IMF predicts a global recession

The world economy is likely to shrink for the first time in decades this year, the head of the International Monetary Fund (IMF) has warned.

Dominique Strauss-Kahn's prediction is gloomier than that the IMF's current official forecast of 0.5% growth.

He added that trade was falling at an alarming rate and business and consumer confidence had collapsed.

He was speaking at a conference in Dar-es-Salaam, Tanzania, to discuss how Africa should respond to the crisis.

"The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes," Mr Strauss-Kahn said.

The World Bank, the IMF's sister institution, on Monday said it also expects the world economy to shrink in 2009.

'Severe'

Mr Strauss-Kahn also warned that Africa's economic growth will be affected by the continuing world downturn. The IMF predicts that growth in sub-Saharan Africa will slow to about 3% in 2009, half the growth rate it previously thought.

Mr Strauss-Kahn said even this rate may be "too optimistic".

"Even though the crisis has been slow in reaching Africa's shores, we all know it is coming and its impact will be severe," he said.

"We must ensure that the voice of the poor are heard. We must ensure that Africa is not left out."

The conference will discuss what external support the IMF and other Western donors may be able to provide to help mitigate the impact of the crisis on Africa, which has the highest poverty rate of any region in the world.

Not at fault

The IMF's managing director, Dominique Strauss Kahn, told the BBC on Monday that the conference would be a "milestone" and that he wanted to build a different kind of partnership with Africa, as well as providing additional funds.

Africa has little direct exposure to the credit crisis. Its banks have not invested much, if at all, in the problem financial assets at the heart of the crisis.

But the global downturn has undermined demand for many industrial commodities, which are important exports for several African countries. - including oil in Nigeria, Angola and Equatorial Guinea, and copper in Zambia.

Less than a year ago, the IMF's forecast for sub-Saharan Africa was economic growth of 6.7% in 2009, an increase on the 5% growth enjoyed in 2008.

Now the low growth forecast means that many African countries are likely to see very little increase in living standards, and could fall further behind in meeting poverty targets.

It says that 15 of the 21 countries which it judges most vulnerable to the crisis are in Africa.

Inflation back to 2002 level at 3.03 per cent

Inflation declined to about a six-and-a-half-year low of 3.03 per cent by the third week of February as most food, fuel and manufactured items turned cheaper, justifying the RBI's rate cut move to propel growth.

With wholesale prices-based inflation coming to a level seen on 10th August, 2002, by falling 0.33 percentage points from 3.36 per cent a week ago, economists expect the RBI to further cut rates next month.


This is the fifth consecutive week that inflation has fallen.


Economists expect inflation to reach zero by this fiscal end.


While most food products in raw form saw a decline in prices, manufactured food items like sugar and ghee turned marginally expensive.


Most other manufactured products also became cheaper, with the exception of metals alloys and machine tools.


Crisil Principal Economist D K Joshi said, "There could be further rate cuts. I believe there could be a cut of 50 basis points in both the repo and reverse repo rates next month."



With inflation going below four per cent, the RBI on Wednesday cut the short-term lending and borrowing rates the repo and reverse repo by 50 basis points to arrest economic slowdown with India's GDP growth falling to over a five-year low of 5.3 per cent in Q3 of the current fiscal.


However, the central bank has noted that consumer prices are still high, but expressed the hope that they may also come down after some time.


The Reserve Bank pointed out that consumer price inflation, as reflected in various indices, is in the range of 9.85-11.62 per cent as of December 2008-January 2009 and is yet to show moderation.


"Consumer price inflation has remained at elevated level due to increase in primary articles' prices. With WPI inflation having moderated significantly, consumer price inflation may also be expected to decline, though with a lag," the RBI said.


However, it is mainly wholesale price inflation that is widely tracked.


The wholesale price index (WPI), on which inflation is based, declined by 0.1 per cent to 227.6 points for the week ended
21st February, 2009, from 227.8 points a year ago.



Among food products, vegetables turned cheaper by 3.2 per cent and fruit by little less than one per cent. Bajra, jowar and gram also became cheaper.


However, prices of maize and arhar moved up.


Among non-food items in raw form, raw silk prices declined by seven per cent, copra by three per cent and rape and mustard seed and gingelly seed by one per cent each.


In fuels, jet fuel saw a 4 per cent decline in prices, and furnace oil by one per cent.


In the manufactured goods category, sugar turned expensive by two per cent and ghee by one per cent.


Prices of machinery and machine tools also rose, but those of textiles, basic metals alloys and transport equipment and parts declined.

Satyam approved to sell 51% stake

Fraud-hit IT firm Satyam has been given the go-ahead to sell most of itself.

Indian financial authorities approved plans for the company to sell a 51% stake as it seeks to win back clients and restore customer confidence.

Reports suggest computing giant IBM and Indian engineering firm Larsen & Toubro are frontrunners for the stake.

Satyam has struggled since former boss Ramalinga Raju admitting inflating their assets by more than $1bn.

Shares in Satyam jumped 18% after the company's state-appointed board got approval to sell the majority holding.

Satyam lost more than 80% of its market value following Mr Raju's confession in January.

The auction for the stake will be global and potential buyers would need to have assets of at least $150m.

The buyer then would not be able to sell its stake for at least three years, Satyam said in a statement.

Satyam had been one the biggest players in the booming Indian IT software market, supplying back-office services to firms from around the world.

EU calls for crisis talks over GM

The European Commission has called for a crisis meeting among EU states hosting General Motors (GM) plants.

EU Industry Commissioner Guenter Verheugen said that the way GM was "dealing with the issue of Europe is not acceptable".

Earlier, the troubled carmaker's auditors said there was "substantial doubt" about the ability of General Motors to stay afloat.

Last week GM posted a $30.9bn (£21.9bn) loss for 2008.

It also warned that 2009 was set to be "challenging".

Shares in General Motors fell more than 15% in New York trading.

European worries

Earlier this week, GM's top executive warned the European divisions of General Motors (GM) could collapse within weeks without European governments' help - costing up to 300,000 jobs.

Chief operating officer Fritz Henderson also said governments should step in immediately to ensure GM Europe did not run out of money by April or May.

Mr Verheugen said: "We expect GM to disclose everything,

"What are their plans with their European daughter companies and locations? What are they doing with property rights, and especially is GM prepared to maintain responsibility for the European companies or not?"

He said that at the emergency meeting he wanted to find out "what the different member states that have GM sites are considering to do".

EU countries that have GM-related production plants include Britain, Belgium, Poland, Germany, Spain and Sweden. Some other EU states host suppliers.

Liquidation fear

Ongoing losses and the struggle to generate cash flow meant the firm's ability to continue as a going concern should be questioned, said the auditors.

The firm, which plans to cut 47,000 jobs, has said it might need another $22.6bn in government loans to survive.

It had already received $13.4bn in federal loans as it struggles in what analysts say is the worst vehicle sales market in 27 years.

GM said that its creditors had decided not to force the company to repay more than $6bn in loans following the auditor's warning, in order to let GM press the case for more government financial aid.

"The corporation's recurring losses from operations, stockholders' deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern," auditors for Deloitte & Touche wrote in the annual report.

GM reiterated on Thursday that a bankruptcy filing could lead to liquidation, as the company would not have enough funds to finance its reorganisation.

Besides, consumers could be reluctant to buy bankrupt carmakers' vehicles, GM said.

According to GM, its February sales plummeted 53% from a year earlier, while its rival Ford posted a 48% drop.

The auditors' remarks reflect comments already made by the firm about its difficulties.

GM said in its annual report: "Our future is dependent on our ability to execute our viability plan.

"If we fail to do so for any reason, we would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the US bankruptcy code."

Northern Rock makes £1.4bn loss

Northern Rock has confirmed it made a loss of £1.4bn in 2008.

The bank also said it was ahead of target in repaying the £26.9bn loan from the government, having reduced the amount it owed by £18bn to £8.9bn.

It also confirmed its plans to support government policy to increase mortgage lending, saying it would offer £14bn of new lending.

"Northern Rock has made good progress against the business plan objectives laid out in March 2008," it said.

Oil price falls on economic fears

Oil prices have plunged 10% as yet more bad economic data sent stock markets sharply lower and undermined hopes of economic recovery.

US light crude fell by $4.61 to $40.15, while London Brent crude dropped $4.14 to $42.21.

Huge losses at US insurer AIG and plans for fund raising by HSBC bank sparked sharp falls in global markets.

And weak manufacturing figures in the UK and eurozone only served to deepen the gloom yet further.

'Weaker demand'

With hopes of an early economic recovery now fading, fears are growing that demand for oil will remain depressed.

Oil cartel Opec has already cut production by millions of barrels a day in an attempt to support oil prices.

"Although, OPEC, by all counts, is doing a good job in complying to its quota levels, it looks like flat price is being driven by the deteriorating global economic environment as reflected in the Dow Jones [industrial average]," said Nauman Barakat, senior vice president at Macquarie Futures USA.

Michael Lynch at Strategic Economic and Energy Research said: "We had the run-up last week, but now people are looking at weaker demand signals," said Michael Lynch at Strategic Economic and Energy Research.

A number of observers, he added, now believe that more supply side cuts will be needed to prop up the oil price.

Algerian Energy and Mines Minister Chakib Khelil said on Sunday that "it is quite possible that OPEC will decide to make a further reduction of production" at its next meeting scheduled for 15 March.

However Iran's Oil Minister, Gholamhossein Nozari, said he did not expect another output cut.

Japanese stocks skirt 26-year low

Japanese stocks traded close to 26-year lows in Tuesday trading as investor concerns about the health of the financial system persisted.

Japan's Nikkei 225 touched 7,088.47 on Tuesday morning, close to the 26-year low that it hit in October. However, it later recovered some ground.

Other Asian markets also fell, with Hong Kong's Hang Seng index down 1.5%.

On Monday, the US Dow Jones share index fell below 7,000 points for the first time since 1997.

ASEAN to sign discounted oil deal: official

Southeast Asian nations are to sign an energy security agreement on Sunday that will allow their members to buy oil at a discounted price during times of crisis, a senior official said.

"Under the agreement, oil exporting states will supply petroleum to a country that is facing a shortage at a lower price," said S. Pushpanathan, deputy secretary-general of the Association of Southeast Asian Nations (ASEAN).


"The high price of oil is not an issue now, but should there be a crisis in the future, ASEAN can provide self-help," he said on Saturday.


It was not immediately clear how large a price reduction the deal would involve, when it would kick in or who would administer the pact.


Pushpanathan said oil price volatility posed a challenge to sustainable economic growth in the 10 ASEAN member states.



The agreement would be signed at the bloc's annual summit in the Thai beach resort of Hua Hin, he added.


"Given that ASEAN is increasingly dependent on petroleum resources from outside the region, it is important for ASEAN member states to enhance the ability to respond to an energy emergency situation by ensuring the physical availability of oil," he said.


Oil prices have slumped since hitting a record high above 147 dollars in July, as the global economic slowdown has hammered world energy demand.



Prices have recently fallen to near five-year lows.

India begins aircraft carrier construction; to go in for more

Joining an elite club of nations capable of building large warships, India on Saturday began the construction of its first indigenous aircraft carrier at the Cochin Shipyard in Kochi and will go in for 2 to 3 more carriers in the heavier class.

Pressing a remote to lower the keel the ship's backbone into the construction dock of the shipyard, Defence Minister A K Antony said, "The Navy's carrier will showcase India's technological prowess and warships' building capabilities to the world. It will be the largest ever warship to be built in India."


The 40,000-tonne carrier will operate nearly 30 aircraft including the Russian MiG-29Ks fighters, Kamov-31 helicopters and the indigenous Light Combat Aircraft (LCA).


"This is a crucial milestone and an occasion to cherish in the shipbuilding traditions and maritime history of the nation. The culmination of this prestigious project, sometime in 2014, will transform India into an aircraft-building nation," Antony said.


He said that India will certainly produce more indigenous aircraft carrier, but in the heavier class category to meet the future challenges and needs of maritime security.



"We hope to operate two to three aircraft carriers simultaneously in the not too distant future," Mukherjee said.



"Our ever expanding maritime responsibilities require enhanced 'blue water' capabilities and to achieve this, integral air cover is a must. Our navy is one of the few carrier-operating navies worldwide," Antony said.


Among the naval powers of the world, only the US, Russia, France and the UK have carrier building capability. Even out of these four, UK is yet to build a carrier with a 40,000 tonne displacement.


India already possesses an aircraft carrier in the 29,000-tonne class, the INS Viraat bought from the British navy and it has seen 50 years of cumulative naval service.



The 45,000-tonne Admiral Gorshkov aircraft carrier was purchased from Russia in 2004 and has been re-christened as INS Vikramaditya and is likely to join Indian Navy in 2012 after repair and refit in the Russian shipyard Sevmash.


The uncertainty, conflict and threats from maritime terrorism, piracy, narcotics, smuggling and low-intensity conflict were perpetrated by both state and non-state actors, he said, adding "the security of the sea lanes and offshore infrastructure will have to be ensured for sustainable development".



Designed by the Navy's Design Organisation since January 2003 after the government sanction came, the project had gained stream in 2006 when the construction of the warships' building blocks began.


The shipyard has already completed about 8,100 tonne of work with steel, developed by DRDO and produced by SAIL.


"The Project-71, as the integrated aircraft carrier is called in the Navy parlance, was initially sanctioned Rs 3,260 crore by the government, but the project cost was likely to increase as the warship construction progressed," Cochin Shipyard's (CSL) Chairman and Managing Director Commodore (retired) M Jitendran told reporters earlier in the day.


Jitendran said the CSL had already built around 400 blocks of the total 874 blocks that would form the fully constructed carrier when it would be delivered in 2014.


He said the Navy and the CSL had jointly designed the carrier, but taken help from Russia's NBD for the aviation aspects of the warship and Italy's Fincantieri for the propulsion system integration.


Asked about the carrier's contract, Jitendran said they were expected to complete work on the warship by December 2010 and launch it into the water, but the delivery would take place on schedule in the middle of the next decade.


On plans for construction of heavier aircraft carrier in the future, he said the CSL currently did not possess the construction dock to build warships heavier than 40,000 tonnes, but if the government intended to give it the orders, expanding the shipyard was possible.



India 'safe' in the hands of armed forces: Antony


Addressing a function in Kochi after laying the keel of India's first Indigenous Aircraft Carrier (IAC), he said this was his last public function as the Defence Minister.


He said, "when I look back, I feel satisfied that I tried my level best to protect national interest and security. I got total support and cooperation from all my colleagues."


Stating that rapid industrial growth was increasing country's dependence on sea route he said "this necessitates security of our sealink communication and offshore infrastructure".


"The task of defending seafront security of the offshore installations and safeguard of the sealines make the task extremely challenging".


" Indian Navy has to take the lead in safeguarding the nation's vital security interest," he said.


Praising the Indian Naval designers, he said they proved that they could design a world class aircraft carrier.



Neither Chief Minister, V S Achutanandan, nor any of his Cabinet colleagues attended the function.


Replying to a query, Antony said "there is no proposal with the government to privatise the Cochin Shipyard Ltd."



He added that any such move would be opposed.

US increases stake in Citigroup

Citigroup and the US Treasury have reached a deal that sees the government substantially increase its stake in the ailing bank from 8% to 40%.

The deal does not require extra taxpayer investment, but is dependent on Citi raising extra private capital.

Citi shares ended down more 39% as investors worried about their stake in the bank being diluted by the move.

As one of the banks hardest hit by the continuing credit crisis, Citi has already gained $45bn in Treasury cash.

It also has guarantees protecting it from the bulk of losses on $306bn (£216bn) of risky investments.

The latest agreement involves the government converting some of its preferred stock in Citi to common shares.

As part of the deal, the bank will suspend paying dividends and will also install new independent directors on its board.

Battered

The bank made an $8.29bn loss in the final three months of 2008, and was forced to split into two new firms.

The government will only raise its stake to match that put up by private investors, and it has said it preferred banks to remain in private hands.

The treasury's Capital Assistance Programme allows banks such as Citi to borrow money from the government if they need more capital.

Last week, Citigroup's share price fell below $2 to an 18-year low.

In November, the US Treasury announced a $45bn rescue plan for the bank, accompanied by a $306bn guarantee for Citi's most risky loans, as part of its Troubled Asset Relief Program (Tarp).

At present the government's preferred shares represent a 7.8% holding in the company.

The move means Citi shareholders will see their stakes diluted and the government will have a much larger influence over the bank.

Citigroup, which two years ago was worth $273bn and is now worth about £20bn, was brought to its knees by five quarterly losses in a row.

It has been battered by the meltdown in sub-prime mortgages - made to people on low incomes or with poor credit ratings.

A cost-cutting exercise last year resulted in some 52,000 jobs being slashed, bringing the Citi workforce down to about 323,000 people.

Avoiding sell-off

Analyst Peter Kenny, managing director at Knight Equity Markets in New Jersey said he did not think shares would be too badly hit by the announcement.

"We are talking about a form of nationalisation, and to the extent that the market is going to accept it," he said.

"The problem is that there is so much going on in terms of trying to manage the continuing and unfolding drama around the credit crisis.

The bottom line is that it's not like the government has much of a choice. Citi wasn't negotiating. The government was saying, 'This is what you have to do.'

"The government didn't want to have to take any more than it had to. This is the least they can do, and the most they can do without causing a wholesale sell-off."

US economy suffers sharp nosedive

The US economy shrank by 6.2% in the last three months of 2008, official figures have shown, a far sharper fall than had previously been reported.

Plunging exports and the biggest fall in consumer spending in 28 years dragged the annualised figure down from an earlier estimate of 3.8%.

The decline was much worse than analysts had expected, sending US stocks spiralling lower.

In 2008 as a whole, the economy grew by 1.1%, the slowest pace since 2001.

The blue-chip Dow Jones industrial average dropped 119.15 points, or 1.66%, to 7,062.93. The broader Standard & Poor's 500 Index fell 2.36% to 735.09 - a 12-year low.

Recession warning

Consumer spending, which accounts for about two-thirds of domestic economic activity, fell by a rate of 4.3% in the final quarter - the biggest fall since the second quarter of 1980. This was a revision of the earlier figure of 3.5%.

With rising unemployment, sliding home values, increasing numbers of repossessions and the slumping value of investments, observers say many US consumers are hanging on to whatever disposable cash they have.

Meanwhile, exports - which had until recently been supporting the economy - fell at the sharpest rate since 1970 at an annual rate of 23.6%, down from 19.7%.

Earlier this week, Federal Reserve chief Ben Bernanke warned Congress that without the right policies from the government, the US recession could last into 2010.

But he said if the Obama administration and the central bank can restore some measure of financial stability, 2010 could be a year of recovery.

President Obama recently signed a $787bn (£556m) recovery package of increased government spending and tax cuts, and unveiled a $75bn scheme to stem repossessions.

No good news

The latest GDP figures were "just awful" said Matt Esteve, a currency trader at Tempus Consulting in Washington DC. "It shows the weak state of the world's largest economy."

And Boris Schlossberg, director of currency research at GFT Forex said there was "doom all over".

He predicted that the dollar would not weaken too much against the euro because "there's no good news on the other side of the Atlantic, either".