Thailand's economy grew at the fastest pace in seven quarters, exceeding economists' estimates, as exports of rice, automobiles and computer chips climbed.
Southeast Asia's second-biggest economy expanded 5.7 percent in the fourth quarter, accelerating from a revised 4.8 percent in the third quarter, the government said today in Bangkok. That was more than the median estimate of a 5.3 percent gain in a Bloomberg News survey of 12 economists.
Overseas shipments grew 24 percent, almost double the pace of the third quarter, even as the baht's rise to a decade-high made exports more expensive. The end of military rule this month may boost consumer confidence after newly elected Prime Minister Samak Sundaravej's government promised to boost budget spending and revive investment.
“The export performance looks phenomenal,'' said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore, who expects Thailand's economy to expand 5.6 percent this year. “Worries about a strengthening Thai baht hurting exports are overdone. Growth is going to be pretty strong this year supported by pick-up in investment, consumption and exports.''
Exports, which account for about 60 percent of the economy, grew 24 percent in the fourth quarter, from 12.6 percent in the third quarter, according to central bank data. Exports totaled a record $14.6 billion in November as demand from China and eastern Europe offset waning orders from the U.S. and Japan.
U.S. Risk
Gross domestic product expanded 1.8 percent in the fourth quarter from the previous three months, when it grew 1.5 percent, seasonally adjusted. That was higher than the 1.3 percent median estimate of economists surveyed by Bloomberg.
The baht onshore held at 32.29 per dollar as of 10:50 a.m. in Bangkok, the highest since August 1997, according to data compiled by Bloomberg. The SET Index rose as much as 1.3 percent to 837.59, extending its gain over the past year to 22 percent.
The export boost may not last if the U.S., the biggest buyer of Thailand's exports, slips into a recession.
Goldman Sachs Group Inc. on Jan. 14 cut its 2008 forecast for Thailand's expansion to 4 percent from an earlier estimate of 4.5 percent due to the possibility of a U.S. recession.
That compares with the Bank of Thailand's prediction of as much as 6 percent growth.
“We expect the U.S. economy will fall into a mild recession,'' said Aksarapak Wongcharoen, an economist at Tisco Securities in Bangkok. “The negative impact of a U.S. and global slowdown on the Thai economy will be seen through weak exports beginning in the second quarter of this year.''
Consumer Spending
The U.S. bought 12.6 percent of Thailand's exports in 2007, followed by Japan's 11.9 percent and China's 9.7 percent.
Consumer spending rose 1.6 percent from a year earlier in the fourth quarter, slowing from 1.8 percent in the previous three months, today's report showed.
Thailand's economy is expected to grow between 4.5 percent and 5.5 percent this year, compared with 4.8 percent in 2007, as recovering local demand and government spending offset slowing exports, Ampon Kittiampon, secretary general of the National Economic and Social Development Board, the government's economic advisory agency, told reporters today.
The government has pledged to continue the policies of Thaksin Shinawatra, who oversaw the fastest economic growth in a decade in 2003, before being ousted as prime minister in a 2006 coup. Restrictions on foreign capital entering Thailand will be lifted to boost the economy, Prime Minister Samak said on Feb. 8.
“They are turning the page on the political front, and that should help support domestic demand, including both consumer and investment spending,'' David Cohen, economist at Action Economics in Singapore, said in an interview with Bloomberg Television.
Confidence Rising
Consumer confidence rose for a third straight month in January amid optimism the new government would spend more.
Total investment in the fourth quarter rose 4 percent, accelerating from a 2.6 percent gain in the previous quarter, today's report showed.
Manufacturing gained 8.1 percent following a 5.7 percent expansion in the previous three months. Private construction contracted 8.5 percent from growth of 0.7 percent a year earlier.
Government spending increased 16 percent, compared with the third quarter's 9.5 percent pace.
Interest Rates Outlook
The Bank of Thailand lowered its benchmark interest rate five times last year in the longest string of rate cuts since May 2000. It reviews borrowing costs this week.
The Bank of Thailand will probably keep its benchmark interest rate unchanged on Feb. 27 as inflation accelerates, according to 9 of 15 economists surveyed by Bloomberg News. Six predicted a quarter percentage point cut to 3 percent.
Consumer prices rose 4.3 percent from a year earlier in January, the fastest inflation in 18 months, as fuel and food costs increased.
The government has signaled it may pressure the central bank to lower interest rates. Prime Minister Samak said on Feb. 18 the government will use monetary policy to support economic growth.
“They are favorable to cutting the interest rate,'' said Andrew Freris, chief economist for Asia Pacific at BNP Paribas in Hong Kong. “They have substantial problems on their hands. One is to maintain the impetus of growing business confidence and consumer confidence.''
Delphi got the green light Thursday to pay almost $50 million in fees to lawyers and financial advisers for four months of work, as the company struggles to emerge from court protection.
U.S. Bankruptcy Judge Robert Drain also approved the sale of Delphi’s steering business to the Platinum Equity LLC private equity firm.
Delphi had previously said it would exit Chapter 11 court protection by the end of March, but that looks increasingly unlikely as it struggles to get $6.1 billion in loans in the tight credit market.
In a Securities and Exchange Commission filing Tuesday, Delphi said "there can be no assurances that such exit financing can be obtained."
The company’s lead law firm, Skadden, Arps, Slate, Meagher & Flom LLP, had the biggest bill, $15.39 million in fees and $837,950 in expenses. Other big earners included FTI Consulting Inc., Ernst & Young LLP, KPMG LLP and PriceWaterhouseCoopers LLP, which all were paid more than $4 million in fees and expenses for work from June to September.
That was near the end of a year in which Delphi posted a net loss of $3.1 billion, compared with a net loss of $5.5 billion in 2006. Revenues fell by $400 million to $22.3 billion for the year.
The deal to sell the steering business was valued at $447 million, including the assumption of $190 million in liabilities and $257 million in value contributed by General Motors Corp (GM, Fortune 500).
Troy, Mich.-based Delphi was GM’s parts supply unit until a 1999 spin-off. The automaker remains one of Delphi’s biggest customers.
There were no other viable bids for the steering and halfshaft business, Delphi lawyer Jack Butler said.
If exit financing can’t be found, former parent GM may be forced to provide some financial backing to be sure it gets the parts it needs. GM’s Chief Financial Officer Fritz Henderson said last week that GM is exploring alternatives with Delphi, but he wouldn’t discuss GM’s specific options.
Without the exit financing, equity investors led by hedge fund Appaloosa Management LP could abandon a deal to invest as much as $2.55 billion. The deal is crucial to Delphi’s ability to emerge from bankruptcy.
Delphi has operated in bankruptcy since October 2005.
Deputy Secretary of State John Negroponte said Tuesday the United States will not soon lift its embargo on Cuba despite Fidel Castro’s resignation.
Asked by reporters at the State Department if Washington planned to change its Cuba policy now that Castro has stepped down, Negroponte replied: "I can’t imagine that happening anytime soon." He declined further comment.
In Rwanda, President Bush expressed hope that the end of Fidel Castro’s presidency will launch a transition to democracy in Cuba after nearly 50 years of ironclad, communist rule.
Long a target of U.S. criticism and sanctions, the ailing Castro, 81, announced he would not accept a new term.
"What does this mean for the people in Cuba?" Bush said at a news conference during his trip to Africa. "They’re the ones who suffered under Fidel Castro. They’re the ones who were put in prison because of their beliefs. They’re the ones who have been denied their right to live in a free society. So I view this as a period of transition and it should be the beginning of the democratic transition in Cuba."
Bush said he anticipates debate about Cuba’s future, and that some people will say "Let’s promote stability."
"In the meantime, political prisoners will rot in prison and the human condition will remain pathetic in many cases," he said.
Bush noted that he had met with the families of some of prisoners, and that their release should be the first step of any transition to democracy.
"It just breaks your heart to realize that people have been thrown in prisons because they dare speak out," he said.
While Bush expressed hope for democratic change, Castro’s decision appeared to position his brother, Raul, 76, to succeed him as president.
"The international community should work with the Cuban people to begin to build institutions that are necessary for democracy," Bush said.
"Eventually, this transition ought to lead to free and fair elections — and I mean free, and I mean fair — not these kind of staged elections that the Castro brothers try to foist off as true democracy," Bush said.
"The United States will help the people of Cuba realize the blessings of liberty," Bush said.
China's central bank said it will increase innovation in monetary-policy tools after a report showed that inflation surged to an 11-year high.
China's economy faces “prominent'' problems such as imbalanced international payments and excess liquidity, the People's Bank of China said. The comments were in a five-year plan for the finance industry released today on the central bank's Web site.
“We will further improve monetary policy controls, continue to use quantitative measures, widen usage of price- related policy tools and increase innovation in monetary policy measures,'' the central bank said in the report, without elaborating.
China's economy risks overheating after expanding 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years. Inflation climbed to 7.1 percent last month, the statistics bureau said today.
The government will “better coordinate domestic and exchange-rate policies'' and use “multiple'' tools to control bank lending, the central bank said in the report.
China will explore more channels for investing the world's biggest foreign-currency reserves, aiming for “higher returns,'' the report said. The nation set up China Investment Corp., a $200 billion sovereign wealth fund, in September.
The report was jointly issued by the central bank, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission and runs from 2006 to 2010.
China will further develop the debt market, especially corporate bonds, according to the statement. It will encourage securities backed by mortgage loans and by projects and explore the sale of municipal bonds to fund public works.
British Airways confirmed Friday that it and Virgin Atlantic have agreed in principle on a settlement of a U.S. price-fixing case.
British Airways (BAIRY) did not confirm the size of the settlement, but the Wall Street Journal has said the two airlines would pay more than $200 million to customers who flew between Aug. 11, 2004, and March 23, 2006.
The airlines were the subject of a class action suit in California that alleged they colluded in setting fuel surcharges on long-haul flights.
Passengers who bought tickets in the United States or Britain for travel on long-haul routes between Aug. 11, 2004 and March 23, 2006, will be entitled to claim one-third of the fuel surcharge levied per long-haul ticket, BA said.
The airline said that would be worth $1.50 to $20.50 per ticket bought in the United States.
The settlement is subject to court approval.
British Airways was also fined more than $500 million by U.S. and British authorities for its role in the fuel-surcharge price-fixing case. Virgin was not fined because it came forward to expose the alleged collusion.
South Korea’s LG Electronics Inc. said an independent investigation into a January laptop computer battery explosion showed that batteries used in such computers won’t blow up under normal conditions.
"An external shock under an extremely high temperature caused the explosion in January," the company said in a statement Tuesday, citing a test result report by the Korea Electrotechnology Research Institute, a state-sponsored power apparatus test firm.
"Under normal usage conditions, it is not possible for a notebook PC battery to combust," it said.
The company said tests did not reveal what initially caused the high temperature.
South Korean media reported that a laptop belonging to a South Korean journalist burst into flames after smoke began to emerge from it. The LG Electronics notebook computer was fitted with a battery manufactured by its affiliate LG Chem Ltd. There were no injuries.
Both companies have since investigated the incident to determine the exact cause of the explosion.
LG Chem said Tuesday it won’t recall the batteries used in the notebook computers by LG Electronics.
European finance ministers said France should aim to balance its budget by 2010, criticizing President Nicolas Sarkozy's government for pushing back its target by two years.
“It is key for all of us, it gives a clear signal that Europe as a whole has a common position,'' Austrian Finance Minister Wilhelm Molterer said of the 27 European Union nations' pledge last year to cut their budget deficits to zero by 2010. His German counterpart, Peer Steinbrueck, said large EU states should be “role models'' on the bloc's budget rules.
They spoke in Brussels ahead of a meeting of euro-area finance ministers, who will debate Sarkozy's move to delay balancing the French budget until 2012, abandoning the 2010 pledge made by his predecessor. France's budget deficit is set to widen to 2.7 percent of gross domestic product next year from 2.6 percent this year, according to European Commission forecasts, close to the EU limit of 3 percent of GDP.
“France not only asked for a couple of more years to balance its budget, it also uses growth projections that are very unrealistic, effectively placing themselves outside the EU rules,'' Dutch Finance Minister Wouter Bos said in The Hague before traveling to Brussels. “When bigger countries do not follow the rules, that is very damaging for the confidence in Europe.''
The EU relaxed the budget rules, which are in the Stability and Growth Pact, in 2005, easing penalties for noncompliance.
French Finance Minister Christine Lagarde said she hopes a change of tone at the European Central Bank that indicates it may consider cutting interest rates will be followed with action.
“When you hear the opening notes of a symphony, you are always waiting for what comes after,'' Lagarde said in Tokyo today where she is attending a meeting of officials from the Group of Seven nations.
ECB President Jean-Claude Trichet this week dropped a threat to raise rates after reports showed Europe is being infected by the U.S. slowdown. The region's service industries grew at the slowest pace in more than four years in January, and consumer and executive confidence fell to a two-year low.
Lagarde described a French television report that she may quit the government as “rubbish.''
BFM television reported yesterday, without saying where it got the information, that Lagarde may resign after local elections in March. BFM said she prepared a resignation letter two days ago because of disagreements with French President Nicolas Sarkozy over budget and industrial policy.
“I'm working hard to defend the principles and ideas and proposals of my president and there is not the slightest difference between his views and mine,'' she said.
Paulson Meeting
Lagarde met with U.S. Treasury Secretary Henry Paulson in Tokyo today before the G-7 meeting.
“He's concerned and we're concerned'' about the global economy, she said, while adding that Paulson told her the U.S. hasn't encouraged other economies to increase government spending to boost economic growth.
“He didn't use the word `recession' but he's clearly worried about the real-estate market,'' Lagarde said.
U.S. Treasury Undersecretary David McCormick last week urged the G-7 to “take prudent steps'' to shore up growth. German Finance Minister Peer Steinbrueck said yesterday that he has no plans for a fiscal stimulus package.
Lagarde also commented on the stronger euro, saying it “continues to pose difficulties for European exporters.'' The currency has gained 11.5 percent against the dollar in the past year.
While Lagarde after the G7 meeting today said Europeans were “sensitive'' to the ECB's change of tone, divisions within the 15-country sharing the currency about the euro's value resurfaced after having been toned down in past weeks.
“I'm not concerned about the strong euro,'' Germany's Steinbrueck told reporters in Tokyo.
U.S. service industries probably expanded in January at the slowest pace in almost a year as the housing slump deepened and consumer spending cooled, economists said before a report today.
The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of the economy, fell to 53 from 54.4 the prior month, according to the median forecast in a Bloomberg News survey. Readings greater than 50 signal growth. The group will also launch a new composite measure.
The worst housing slump in a quarter century is spreading throughout the economy, hurting businesses such as builders, retailers, wholesalers and mortgage lenders. Americans are spending less as job losses mount, raising the risk the economy may tip into a recession, economists said.
“The broader economy is likely succumbing to the housing and credit-market malaise,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “It suggests very modest growth in the new year.''
The Tempe, Arizona-based ISM will issue the report at 10 a.m. Washington time. Estimates in the Bloomberg survey of 66 economists ranged from 51 to 55. The projected reading would be the lowest since March.
The purchasing managers' group will also issue a new composite index that reflects changes in current measures of business activity, new orders, employment and supplier deliveries. The contribution from each sub-index will be equal.
New Index
The new composite index would have been 53.2 in December, according to Bloomberg calculations based on a formula provided by ISM.
The housing recession is hurting other parts the economy. Employers in January reduced payrolls for the first time in more than four years, the Labor Department reported last week. Service providers added 34,000 workers to payrolls after an increase of 143,000 in December. Builders trimmed staff by 27,000 workers.
“Risks to growth remain,'' Federal Reserve policy makers said Jan. 30 when they cut the benchmark interest rate by a half point. The action followed an emergency three-quarter-point reduction the prior week. Investors are betting policy makers will lower the rate by another half point next month, according to futures trading.
Manufacturing, which accounts for about 12 percent of the economy, unexpectedly expanded in January, showing business investment is holding up even as other areas weaken, according to a report from ISM last week.
Weaker Growth
Slower growth in services would be consistent with a cooling economy. Economic growth slowed to an annual rate of 0.6 percent in October through December, down from a 4.9 percent pace in the third quarter, according to government figures last week.
Residential construction dropped in the fourth quarter by the most in 26 years, making the housing recession the worst since 1982.
Consumer spending may provide less support to the economy as property values fall and unemployment increases, economists said. Auto sales slumped last month to the lowest level in more than two years, according to industry figures issued last week. Total spending increased in December at the slowest pace in six months.
Sears Holdings Corp. last week ousted Chief Executive Officer Aylwin Lewis after a drop in holiday sales, and Home Depot Inc., the world's largest home-improvement chain, cut 10 percent of the workforce at its Atlanta headquarters.
CVS Caremark Corp., the nation’s largest pharmacy chain, said Thursday that fourth-quarter profits nearly doubled with its acquisition of Caremark.
For the period ended Dec. 29, earnings after preferred dividends jumped to $811.2 million, or 55 cents per share, compared with $413.8 million, or 49 cents per share, in the previous year.
Excluding an income tax provision, profit rose to $860.3 million, or 58 cents per share, from $442.9 million, or 52 cents per share.
Analysts polled by Thomson Financial expected net income of 55 cents per share.
CVS Corp. acquired pharmacy-benefits manager Caremark Rx Inc. last March, creating one of the largest players in the prescription drug industry. CVS Caremark said acquisition-related costs took a penny per share off its quarterly profit.
Tom Ryan, CVS president and chief executive, said the company saw solid revenue growth and improved gross margins in both the retail and pharmacy benefits management segments. He said the company’s $5 billion share repurchase program should be complete by the end of the first quarter.
Sales leaped 82% to $21.94 billion from $12.07 billion a year ago. Consensus estimates for sales was $21.38 billion.
Retail pharmacy sales were $11.64 billion, while pharmacy services revenue was $11.61 billion.
Sales in stores open more than a year were up 3.4% from the previous year. Pharmacy same-store sales were somewhat hurt by the introduction of generic drugs, but rose 3.6%.
CVS operates 6,245 retail pharmacy stores and 56 specialty pharmacy stores, as well as mail order pharmacies in 44 states and the District of Columbia.
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