Global Economic News

The Bottom Is Falling Out of the German Economy

March 23 (EIRNS)—Efforts by the German government to keep unemployment down, by various measures like short work on a massive scale, will not work. Such measures were designed to score points with the voters for the European election in June and the German Federal election in September. Some elements of the truth are coming out:

* A study by Commerzbank economists, published March 23, predicts that the German GDP is going to collapse by 6-7% this year, whereas before a 3-4% drop was anticipated. Commerzbank chief economist Jörg Krämer writes that this is especially due to the "dramatic collapse" of orders and production in January, which "had no precedent in German post-war history."

* The head of the German National Unemployment Office, Frank-Jürgen Weise, warned that unemployment could be much higher than expected, that is, 4 million by the end of the year. So far, his office had calculated an increase in unemployment from 3.6 million (in February, over 7%) to 3.6 million by the end of the year. The Halle Institute for Economic Research (IWH) already has calculated its estimate of 4.5 million in 2010.

* The vast effect on the foundations of physical economy is starting to dawn on some people. The boss of Boston Consulting in Germany, Christian Veith, warns firms against making too many layoffs, especially of skilled people. If you do that, "you endanger the future." Also, the chief advisor of Chancellor Merkel, Joachim Milberg, in a position paper for the Technical Academy (Acatrech), warned that the number of retired engineers in 2015 will increase from 37,000 per year today to 43,000. At present, Germany is only graduating 44,000 new engineers. The study demands that firms and the state invest in the future, lest there be a shortage of skilled people, once the economy should get going again. How that will happen, they do not say.

Rio Tinto Acknowledges Falling Iron Ore Prices

March 25 (EIRNS)—The Financial Times on March 25 reported that at a mining conference in Perth, Australia, Rio Tinto "became the first global miner to acknowledge publicly that annual contract iron ore prices for the year starting in April will fall as demand for steel collapses amid the economic crisis." Sam Walsh, head of Rio Tinto's iron ore division, said, "We need to recognize the fundamentals of the market and the market would show that there does need to be a downward adjustment." The company's acknowledgement "signals that the industry is about to break with six consecutive years of price increases totaling 500 per cent, which had been propelled by the industrialization and urbanization of China, the world's largest iron ore consumer."

Millions 'Wasted' in African Water Projects

March 20 (EIRNS)—"Hundreds of millions of dollars on aid projects to provide water and sanitation in Africa have been wasted, as the projects have failed," according to a new report cited in the London Financial Times today. The problem, notes the article, "is that aid organisations and governments are keen to provide the initial infrastructure, such as boreholes, pumps, wells and sanitary facilities, but without money to maintain them these can quickly fall into disrepair, so that local people return to their prior, often unsafe, sources of drinking water." The report "estimates that somewhere between $215 million and $360 million has been wasted on water infrastructure," and "about 50,000 boreholes, wells and other water supply points have fallen into disrepair."

Lee: U.S. Auto Labor Is Cheaper Than Korean

March 27 (EIRNS)—South Korean President Lee Myung-bak told his country's automakers yesterday "to do everything they can to overcome the economic slowdown before seeking government assistance, saying their workers may be getting more benefits than those of international competitors," according to the Yonhap press agency.

The President that noted the average salary of workers at Hyundai Motors, the country's largest automaker, is higher than that of American employees at the company's Alabama factory, though productivity has lagged behind that of the U.S. plant.

Labor and management will first have to announce "drastic measures" to prop themselves up, the President said. In other words, government measures to aid the auto industry, such as reduced taxes, are contingent on "drastic" wage and benefit reductions and other cost-saving measures such as "job sharing."

British Bond Auction Fails, Discrediting Brown

March 26 (EIRNS)—A British government bond auction failed for the first time since 1995, just as Prime Minister Gordon Brown was on Wall Street yesterday, trying to show himself off as the world's economic savior.

The £1.75 billion ($2.6 billion) sale of 40-year Gilts (bonds) only got 1.63 billion pounds in bids, which is said to be the worst show of interest in Gilts by investors in the history of their sales.

Both the IMF and the European Commission have forecast that Britain is heading towards the biggest budget deficit of all the G-20 countries—11% of GDP.

"The notion that Brown is leading us to the promised land is laughable," Bloomberg.com quotes one British banker as saying. "He cannot get to grips with how other people see this country, as the sick man of Europe."