FUN TIME IN MUMBAI

US President Barack Obama has announced $10bn (£6.2bn) in new trade deals with India.

He was speaking in Mumbai at the start of a 10-day Asian tour designed to boost US exports and create jobs. Obama also announced an easing of US export controls and rejected caricatures of India as a nation of “call centres.”

Visiting the scene of the 2008 attacks in Mumbai, he said India and the US were united against terrorism. “We will never forget,” he said at a memorial to victims of the attack by Islamic militants.

The outdoor memorial is a fountain with floating flowers just off the lobby of the Taj Mahal Palace hotel, where he and his wife are staying as guests.

He described the hotel as a symbol of India’s “strength and resilience”. He also wrote in a memorial book: “The United States stands in solidarity with all of Mumbai and all of India in working to eradicate the scourge of terrorism.”

The White House said the deals for new export business with India would help to support around 54,000 jobs in the United States.

• The sale by Boeing of 30 new 737 aircraft to private Indian airline SpiceJet. The White House says this will help support over 12,000 US jobs.
• Preliminary agreement had been reached on the Indian purchase of 10 Boeing C-17s military transport planes.
• The sale by GE of fighter 107 F414 jet engines to the Indian military.
• A separate deal with GE worth $500m (£309m) for the sale of six heavy duty gas turbines and three steam turbines to India’s Reliance Energy Ltd.
• Harley-Davidson plans a new plant in India to assemble American-made motorcycle kits.
• The White House said India had identified GE subsidiary GE Transportation, based in Erie, Pennsylvania, and Electro-Motive Diesel, of LaGrange, Illinois, a unit of Caterpillar Inc, as bidders to supply Indian railways with over 1,000 diesel locomotives over 10 years.

The president said the relationship between the US and India was one of the “defining and indispensable partnerships of the 21st Century.

TRADE RELATIONS AT HIGH POINT

US Treasury Secretary Timothy Geithner has begun his first visit to India since assuming office. Speaking in Delhi, he praised the way India had handled the global financial crisis and said the US and India should “work more closely together”.

Mr Geithner was in India to inaugurate a bilateral financial partnership with Finance Minister Pranab Mukherjee. It will focus on infrastructure, financial investment and economic stability, US Treasury officials say.

Mr Geithner is also expected to press India to open its highly regulated markets to US investment. The US argues that more open Indian markets would help make it easier and cheaper for India to access capital, which in turn could help finance the country’s growing infrastructure needs.

It is a case that Mr Geithner is also likely to make on Wednesday when he visits Mumbai, India’s business and financial capital, where he will meet both Indian and US business leaders. Throughout the trip, Mr Geithner will be accompanied by other treasury officials and Donald Kohn, vice-chairman of the board of governors of the Federal Reserve.

It will be a meeting of the world’s biggest economy and the world’s biggest democracy, as the US and India look to deepening economic ties and bilateral relations. Officials have said that the goal of this visit is to establish a “robust” dialogue between the two countries. However, some analysts have suggested that this trip is about symbolism, aimed at establishing a parallel with the US-China relationship. The US already has a standing dialogue with India’s fellow emerging Asian giant, China.

Trade between the United States and India has more than doubled in the last five years, but the US is no longer India’s biggest trading partner. Instead, China currently holds the number one position, followed by the UAE and then the US.

Total bilateral goods trade between India and the US was worth around 40 billion dollars in 2008. This is still significantly lesser than US trade with other countries like China and Europe.

The newly formed US-India Economic and Financial Partnership was announced by President Barack Obama last November, when he honoured Indian Prime Minister Manmohan Singh with the administration’s first state dinner.

At present, US-Indian relations are at a high point.

ENDING MONOPOLY

Democrats launched a drive at both ends of the Capitol on Wednesday to strip the insurance industry of its decades-old exemption from federal antitrust laws, part of an increasingly bare-knuckled struggle over landmark health care legislation sought by President Barack Obama.

If enacted, the change would put an end to “price-fixing, bid-rigging and market allocation in the health and medical malpractice” insurance areas, said Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee. Leahy said he would seek a vote on the plan when the Senate debates health care legislation in the next few weeks.

Leahy made his comments at virtually the same time the House Judiciary Committee voted 20-9 to end an industry exemption that dates to 1945. Three Republicans supported the move. Senior Democratic officials in the House said the leadership was inclined to incorporate the measure into the broader health care bill expected to be brought to the floor for a vote within a few weeks. No final decision has been made, they added.

In response, an industry official said Democrats were targeting a problem that does not exist.

The events coincided with a vote in the Senate to sidetrack legislation averting a 21 percent cut in Medicare payments for doctors in January and raising their fees by $247 billion over a decade. The 47-53 vote was 13 short of the 60 needed to advance the bill, reflecting concerns that the measure would have raised deficits. The result was a defeat for Democrats and an embarrassment for the American Medical Association, which had mounted a seven-figure advertising effort to assure passage of one of its top priorities.

Republicans grumbled that Senate Democrats timed the offensive on antitrust matters to obscure their defeat on the bill setting pay rates for doctors, a measure that GOP leader Mitch McConnell, R-Ky., called “the Senate’s first vote on health care this year.”

Even so, taken together, the threats to revoke long-standing antitrust protections reflect the fury Democrats have projected in response to recent insurance industry attempts to influence the shape of legislation. The events occurred less than a week after the insurers’ trade association issued a report saying a measure in the Senate Finance Committee would produce sharp increases in premiums for millions of people who currently have insurance.

BACK ON TRACK IS IT?

The global economy is expanding again and financial conditions have improved significantly, the International Monetary Fund (IMF) has said.

But in its latest World Economic Outlook, the IMF said the “pace of recovery is expected to be slow”. It added that the recovery is likely to be “insufficient to decrease unemployment for quite some time”. On Wednesday, the IMF cut its forecast for the amount that banks are likely to lose in bad loans and investments.

The total it expects banks to lose between 2007 and 2010 is now $3.4tn (£2.1tn), down from its previous estimate of $4tn. This reduction is a direct result of the improved outlook for the global economy.

Separately, the head of the European Central Bank (ECB) said that the 16 countries in the eurozone should withdraw stimulus packages in the next two years . “From an ECB point of view, it is important to do what is necessary to exit as soon as possible,” Jean-Claude Trichet said at a meeting of EU finance ministers and central bank governors in Gothenburg.
“It is important in our view that it starts as soon as the recovery starts. It is something which is essential for the recovery itself. “I would say, in our own view, at the latest in 2011.”
After a year of being downbeat about prospects for the world economy, the IMF’s latest World Economic Outlook declared the global recession is ending.

“The global economy appears to be expanding again, pulled up by the strong performance of Asian economies, and stabilization or modest recovery elsewhere,” the IMF said.

The Fund said it now expects the world economy to contract by 1.1% in 2009 before growing by 3.1% in 2010. This is more upbeat than its last update in July when the Fund projected the world economy would shrink 1.4% in 2009, before expanding 2.5% in 2010.

Over the four years starting at the end of 2010, global growth is expected to average a little more than 4% a year, below the 5% growth rates before the financial crisis erupted, the IMF report said.

While advanced economies will contract this year, they will begin a fragile recovery in 2010, the report said. Both the United States and euro-area will post growth, albeit at a tepid pace, next year, it added.

Spain will be the only euro-area member whose economy will contract next year, the IMF said, adding that the pace of the economic decline in Europe has started to moderate.

In contrast, emerging and developing economies are further ahead in the recovery and will expand by 1.5% this year before rebounding 5% next year led by China and India, it said, also noting signs of stabilization in Latin America.

Despite the improved outlook, however, the fund said there were a number of risks to the recovery. It cited major government stimulus packages, central bank support and restocking by companies that have run down inventories as three temporary factors that “will diminish during the course of 2010″.

It also highlighted the fact that banks are being forced to hold more cash in reserve, which will limit the amount of credit available “for the remainder of 2009 and into 2010″. With less money available to companies and individuals to borrow, and therefore invest, demand may be stifled.
Most serious, it concluded, was the fact that “private demand in advanced economies remains very weak”.

TOUGH ROAD AHEAD

The unemployment rate jumped almost half a point to 9.7 percent in August, the highest since 1983, reflecting a poor job market that will make it hard for the economy to begin a sustained recovery.

While the jobless rate rose more than expected, the economy shed a net total of 216,000 jobs, less than July’s revised 276,000 and the fewest monthly losses in a year, according to Labor Department data released Friday. Economists expected the unemployment rate to rise to 9.5 percent from July’s 9.4 percent and job reductions to total 225,000.

Although there have been signs that the US economy is now recovering from the worst recession in 70 years, unemployment has remained high and could dampen any economic rebound.

However, Nigel Gault, chief US economist at IHS Global Insight, said that the rise in the jobless rate was not too discouraging. “The decline last month was too good to be true, really. It’s too early for the unemployment rate to be coming down, of course we’re still losing jobs,” he said.

“What I would take encouragement from is the fact is the trend in the rate of decline in jobs is still improving, that private sector jobs were down 198,000, that’s 50,000 better than the previous month and it’s almost 200,000 better than the month before that.”

Most cuts were seen in the construction industry, with 65,000 jobs lost in the month. Health care and educational services was the only bright spot, adding 52,000 jobs.

INCREASING DEBT A CONCERN

The U.S. national debt will nearly double over the next 10 years as recession crimps government revenue while spending on retirement and medical benefits soars, official forecasts said on Tuesday.

The White House now expects the 10-year budget deficit to reach $9.05 trillion, roughly $2 trillion more than it estimated earlier in the year, according to a report released Tuesday by the Office of Management and Budget.

Budget office director Peter Orszag pointed to a number of measures put in place to stem the pain of the economic downturn.”As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection,” Orszag said in a statement.

A 10-year deficit of $9 trillion means the debt held by the public — the accumulation of all annual deficits over the decades — would reach 82% of gross domestic product. That’s double the 41% recorded in 2008.

I know that there will be some who say this report proves that we cannot afford health reform. I think that has it backward,” Orszag told reporters on a conference call. “The size of the fiscal gap is precisely why we must enact well-designed and fiscally responsible health reform now.”

Obama’s central policy priority of overhauling the U.S. healthcare system has already run into opposition from angry from critics who complain its $1 trillion pricetag is too high and who worry it will limit choice.

OIL PRICES SPIKE

Oil prices hit their highest level this year on Friday as traders looked past a mixed batch of U.S. economic data to focus on a strong rise in China’s bellwether stock index.

Benchmark crude for October delivery was up $1.29 to $74.20 a barrel by afternoon European electronic trading on the New York Mercantile Exchange. Earlier in the day it hit $74.48, the highest level so far this year.

The price of oil has hit its highest level of the year, boosted by sharp rises in Chinese stocks and rising shares on Wall Street. The oil price hit $147 a barrel last July and fell below $74 last October, a level it has not breached since.

Worldwide oil prices have been extremely volatile this year. Prices have been affected as much by sentiment as by fundamentals of demand and supply. Ben Bernanke, the chairman of the Federal Reserve, said that prospects for a return to growth in the near term appeared good in the US and abroad.

US shares traded higher – with the Dow Jones index rising more than 1% – after his speech and on better-than-expected figures for sales of existing homes. Sales rose by 7.2% in July to an annual rate of 5.24 million homes.

“The significant rise in the oil price in the first half of the year is due in large part to a recovery in investment by financial investors,” said Eugen Weinberg at Commerzbank.

GLIMMER OF HOPE

The U.S. recession appears to be near an end, government figures suggest, even as revisions to prior years’ data show that the downturn has been even more severe than previously thought. 

Gross domestic product fell at a seasonally adjusted 1.0% annual rate April through June, the U.S. Commerce Department said Friday in the first estimate of second-quarter GDP. That was better than the 1.5% decline Wall Street economists had expected.

GDP is the broadest measure of the economy, which has been mired in recession since December 2007, worsening in recent quarters. The fourth quarter of 2008 and first quarter of 2009 measured the worst two quarterly declines in 26 years — the nation’s gross domestic product fell a revised 5.4% and 6.4% respectively.

The slower second-quarter contraction was largely due to a smaller decline in exports and business inventories as consumer prices and government spending rocketed higher.

GDP has now fallen four-consecutive quarters, the first time that has happened since quarterly records began being kept in 1947.

But with the pace of decline waning, “the worst recession since the Great Depression is likely coming to an end,” said Sung Won Sohn, a professor at California State University.

The main engine of the economy, consumer spending, surprisingly fell last quarter. Job fears and stagnant wages appear to be keeping wallets tight, and are seen muting the economy’s expected recovery in the second half of 2009.

Farewell recession? Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said the GDP number was encouraging, and he expects the recession to come to an end this summer. While GDP is a trailing indicator, he said the change in direction suggests the worst is behind us.

CASH FOR CLUNKERS CONTINUES

The Senate will vote to extend the popular “cash-for-clunkers” program before going home on Friday, Majority Leader Harry Reid declared Tuesday in a strong signal the government won’t let the trade-in rebates die under the surging demand that has almost exhausted federal backing.

Reid’s GOP counterpart, Mitch McConnell of Kentucky, predicted his party would not block a vote and “the matter will be completed.” Republicans were still demanding a chance to amend a House-passed version that would extend the program into September, but Democrats were confident the bill wouldn’t be changed.

“We’ll pass cash for clunkers before we leave here,” Reid said after Democrats lunched at the White House with President Barack Obama, who has pushed hard for the Senate to go along with the House in adding $2 billion to the program’s original $1 billion. Buyers of new cars and trucks have swamped formerly deserted auto dealers to claim their rebates — up to $4,500 when they trade in older models that get significantly worse gas mileage. The older vehicles are then scrapped.

The program has encouraged about a quarter-million Americans to buy new cars at time when the economy is still in recession and badly needs a boost.

BIGGEST ONE DAY DECLINE

China’s main stock index has posted its biggest one-day decline this year, after one firm’s successful share issue raised fears of market overheating.

Shares in Shanghai and Hong Kong tumbled on Wednesday as investors snapped up two newly listed mainland construction groups while selling down the rest of the market after reports that China’s central bank might rein in bank lending.

Shares in China State Construction Engineering rose by as much as 90 per cent on their debut before closing 56 per cent stronger in Shanghai. China’s largest housebuilder had last week raised Rmb50.2bn ($7.34bn) in the world’s biggest initial public offering since Visa raised $19bn in March 2008.

The surge of funds into the market has reignited fears of a new bubble forming in both the property and share markets. The Shanghai Composite index has doubled since it hit bottom late last year, beating all comparable indices around the world.

Analyst Wang Mingzhi of GF Securities said CSCEC’s closing price of 6.53 yuan was above its “fair value” of five yuan. “The jump is obviously driven by speculative funds,” he said. “It’s hard to find a rational explanation.”

Fellow analyst, Mao Nan of Orient Securities added that “with lots of cash at home, and capital flowing in from abroad, the main problem of the market is excessive liquidity”.
Share declines were also seen in Hong Kong, where the main Hang Seng index lost 2.4%. The debut trading of state-run CSCEC came a week after it sold a 40% stake in the business for 50.2bn yuan ($7.3bn; £4.5bn).

The successful sale was the world’s biggest share issue so far this year. CSCEC, China’s biggest housebuilder, has said it will use the proceeds of the sale to expand its business. Chinese house prices rose in June for the first time in seven months.