Growth to rebound, tips top Japan banker

Bank of Japan Gov. Haruhiko Kuroda said the global economy is ‘stabilising somewhat,’ but warned of risks from the US-China trade war. (Reuters)
Updated 09 June 2019
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Growth to rebound, tips top Japan banker

  • Bank of Japan governor sees global economy recovering in the latter half of this year
  • Widening fallout from the US-China trade war will test the resolve of G20 finance leaders

FUKUOKA, Japan: Bank of Japan Gov. Haruhiko Kuroda on Saturday maintained his view the global economy will recover in the latter half of this year, but warned that uncertainties remain as fallout from the Sino-US trade war deepens.

Kuroda said the global economy is “stabilizing somewhat” from its weakness late last year, as central banks maintain supportive policies and China takes stimulus measures to prop up growth.

“There’s no change to the view the global economy will pick up in the latter half of this year,” Kuroda told reporters ahead of the Group of 20 finance leaders’ meeting to be held in the southern Japanese city of Fukuoka. “But uncertainties remain, particularly those regarding trade,” he added.

Kuroda’s view on global risks is important because the BOJ’s forecast on the Japanese economy is based on the assumption global growth will rebound in the latter half of this year.

Global investors’ hopes for a pick-up in the second half of the year have been thrown into doubt by last month’s sudden escalation in the US-China trade war and a slew of weak data from major economies that threaten to further weigh on business and consumer confidence.

Widening fallout from the US-China trade war will test the resolve of G20 finance leaders to show a united front at their two-day gathering ending on Sunday, as investors worry if they can avert a global recession with dwindling policy ammunition.

The BOJ is among major central banks that could come under pressure to ramp up its already massive stimulus program, as the trade dispute raises fears of a global recession.

Kuroda praised US President Donald Trump’s decision to put off imposing tariffs against Mexico after the two countries reached a deal to contain the migration of immigrants crossing the southern US border.

“It’s a very good outcome not just for the US and Mexico, but for the global economy,” Kuroda said.


Lufthansa profit warning spooks European airline sector

Updated 17 June 2019
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Lufthansa profit warning spooks European airline sector

  • Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called ‘attritional fare wars’

FRANKFURT: Germany’s Lufthansa sent shockwaves through the European airline sector on Monday as it cut its full-year profit forecast, with lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings.
The warning follows gloomy comments last month from Irish budget airline Ryanair, which vies with Lufthansa for top spot in Europe in terms of passengers carried. Air France-KLM also reported a widening quarterly loss last month.
In a statement issued late on Sunday, Lufthansa forecast annual EBIT of between €2 billion and €2.4 billion, down from the previously targeted €2.4 billion to €3 billion.
“Yields in the European short-haul market, in particular in the group’s home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share,” it said.
European airlines are locked in a battle for supremacy, with a surfeit of seats holding down revenues and higher fuel costs adding to the pressure. A number of smaller airlines have collapsed over the past two years.
Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning.
“The group expects the European market to remain challenging at least for the remainder of 2019,” it said.
It also pointed to high jet fuel costs, which it said could exceed last year’s figure by €550 million, despite a recent fall in crude oil prices.
Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called “attritional fare wars” and said four or five European airlines were likely to emerge as the winners in the sector.
“No signs that anyone is prepared to reduce capacity, therefore we would anticipate the wave of consolidation in European short haul is not over,” said analyst Neil Wilson, analyst at London-based broker market.com.
Earlier this month global airlines slashed a widely watched industry profit forecast by 21 percent as an expanding trade war and higher oil prices compound worries about an overdue industry slowdown.
Lufthansa’s problems are centered on its European business, with a more positive outlook for its long-haul operations, especially on transatlantic and Asian routes.
Eurowings management is due to implement turnaround measures to be presented shortly, Lufthansa said, adding that efforts to reduce costs had so far been slower than expected.
Lufthansa’s adjusted margin for earnings before interest and tax (EBIT) was forecast between 5.5 percent and 6.5 percent, down from 6.5 percent to 8 percent previously, it said in a statement.
Lufthansa also said it would make a €340 million provision for in its first-half accounts, relating to a tax matter in Germany originating in the years between 2001 and 2005.