South America and India Will Not Suffer Pay Freezes According to Survey

Save up your chips

HONG KONG (Reuters) – A quarter of the world’s companies, and 40 percent in the United States, plan to freeze salaries this year, but employees in South America and India can look forward to robust rises, a global survey shows on Tuesday.

Employees in Japan, Lithuania and Ireland will see the lowest pay rises, according to the survey of 53 countries by London-based research company ECA International. In recession-hit Japan, half of companies plan to freeze salaries.

Globally, average salaries should increase 4.7 percent this year, down from a 6.2 percent rise in 2008, the survey shows.

“The economic upheaval since last September has prompted many firms to revise salary increases significantly from previous predictions,” said Lee Quane, ECA’s Asia director. “Our results show that, globally, companies have revised their forecasts down, on average, by more than a third.”

Companies in Venezuela, in contrast, are set to hand out the biggest pay rises this year, averaging 24 percent and up from 22 percent last year, followed by Argentina where pay is set to increase by 12 percent. Pay hikes in Brazil and Chile meanwhile will be higher than last year.

While pay in India is rising because of a talent shortage, by an expected 10.8 percent this year, pay rises in Latin America, Vietnam and Indonesia are being spurred partly by rising inflation.

Salaries in Vietnam and Indonesia are set to rise by 10.6 percent and 9 percent respectively.

In the United States, pay is expected to rise by just 2.8 percent, down from forecasts for a 4 percent rise in a similar survey taken by ECA in September, and 40 percent of firms will freeze pay.

Salaries across the Asia-Pacific are likely to rise 4.8 percent, compared with a 6.9 percent rise last year, but a third of companies in the region will freeze salaries, the survey shows.

Salaries in mainland China will hold up because of a talent shortage whereas pay in Japan, Singapore, Taiwan and China’s special autonomous region of Hong Kong, which are all in recession, will be marginal if at all, although the slowdown will be partly offset by receding inflation in Asia.

Salaries in Singapore and Hong Kong will increase by 2 percent, the same as in Western Europe, while in Eastern Europe they will increase by just under 5 percent. However, 29 percent of European companies plan to freeze salaries this year.

Salary rise rankings for 2009 for 53 countries:

Top 10 Bottom 10

1. Venezuela 43. Hong Kong

2. Argentina 43. Singapore

3. India 43. France

4. Vietnam 47. Taiwan

5. Egypt 47. Sweden

6. Indonesia 49. Switzerland

7. Russia 50. Canada

8. Romania 51. Irish Republic

9. South Africa 52. Lithuania

10. Latvia 53. Japan

Some say the chip rally is full of hope

HELSINKI (Reuters) – Shares in top semiconductor companies have outperformed rising markets in recent weeks, but there is scant evidence of a pick-up in demand for electronic goods to sustain that rally. Texas Instruments (TXN.N) said on March 9 that orders had started to improve in January and February, and since then others, including TSMC (2330.TW), Samsung (005930.KS) and Hynix (000660.KS), have also reported some scraps of comfort, but it has been mostly of the cold variety.

Alongside its slightly improved orders, Texas Instruments also noted chip demand was still dropping and there was no recovery in sight, and a boost for Hynix from higher DRAM chip prices was a consequence not of rising demand but of hugely reduced supply.

“We are starting to see some positive news for the first time in a long time, but we don’t think it’s a start of a sustained recovery,” said Gartner analyst Jon Erensen.

Erensen and other analysts say the positive news has been mostly caused by chip buyers’ inventory management after savage destocking, not an upturn in demand.

Still, shares in the sector have made much of little.

STMicro (STM.PA) shares have jumped 36 percent since March 9, while Infineon (IFXGn.DE) has almost tripled as improved sentiment has eased fears of potential financing problems.

In North America Texas Instruments is up 13 percent, Qualcomm (QCOM.O) has added 23 percent, and Intel (INTC.O) 26 percent.

In Asia, Hynix has rallied 74 percent, while other makers of DRAM memory chips, used mainly in PCs, have jumped on recovery hopes and on Taiwan’s plans to restructure the sector.

“There’s a little bit of rebound in expectations,” said Dale Ford, a senior analyst at research firm iSuppli, adding many companies decided to use their worst-case scenario when forecasting 2009 due to the poor visibility.

“Companies are starting to get a better feel of the magnitude of the downturn — they are starting to step back and say it’s not going to be as bad. It’s going to be bad, but not as bad,” Ford said.

While the chip industry’s history is marked with volatile cycles of shortages and oversupply, this time it faces a challenge that production cuts alone cannot solve, as consumers around the globe cut spending due to the economic downturn.

Consumer demand across Europe remains in the doldrums amid rising unemployment and fears of a deep recession, despite big cuts in interest rates and unprecedented government efforts to stimulate growth.

Demand in emerging markets has also started to slow as weaker local currencies increase prices.

“People have become very cautious. They do not purchase, or if they do, they go for cheaper products,” Erensen said.

For the chip industry’s key markets — personal computers and cell phones — forecasts for 2009 make grim reading.

Sales of PCs are expected to fall 12 percent, with sales in emerging markets contracting for the first time, while cell phone sales are expected to shrink 10 percent.

“We believe that the deteriorating macroeconomic conditions are likely to weigh on the fundamentals of the semiconductor industry until the end of 2009,” First Global analysts said in a note dated March 26.

“A slowdown in the global GDP will cause widespread weakness on the demand front,” they said.

Industry analysts say the semiconductor market is set to shrink more than 20 percent this year.

Some help for the industry could come from forced consolidation in the DRAM industry, where analysts say some producers will have to maintain utilization rates of under 50 percent this year due to tight cash and low prices.

The $20 billion DRAM industry has been mired in its worst-ever downturn for the last two years, with all major players reporting losses on their operations.

Germany’s Qimonda (QMNDQ.PK) filed for insolvency in January, and the Taiwanese government is trying to restructure the island’s moribund chip industry.

A senior Samsung (005930.KS) executive expects supply shortages to crop up in the global memory-chip market after severe cutbacks in production last year.

“You’re going to start to see spot shortages here and there,” Jim Elliott, Samsung’s vice president of Memory Marketing for the Americas, said in a recent interview.

And though Elliott said that could signal that the industry “could be moving toward some sort of recovery,” it is indicative more of past weakness than future strength.

Are these good bids ? Speculation abound

(Reuters) – About half a dozen investment managers have put forward bids, ranging between $400 million to $800 million, for troubled insurer American International Group’s asset management business, the Wall Street Journal reported, citing people familiar with the matter.

Private equity firms Ashmore Investment Management, Hellman & Friedman LLC, Rhone Group and TA Associates as well as mutual fund manager Franklin Templeton and asset manager Southgate Alternative Investments are among those who have shown interest, the Journal said in a report on its website.

The unit manages about $100 billion in private equity stakes, hedge fund interest and stocks and bonds and AIG hopes to conclude the sale by the end of May but could withdraw the sale if prices aren’t high enough, the report said.

The bids for AIG’s unit are below the typical prices for asset management businesses, which historically have been valued at 1 percent to 2 percent of assets, the Journal said.

Difficulties in valuing the unit’s private equity and hedge fund stakes and concerns over AIG personnel and clients defecting have led to bidders’ low prices, the report said.

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Details on Japan’s $100 billion stimulus will follow later this week

TOKYO — Japan’s central bank unveiled new steps to spur lending and its counterpart in Australia cut its benchmark interest rate to the lowest in nearly half a century Tuesday, highlighting concerns that the global economy remains in dire straits despite signs of a pick-up in China and elsewhere.

Japan, in particular, is caught up in a recession that economists say could be the worst since World War II, and both the government and the central bank have repeatedly stepped up their economy-bolstering efforts as the extent of the downturn has become clearer.

Prime Minister Taro Aso is expected to outline new stimulus measures this week that could be worth more than 2 percent of Japan’s gross domestic product, or $100 billion.

On Tuesday, the Bank of Japan left its benchmark interest rate unchanged at 0.1 percent but said it would accept loans on deeds to municipal governments as collateral from lenders. The move could help prop up regional banks, on which many of Japan’s smaller companies depend for loans.

Despite previous efforts by the central bank to loosen credit, companies said access to funds in March was the tightest in a decade, according to the central bank’s tankan corporate sentiment survey.

“As the economy worsens substantially, banks are tightening their lending to control credit risk, and that’s causing companies to worry,” Bank of Japan governor Masaaki Shirakawa told reporters. “Expanding the range of eligible collateral is meaningful in facilitating fund supply and ensuring financial market stability.”

Already burdened by weak domestic demand, Japan has also been hit hard by plunging exports — down by nearly half in the first two months of the year.

Data from Taiwan on Tuesday showed exports there, too, continuing to plunge: Exports in March were 35.7 percent below a year earlier, the seventh straight month of decline.

“Japan and Taiwan are the countries we are most concerned about in Asia, while the risk looks to be small and manageable for most other countries in the region,” said Robert Prior-Wandesforde and Frederic Neumann, economists at HSBC in a quarterly assessment of the region released Tuesday.

The picture looks less grave in Australia, where the central bank’s governor, Glenn Stevens, said that considerable fiscal stimulus spending in the country “should help contain the downturn” over the rest of the year.

The comments came as the central bank cut its benchmark cash rate by a quarter percentage point to 3 percent, its lowest level since March 1960. Since September, the bank has cut the rate by a total of 4.25 percentage points.

“There are tentative signs of stabilization in several countries, including China, though it is too early yet to judge how durable these will prove to be,” Mr. Stevens said.

China stands out as one of the few major economies in the world to escape recession this year, thanks mainly to the government’s ability to deploy huge financial resources to bolster growth.

The pace of growth in China has slowed rapidly, and the World Bank last month lowered its 2009 growth forecast for the country to 6.5 percent.

But at the same time, the bank said China remained a “relative bright spot in an otherwise gloomy global economy.”

Recent data have solidified hopes that the Chinese economy may have bottomed out — a development that will be crucial for the rest of the world, notably the emerging economies in southeast Asia.

On Tuesday, the World Bank said economic growth in the East Asia and Pacific region would likely reach 5.3 percent in 2009, down from 8 percent in 2008 and 11.4 percent in 2007.

But it said that as countries in the region — which includes China, Indonesia, the Philippines and Southeast Asia — prepare themselves for an expected surge in joblessness, “a ray of hope may be emerging with signs of China’s economy bottoming out by mid-2009.”

“A recovery in China — fueled largely by the country’s huge economic stimulus package — is likely to begin this year and take full hold in 2010, potentially contributing to the region’s stabilization, and perhaps recovery,” the World Bank added.

The HSBC economists echoed this view, saying: “the worst of the crisis may already have passed, with an aggressive policy stimulus beginning to lift Asia out of its recession over the coming quarters. Rising unemployment and growing deflationary pressures may yet slow the region’s ascent, but after hitting bottom, Asia is better placed than most to spring back.”

A closely watched purchasing managers’ index in China last week added support to the cautiously optimistic view on China. The index rose to 52.4 in March, from 49 the previous month. It was the first time since last September that the reading had risen above 50, which marks the dividing line between contraction and expansion — and it was the first in the world to return to expansionary territory. By contrast, the United States, Europe and Japan are still in the throes of a severe economic contraction, with the corresponding indexes in the United States at 31.4, in the European Union at 33.9 and in Japan at 33.8.

Bettina Wassener reported from Hong Kong and Meraiah Foley contributed reporting from Sydney.

U.S. futures are to the downside as well led by the banks

April 7 (Bloomberg) — Europe’s recession deepened more than estimated in the fourth quarter after companies scaled back production and consumer spending declined.

Gross domestic product in the euro region declined 1.6 percent from the previous three months, the most in at least 13 years, the European Union’s statistics office in Luxembourg said today, revising a March 5 estimate of a 1.5 percent contraction. Investment plunged 4 percent, also more than estimated, and household spending fell 0.3 percent.

The financial crisis is forcing companies from carmaker Volkswagen AG to software maker SAP AG to reduce output and cut jobs. The economy, which grew 0.8 percent in 2008, may shrink 4.1 percent this year, the Organization for Economic Cooperation and Development has forecast. The European Central Bank is examining possible new non-standard measures to stimulate the economy after cutting interest rates to a record low.

“The big picture remains one of exceptional weakness at the start of the year,” said Dominic Bryant, an economist at BNP Paribas in London. “While private consumption looks to have held up better than first thought, we doubt that it will last now that employment is falling.”

Euro Declines

The euro extended its declines after the report, dropping 1.1 percent to $1.3265 as of 11:50 a.m. in London.

Consumer spending fell 0.3 percent in the fourth quarter, less than the 0.9 percent estimate published last month, today’s report showed. Still, retail sales fell by a record 4 percent in February, according to data published yesterday.

Euro-area exports fell 6.7 percent in the fourth quarter from the previous three months and imports dropped 4.7 percent, according to today’s report. From a year earlier, overall GDP shrank 1.5 percent in the fourth quarter, the only full-year drop on record.

“In the past weeks, economists have significantly lowered their growth forecasts,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt, who expects the euro area economy to contract 4.5 percent this year. “Today’s downward revision therefore seems negligible.”

‘Room for Maneuver’

The ECB last week cut interest rates by 25 basis points to 1.25 percent, taking its reductions since early October to 300 basis points. Still, it’s lagging counterparts such as the U.S. Federal Reserve and the Bank of England, which have cut their key rates to almost zero and are pumping money into their economies by buying government and company securities.

The ECB is studying what else it can do to revive lending and economic growth, council members Guy Quaden and Michael Bonello told Bloomberg News in Prague after a meeting of finance ministers and central bankers on April 3 and April 4.

“There is still room for maneuver” and I confirm also that we are reflecting on other possible measures,” Quaden said. Bonello said when rates are at “historically” low levels, you have to “consider all the options.”

While the rate of contraction in European manufacturing and services industries may be easing, European leaders face increasing pressure as unemployment continues to increase, crushing consumer confidence.

The euro area jobless rate jumped to 8.5 percent in February, the highest in almost three years. Consumer sentiment fell to a record low last month, according to the European Commission.

“It is far from inconceivable” that the economic contraction “was even deeper in the first quarter, given largely dire data and survey evidence,” said Howard Archer, chief European economist at IHS Global Insight in London. “It will take time” for lower oil prices and interest rates and stimulus packages to generate a recovery, he said.