Business Report 10

‘Inflation world’s biggest concern’
Agence France-Presse . London

Inflation, and not the credit crunch, is the biggest economic concern worldwide, especially in developing countries, US treasury secretary Henry Paulson said in an interview Thursday.
Speaking to the BBC on a visit to London, Paulson also said the comparison of the current economic climate in the United States to the Great Depression in the 1920s and 1930s was 'hyperbole'.
Asked by the broadcaster whether the credit crunch or price rises were more of an issue, he said: 'When you look around the world broadly, I think inflation ... is getting the number one focus, when you look at emerging markets, whether its China, or Russia.'
'When you look at not just oil prices, but food, in areas where there is poverty, this is a huge problem,' Paulson added, noting that despite concerns over inflation, he was 'very supportive' of interest rate cuts by the Federal Reserve.
On the comparisons between America's present-day economic woes and the Great Depression, Paulson insisted the United States had 'strong long-term economic fundamentals' and described the comparison as 'hyperbole'.
'In the Great Depression, we had foreclosures at 50 per cent, today they're two per cent in the US. Over 90 per cent of the people are making their mortgage payments on time,' Paulson said.
'In the Great Depression, there was unemployment of 25 per cent. We're above five per cent,' he said, adding that the United States was 'working our way through the problems.'
Earlier on Thursday, Paulson said the US economy would most likely be stronger at the end of 2008, after holding talks with his British counterpart Alistair Darling.
Emerging Asia highly vulnerable
to oil surge
Agence France-Presse . Tokyo

Asia's emerging economies are 'highly vulnerable' to skyrocketing oil prices, making inflation the number one concern for policymakers, the head of the Asian Development Bank said Friday.
But emerging Asia looks set to avoid a sharp slowdown given strong economic growth in China and should easily avoid a repeat of the financial crisis that rocked the region a decade ago, said ADB president Haruhiko Kuroda.
'Emerging Asian economies are highly vulnerable to surging oil prices, given their high dependence on oil imports and low energy efficiency,' he told a press conference at the Foreign Correspondents' Club of Japan.
'With the global economy slowing and oil subsidies being phased out, high oil prices could have a more visible impact on domestic consumption and growth in the region this year and in 2009,' he warned.
Oil prices have soared five-fold since 2003 amid rising demand in emerging economies such as China and India and fears of supply shortages. World oil prices shot above 146 dollars a barrel Thursday for the first time ever.
Central banks in emerging Asia face a dilemma about how to contain inflation through higher borrowing costs while avoiding snuffing out economic growth, Kuroda noted.
While rate rises may put the brakes on growth, 'the risk would be even greater if prices spiral out of control,' he said.
Despite inflation worries, the ADB chief expressed optimism about prospects for the region's economies.
'On the whole economic growth in Asia is quite robust. A sharp slowdown is still unlikely in emerging Asian countries,' said Kuroda, who is in his native Japan for next week's summit of leaders from the Group of Eight rich nations.
'I'm reasonably confident that nothing like the Asian currency crisis 10 years ago would happen in the region,' he added, noting that countries had built up large foreign currency reserves.
The East Asian financial crisis began in 1997 when Thailand floated the baht after a series of speculative attacks, leading to a plunge in its value.
Other regional currencies also came under pressure and countries including Indonesia, Thailand and South Korea were forced to turn to the International Monetary Fund for emergency funds to try to stabilise their currencies.
W all Street on the rocks as
earnings season approaches
Agence France-Presse . New York

Wall Street heads into a key corporate earnings season with sentiment hammered amid a record surge in energy costs that has dampened prospects for an economic recovery.
In the holiday-shortened week to Thursday, the Dow Jones Industrial Average shed 0.51 per cent to 11,288.54 ahead of the July 4 Independence Day holiday. The blue-chip index was pounded in June with a 10.2 per cent loss.
The tech-dominated Nasdaq lost 3.04 per cent for the week to 2,245.38 while the broad-market Standard & Poor's 500 index shed 1.21 per cent to 1,262.90.
The Dow and Nasdaq are now firmly in 'bear market' territory, down more than 20 per cent from their highs from last October, with the S&P not far off.
While many analysts say the market is oversold due to poor sentiment, few see any catalysts that could spark a quick rebound.
The first test comes in the upcoming week with quarterly results from General Electric, seen as a barometer of the overall economy, and key manufacturers including Alcoa and chipmaker Intel.
Marc Pado, analyst at Cantor Fitzgerald, said the market will be on edge from results later in the month from the banking sector, which has been whipsawed by the national housing meltdown and the related credit squeeze.
'Until we get those banks out of the way, the market isn't going to pay too much attention to other companies' earnings,' he said.
'It really needs to see where we stand with the credit crisis first and then they'll focus on the industrials, the retailers, the technology firms.'
But even with positive corporate news, Pado said the leap in oil prices could prevent any rally from taking hold.
'When crude climbs and makes records every day, the market cannot focus on the economic news or anything else,' he noted.
Myles Zyblock at RBC Capital Markets said the market is expecting a 10.3 per cent decline in overall earnings for the S&P 500 firms, but that this will be the low-water mark: 'Growth for the third and fourth quarter are expected to be up by 14 and 61 per cent, respectively,' he said.
Zyblock noted that 'the runaway oil price and ongoing credit contraction' is expected to keep anxiety high.
'The rocky ride experienced over the past few weeks could be with us for the remainder of the summer months,' he added.
Nigel Gault at Global Insight said the economy held up better than expected in the first half, ekeing out modest growth, but he is unsure about the outlook.
'The outlook for the rest of 2008 and early 2009 is darkening, not least because of the seemingly relentless rise in commodity prices,' he said. 'We now expect oil, food, and raw materials costs to keep rising through the middle of 2009.'
Gault said the government's fiscal stimulus of 168 billion dollars will soon wear off and that could sink the economy if consumers retrench.