Tax cuts could kick start the UK economy if it suffers a “prolonged period of weak growth”, the IMF said yesterday. Despite a resounding message of support for chancellor George Osborne’s “Plan A” of immediate fiscal consolidation, the IMF proposed temporarily slashing taxes in the event of slower than expected growth. This would have to go hand in hand with deeper reforms and even lower public spending, the IMF’s annual verdict states. Deficit reduction remains “essential” it added.
A FAILURE by European regulators to make banks raise enough capital to withstand a sovereign default is complicating efforts to resolve Greece’s debt crisis. The “fragilities” of Europe’s banking industry mean a Greek default isn’t an option. By delaying a decision some investors consider inevitable, policy makers risk increasing the cost to European taxpayers and prolonging Greece’s economic pain. While estimates of the capital shortfall vary, the vulnerability of European banks to a sovereign shock isn’t disputed.
ASIAN shares extended losses as investors remained concerned over the U.S. economic outlook following last week’s disappointing payrolls data. The MSCI Asia Pacific index slipped 0.1% as Australian shares fell ahead of the Reserve Bank of Australia’s interest rate decision and South Korean shares declined as the market reopened after a long weekend. The FTSE 100 is seen falling back today, retreating after two sessions of modest gains in tandem with weakness overnight on Wall Street and in Asia as investors continue to fret about the state of the global economy. Financial spread betters expect the FTSE to open down around 23 points as strength in commodity stocks offset weakness in banks and travel stocks in the absence of any further depressing data.
THE EURO rose toward a one month high against the dollar after ECB President Jean-Claude Trichet indicated his willingness to sanction bond rollovers in Greece. The single currency also advanced against the yen after Trichet gave his first signal endorsing measures to encourage investors to buy new Greek bonds to replace maturing securities.
OIL dropped for a third day amid speculation OPEC may increase output quotas when it meets in Vienna tomorrow. The International Energy Agency said on May the 19th that it saw “an urgent need” for more oil to help bring down high prices threatening economies. Futures slipped as much as 0.7% in overnight trading after falling to the lowest in two weeks yesterday. Brent Crude for July delivery slid as much as 68 cents to $98.33 a barrel in electronic trading on the New York Mercantile Exchange.
WHEAT gained, as almost half of the U.S. winter crop remained in poor condition, while rains in France, Germany, and the U.K., the Europeans largest shippers may already be too late to reverse crop damage. The winter crops probably were irreparably harmed by the driest weather in 50 years in France, the hottest spring in 352 years in England and dry weather in central Germany, Telvent DTN Inc. said yesterday. The July delivery contract gained as much as 0.4% to $7.47 a bushel on the Chicago Board of Trade.