UK manufacturing drops at slowest speed for 13 months

The decline in the British manufacturing industry slowed much sharply than expected by experts, the Telegraph reported. This means that the economy may not have shrunk as much as thought in the first three months. The manufacturing production fell by just 0.1%, its smallest fall in over a year. Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club said for the newspaper that the figures were "a pleasant surprise and likely to lead to an upward revision to the first quarter gross domestic product data". This means that if the numbers continue to improve in the next few months the recession for the UK might be over. However, the rate of contraction is still severe in some industries. The article published by the Telegraph provided well balanced, two sided argument concerning the economic condition of the UK.
The Wall Street Journal reported a rise in the factory-gate prices at their slowest pace in five years in April, while input prices dropped at the fastest rate in almost seven years. "April's producer prices figures serve as a timely reminder that pipeline price pressures in the U.K. economy are fading rapidly," said Jonathan Loynes, U.K. economist at Capital Economics. The main reason for the overall weakening, according to the WSJ is petroleum-product prices, which dropped 16.3% in the year to April. In monthly terms, input prices fell 1%, following a 1.3% rise in March. Economists had forecast a 0.8% gain.
The article from the FT is the longest. They don’t use a lot of interviews but they analyse the situation from different perspectives by using a range of numerical economic data. They also include more information about the UK, such as that over the last three months exports to the USA, Italy and Japan have risen, but fallen much more sharply to France, Germany and Canada. Imports have fallen particularly sharply from Japan, but risen to the US and they also say that the pound rose 1.1 per cent to $1.5277 against the dollar on Tuesday, its strongest level since early January. It climbed 0.6 per cent to £0.8931 against the euro and gained 1.4 per cent to Y149.10 against the yen. In overall, the opinion of the FT is that the economy is past the worst of the recession.
As usually the BBC use a lot of quotes by experts and economists. BBC doesn’t provide their own opinion and judgment, but they shape it out of the quotes included in the article. They provided both positive and negative perspectives, however it was more negative compared to the other media, which reported the news. The BBC included things such as that the British Chambers of Commerce (BCC) said the manufacturing downturn was a threat to the skills in the country.
In overall, the news show that the economic condition of the UK is improving and the country might be coming out of the recession. However, we shouldn’t make assumptions yet, as the figures might change in the future and it is early to say if the downturn in manufacturing is over. Also, the situation is still bad in many areas.

Centrica in British energy deal

British Gas owner Centrica has said it is buying a 20% stake in nuclear firm British Energy for 2.3bn pounds. BBC reported the news by starting off with saying that the owner of British Energy is the French EDF and at first it was agreed that Centrica will buy 25% for the price of 3.1bn pounds. Then the article explains that Centrica and EDF plan to build additional nuclear plants in the UK and in a statement Centrica said that the deal should be positive for both customers and investors, because it lowers the exposure of the company to energy price volatility. The article then explains about EDF and there is a list of British Energy’s nuclear plants. The company has 8 power stations generating 14% of UK’s domestic energy supply. Then it says that the shares of the company increased by 3.6% after they announced about the deal and in overall the article is positive and uses positive quotes by people in high positions in the company.
The Wall Street Journal started with the same information about the deal as BBC. However, they included far more details and data compared to BBC, but did not analyse them. Most of the article was from an interview conducted by their UK representative, Selina Williams and it was mainly quoted.
The article of the FT was relatively short. They started off in the same way but they said that the UK gas group will pay about half in cash and the balance will be accounted for with the transfer to EDF of Centrica's 51 per cent stake in SPE, Belgium's second-largest power producer. The FT doesn’t use any quotes and they talk about the history of the deal and that the two companies have been struggling for quite a while to reach a compromise. Also, the FT includes data which is interesting for potential and current investors, such as that EDF had said it would not accept less than what it paid for British Energy at 765p a share and the group is facing a substantial investment programme both in France and abroad, with the costs of its new generation EPR reactor skyrocketing and the nuclear revival opening up markets more quickly than anticipated. The article says that EDF has some current financial problems, but for Centrica the deal will be beneficial.
As usually the article in Bloomberg is the longest. It includes all of the above information and a lot more. The article is divided into different sections, including UK Power, Belgian Assets, German Utilities, etc. they are aimed to different stakeholders of the two companies and therefore to people with different interests. It includes both financial and business and economics information.
In overall the deal is quite good for Centrica as this is the first time they enter the nuclear power sector. However, they are experienced with power and energy supply and therefore can exploit fully the advantages of the new acquisition.

UK economy shrinks 1.9% - the fastest rate for 30 years

The news was reported in all newspapers and other media. In BBC news they used a graph showing the GDP growth since the 1990. It was saying that the UK economy shrank 1.9% in the first three months of 2009. This is much worse than predicted and it is the worst 3-month drop since the third quarter of 1979. Then the article continues by briefly explaining what GDP means. According to the Office of National Security (ONS) the economy is still in deep depression and there is ‘weakness to come’. However it is not going to be as bad as now. Those are the worst six month figures since the ONS started publishing the statistics. The chief secretary to the Treasury Yvette Cooper said that they believe the economy will start to recover. The article uses lots of quotes by different people such as economists and other experts. In general they think that the figures and predictions made earlier were too optimistic and there still will be a decline of the UK economy throughout 2009 but not as big as the first quarter.
The article in The Sunday Express was much shorter compared to BBC news. They provided information but almost without any quotes and analysis. However, James Hughes, chief investment officer of Black Swan Capital said for Express.co.uk that ‘there is still pain to come’. He also said that the later stages of the crisis will be characterised by rapidly increasing inflation and further weakening of the sterling.
In the beginning of their article the Guardian explained about the 1.9% decrease and that it is the worst for the past 30 years, but they emphasised on the fact that now there are doubts about Alistair Darling’s budget and the Conservatives were quick to launch an attack against him. There were included interviews with analysts and economists saying that Darling was far too optimistic and that he will need to borrow 175bn pounds this year. The Guardian as well used the interview with James Hughes. The article continued with further analysis and predictions. The IMF, for example, is on the same opinion as Darling that the UK economy will suffer less than other countries, but there will be recession for at least one more year.
Bloomberg and the FT reported the news using more data and numbers and analyzed the situation deeper. They included figures about the unemployment rate and the budget deficit. The FT compared UK’s economic condition to other countries and the predictions show that the UK’s GDP decrease in the following 2 years will be close to the average of all advanced countries and slower compared to Germany and Japan. Bloomberg also analysed the situation for the European economy as a whole and it doesn’t look good for other countries as well. The best that can be said is that the rate of economic decline may slow down in the following months. However the situation doesn’t look good for the UK with increasing deficit, rising inflation and unemployment and weakening of the pound. In order for the economy to get better, consumers should become more confident again, however this will take time and resources.

Ford loss smaller than expected

In the first quarter of 2009 Ford reported a loss of $1.4 billion, which was better than the forecasts of the analysts. Because of the news, the shares of the company increased by more than 16%. This was reported by the company in their website as well as in the websites in major news companies, such as The Financial Times, BBC News, Bloomberg, The Wall Street Journal and The New York Times.
The Financial Times reported the company didn’t need emergency aid from the government like General Motors and Chrysler did. The newspaper interviewed Alan Mulley, Ford’s chief executive as well as an analyst from Goldman Sachs. Allan Mulley said that the company has a more stable position in the US and a higher market share in Europe. Ford said that they expect to break even on a pre-tax basis in 2011. They also said that they expect further slowdown of cash outflow as it continues to cut costs aggressively. Financial Times used mainly comments and opinions of other people and didn’t write their own opinion about the situation.
BBC news wrote that Ford has better-than-expected results and they don’t need government aid. However, two of Ford biggest rivals General Motors and Chrysler have taken billions in US government aid and still face bankruptcy. BBC used more figures about the company and compared them between years and geographical departments. They commented more on the cost-cutting strategy of the company and in overall the article was positive towards the improved performance of Ford.
Bloomberg as well started off by saying that the company is working to avoid a federal bailout, but they continued by explaining about the cost cutting strategy. The company decreased cash consumption by 49%. Bloomberg also included an analysis of the share price, which were at its highest since September 19. The article continues by saying that even though they managed to decrease costs and to do better than expected, Ford still generates high loses, because of US sales decreasing by 43%. For the analysis of the company Bloomberg used mainly their own word and didn’t have many quotes. Bloomberg than analysed the current market environment by using quotes from the Chief Financial Officer Lewis Booth: ‘This is a very, very difficult environment’. Bloomberg examined more data compared to the BBC and the FT and they investigated in depth the source of the decreasing costs of the company. The manufacturing and engineering savings accounted for the largest piece of Ford’s first-quarter cost reductions.
The longest articles were by The Wall Street Journal and The New York Times. They used longer quotes from interviews with Allan Mulley and they analysed the situation using more explanations. They also showed more figures, such as the exact number of vehicle sold in the first quarter – 973000. They also wrote about the workers in the company and projects which Ford has, such as the new Fusion hybrid sedan, and the recently started program that covers monthly payments for buyers who lose their jobs.
In their website Ford has published all of the figures including the net loss, the gross cash and they also compared it with 2008. They also announced their future projects and aims and a statement made by Allan Mulley. All of the news included the quote that Ford will ‘meet or beat its financial targets’ and according to the company they have enough cash to last through at least 2010. The opinion of some analysts is that GM and Chrysler are likely to file for bankruptcy in the following weeks, but this is not the case for Ford.

More regulation for banks in the UK

The chairman of the Financial Services Authority in the United Kingdom (FSA), Lord Turner, said in an interview last Wednesday that before the crisis, the FSA’s approach was based on the logic that markets correct themselves. However, after the collapse of few big banks, the FSA will use more regulation to tackle the problems of the financial sector, instead of leaving it to fix itself. Lord Turner proposed a move to a philosophy of ‘intense supervision’. He didn’t go into details about how exactly they are going to achieve it, but it looks like the new regime will be costly. Some examples for future regulation might be that banks will be required to hold more and higher-quality capital. Banks could also be required to build up their capital buffers in good times. The FSA also thinks that bank liquidity should be monitored closely using a liquidity ratio. Lord Turner even proposed a new European institution with legal powers to be created, but this may cause more problems and difficulties than help.
The news was reported in the Investment Chronicle. Except the statements made by Lord Turner, they also analysed what he have said and the measures which might be taken in the future. However, on this early stage it is hard to predict the exact details and the steps which the FSA will take.
The magazine also provided arguments for and against the plan of the FSA, which helps people to judge the current situation better, rather than imposing them a one-sided argument. The positive comment was made by Laura Cox, partner in PricewaterhouseCoopers. She said that only changes in the rules will not be enough. The FSA will have to change its own culture and supervisory approach in order to deal with systematic risks in the future. There are a number of measures which can prevent another financial crisis in the future. Some examples are an early warning system to identify banks in trouble, better crisis management procedures, restrictions on lending and the requirement for banks to build up reserves. The changes will have a huge impact on the business models of the banks and will influence their directors’ and senior executives’ responsibilities, their governance structures, their compliance functions and products offerings. Laura Cox thinks that the Lord Turner’s Report is a way forward but it shouldn’t stay in the way of the banking industry’s product innovation.
The comments from the negative side of the argument were made by Dr Eamonn Butler, director of the Adam Smith Institute. He argues that even though at the moment higher reserve requirements seem like the right think do to, it means that banks will have to cut back their loans, which right now would be a disaster. It doesn’t matter how much banks loan as long as they have‘insurance’ and the government should provide this insurance. However, the government have failed to do this when customers all wanted their money back at once.
Dr Eamonn Butler says that by imposing that kind of regulation will only shift risk higher up rather than eliminate it, because most banks will remain dependent on credit from investment banks. His opinion is that there should be more small banks, not fewer bigger ones, to spread the risk. The real threat to investors, savers and the economy are banks ‘too big to fail’ and incompetent regulators.

Fed to boost US economy by $1.15 trillion

On the 19th of March the Fed announced that they are going to pump another $1.15 trillion in the financial system. The news about the decision of the Fed was reported by The Canberra Times. In the article they use different interviews and comments on the subject, made by the Fed and specialists in the area.
The aim of this step is that the US avoids a new Great Depression and by pumping money into the economy, the Fed at least increases the hopes of the people that the country will emerge from its slump.
In the last 2 meetings the Fed disappointed market participants, but this time the chairman, Mr Bernanke, took drastic measures. He said that he is not willing to be responsible for the biggest downturn since the 1930s.
Interest rates are no longer available to improve the economic conditions as they are at their lowest at 0.2%. Therefore, the Fed has to use other methods, hence the input of capital in the economy.
However, Wall Street stocks failed to maintain the upward momentum of the previous session. Some are doubtful that the move of the Fed will ease the financial conditions. After plunging 28% to 12-year lows, the S&P 500 shot back up rapidly, gaining 17% in seven sessions. But stocks slipped at the end of last week.
The Standard & Poor’s 500 Index dropped 1.3 percent to 784.04. The Dow Jones Industrial Average lost 85.78 points, or 1.2 percent, to 7,400.80. JPMorgan, the biggest U.S. bank by market value, fell 8 percent to $24.95. Morgan Stanley declined 13 percent to $21.04 and Goldman Sachs slid 5.7 percent to $99.30 (March 19, Bloomberg).
Experts argue that this is just a temporary drop and the stocks will recover during the following week. Also, with the measures taken by the Fed, people are expecting improving economic conditions in the US.You can see 2 charts attached – the first one for the Dow Jones Industrial Average Index and the second one for the Standard and Poor’s 500. The time period is 10 days.

The Financial Crisis and Bulgaria

The first effects of the financial crisis become visible around 2 years ago. They were expressed by bank losses starting in the third quarter of 2007, and bonuses already decreasing in 2007 compared to 2006. The negative economic effects become visible in the second half of 2008 in the form of job losses and a huge change towards more debt and lower saving rates.
In Bulgaria everybody talks about the financial crisis and its negative effects, even though it is still not noticeable in the country. In September, last year people were still expecting from the government to take some actions in order to soften the crisis when it gets to the country, which is inevitable. One of the reasons is that over 80% of the banks in Bulgaria are owned by foreign bankers and another reason is the high prices and high investments in real estate. When the real estate prices start to plummet, it will have negative impacts on people who have used credit to invest as well as on the construction sector in Bulgaria.
In October 2008, Bulgaria’s foreign minister, Ivailo Kalfin, said in an interview that the financial turmoil will have real impact next year (2009) when the GDP growth will drop to 5% compared to 7% in 2008. The Bulgarian National Bank was increasing interest rates, while other nations affected by the crisis were decreasing them. In the beginning of 2007 the base rate was 3.43% and by December 2008, it reached almost 6%. At the moment some banks offer around 10% interest rate on savings accounts.
When 2009 started experts made predictions about the economic environment in the country and they were much different from what Mr. Kalfin has said. According to Standard & Poor’s, and quoted in Bloomberg, in 2009 Bulgaria will have a small economic growth of 1%. However, negative growth is also possible. And even though people have been talking about the financial crisis in Bulgaria for a whole year, 2009 will be the actual time when it will affect the country. The demand for Bulgarian goods and therefore exports will deteriorate, investments will decrease and the slowdown in the private income growth will cause the households’ consumption to drop.
The Bulgarian National Bank decreased the base interest rate from 5.17 in January this year to 3.49 in March. However, it will be some time until the commercial banks are affected and my personal opinion is that they will cause the crisis in Bulgaria to become more severe than it would have been if measures were taken earlier. There is a huge risk that Foreign Direct Investment and capital inflows could decrease sharply. A sudden slowdown could be avoided with tougher measures from the government to improve the business environment and sustain investor confidence. Hopefully, with election coming in July, we will see some adequate activity from the government.