Month: April 2018

International Monetary Fund experts say the global economy will continue growing well for the next two years, but expect expansion to slow after 2020.

IMF research director Maurice Obstfeld said Tuesday fading trade could hurt growth and, “The first shots in a potential trade war have now been fired.” He repeated a warning the international rules that nurtured “unprecedented” economic growth after World War II are at risk of being “torn apart.”

Many economists worry that Trump administration efforts to slap tariffs on China and other U.S. trading partners are sparking retaliatory taxes on U.S.-made products that raise the cost of trading and hurt demand, stifling economic growth. Administration officials disagree, and insist their trade and tax policies will boost growth and not spark soaring deficits.

Trade squabbles are a key issue this week as top economic officials and experts gather from 189 nations in Washington for meetings of the IMF and the World Bank.

Obstfeld and his colleagues are also worried that efforts to stimulate economic recovery from the 2008 recession, such as low interest rates and massive purchases of bonds, are now ending. They put the current global growth rate at 2.9 percent, and say this moment of good growth is the time to make changes in tax and other policies that will help economies weather inevitable future downturns.

Growth in advanced economies like the United States is hampered by an aging population with larger numbers of people retiring and leaving the workforce. Slow growth in productivity and high levels of government and private debt are also threats to future growth.

The IMF predicts the world’s second-largest economy, China, will expand at a 6.6 percent rate this year and 6.4 percent in 2019. The global lender says China will continue changing its economic focus from investment and manufacturing toward consumption and services, but warns that a rising debt clouds the nation’s medium-term outlook.

 
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South African President Cyril Ramaphosa appointed a team of business and finance experts on Monday to hunt the globe for $100 billion in investment to boost the ailing economy.

The team of economic envoys includes ex-finance minister Trevor Manuel as well as a former top banker.

Ramaphosa became president in February after winning the leadership of the ruling African National Congress last year on promises to revive the economy and crack down on corruption.

Monday’s appointments to the team also include economist Trudi Makhaya, who becomes special economic adviser to the president, former Treasury Director General Lungisa Fuzile, ex-Deputy Finance Minister Mcebisi Jonas and former Standard Bank chief executive Jacko Maree.

“These are people with valuable experience in the world of business, investment and finance and they have extensive networks across a number of major markets,” said Ramaphosa before leaving Johannesburg for a Commonwealth Heads of Government Meeting in London.

Ramaphosa said the envoys would travel to Europe, Asia and across Africa to build an “investment book” to help plug a substantial shortfall of foreign and local direct investment.

“We are modest because we want to over-achieve,” Ramaphosa said, explaining why the government was targeting $100 billion rather than a much larger sum.

Political and policy uncertainty damaged investment and business confidence during nine-year presidency of Ramaphosa’s predecessor, Jacob Zuma, when South Africa’s credit rating was slashed to junk by two of the top three agencies and economic growth slowed to a crawl.

The tide has begun to turn under Ramaphosa, with Moody’s last month keeping the country at investment grade and changing the outlook to stable from negative.

The economic outlook has also improved, with the World Bank raising its 2018 growth forecast to 1.4 percent this month from 1.1 percent forecast in September, a touch below the Treasury’s projection of 1.5 percent.

Ramaphosa has sacked or demoted a number of ministers allied to his scandal-ridden predecessor, and reinstated Nhlanhla Nene as finance Minister after Zuma fired him in 2015.
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Russia’s drive to build a large power-generating turbine to lessen its dependence on Western technology has suffered a major set-back after a prototype broke beyond repair, two sources familiar with the project told

Reuters.

In the past few years Russia has imported the large-capacity gas turbines required to run modern power stations from firms such as Siemens, GE and Alstom.

After Western sanctions were imposed on Russia over the conflict with Ukraine four years ago, Russian President Vladimir Putin urged officials to replace imported technology with home-grown substitutes in energy, software, aerospace and medicine.

The mishap with the 110 Megawatt turbine, a capacity large enough to power a sizeable town, underlines the technical challenges.

Testing was underway on a prototype 110 MW turbine at the Saturn engineering plant in Rybinsk, central Russia, in December last year according to one of the two sources, who are both in the energy sector and familiar with the results of the tests.

“The turbine fell apart,” said the first source, who spoke on condition of anonymity because of the sensitivity of the subject. “They tried to repair it in time for March, but they did not manage it.”

March was the target date for completion of tests on the turbine. Putin, in power since 1999, won a second consecutive term in an election on March 18.

The first source, and a second source, both said it was not possible to rebuild the prototype turbine and the project would have to start again with new equipment.

“The turbine broke up,” said the second source, who requested anonymity because he is not authorised to speak to the media. “There’s no turbine, that’s it.”

“Not fatal”

Without any home-grown equivalents, Russia should in most cases still be able to buy turbines from Western suppliers, but U.S. and European Union sanctions have made it harder to import Western power technology under certain circumstances.

Last year Russia clandestinely delivered turbines made by Siemens to a power station in Crimea, which is subject to sanctions, and the European Union retaliated by imposing extra sanctions on officials and companies involved in the operation.

Setbacks to the domestic turbine program could hamper the modernization of power generation if growing tensions with Western states result in tighter sanctions since Russia’s modernisation plan is focused on using gas turbines.

The technical hitch also carries a potential political cost: Putin has publicly trumpeted progress in replacing Western technology imports, so any failures will jar with the picture of success he has painted.

The new turbine is being developed by a consortium of ODK, a unit of state-owned conglomerate Rostec that owns the Saturn factory where the testing was being conducted, Russian state technology firm RUSNANO, and state energy firm InterRAO.

In a statement, ODK said one of the mechanisms of the prototype turbine had malfunctioned. It said that would delay work on the project, but could be fixed. “It is not fatal for the project.” It said set-backs were to be expected since this

was a pioneering project for Russia.

RUSNANO acknowledged there had been an accident but gave no details. It said it remained committed to the turbine project and expects it will be completed. InterRAO declined to comment.

Russia’s Trade and Industry Ministry, which oversees the machine-building sector, declined to comment and referred questions to Rostec.

Western sanctions

Large capacity gas turbines have been in use around the world for years but their construction is tricky to perfect.

Because they operate at extremely high speeds and high temperatures, they need to be engineered to very precise standards and they use sophisticated electronic control systems to make sure that they operate efficiently.

For many years Russia made no major investment in developing the technology because it was able to import the turbines or the know-how to produce them. A scheme started in the 1990s to develop a large-capacity turbine produced prototypes but they did not go into production.

At a meeting in Russia’s second city of Saint Petersburg in May last year, chaired by Prime Minister Dmitry Medvedev, Energy Minister Alexander Novak said a 110 MW turbine had been developed and testing should be completed by March 2018.

“This is the first Russian produced powerful machine with 100-percent domestic manufacture and it will, of course, help us to completely substitute purchases of foreign equipment of this capacity,” Novak told the meeting. His ministry did not respond to questions on Tuesday about the set-back.
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Wall Street indexes rose on Tuesday as strong earnings from Netflix, Goldman Sachs and healthcare companies boosted optimism over what is expected to be the strongest earnings season in seven years.

Netflix shares surged 6.2 percent after the video-streaming pioneer smashed analysts’ quarterly subscriber estimates, helped by a blitz of original content.

Goldman Sachs rose 0.6 percent after the investment bank’s quarterly profit blew past Wall Street’s expectations, powered by a surge in trading revenue and higher fees from debt and equity underwriting.

“The reports were pretty good and should help the overall market,” said Robert Pavlik, chief investment strategist at SlateStone Wealth in New York.

“As you go forward, financials seem to be one of the logical places to be invested in, especially in a rising interest rate environment. It’s the matter of markets finally having attention drawn away from the political [news].”

Analysts expect profit at the S&P 500 companies to rise 18.6 percent in the first quarter, the biggest increase in seven years, according to Thomson Reuters data.

At 9:41 a.m. ET, the Dow Jones Industrial Average was up 0.92 percent at 24,799.54. The S&P 500 gained 0.67 percent to 2,695.89 and the Nasdaq Composite rose 0.92 percent to 7,222.07.

Nine of the 11 major S&P sectors were higher, led by a 1.3 percent gain in the consumer discretionary index.

UnitedHealth jumped nearly 5 percent after the largest U.S. health insurer raised its earnings forecast and posted results that beat Wall Street estimates.

J&J fell 0.4 percent, reversing course from premarket after the company reported a better-than-expected profit and raised its full-year sales forecast.

The earnings season has helped take away some focus from geopolitical and trade concerns, which have roiled the markets in recent months.

Shares of automakers Fiat Chrysler, General Motors and Ford rose between 0.2 percent and 3 percent after China said it was scrapping a limit on foreign ownership of automotive ventures.

A U.S.-led attack on Syria over the weekend has so far not prompted any military retaliation from Russia, easing fears over the conflict escalating.

Advancing issues outnumbered decliners on the NYSE for a 2.46-to-1 ratio and on the Nasdaq, for a 2.25-to-1 ratio.
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China has responded to U.S. President Donald Trump’s charges China and Russia are manipulating the value of their currencies.

Monday, Trump tweeted, “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!”

His charge came just days after the U.S. Treasury Department declined to label China and Russia as currency manipulators in its latest report.

Chinese Foreign Ministry spokeswoman Hua Chunying said Tuesday the messages coming from the United States are confusing, and China will continue to promote the reform of its currency exchange rate mechanism.

Trump said Russia and China are devaluing their currencies amid a possible new round of sanctions against Russia and a simmering trade war with China.

In general, when a country artificially devalues its currency, its exports become cheaper and more competitive in the global marketplace.

White House Press Secretary Sarah Sanders said the administration is closely watching China’s currency practices. “That’s something that the Treasury Department is watching very closely and we’re continuing to monitor it,” she said Monday.

In a semiannual report titled “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” released Friday, the Treasury Department did not designate China as a currency manipulator, but put it as one of the six countries on a monitoring list. The other five countries on the list are Japan, Korea, India, Germany, and Switzerland. Russia is not on the monitoring list.

The Chinese currency, the Renminbi, has appreciated about three percent against the dollar since the beginning of this year, after strengthening by six percent in 2017.

In the past three years, the Federal Reserve raised interest rate six times to a range between 1.5 percent and 1.75 percent, and says it expects to raise the rate two or three more times this year.

Usually, when a country raises its interest rates, the value of its currency rises, making its exports more expensive and less competitive. However, higher U.S. interest rates have not raised the value of the dollar.
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The U.S. Department of Commerce has banned American companies from selling components to Chinese telecom equipment maker ZTE Corp for seven years after breaking an agreement reached after it was caught illegally shipping goods to Iran, U.S. officials said Monday.

The U.S. action, first reported by Reuters, could be devastating to ZTE since American companies are estimated to provide 25 percent to 30 percent of the components used in ZTE’s equipment, which includes smartphones and gear to build telecommunications networks.

The ban is the result of ZTE’s failure to comply with an agreement with the U.S. government after it pleaded guilty last year in federal court in Texas to conspiring to violate U.S. sanctions by illegally shipping U.S. goods and technology to Iran, the Commerce Department said.

The Chinese company, which sells smartphones in the United States, paid $890 million in fines and penalties, with an additional penalty of $300 million that could be imposed.

“If the company is not able to resolve it, they may very well be put out of business by this. Many banks and companies even outside the U.S. are not going to want to deal with them,” said Eric Hirschhorn, a former U.S. undersecretary of commerce who was heavily involved in the case.

As part of the agreement, Shenzhen-based ZTE Corp promised to dismiss four senior employees and discipline 35 others by either reducing their bonuses or reprimanding them, senior Commerce Department officials told Reuters. But the Chinese company admitted in March that while it had fired the four senior employees, it had not disciplined or reduced bonuses to the 35 others.

ZTE officials did not respond to requests for comment. The Commerce Department order quoted a ZTE official’s letter admitting it “had not executed in full” some disciplinary measures and that there were “inaccuracies” in a 2017 letter.

But, the Commerce order said, ZTE “argued that it would have been irrational for ZTE to knowingly or intentionally mislead the U.S. government in light of the seriousness of the suspended sanctions.”

‘Vigilant against Chinese threats’

Under terms of the ban, U.S. companies cannot export prohibited goods, such as chip sets, directly to ZTE or via another country, beginning immediately.

Shares of big U.S. ZTE suppliers fell sharply on the Commerce ban. Optical networking equipment maker Acacia Communications, which got 30 percent of its total 2017 revenue from ZTE, tumbled 35 percent, hitting a near two-year low. Acacia said it was suspending affected transactions and assessing the impact.

Shares of optical component companies including Lumentum Holdings fell 8.9 percent and Finisar dropped 4 percent. Oclaro, which got 18 percent of its fiscal 2017 revenue from ZTE, lost 14.1 percent.

ZTE “provided information back to us basically admitting that they had made these false statements,” said a senior department official. “That was in response to the U.S. asking for the information.”

The ban on supplying ZTE comes two months after two Republican senators introduced legislation to block the U.S. government from buying or leasing telecommunications equipment from ZTE or its Chinese rival Huawei Technologies, citing concern the companies would use their access to spy on U.S. officials.

“China does not play by our rules, and we must be vigilant against Chinese threats to both our economic security and national security,” said Republican Representative Robert Pittenger after the Commerce announcement. Pittenger is sponsoring legislation that would strengthen the U.S. national security review process for foreign investments.

Meanwhile, Britain’s main cybersecurity agency said Monday it has written to organizations in the U.K.’s telecommunications sector warning about using services or equipment from ZTE.

‘Devastating’

Douglas Jacobson, an exports control lawyer who represents suppliers to ZTE, called the ban highly unusual and said it would severely affect the company.

“This will be devastating to the company, given their reliance on U.S. products and software,” said Jacobson. “It’s certainly going to make it very difficult for them to produce and will have a potentially significant short- and long-term negative impact on the company.”

ZTE has sold handset devices to U.S. mobile carriers AT&T, T-Mobile US and Sprint. It has relied on U.S. companies including Qualcomm, Microsoft and Intel for some components.

Shares of Taiwan’s MediaTek, which sells smartphone chips and competes with Qualcomm, were not trading when the announcement was made.

The U.S. action against ZTE is likely to further exacerbate current tensions between Washington and Beijing over trade.

After the U.S. placed export restrictions on ZTE in 2016 for Iran sanctions violations, China’s Ministry of Commerce and Foreign Ministry criticized the decision.

A five-year federal investigation found last year that ZTE had conspired to evade U.S. embargos by buying U.S. components, incorporating them into ZTE equipment and illegally shipping them to Iran.

ZTE, which devised elaborate schemes to hide the illegal activity, agreed to plead guilty after the Commerce Department took actions that threatened to cut off its global supply chain.

The U.S. government had allowed the company continued access to the U.S. market under the 2017 agreement.

The new restrictions stem from a Jan. 16 report by a U.S. monitor appointed by a federal judge in Texas who accepted the guilty plea in March 2017. Although Commerce Department officials would not discuss the report, they said the department followed up in February.

The U.S. government’s investigation into sanctions violations by ZTE followed reports by Reuters in 2012 that the company had signed contracts to ship millions of dollars’ worth of hardware and software from some of the best-known U.S. technology companies to Iran’s largest telecoms carrier.
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U.S. President Donald Trump said on Monday it is unacceptable that Russia and China are devaluating their currencies, days after the Treasury Department declined to label these countries as currency manipulators in its latest report.  

Amid a possible new round of sanctions against Russia and a simmering trade war with China, Trump tweeted Monday morning, “Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!

In general, when a country artificially devaluates its currency, its exports become cheaper and more competitive in the global marketplace. 

During his presidential campaign, Trump has repeatedly accused China of lowering the value of its currency and vowed to formally label China as a currency manipulator, but so far has failed to do so.

White House Press Secretary Sarah Sanders says the administration is closely watching China’s currency practices. “That’s something that the Treasury Department is watching very closely and we’re continuing to monitor it,” she said Monday.

In a semiannual report titled “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” released last Friday, the Treasury Department did not designate China as a currency manipulator, but put it as one of the six countries on a monitoring list. The other five countries on the list are Japan, Korea, India, Germany, and Switzerland. Russia is not on the monitoring list.  The Chinese currency, the renminbi, has appreciated over 3 percent against the dollar since the beginning of this year, after strengthening by over 6 percent in 2017.

Brad Setser,a senior fellow at the Council on Foreign Relations and a former Treasury Department official said in an interview with VOA he does not think it is an accurate complaint that  Russia and China are playing the currency game.  

“The Russian ruble was actually quite stable before the sanctions on Russia were intensified. It’s quite clear the volatility in the ruble is a function of the intensification of U.S. sanctions, a sign that the sanctions are biting,” he explained. 

Setser said over the past several months, the Chinese yuan has actually appreciated, and China has not been intervening heavily. 

“There are plenty of things to criticize China for on trade, but right now, there’s no real basis for criticizing China on currency,” he noted.

In the past three years, the Federal Reserve raised interest rate six times to a range between 1.5 percent and 1.75 percent, and said they expect to raise the rate two or three more times this year.

Usually, when a country raises its interest rates, the value of its currency rises, making its exports more expensive and less competitive.  However, higher U.S. interest rates have not raised the value of the dollar. 

“The interesting puzzle that the market has been pondering for the past several months is that the dollar has actually weakened even as the U.S. has raised rates, and even as U.S. passed legislation to expand the fiscal deficit,” Setser said.   

Former Deputy Assistant Secretary for International Economic Analysis at the Treasury Department Setser stressed the United States should not label China as a currency manipulator at this moment.

“It would undermine the United States’ credibility to name China at a point in time when there is no plausible case that China is managing its exchange rate in a way that is adverse to the U.S. interest,” he said. 
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