Archive for March, 2009

OECD sees bleak global outlook, soaring job losses (Reuters)

Tuesday, March 31st, 2009 | Finance News

PARIS (Reuters) –
The world economy will shrink at a far faster pace than originally expected this year, sending unemployment soaring and highlighting the need for extra steps to halt the crisis, the OECD said on Tuesday.

The 30-nation Organization for Economic Co-Operation and Development (OECD) said member economies would contract -4.3 percent this year. That was sharply down from the last forecast of -0.4 percent, made in November.

"The world economy is in the midst of its deepest and most synchronized recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade," the OECD said in its interim economic outlook.

"We anticipate that the ongoing contraction in economic activity will worsen this year before a policy-induced recovery gradually builds momentum through 2010."

OECD chief economist Klaus Schmidt-Hebbel said jobless numbers in the Group of Seven rich nations would nearly double to almost 36 million and would rise by 25 million across the OECD as a whole by late 2010.

"The impact of the recession on societies will be very substantial," he said, noting that unemployment rates would reach double digit levels in most countries for the first time since the early 1990s.

He said stimulus measures taken so far should stop the world seeing a repeat of the 1930s Great Depression and growth should return in 2010.

But there were substantial risks to the downside for this outlook and some governments and central banks needed to use the room they have for more aggressive policy.

DOWNSIDE RISKS

The OECD report said that "risks remain firmly tilted to the downside" with the largest danger that of the weakening economy further undermining the health of financial institutions, forcing them to curtail lending beyond what is anticipated.

The recession will lead to a sharp rise in unemployment, with a peak in 2010 or early 2011 and many countries reaching double digit levels for the first time since the early 1990s.

G20 leaders will meet in London on Thursday to discuss the crisis. Ahead of the summit, the report included a special focus on economic policies needed for a recovery.

"An essential step to arrest the 'economic hemorrhaging' that is ongoing is to devise and implement without delay a coherent strategy that squarely tackles the mess in financial markets," the report said.

This included decisive measures for dealing with impaired assets and restoring confidence in markets. "Additional macroeconomic stimulus is also critical to cushion the fall in aggregate demand," it said.

The United States has pushed for Europe to take more stimulus action ahead of the summit. The OECD said some countries, including Germany, Canada, and Australia, appeared to have more fiscal room and urged those that could afford it to make a special effort in 2010.

Policy makers should, however, make sure they can lay out a plan for scaling back stimulus as the recovery gathers pace, to persuade markets the plans are sustainable and prevent upward pressure on bond yields from worries over growing debt.

MORE RATE CUTS

The OECD praised the "vigorous" action of central banks with both conventional and unconventional measures.

But it urged the European Central Bank to cut its main policy rate further from 1.5 percent and said it should commit to the quantitative easing hinted at by the bank's policymakers in recent days.

"The grim outlook for economic activity in the euro area and widespread evidence of falling inflation call for exhausting the remaining scope for further cuts," the OECD said.

"With the bleak economic outlook, quantitative easing should be used to support demand," the report said on the ECB.

The Bank of England should keep its policy rate as close to zero as possible until the end of 2010, it said.

The Bank of Japan has used its limited scope for maneuver to cut rates to 0.1 percent and the outlook points to maintaining that rate, the OECD said.

"The Bank of Japan should keep the policy interest rate close to zero and continue measures to increase liquidity until there is a definitive end to deflation," it added.

It also said the U.S. Federal Reserve must be wary of inflation expectations when the recovery takes hold.

"Once economic recovery is well underway and financial conditions are normalized, the Fed will need to start raising interest policy rates ... to keep inflation expectations well anchored, something expected to happen beyond 2010," it said.

(Additional reporting by Tamora Vidaillet, Vicky Buffery and James Mackenzie; editing by Patrick Graham)

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Retailers: Sales up on booze, smokes, ahead of tax (AP)

Tuesday, March 31st, 2009 | Finance News

FRANKFORT, Ky. – Some Kentucky retailers say people are stocking up on booze and cigarettes before new taxes hit later this week.

Starting Wednesday, Kentucky's 6 percent sales tax will be applied to all alcoholic beverages. Tobacco taxes are also going up.

For people looking to save a few bucks before new taxes on alcohol and cigarettes take effect, time is running out.

"You seem to see people that you don't see very often coming in and shopping," said Tim Speer, a manager at Red Dot Liquors in Frankfort. "The last three to four days have been up quite a bit."

Kentucky lawmakers faced a $456 million budget shortfall in the fiscal year ending June 30. The General Assembly decided to plug Kentucky's budget hole by cutting government services and raising so-called sin taxes on alcohol and tobacco products, despite a parade of beer and bourbon trucks that rumbled around the Capitol in protest for nearly a week.

State taxes on cigarettes are doubling from 30 cents to 60 cents per pack.

Speer said his store has encouraged customers to stock up before Wednesday's 6 percent sales tax on beer, wine and booze takes effect. Speer's store has been running a 6 percent sale on wine since the legislature passed the tax in February, he said.

Eric Gregory, president of the Kentucky Distillers' Association, said he's heard that people are stocking up now but he's waiting to see the state's March revenue receipts to know for sure. Gregory said February revenue receipts for distilled spirits dropped 14 percent compared to February 2008.

"We believe they'll be skewed because we believe people are buying in bulk and stocking up to beat the tax kicking in," Gregory said.

Cigarette tax revenue dropped by 5.5 percent in February.

Customers seem aware of the pending tax hike and some have been buying in preparation for Kentucky Derby and graduation parties later this year, said Brad Williams, the general manager of three Liquor Barn stores in Louisville. Signs posted on the shelves remind people of what they'll pay once the sales tax kicks in, Williams said.

"That kind of hit home with some people," Williams said. "We are expecting a big day tomorrow (Tuesday)."

Terri Hippe, a 53-year-old Frankfort resident said she'd like to stock up on cigarettes and alcohol before the tax takes effect. But Hippe said she can't afford to.

"It's pinching on poor people or just pinching on people who want to have fun," Hippe said. "It's putting a crimp on our style."

Maker's Mark President Bill Samuels Jr. said the tax would be trouble for distillers, and will hurt Kentucky consumers too. With the sales tax in place, Kentucky likely won't be as attractive to the industry, which could lead some to move operations elsewhere, Samuels said.

"It sends an incredible negative signal to the legislatures of other states that this is an easy target," Samuels said.

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Google forms $100 million venture fund (Reuters)

Tuesday, March 31st, 2009 | Finance News

NEW YORK (Reuters) –
Google Inc is forming a $100 million fund to invest in early-stage start-up firms.

The fund, to be called Google Ventures, will be wholly owned by Google, but will operate as a separate entity and will seek investment opportunities to maximize returns rather than looking for investments that strictly fit with Google's strategic vision.

Rich Miner, a co-founder of Android smart phone software that Google acquired in 2005, and Bill Maris are the fund's two managing partners.

Earlier this month, Reuters reported that Miner appeared at an investor conference for Internet start-up companies with a name tag that listed his name alongside Google Ventures.

Miner said on Monday that Google Ventures will look at a wide variety of companies to invest in, including consumer Internet products, information technology, health care and biotech, among other areas.

"Just as we were founded by entrepreneurs, we think we can help some of those next entrepreneurs with the next great idea," said Miner.

Google Ventures has already invested in Pixazza Inc, an photo-based online marketing service and Silver Spring Networks, a company that uses technology to improve the efficiency of power grids.

Google has invested in other companies in the past through its philanthropic division, Google.org. While Google.org may continue to make investments from time to time, Maris said that Google Ventures will now function as Google's "primary vehicle" for making venture-style investments.

Several high-tech companies have in-house venture capital arms, including Intel and Motorola, But Maris said that Google Ventures will have more in common with traditional venture capital firms.

"We're making financial return our first lens," said Maris. But he noted that a part of the appeal of Google Ventures for start-up firms is the relationship to Google and its 20,000 employees.

The fund will focus primarily on companies seeking seed funding and early stage funding, and Google Ventures will have the ability to make investments ranging from tens of thousands to "several tens of millions" of dollars, Maris said.

(Reporting by Alexei Oreskovic; Editing by Derek Caney)

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