Euros crippling growth and commodity slumps worldwide

Oleg Deripaska asks why the Euro can be so strong against the dollar, is it is only going to kill investment into the Eurozone. European policy makers have questions to answer as this could strangle finance and business. Next, an article examining the fall in oil prices, experts believe this will gradually improve the profitability of general businesses if this remains. Lastly an IMF video looking at the gradual fall in deficits which could mean good news to the world economy.

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High euro is crippling growth, says Oleg Deripaska

The euro is trading at an inexplicably high rate to the dollar, preventing eurozone nations from finding growth, says Russian billionaire Oleg Deripaska.

A Euro coin is placed on a one US dollar note in a bank in a Gelsenkirchen, Germany

The euro traded at 90 US cents at launch but rocketed to a peak of $1.59 in July 2008. It has since fallen to $1.31, but Mr Deripaska believes that is still too high. Photo: AP

With European policymakers and politicians increasingly split over whether to relax austerity measures, Mr Deripaska, who controls Rusal, the world’s biggest aluminium producer, said that the turmoil and high value of the euro meant his business would steer clear of investing in the eurozone.

“We need to be practical,” he says in an interview with The Daily Telegraph. “With the high euro and the state of the markets in Europe, it wouldn’t be reasonable to go anywhere near buying something significant in Europe at this moment.”

Mr Deripaska, who is estimated to be worth $8.5bn (£5.58bn) in the latest Forbes rich list, making him Russia’s 16th richest man, says he fails to comprehend what makes the euro 45pc more valuable against the dollar than it was at launch in 2002.

The euro traded at 90 US cents at launch but rocketed to a peak of $1.59 in July 2008. It has since fallen to $1.31, but Mr Deripaska believes that is still too high.

“I can’t understand why the euro is so high,” he says. Has Europe become more productive or created more innovation? I just can’t see it.

“It doesn’t present much opportunity for south Europe and industrial parts of Europe in France and Italy to benefit.

“For me, nothing has changed. People have become calmer because they don’t believe in the black scenario that the European Union and the banking system will collapse. But there is still no clear action plan.

“I’m not sure it’s right, because Russia could benefit more from Europe and Europe could benefit more from deeper co-operation with Russia and former Soviet republics. There’s a clear opportunity there.”

Sixteen months ago, Mr Deripaska said some European nations were operating “like socialism”, spending above their means, given the tough economic climate. He still feels Europe has major problems.

“I think Europe is missing an opportunity now,” he says. “The more that European countries stay in the eurozone, the more difficult it will become for them.

“How Europe maintains its high standards of living conditions and expectations of social welfare, I really [don’t know].”

Read the rest of the article at the Telegraph

Commodities slump sends slow ripples through world economy

A driver pumps petrol into his car at a petrol station in Brussels March 8, 2011. REUTERS/Yves Herman

Lower airfares, cheaper food and rising profit margins are among the benefits that should flow from tumbling oil and commodity prices – but only after a long lead time.

Having poured $400 billion (262 billion pounds) into commodities over the past decade, many investors are now selling. Their confidence that risky assets could only float higher on a rising tide of cheap central bank money has crumbled as the global economy fails to respond to the stimulus.

Even China, an important buyer of natural resources, is slowing. Inflation, against which gold in particular is a classic hedge, is falling nearly everywhere.

Price pressures will ease further if natural resources keep falling. That is bad news for exporters such as Saudi Arabia and Brazil but good news for net importers.

Weaker commodity prices should be positive for the world economy on average because falling inflation supports consumer spending, said ABN AMRO economist Han de Jong.

Standard and Poor’s Goldman Sachs Commodity Index .SPGSCITR has fallen 6.6 percent so far this year.

But raw materials represent a small part of most firms’ costs, so it is not surprising that some businesses, especially those in very competitive markets, are not getting carried away.

"There are thousands of components in a car so the impact might not be that great," said Cui Liyan with Great Wall Motor Co Ltd (601633.SS) (2333.HK), China’s top maker of SUVs and pick-up trucks. "Great Wall has never passed on additional costs to consumers when commodity prices have surged in the past."

For a U.S. economy experiencing slow growth, cheaper energy is a positive, said Michael Ward, chief executive of CSX Corp (CSX.N), the country’s second-largest railroad. But CSX itself is indifferent because it runs a fuel surcharge programme. "Over time, we’re passing the increases or decreases in fuel to the customer," Ward said.

An official at South Korea’s largest food maker, CJ CheilJedang Corp (097950.KS), said it normally takes four to six months before a fall in agricultural futures prices passes through into the firm’s product prices.

OIL IS THE ONE TO WATCH

The lurches in gold, including the sharpest one-day drop in 30 years on Monday, have grabbed the attention, but falling oil prices are of much greater economic significance.

Brent crude is down about 16 percent from the year’s high at $119.17, hit on February 8.

Economists at JP Morgan estimate a 15 percent drop in the price of oil, caused by a supply increase, would be enough to lift global economic output this year by 0.2 percentage points.

But if the price fall reflects a darkening economic outlook, the same 15 percent decline is consistent with a 0.5 percent downgrade in global growth prospects for the year, the bank calculates.

An executive at Indian engineering company Larsen & Toubro (LART.NS) said the broader fall in commodity prices cut both ways. Cheaper materials would help profit margins and, if the trend were sustained, would increase the chances of lower interest rates, he said. But prices were falling for a reason.

"Prices are down today because the investment cycle has slowed and demand for commodities has slowed. If this extends over the long term, it cannot be a good thing for a projects company such as ours," he said.

THE EXCHANGE RATE FACTOR

Pinpointing the repercussions of the commodity sell off is further complicated because it cannot be seen in isolation.

KCE Electronics Pcl KCE.BK, a Thai maker of printed circuit boards, should be sitting pretty because it uses a lot of copper, which is down 12 percent so far in 2013.

But executive director Panja Senadisai said the savings are outweighed by the strength of the Thai baht against the dollar, which hurts KCE’s exports.

The story is similar at Tenneco Inc’s (TEN.N) Indian subsidiary: the auto components maker is seeing lower prices for steel and rubber – the key Tokyo Commodity Exchange rubber contract has shed more than 8 percent this week – but a weak rupee and high inflation are diluting the benefit.

Read more at Reuters

IMF World Finance News Fiscal Risks Retreat as Deficits Continue to Fall

 

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