Morning business news - October 9Tuesday 09 October 2012 17.59
IMF CUTS GLOBAL GROWTH FORECASTS, SURPRISED BY AFFECTS OF AUSTERITY ON IRELAND - The International Monetary Fund has cut its growth forecasts for the global economy to 3.3% for this year, down from 3.5%. Advanced economies are risking recession, it says, and there is a risk that the malaise is spreading to other emerging countries such as China. It issues a particularly stark warning to the US - deal with the budget crisis or conditions will worsen. The Fund has also admitted to getting it wrong on the effects that austerity would have on our economy. It said it did not believe tax hikes and cuts would have had such an adverse effect on jobs and spending. The findings show Ireland had the second highest austerity measures in the developed world in 2010 - Greece had the highest.
Ann Cahill, Europe Correspondent with the Irish Examiner, says that the findings by the IMF on the effects of austerity were to be found in a three page academic study buried in the report. It looked at why growth forecasts have consistently been wrong. "They underestimated the effect of every €100 they advised governments to take out of the economy - the effect on employment, on investment and on GDP" Ann Cahill said. "They have done this consistently since the 1970s. But while the effect was measurable up to 2009, since the Great Recession, the effect became worse,'' the journalist said. The report warns that countries not currently in recession could get dragged down by the negative global situation. Uncertainty is weighing on consumer and investor sentiment in both Europe and the US, the report adds.
BRAZIL LATEST TARGET FOR EI TRADE MISSION - Enterprise Ireland is continuing its trade mission in South America and RTE's Economics Correspondent Sean Whelan was in Sao Paulo yesterday. He spoke to Andres Stella, an Argentinean running the Brazil office of Brandtone, a Dublin marketing company that uses mobile phones to market products to consumers in fast growing economies. Brandtone encourages customers who buy a product (such as washing powder or beer) to text a code in the packaging, prompting an automated call back voice message from a personality in the market. The consumer is then rewarded for buying the product with mobile phone credit. This connects with the large numbers of people in the developing countries that use pre-pay phones, but who often run short of credit - the more they buy the product doing the promotion, the more credit they get.
Andres Stella says that Brazil is where business is happening and the country has seen 40-50 million people moving out of poverty in the past 10 years. The government has downgraded growth but it is still growing at speed. The country has a stable democracy but its constraints include infrastructure and a complex tax structures. ''But being open to business is being open to Brazil. It's time to jump into Brazil,'' Mr Stella said.
MORNING BRIEFS - Attitudes towards saving deteriorated further in September as the low interest rate environment deterred consumers from putting money away. The Nationwide UK Ireland Savings Index out this morning tells us that just a quarter of consumers think now is a good time to save, down from over a third last month. Over half of those surveyed are using surplus cash now to pay down debt - that is those who are lucky enough to have surplus cash at the end of the month in the current environment.
*** The euro lost a bit of ground yesterday and stocks traded lower after that meeting of Eurogroup finance ministers didn't generate any new initiatives. The uncertainty surrounding Spain continued as its economy Minister insisted the country did not need a bailout, a view supported by the German Finance Minister. Of course, request for help is a precursor for activating the OMT bond buying programme which will probably once again be necessary to drive down Madrid's borrowing costs. Asia gained overnight as bargain hunters moved in to take advantage of yesterday's losses.