Economy: Possible eurozone recession; China unveils 2012 policy

Updated On: Dec 15, 2011

Ernst & Young says the eurozone economy is likely to slip back into a recession, and its leaders’ new plan to end the debt crisis hasn’t completely eliminated the risk of a breakup of the currency region.

Meanwhile, China's leaders have released a statement on the economic policy for next year, focusing on growth and domestic consumption. Deutsche Bank also believes China may let Singapore host a yuan-clearing bank in 2012, as the country seeks to promote the use of the yuan overseas.

Finally, Japanese camera maker Olympus has posted revised financial results, owning up to more than US$1 billion in losses and narrowly avoiding being delisted by the Tokyo Stock Exchange.

Ernst & Young Report

A "mild" recession is likely in the first half of next year, leading to economic growth of just 0.1 percent for the whole of 2012, according to a new report released by the audit firm.

The Ernst & Young forecast is even more pessimistic than official European figures released last month. The European Commission is forecasting euro area growth of 0.5 percent in 2012, with zero quarter-on-quarter growth in the first three months of the year.

But Ernst & Young sees euro-region expansion accelerating at the end of 2012, and forecasts growth of between 1.5 percent and 2 percent from 2013, similar to official estimates.

Still, that won’t be enough to reduce unemployment to below 10 percent until 2015, the firm said.

Greek Recession

Meanwhile, Greece - Europe's most indebted country - said that it would have its worst recession ever in 2011.

Greek Prime Minister Lucas Papademos warned on Wednesday that his country's contraction would be greater than the 5.5 percent currently forecast.

Report: Eurozone faces winter recession, Ernst & Young says [BBC, 15 Dec 2011]

Report: Euro Region Faces Recession as Breakup Risk Remains, E&Y Says [Bloomberg, 14 Dec 2011]

European Doubts

On Friday, all countries in the 27-nation European Union except Britain agreed to a summit deal aimed at signing a new economic accord by March 2012. The new deal means governments must obey mandatory caps on borrowing and spending.

But doubts are rising over the ability of European nations to fully enact the promised pact.

The Czech Republic and Sweden warned this week that it was still too early to tell if they would ultimately sign on. In other countries, including Denmark and even France, there is emerging political opposition to the accord could complicate attempts to ratify it. Ireland, where polls have shown strong public opposition, may need to hold a national referendum before enacting it.

Report: European debt crisis: Optimism fades less than a week after summit deal[Washington Post, 15 Dec 2011]

China's Economic Policy for 2012

Meanwhile, China's leaders have pledged to maintain growth and social stability amid rising global risks by stepping up social spending and expanding domestic consumption.

That's according to a statement by the Chinese government, released after a meeting of the central economic work conference. The annual gathering of top policy makers and political leaders sets China's economic policy for the coming year.

"The focus on expanding domestic demand should be more on protecting and improving people's livelihoods," the statement said.

China next year will also push forward with structural tax cuts, reform of business-income taxes and value-added taxes, and experimental property-tax reforms.

The statement added that China will keep the yuan's exchange rate basically stable while continuing to reform the exchange-rate mechanism, reiterating language used by officials in the past. The statement also noted that China will deepen market-oriented interest-rate reform, but gave no specific timeline.

Analysts say the statement is more pro-growth than the one issued last year. Chinese authorities have recently shifted their focus away from controlling inflation and toward insulating China from Europe's economic troubles.

Also on Wednesday, the People's Bank of China released data showing that lending fell slightly in November compared with October but remained elevated.

Report: China Outlines Economic Policy for 2012 [Wall Street Journal, 15 Dec 2011]

Yuan-Clearing Bank in Singapore?

In related news, the People's Bank of China may let Singapore host a yuan-clearing bank in 2012, which will make it the second place after Hong Kong outside of the mainland to have one.

Singapore is the most likely location for a new yuan-clearing bank, according to a report by Deutsche Bank. London and New York are other candidates.

China is seeking to promote the use of the yuan overseas as part of a longer-term plan to make it an international reserve currency along with the US dollar.

Report: Deutsche: China may appoint yuan-clearing bank in S'pore [Today, 15 Dec 2011]

Olympus Avoids De-Listing

Japanese camera maker Olympus has released revised financial results, admitting the over US$1 billion in losses it hid for more than a decade.

The revised results were posted just ahead of a Wednesday deadline. By revealing the results, Olympus has avoided having its shares delisted by the Tokyo Stock Exchange - at least temporarily.

But the company’s auditor, KPMG AZSA, was unwilling to give Olympus a clean bill of health, saying the firm had been unable to verify all the money flows involved in the cover-up which began in the 1990s.

The Tokyo Stock Exchange could still delist Olympus if it deemed the company's past financial transgressions a serious offense.

On Wednesday, the company’s former president turned whistle-blower, Michael C. Woodford, took his case for returning to Olympus directly to the Japanese public. He answered questions from viewers, including the company’s employees, on a live program streamed on an Internet news and entertainment site.

Report: Olympus Restates Earnings, Showing Loss [New York Times, 15 Dec 2011]

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