in a massive fraud. Public disgust at the allegations — denied by Najib and 1MDB — helped topple his government.

Malaysia’s first change of government in six decades has left Najib facing a potential jail term.

New Prime Minister Mahathir Mohamad has announced a planned high-speed rail link between Kuala Lumpur and neighboring Singapore will not go ahead as he seeks to reduce the country’s huge national debt.

The project was in its early stages and had not yet received any Chinese funding as part of “One Belt, One Road.” But Chinese companies were favorites to build part of the line, which would have constituted a link in a high-speed route from China’s Yunnan province to trading hub Singapore, along which Chinese goods could have been transported for export.

Work has already started in Malaysia on another line seen as part of that route, with Chinese funding — the $14-billion East Coast Rail Link, running from close to the Thai border to a port near Kuala Lumpur.

Mahathir has said that agreement is now being renegotiated.

Other Chinese-funded initiatives include a deep-sea port in Malacca, near important shipping routes, and an enormous industrial park.

It is not clear yet which projects will be amended but experts believe axing some will be positive.

Alex Holmes, Asia economist for Capital Economics, backed canceling some initiatives, citing “Malaysia’s weak fiscal position and that some of the projects are of dubious economic value.”

The Chinese foreign ministry did not respond to request for comment.

Decoder

What is the "One Belt, One Road" initiative?

The “One Belt, One Road” initiative, started in 2013, has come to define the economic agenda of President Xi Jinping. It aims to revive ancient Silk Road trading routes with a network of ports, roads and railways.