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European Business News (EBN), 97-06-06European Business News (EBN) Directory - Previous Article - Next ArticleFrom: The European Business News Server at <http://www.ebn.co.uk/>Page last updated Fri, June 06 5:58 PM CETCONTENTS
[01] German unemployment shows surprise jump; Labour Office blames Bonn's lack of job creation incentivesUnemployment in Germany rose by a seasonally adjusted 56,000 in May, the Federal Labor Office said , blaming the gain on scanty government efforts towards job creation and maintenance.The seasonally adjusted rise is much worse than economists had foreseen. A survey by Dow Jones had shown consensus expectations of a seasonally- adjusted decline of around 700 in unemployment in May. The unemployment rate, which is based on unadjusted data, fell to 11.1%, compared with 11.3% in April. Unadjusted, the jobless number fell by about 91,000, based mostly on seasonal factors, the office said. In April, unemployment rose a seasonally adjusted 9,000 persons, revised from the 8,000 reported previously. Labour Office President Bernhard Jagoda said the economy in May was not growing fast enough to revive Germany's flagging jobs market. 'The seasonal revival in the German jobs market stopped in May,' he said. 'As before the driving forces of the economy are insufficient to bring about a turnaround in the jobs market.' Jagoda said the previous government estimate for 3.95 million is 'no longer sustainable.' Most likely is an average of 4.29 million jobless, based on gross domestic product growth estimates of 2.25% for the year. Consequently, the office boosted its forecast for average unemployment in 1997 to between 4.2 million and 4.3 million. The worst case would be average jobless of 4.35 million, should GDP grow by 1.75%. In the best circumstances with GDP growing 2.75%, the number of jobless could be 4.23 million, still well above the original forecast. The government is reckoning with an average 2.5% GDP growth rate in 1997, with most economists estimating growth between 2.0% and 2.5%. 'As before, the economic impulse for a turnaround on the Labor market are insufficient,' Jagoda said, citing also a lack of government efforts toward job creation. Separately, the Deutsche Bundesbank released seasonally adjusted jobs data for all of Germany. According to the Bundesbank, the May unemployment rate was 11.4% on a seasonally adjusted basis, compared to 11.2% in April. The number of jobless was 4.36 million, compared to 4.30 million in April. Economists were surprised at the increase in May's seasonally adjusted jobless. 'The employment data are naturally a great disappointment,' said Peter Pietsch, an economist at Commerzbank AG in Frankfurt. 'We had hoped that the general recovery in the economy would have reached the employment market by now.' [02] US jobless rate falls to lowest level in nearly 24 years But slowdown in jobs creation and inflationary pressure fuel fears of a rate riseThe US unemployment rate in May fell to its lowest level in nearly 24 years, fuelling fears of a rate rise next monthThe Labor Department said the unemployment rate edged down to 4.8% in May -- its lowest level since October 1973-- from 4.9% in April. But payrolls rose by just 138,000 last month after increasing by a whopping 323,000 in April. The payroll data fell below expectations of a 225,000 increase. The unemployment rate, however, came in lower than expected at 4.8%, from 4.9% in April. Analysts had forecast May unemployment of 5%. The dollar was boosted against the Deutsche mark on the news. 'It's a very strong number,' said Chris Iggo, foreign exchange economist at Barclays Bank in New York, 'I think it's bullish for the dollar.' 'Coupled with the revision of March and April payroll numbers, we think that the Fed will probably increase U.S. interest rates at its next policy meeting on July 1 and 2,' Iggo said. He predicted the dollar would continue to post 'consistent gains' versus the mark over the next weeks, to eventually reach 1.8000 marks. 'If you contrast the employment situation in the U.S. with the employment situation in Germany, it's a very bullish outlook for the dollar.' The dollar reached a three-year high against the Deutsche mark at 1.7423 marks just after the release of the data. Just before the data was released, the dollar traded as high as 1.7390 marks. The latest information on employment doesn't point toward an acceleration in job growth. But the balance of recent data doesn't suggest growth has slowed significantly in 1997, a prediction many Wall Street economists and Federal Reserve officials made last year. And this has added to fears of an interest rate boost at the next meeting of the Federal Reserve Board's Federal Open Market Committee. In addition, inflationary pressure remained in the labour market, with wages continuing to rise steadily -- a factor closely followed by the Federal Reserve in deciding interest rate hikes. Average hourly earnings in May in the private nonfarm sector were up 4 cents from the previous month to 12.19 dollars, and up 3.8% from a year earlier. The upward revisions to previous months reflected changes by the Labor Department in the latest month, including an annual benchmark revision, and updated seasonal adjustment factors, an enhancement of the sample the agency uses in collecting labour information. 'The labour markets are clearly very tight,' says Steven Wood, economist at BA Securities in San Francisco. [03] Bank of England raises rates second time in two months, in line with expectationsThe second consecutive rise in U.K. interest rates in just two months didn't come as a great surprise to most market participants.A survey of economists carried out by Dow Jones earlier in the week had found a slight majority expecting to see a rate rise following the initial meeting of the newly independent Bank of England's monetary policy committee. In the event, the committee didn't hesitate to bare its teeth and raise rates by a quarter of a point to 6.5%. The rise didn't have a great deal of impact in the money markets, where it had been largely factored in. Geoff Brookes, markets analyst at Sakura Bank, said the rate rise was not the first of many to come. He predicted that rates would not have to exceed 7% because the economy would slow down in 1998 on the back of a tight fiscal budget and a weaker currency. Jonathan Loynes, U.K. economist at HSBC Greenwell, had earlier thought that the committee would have held off for a month or so because of the proximity of the last increase. ''It must have decided that there was a pretty urgent need to raise rates to act so early,'' he said. A strong signal has also been dispatched to Chancellor of the Exchequer Gordon Brown that the committee will have no hesitation in making further rate hikes if he fails to act to slow down the economy at his mini-budget. ''If Brown is unwilling to take the bull by the horns, the committee has demonstrated that it won't be,'' added Loynes. A recent slew of economic data showing slower growth had prompted calls for the monetary policy committee to wait until after the mini-budget on July 2 before making its mind up. Perhaps the best news came on underlying earnings growth where February's 5% estimate was revised down to 4.5% with March unchanged. ''There's no clear justification to raise rates today from looking at economic data since the last rise,'' said Andy Cates, U.K. economist at UBS Ltd. He pointed to downward revisions to gross domestic product, weaker consumer credit, a poor Confederation of British Industry distributive trades survey and the continuing strength of sterling. Cates predicted that interest rates would not have to rise beyond 7% before the end of the year since the economy has shown no signs of overheating. Stephen Cunningham, AP-Dow Jones, London[04] Cable & Wireless shares climb as Hong Kong Telcom confirms Chinese negotiationsShares in Cable & Wireless are up after Hong Kong Telecom, a 59% subsidiary, confirmed that C&W is in talks with the Chinese government over its future when the colony is handed back later this year. In Hong Kong, shares in HK Telecom rose 5.8%.Details of the report in Friday's editions of Ming Pao Daily News, based on authoritative sources, were sketchy. But it said Hong Kong Telecom had sent a team of auditors to Beijing to study the books of a ministry operation involved in fixed line and mobile telephone services, which may point to an asset swap. Hong Kong Telecom said it is aware of ongoing talks between its parent company, Cable & Wireless, and the ministry. Those talks are the result of an Oct. 30, 1996, memorandum of understanding on 'future cooperation,' Hong Kong Telecom said to the Stock Exchange of Hong Kong. 'We understand that these discussions are continuing but there is no certainty as to how and when these will be concluded or as to their effect in relation with Hong Kong Telecom,' the statement said. 'Hong Kong Telecom and China's Ministry of Posts and Telecommunications have already reached an agreement in principle on stake holding matters,' said Ming Pao. It didn't tie Cable & Wireless into that part of the deal. The Ming Pao report quoted earlier media speculation that Cable & Wireless was considering selling a 20% enlarged stake in Hong Kong Telecom in exchange for the ministry's 49% interest in the GSM Network, a mobile telephone system. [05] Jospin says he will not seek to renegotiate MaastrichtNew French Socialist Premier Lionel Jospin said that he does not want a softening of the entry criteria to join the euro, the European single currency due to come into effect in 1999.Asked if he intended to renegotiate the Maastricht Treaty limiting the budget deficit of euro-participants by next year, Jospin said 'those rumours are without foundation... when have you ever heard me say that.' The French premier spoke in an interview with before addressing a meeting of European socialist leaders in Malmo, Sweden. The left-wing coalition, that includes Communists and ecologists, overturned the conservative government in parliamentary elections last Sunday. Jospin's pre-election job plan envisaged a reduction in working hours with no cut in pay. According to a new poll, the French are also skeptical about the realities of Jospin's jobs programme. On the left's plans to cut the work week from 39 to 35 hours without a pay cut, 50% were opposed and only 35% were in favour, a survey by Ipsos for the newsweekly Le Point said. A study by the Labour Ministry published by Liberation indicated that only 14% of people were prepared to accept a pay cut with fewer work hours. Union leader Notat also said that social security 'spending had to be reduced without rationing health care.' Welfare cuts, which sparked numerous strikes under the former conservative government, are considered vital to reducing France's budget deficit from 4.2 to 3% of gross domestic product. The labour leader also sounded a warning on the left's promise to create 700,000 jobs (350,000 in the public service). 'Systematic aid to enterprises so that they employ young people would be expensive for a result which is not justified,' Notat told Liberation. Finance Minister Dominique Strauss-Kahn is reportedly also guarded in his support of his premier's job creation promises. The pro-euro minister backs the Socialists' call for creating 350,000 youth jobs in the private sector with a new payroll tax, but not the 350,000 youth jobs in the already bloated state sector that employs one-fourth of the nation's work force. By Matthew Gledhill [06] New French Transport Minister says he won't privatize Air France or SNCFA Communist government minister and a Communist-led union put pressure on France's new left-wing coalition Friday, while Socialist Premier Lionel Jospin sought to give his policies a moderate tone.French Transport Minister Jean-Claude Gayssot, one of three Communists in the government, stressed support for the public sector and said he would not privatize Air France or state SNCF railways. 'Nobody expects Gayssot will become the minister for privatisations, deregulation and ultra-liberalism,' he said. Gayssot also lashed out at the 'ultra free-market policies at a European level.' It was the first challenge since the left-wing coalition, which includes Communists and ecologists, overturned President Jacques Chirac's conservative government in parliamentary elections last Sunday, forcing Chirac to share power. Gayssot is charged with reforming the money-losing state rail company SNCF, whose employees led crippling strikes against the conservative government's efforts to cut spending to match euro criteria. Meanwhile, prominent union leader Louis Viannet opposed the premier's position on Europe in an interview in the Saturday edition of Le Monde newspaper. Jospin has argued that the treaty permits members to show a trend toward deficit cutting, instead of strictly holding their deficits to 3% of GDP. 'What is happening in our country and to our European neighbours incontestably calls into question the (Maastricht) criteria,' the head of the communist-led General Labour Federation said. France needs to cut its budget deficit from 4.2 to 3% of gross domestic product by the end of this year to match the Maastricht demands. [07] Blair says left must 'modernize or die'In back-to-back speeches to a meeting of the Party of European Socialists, U.K. Prime Minister, Tony Blair, and French Prime Minister, Lionel Jospin, said the left cannot achieve its goals of a just and humane society unless jobs are the top priority.One of Blair's main tasks will be to lower Britain's unemployment, which stands at about 6%; the 15-nation EU has an overall joblessness rate of 10.9%. 'We say there is a role for government: market forces are not a new god. But the role of government has changed: today it is to give people the education, skills, and technical know-how they need to let their own enterprise and talent flourish in the new marketplace,' he said. Jospin, a more traditional leftist politician than Blair, echoed some of Blair's call: 'Employment must be at the heart of all our policies.' But he emphasized the necessity of making 'non-profitable short-term investments' in public projects and said strengthening central services ultimately can create jobs. Jospin, who won the prime ministerial post just this week, has promised to create hundreds of thousands of public jobs, to lower France's jobless rate of 12.8%. The spending for that could push France's national debt beyond the level permitted for entry into the European Union's single-currency system. Blair went on to say the left must 'modernize or die,' emphasizing the global economic developments that put socialists under new pressures.The two most prominent leaders of the resurgent European left, British Prime Minister Tony Blair and his French counterpart Lionel Jospin, have said that employment is at the heart of the movement's challenges. 'Sometimes over the last decade, we looked like defenders of a fading industrial past,' he said. 'The old left thought the argument was just more spending or regulation. The right say sink or swim in the marketplace,' Blair said. [08] Xerox buys out Rank Group for $1.6 billionRank Group said it finally got the price it wanted for its remaining 20% interest in Rank Xerox - £1 billion pounds ($1.6 billion) from U.S.-based Xerox Corp.Xerox, based in Stamford, Connecticut, began purchasing Rank's interest in their European copying machine venture more than two years ago. Xerox will pay £500 million pounds at the close of the deal, with the rest paid in instalments. Rank, an entertainment company, made it clear that it wanted to get out completely, presumably by selling the rest to Xerox, as soon as the price was right. In last year's earnings report, Rank even took a variety of accounting charges to accommodate disposal of the Rank Xerox business, which was formed in 1956. Rank said the sale was expected to have a broadly neutral effect on its earnings per share this year. The company said it expected a share buyback of up to £250 million later this year and would use the balance of the initial consideration to cut debt and invest in its leisure and entertainment businesses. Xerox said that using the $1.5 billion to fund the acquisition will produce greater shareholder value than continuing the share repurchase programme. However, Xerox said it may resume the programme in the future. [09] Gaddum says Bundesbank had no advance knowledge of revaluation planDeutsche Bundesbank Vice President Johann Wilhelm Gaddum said that the Bundesbank had not had detailed advance knowledge of Finance Minister Theo Waigel's plans to revalue gold and currency reserves held by the central bank, with a view to transferring subsequent one-off profits to the government.He said that the central bank council had first learned of the plan when Waigel attended a council meeting about three weeks ago. Gaddum declined to comment on the details of the compromise currently being worked out between the Bundesbank and the federal government. He said that in any case, a change of the Bundesbank law will be necessary for the transition to the European Central Bank. Most of Europe's central banks are currently working toward valuing their assets closer to market value in preparation for joining the ECB. In a separate report, Gaddum said that recent changes to Europe's political situtation shouldn't make any substantial difference to the interpretation of the Maastricht Treaty's chapter on economic and monetary union. ''We are working on the assumption we have a treaty and that Parliament will declare'' whether the treaty is interpreted properly at the selection of EMU participants in 1998, Gaddum said. ''The framework has been defined. I see no room to soften the criteria,'' he said. Asked about the plans of the new French government, which has said it will ask for a renegotiation of the so-called stability and growth pact, Gaddum replied, ''We feel that what has been agreed already is valid.'' And with the European Parliament also seeking to push through amendments that would weaken the pact, Gaddum conceded that ''it's impossible to say yet what effects the new political constellation in Europe will have.'' Separately, a senior E.U. Commission official said there has been no indication 'whatsoever' from the French government that it intends to re- open discussion of the European Union's single currency budget pact. The official was responding to currency market concerns that the new socialist-led government in France, represented in Luxembourg by finance minister Dominique Strauss-Kahn, would demand substantial changes in the pact and thereby anger other E.U. countries, notably Germany. Gaddum declined to comment on Germany's chances of cutting its budget deficit to 3% of gross domestic product on 1997. He stressed however, that ''it is important that...sustainability (of the fiscal position) must be guaranteed.'' [10] Corporate and Economic BriefsDutch consumer prices in the Netherlands rose 2.2% in May from the same month a year earlier, and showed a 0.3% increase from the previous month, the Dutch Central Bureau for Statistics said. According to the CBS, the consumer price index in May registered 119.2 points, up from 118.9 in April, and from 116.6 in May of last year.German construction group Philipp Holzmann has said it will sell its 29.5% stake in British construction company Tilbury Douglas to Tilbury as part of its restructuring. 'The existing good cooperation between Philipp Holzmann and Tilbury Douglas won't be affected by the sale of the stake,' Holzmann said in a press statement. Financial details of the plan weren't disclosed, Holzmann added. Tesco said that like-for-like sales in the 14 weeks ended May 31 rose 5.1% from a year ago. Speaking at the shareholders' annual general meeting, Chairman Lord MacLaurin said that U.K. sales are 9% higher from a year ago, '' with new stores continuing to trade well.'' The Paris-based International Energy Agency has revised up by 0.3 million barrels per day its forecast for the call on OPEC in the second quarter of 1997 to 24.6 million b/d. In its end-May report, the IEA revised its forecast for the fourth quarter call on Opec to 26.2 million b/d, up 0.5 million b/d from the end-April report and adjusted the average call on Opec in 1997 to 25.5 million b/d, up 0.2 million b/d. For 1997, the IEA's latest report put world demand at 72.2 million b/d for the second quarter, and 72.7 million b/d for the third quarter, an upwards revision of 0.5 million b/d and 0.1 million b/d respectively. Its full year demand forecast was revised up by 0.1 million b/d to 73.7 million b/d. Swedish lock maker Assa Abloy said it will buy 83% of Czech lock company FAB a.s. Rychnov nad Kreznou. Assa Abloy expects the purchase to have a positive impact on the group's profit per share in 1997, due to FAB's 'good and stable profit margins and growth potential,' the Swedish company said. FAB is the Czech Republic's leading lock maker with a 70% market share and sales of 150 million Swedish kronor ($19.3 dollars) last year, Assa Abloy said. FAB's 1996 pretax profit reached 25 million kronor. [11] World News BriefsSierra Leone's military coup makers and their rebel allies have told Nigeria, West Africa's regional power broker, that it would have to use force to reinstate toppled civilian president Ahmad Tejan Kabbah.Indonesia has cancelled a deal to buy nine F-16 fighter jets from the United States because U.S. congressmen have criticized Indonesia's human rights record. 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