EUROPEAN COUNTRIES: DOWNGRADED ONE-BY-ONE, WHICH ONE IS LEFT NOW?

Fitch Ratings downgraded Greece's credit rating to B-plus from BB+ and placed its ratings on Rating Watch Negative, citing the scale of the challenge facing the country as it attempts to secure solvency and lay the foundations of an economic recovery. Risks have risen as the country must undertake further austerity measures in order to meet its deficit goals, while a greater emphasis on privatization increases the risk that aid payments from the European Union and International Monetary Fund may be delayed, it mentioned.

Fitch Ratings warned it would consider any attempt to extend the maturities of Greek sovereign debt to be a default.

Fitch said the B-plus rating incorporates expectations that “substantial new money” will be provided to Greece by the EU and IMF and that Greek government debt won’t be subject to a “soft restructuring” or a “re-profiling” — terms which are taken to refer to the potential voluntary extension of debt maturities.

Re-profiling refers to extending the maturity of existing debt without cutting the principal, allowing creditors to avoid taking write downs.

That brought strong warnings from European Central Bank officials, who contend any sort of restructuring would wreck the banking sector in Greece and potentially elsewhere in Europe, given banks’ exposure to Greek debt.

Norway said suspended the payment of a $42 million grant to Greece because the country hasn’t lived up to obligations under the grant agreement. Greece was required to take a 50% stake in projects under the fund, which were aimed at reducing differing economic and social conditions in Southern and Central Europe.

A Greek debt default would hurt other peripheral euro zone states, Moody's said in a statement, becoming the last of the three major rating agencies to say any kind of restructuring would constitute default.

A Greek debt restructuring could affect the credit ratings of other European sovereigns and would likely also lead to rating downgrades for Greek banks.

The fallout would have implications for the creditworthiness (and hence the ratings) of issuers across Europe.

Greece itself would likely see its rating tumble two or three notches to Ca or C, from its current level of B1.

Greek banks could remain in the B range if they are recapitalized, and if the European Central Bank provides liquidity support. But the ratings firm said it considers it more likely that the private banks will also default, triggering ratings downgrades.

Standard & Poor’s lowered its outlook on Italy’s A-plus sovereign-credit rating from stable to negative, citing potential political gridlock that could derail the government’s plan to balance its budget by 2014.

Italy’s public debt stood near 120% of gross domestic product at the end of last year.

Any concern that Italy’s large debt burden is not on a downward trajectory would also be a concern for the euro area as a whole as in a worst-case scenario Italy could probably be characterized as too big to bail.

Spain’s deficit was 9.2% of GDP in 2010. The government aims to cut the deficit to 6% of GDP in 2011.

Fitch said it may downgrade Belgium's AA+ credit rating, as the country has not had a proper government since elections last June but is enjoying an economic boom.

Investors are worried not just about Greece but also about heightened risks in Spain, where the government was drubbed in regional elections, and ratings agencies' warnings for Italy and Belgium.

Consecutive DOWNGRADING of European Countries by the World's Top CREDIT RATING AGENCY raises thousands of Questions on the Credibility of the European Economy. Then too economies are trying to solve the Credit Problems and are also proving to be a failure in it. 

The most alarming fact is that the Developed Economies are having maximum exposure in the CDS (Credit Default Swaps) Market, and if this problem converts into a Big Picture, it will again be a BIG TREMOR for the Financial Markets all around the Globe.

In other words, the Economies all around the world will again pay the cost of GLOBALIZATION.  

Japan’s economy shrinks sharply in January-March

Japan's economy contracted at a much-worse-than-expected 3.7% annualized rate in the January-March period, tipping the country into a recession as the March 11 earthquake and tsunami caused declines in consumer spending, business investment and private-sector inventories.

Japan's real GDP for the January-March quarter fell 0.9% from the previous quarter, or an annualized rate of 3.7%, according to figures released by the Cabinet Office. On a quarter-to-quarter basis, GDP was down a price-adjusted 0.9%, down for the second consecutive quarter.

GDP, or the total value of goods and services produced by the nation, shrank a revised annualized 3.0% in October-December.

The first quarter decline was the sharpest since a record 18.3% contraction in January-March 2009, according to the data.

Two quarterly falls in GDP—an often-used definition of a technical recession—is also the first successive contraction since the four-quarter decrease from April 2008 through March 2009 amid the global financial crisis.

The data underline how the worst natural disaster to hit Japan in decades has foiled pre-quake expectations that the export-driven economy would escape a winter lull in the first quarter, as overseas demand improves.

The data could intensify pressure on the government to bring forward the second stimulus package to accelerate reconstruction efforts.

A drop in domestic demand took 0.8 of a percentage point off growth in the latest quarter, as business investment fell 0.9% and consumer spending contracted 0.6%.

The GDP reading was the first to include the impact of catastrophic earthquake and tsunami in March, which also triggered a still-ongoing nuclear crisis at the Fukushima Daiichi nuclear power plant. GDP contracted a revised annualized 3.0% in the October-December period.

Falls in spending on cars and services in the quarter, contributed to the decline in consumption for the period.

The March quake and tsunami hit the country's relatively rural northeastern areas, destroying factories and power stations in the region, but its impact was felt nationwide as critical supply chains were paralyzed.

Production was disrupted at major manufacturers, notably in the automobile industry.

Sentiment among Japanese consumers also plunged in the aftermath of the disaster, leading to less spending on luxury items and travel.

Japan's latest downturn has pressured the country's authorities into boosting government spending and taking more monetary policy steps. A ¥4 trillion yen extra budget to finance initial reconstruction an effort was enacted earlier this month.

Government spending rose 1.0% in January-March amid disaster-relief efforts, its strongest gain in three quarters, but was not enough to offset weakness in private sector demand.

Weakness in Japan's economy is in contrast to many other countries, which are moving toward ending stimulus policies adopted during the global financial crisis as their economies recover. In the first quarter, GDP in the 17-member euro bloc rose an annualized 3.3%, while that of the U.S. grew an annualized 1.8%.

The January-March GDP data show that as disruption to production forced many manufacturers to rely on their inventories to meet demand, private-sector inventories shrank during the period, cutting 0.5 of a percentage point off the quarterly GDP.

Exports, meanwhile, rose 0.7% for the first gain in two quarters, the data showed, confounding expectations for a on-quarter decrease.

Imports increased 2%, growing for the first time in two quarters amid high global oil prices.

The GDP deflator, the broadest gauge of price trends, fell 1.9% from a year earlier after declining 1.6% in October-December.

The supply problems in the world's third-largest economy also hit some of Japan's trade partners. U.S. manufacturing output fell 0.4% on month in April, the first decline in 10 months, as Japan's disaster limited the supply of parts needed to assemble cars in the U.S.

Before the quake, economists had seen Japan returning to growth in the quarter. Considering the economy was picking up before the quake, a large part of the latest contraction is due to the effects of the disaster.

Rather than contemplate the depth of the decline due to the earthquake, the market seems to be looking at the strength and speed of the recovery from the disaster as well as the government’s monetary policy and measures to cope with the nuclear issue.

Thus any impact of the weak January-March GDP data on the market should be limited. 

Indian Govt okays new index for measuring IIP (Index of Industrial Production)

Production trend in 100 new items, including ice cream, fruit juices and mobile phones will weigh on measuring the pace of industrial production, as per the new index series approved by the government.

The new index of industrial production which will come into effect from June 10, with the base year 2004-05.

The new items in the Index of Industrial Production (IIP) would also include computer stationary, newspapers, chemicals like ammonia, ammonia sulphate, electrical products like solder power systems, gems and jewellery and molasses.

On the other hand, obsolete articles like typewriters, loud speakers and VCRs would be taken off to make the series representative of the present-day industrial production and demand scenario.

The base year for the new series will be changed to 2004—05 from 1993—94.

The IIP for April would be based on the new model of measuring the country’s factory output. The April data would be released on June 10.

India's Monthly Inflation for the month of April @ 8.66%

Headline inflation in the country came down marginally to 8.66% in April on the back of moderation in prices of certain food items. 

However, prices of manufactured products and fuel and power continue to climb. 

Overall inflation, as measured on the basis of the Wholesale Price Index, has been revised to 9.04% for March from the original projection of 8.98%. 

The revision was carried out as metal products were not incorporated earlier due to a programming error.

In addition, the inflation figure for February has also been revised upward to 9.54% from the provisional 8.31%.

In its monetary policy for 2011-12, released earlier this month, the RBI said that inflationary pressure would continue to sustain for some more months before moderating to around 6 % by March, 2012.

Food inflation, which accounts for nearly 15 % of overall WPI inflation, stood at 7.70 % for the week ended April 30. 

The prices of primary articles -- food, non-food articles and minerals -- shot up by 12.05 % on an annual basis. 

Among primary articles, food items went up by 8.71 %, while non-food primary articles rose by over 27%.

Minerals were up by 7.41 %. 

Onions were cheaper by 6.37 % on an annual basis, while potatoes were down by 0.54 %.

However, other food and non-food primary articles saw a rise in prices. 

During the month, fuel and power prices went up by 13.32 %, driven mainly by a 21.81 % rise in petrol prices and a 11.31 % jump in cooking gas rates. 

The manufactured goods group index rose by 6.18 % on an annual basis. Manufactured items have the highest weight of 64.9 % in the WPI. 

While leather and leather products were down by 1.18 %, other items saw a surge in prices.

Cotton textiles were up by 24.67 % and man-made textiles became 11.65 % more expensive year-on-year. 

Headline inflation has been above 8 % since January, 2010. 

The apex bank has already hiked policy rates nine times since March, 2010, to tame demand and curb inflation.

In its monetary policy, the RBI had also warned against a rise in prices of core (non-food) items, especially on account of rising global commodity prices. 

The government last week hiked prices of petrol by Rs 5 a litre and an increase in diesel and LPG prices is also expected soon. 

Such a step is likely to add further pressure to the inflationary situation.

India's Industrial output growth slows to 7.8%

Poor performance of the manufacturing and mining sectors pulled down overall growth of industry to 7.8% in 2010-11 from 10.5% in the previous fiscal. 

Factory output in March, as measured in terms of the Index of Industrial Production (IIP) released on Thursday, also witnessed lower growth of 7.3%, compared to 15.5% expansion in the same month a year ago. 

However, the performance in March was an improvement compared to 3.6% growth registered in February this year. 

The manufacturing sector, which accounts for almost 80% of the index, saw its annual growth fall to 8.1% in 2010-11 from 11% in the previous fiscal. 

The sector has also shown poor performance in the month of March, with meagre growth of 7.9%, compared 16.4% expansion in the same month last year. 

The mining sector also saw a decline in growth to 5.9% in 2010-11 from 9.9% in the previous fiscal.

For March, the sector's growth was a mere 0.2%, compared to 12.3% in the same month of 2009-10.

The capital goods segment was among the most affected as it grew by just 9.3% in 2010-11, compared to a robust 20.9% in the previous fiscal. 

In March this year, the growth in capital goods production slowed to 12.9% from 36% in the same month of 2010. 

During the last fiscal, growth of the electricity sector slowed to 5.6% as against 6% in 2009-10.

During March, the sector reported a growth of 7.2%, compared to 8.3% in the corresponding month of 2009-10. 

Overall, 13 out of 17 industry groups achieved positive growth in March this year. 

Production in the consumer non-durables segment went up by 2.2% during the 2010-11 fiscal, as against 0.4% in 2009-10. 

The consumer durables segment grew by 20.9 per cent in 2010-11, down from 24.6 per cent expansion in 2009-10. 

Overall, consumer goods output reported a rise of 7.5 per cent last fiscal, as against 6.2 per cent in 2009-10.

Intermediate goods reported a rise of 8.8% during 2010-11, down from 13.6% in the previous fiscal.

India plans to unveil a new industrial output index in June that will use a different base year and have about 400 items, up from the 283 in the current index, to give a more “realistic picture” of industrial output.

India’s exports climbed 34.4% to $23.9 billion in April from a year earlier. Imports gained 14.1% to $32.8 billion.

China Lifts Banks' Reserve Ratio

China moved again to head off inflation by requiring banks to hold more of their deposits in reserve, the eighth such move since November, despite little evidence that measure is taming prices and worries that it is depriving needy smaller companies of capital.

The 0.5-percentage-point increase in the reserve requirement ratio was announced after China reported inflation hit 5.3% in April, with food prices galloping at 11.5%, the sixth straight month in which food prices have risen at double-digit rates.

The inflation figures were slightly lower than in March, but still represented a significant risk that the authorities haven't put a lid on inflationary pressures. And there were other worrying signs: A higher number of bank loans than expected in April, at $112 billion, and a wider-than-expected trade surplus of $11.4 billion, up from $139 million in March, meant more cash flooding into the economy, increasing the need to soak up liquidity.

Unlike most major economies, China uses reserve requirements as its first line of defense against inflation, figuring the tool will make it tougher for banks to lend and thus cool an overheating economy. When the move takes effect on May 18, China's largest banks will face a 21% reserve requirement, among the highest in the world. By comparison, the U.S. reserve requirement is 10%.

Still several more reserve-rate requirements are in the works, which could bring the ratio to as high as 23%.

Squeezing the banks has a variety of unintended consequences, including encouraging banks to skirt the requirements by lending in ways that aren't covered by the regulations—thus reducing the anti-inflationary effect of reserve increases. Chinese banks have been especially aggressive in trying to attract deposits so they can continue lending, fueling a proliferation of lightly regulated wealth-management products. That may potentially cause headaches for regulators down the road.

The requirements also tend to hit smaller banks much harder than larger ones and to crimp lending to small and medium-size enterprises, instead favoring huge state-owned companies.

U.S. trade deficit hits 9-month high in March

The U.S. trade deficit widened sharply in March to the highest level in nine months despite a new record high for exports of goods and services.

The trade deficit — that is, the difference between exports and imports — widened to $48.2 billion for the month from a downwardly revised $45.4 billion in February, originally reported as $45.8 billion.

Imports of goods and services rose by 4.9% to a seasonally adjusted $220.8 billion during March, while exports rose 4.6% to $172.7 billion. This was the biggest one-month jump in exports since March 1994.

Trade was a slight drag on first-quarter growth after adding over 3 percentage points to fourth-quarter growth.

The March data also shows continued revival in world trade activity that came to a standstill during the financial crisis in late 2008 and early 2009 and has been slowly improving over the past two years.

U.S. exports to Canada were the highest on record while imports from Canada were the highest since September 2008.

March U.S. exports to the European Union were the highest since June 2008 while imports from the region were the highest since July of that year.

In another good sign, U.S. exports to South and Central America hit a record in March.

March imports from Japan were the highest since July 2008. The earthquake and tsunami struck Japan on March 11 so the April trade data may more clearly show the impact of the disasters on bilateral trade flows.

In March, the increase in exports was broad-based and was led by record exports of agricultural products and industrial supplies. The gain came despite a decline in civilian aircraft exports.

The rise in imports in March was led by oil but also included record imports of food goods. Imports of consumer goods declined.

Some of the pick-up in imports could be attributed to higher prices. The dollar has been weak in recent months which tend to boost the cost of imported goods. In addition, the price of imported oil has sky-rocketed due to political turmoil in the Middle East and North Africa.

Real — that is, inflation-adjusted — imports of goods rose 3.7% in March, while real exports of goods surged 4.8%.

Imports of petroleum increased by $6.5 billion, to $27.7 billion, in March. The average price of imported oil jumped by $6.59 to $93.76 a barrel, the highest since September 2008.

The U.S. imported 9.5 million barrels a day in March, up from 8.7 million in the prior month. 

Hence, it can be concluded that even after a good recovery in the Economic Health all around the Globe, still the economies are having tough time in tackling the other factors like, rising Dollar, rising Crude Oil Prices, etc.