Finance news. My opinion.

German consumer confidence rose to a 15-month high as the economic recovery and falling prices boosted households’ income expectations.

GfK AG’s sentiment index for September, based on a survey of about 2,000 people, increased to 3.7 from a revised 3.4 in August, the Nuremberg-based market-research company said in a statement today. That’s the highest reading since June 2008. Economists expected the index to advance to 3.6 from the initial August estimate of 3.5, the median of 28 forecasts in a Bloomberg News survey showed.

The German economy, Europe’s largest, unexpectedly emerged from recession in the second quarter as government stimulus measures, such as a 2,500-euro ($3,557) subsidy for people who scrap an old car to buy a new one, propped up consumption. Business and investor confidence jumped this month, signaling the economic recovery may gather momentum.

“Economic pessimism is continuing to wane,” GfK said in the statement. Also, “inflation is disappearing, meaning people have more money in their pocket. This leads to rising income expectations.”

German consumer prices fell 0.7 percent in July from a year earlier, the first annual drop in more than 22 years. Oil prices have more than halved from their peak last year.

GfK’s measure of economic expectations rose to minus 7.5 from minus 14. A gauge of income expectations jumped to 8.8 from 1.8 and an index of consumers’ propensity to spend increased to 31.1 from 25.1.

The government of Chancellor Angela Merkel, who will seek a second term in office in national elections on Sept. 27, is spending about 85 billion euros ($121 billion) to revive the economy, which it predicts will contract 6 percent this year.

The Bundesbank expects unemployment to rise to 10.5 percent next year from 8.3 percent today.

GfK said further gains in consumer confidence will depend on how much the labor market deteriorates. “A strong increase in joblessness would certainly weigh on the consumer climate,” it said.

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Ben S. Bernanke’s renomination allows him to redefine the Federal Reserve’s mission as he expands its power over financial markets and pulls back on a credit surge the central bank used to keep the economy from collapse, economists say.

Bernanke’s agenda during the next four years will include elevating the Fed’s role in reducing excessive risk in major financial institutions, figuring out how to curtail asset bubbles, and scaling back $1.2 trillion of monetary stimulus.

“He will have the opportunity to permanently change the structure of the Federal Reserve system,” said Vincent Reinhart, a former director of the Fed’s Monetary Affairs Division who’s now a resident scholar at the American Enterprise Institute, a Washington-based research group.

President Barack Obama nominated Bernanke, 55, for a second term yesterday, lauding the Fed chairman for helping “put the brakes on our economic free fall.”

Bernanke, a former Princeton University economist, has already set in place numerous changes since he took over from Alan Greenspan in February 2006. He’s forced more cooperation between bank supervisors and staff economists and steered the Fed toward greater transparency. He’s also made his office more accessible, explaining his actions to the public on the CBS Corp. television program “60 Minutes” and at a town-hall meeting in Kansas City, Missouri.

Volcker’s Legacy

Bernanke has been a steward of former Fed Chairman Paul Volcker’s legacy of establishing a regime of low inflation. His own imprint will be different, however, because he will help make explicit the Fed’s role in assuring financial stability, said Al Broaddus, former president of the Richmond Fed.

Volcker’s “job was to get monetary policy, the true engine of inflation, under control,” Broaddus said. Bernanke’s actions in confronting the credit crisis put the Federal Reserve’s responsibility for financial stability “in strong relief” and “cemented that unwritten mandate,” he said.

Now, the Obama administration is seeking to give the Fed an even larger mission.

The administration wants the central bank to dictate capital, liquidity and risk-management standards at the nation’s biggest financial companies. That proposal has met with congressional resistance.

The Senate Banking Committee “should carefully examine the impact of the Fed’s failures as a bank regulator, how such failures contributed to the financial crisis, and whether Chairman Bernanke’s performance as the chief regulator merits his reconfirmation,” Senator Richard Shelby of Alabama, the top Republican on the panel, said in a statement yesterday.

Ramping Up Role

Bernanke is already preparing to play a larger part in oversight, no matter how Congress rewrites the rules. Fed bank examiners are putting more emphasis on comparing the risks inside one large bank with those faced by other big lenders.

The stakes are high, said Henry Kaufman, president of Henry Kaufman & Co. in New York. Success in overhauling supervision of the financial system would mean “improved economic conditions for an extended period of time,” Kaufman said. Failure would mean a return to “continued volatility.”

The Obama plan also envisions a permanent role for Bernanke’s broadened use of the Fed as lender of last resort. The Board of Governors used emergency powers to rescue American International Group Inc., as well as markets for commercial paper, housing bonds and asset-backed securities. In the process, the Fed’s balance sheet expanded by $1.2 trillion over the past year.

‘Mondustrial Policy’

Regional Fed bank presidents and scholars are divided over the Fed’s direction. John Taylor, an economics professor at Stanford University, is concerned that emergency loans will draw the central bank into allocating credit to politically favored industries, such as housing. Taylor, a former Treasury undersecretary, calls such actions by the monetary authority “mondustrial policy.”

Some investors say such loans add to political pressure to continue extending credit to satisfy interest groups, threatening the Fed’s goal of keeping inflation low.

“What they are doing is not monetary policy,” said Axel Merk, who has moved the $352 million Merk Hard Currency Fund away from dollar assets to avoid inflation. “His credit programs are fiscal policies. They are inviting political scrutiny and jeopardizing independence. It is a very dangerous road to be on.”

‘Intense Financial Crisis’

Others praise Bernanke for averting a global meltdown.

“His biggest legacy for sure will be having designed and implemented a policy for dealing with an intense financial crisis,” said former Fed governor Laurence Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers LLC. “Here is what is amazing: It was ad hoc, yet it looks very good.”

Bernanke’s first test on inflation will be reversing the $1.2 trillion in additional Fed credit his policies created. The challenge will be to maintain the Fed’s credibility for keeping prices stable, while avoiding a premature increase in interest rates that may snuff out an emerging recovery.

The chairman devoted a section of his semiannual testimony before Congress in July to his exit strategy, saying the Fed could neutralize money in the banking system through tools such as interest on reserves, reverse repurchase agreements, or outright sales of securities.

Unemployment Peaking

Traders in federal funds futures see a rising probability of an interest rate increase in March. The federal funds rate has been in a range of zero to 0.25 percent since December.

A March rate rise would occur in the quarter when economists forecast the unemployment rate to peak at 10 percent, according to the median estimate of a Bloomberg News survey. That could add momentum to legislative proposals that would expose Fed policy-making to greater examination.

U.S. Representative Ron Paul, a Texas Republican, has written legislation that would open the Fed’s monetary policy to audits. The measure has 282 co-sponsors in the House, according to Paul’s Web site.

The timing of any tightening move is “is going to be very tricky,” said Julia Coronado, senior economist at BNP Paribas in New York and a former member of the Fed Board research staff.

Much of the criticism of the Fed from Congress stems from its failure to curb asset bubbles. Subprime-mortgage originations jumped to $600 billion in 2006 from $310 billion in 2003, according to estimates by Inside Mortgage Finance. Fed officials were reluctant to raise interest rates to slow down credit growth.

Siding With Greenspan

As a Fed governor in 2002, Bernanke sided with Greenspan and said “monetary policy cannot be directed finely enough to guide asset prices without risking severe collateral damage to the economy.”

He is likely to maintain a preference for what regulators call “supervisory tools.” Yet he’ll also probably remain open to any solution. Even the use of interest rates is back on the table for some officials.

Janet Yellen, president of the San Francisco Fed, said in June, “In certain circumstances, the answer as to whether monetary policy should play a role may be a qualified yes.”

After an eventful four years, investors are now looking to the central bank for stability, said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., which manages the world’s largest bond fund, in Newport Beach, California.

“Crisis management defined Bernanke’s first term,” he said. “Markets look to Bernanke for policy continuity and, when the time comes, an eventual orderly exit from a complex set of unconventional policies.”

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The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.

The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.

Commercial property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. The extension may help firms such as Vornado Realty Trust, which is considering the sale of commercial MBS through the TALF. Almost $165 billion of mortgages for skyscrapers, shopping malls and hotels are due this year.

While financial-market conditions “have improved considerably in recent months,” the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,” the Fed and Treasury said.

The central bank said it doesn’t intend to make other types of collateral eligible for the program, indicating officials rejected adding residential mortgage-backed securities after considering such a move for several months. The Fed didn’t rule out a future expansion.

Door Open

Policy makers also left the door open to prolonging the program beyond the new expiration dates, saying they “will consider in the future whether unusual and exigent circumstances warrant a further extension.”

While extending the TALF, the Fed is trimming or ending other emergency programs. Last week, officials decided to phase out their $300 billion of Treasury-bond purchases through the end of October. The Fed has reduced sales of Term Auction Facility loans to commercial banks by one-third and is letting a money-market lending program end in October.

In June, the Fed extended other emergency-loan programs by three months to Feb. 1.

“The Fed realizes that the markets are getting better but are not yet healthy enough to stand on their own,” said Scott Buchta, a Chicago-based strategist at Guggenheim Capital Markets LLC. The June extension for new CMBS “shows that they feel that market may take a bit longer to get up and running again,” Buchta said.

Restart Market

The Fed began the TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.

Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt paydayloan.

TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.

Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.

Citigroup Inc., Ford Motor Co. and JPMorgan Chase are among companies that have sold auto and credit-card debt through the TALF. Brookfield Properties Corp. is “thinking about” using the emergency program, Chief Executive Officer Richard Clark said July 29.

Shield From Losses

As of Aug. 12, the Fed’s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury’s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion.

The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.

Also, 41 House members — including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee — signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.

‘Reasonable Chance’

TALF loans for older CMBS have a “reasonable chance” of being extended past March, said Aaron Bryson, an analyst at Barclays Capital in New York.

New York Fed President William Dudley said in June that “there’s a huge administrative hurdle” to expanding TALF to cover residential MBS because each security is different and must be separately evaluated for the size of the haircut that should be applied. The haircut is how much capital investors put up for the Fed loan.

Separately, the Fed is buying as much as $1.25 trillion of residential MBS this year to lower interest rates in housing.

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Recessions in Hungary and Romania deepened and Slovakia’s gross domestic product contracted for a second quarter, depleting government coffers as the countries struggle to keep their deficits in check.

Gross domestic product in Hungary shrank an annual 7.6 percent in the second quarter, Romania’s GDP contracted 8.8 percent and Slovakia’s output dropped 5.3 percent, according to state statistics offices today.

Recessions in the former communist economies left their governments struggling to live up to European Union budget rules as rising unemployment drains public funds and depletes tax revenue. For Romania and Hungary, agreements on international bailouts are at risk, while Slovakia, the only euro region member, was warned by the European Commission for exceeding the bloc’s 3 percent budget gap limit.

“The pressure on budgets will intensify next year when unemployment is set to peak,” said Juraj Kotian, an economist at Erste Group Bank AG in Vienna, before today’s GDP reports. “The automatic stabilizers like welfare payments will eat up much more budget revenue and the governments won’t have much ammunition left for fiscal stimuli.”

Deepening Recession

The Czech Republic’s recession probably also deepened last quarter. The country’s statistics office may report the economy shrank 4.2 percent, according to a Bloomberg survey, putting pressure on the state budget before October elections.

The Hungarian forint strengthened 0.3 percent to 270.3 against the euro at 5:33 p.m in Budapest, from 269.55 late yesterday. The Romanian leu gained 0.2 percent to 4.212 the euro, while the Czech koruna was little changed at 25.809.

There are some signs Europe’s recession is waning. Slovakia’s economy shrank at a slower pace than in the first three months and beat the median in a Bloomberg survey. Germany and France today reported that their total production grew, as two of the region’s largest economies exit recession.

“We expect the eastern European economic decline to slow in the second half of the year,” Zoltan Torok, an economist at Raiffeisen International Bank-Holding AG in Budapest, said in a phone interview today.

Signs of a western European recovery “provide hope that the already climbing export figures finally result in better manufacturing output” in the east, Janos Samu, a Budapest-based analyst at Concorde Securities, said in a note to clients today.

Even so, eastern European government efforts to keep budgets in check, as rising unemployment drains funds, will hinder a recovery next year, said economists including Nicolaie Alexandru-Chidesciuc, chief analyst at ING Bank Romania in Bucharest.

‘Will Take Time’

Slovakia’s 2009 budget deficit will be almost three times the government’s original target of 2 fast cash personal loans.1 percent of GDP. In the Czech Republic, the budget gap reached 76.2 billion koruna ($4.1 billion) in the first seven months, double the full-year target.

Slowing household spending in the Czech Republic and Slovakia came after their unemployment rates rose to more than a three-year high as companies cut jobs to adjust to shrinking markets.

“It will take time until the Slovak economy returns to a pre-crisis level,” when it was one of the fastest growing economies in the 27-nation EU, said Jan Toth, an economist at UniCredit Bank in Bratislava. “We expect the budget deficit won’t fall next year.”

‘Reshaping’ Government

Slovak Finance Minister Jan Pociatek said he wants to “reshape” the government and cut spending to avoid raising income taxes as the government aims to bring the budget deficit below the EU limit by 2012. An earlier target date may create “a social disaster,” he said in an interview yesterday.

The ministry plans to trim the shortfall to 5.5 percent of GDP in 2010 from “slightly above” 6 percent of GDP this year, he said. The plan, which also calls for streamlining tax collection, envisages the gap at 4.2 percent of GDP in 2011.

Czech Finance Minister Eduard Janota has said he will propose a deficit as wide as 209 billion koruna in 2010, when the central bank expects the economy to grow 0.7 percent.

The interim Cabinet of Prime Minister Jan Fischer pledged to refrain from any overhaul of public spending as parties start campaigning before October parliamentary elections.

Face Pressure

In Romania and Hungary, governments face pressure to keep spending in check to meet the terms of bailout packages. Fellow EU bailout recipient Latvia had a 1.7 billion-euro ($2.4 billion) payment suspended on its 7.5 billion-euro loan until parliament committed to an austerity package.

Even so, the countries’ efforts to stick to fiscal stringency measures may pay off in the long run and encourage international investors to place their funds in emerging European assets. What’s more, the countries may emerge from the crisis stronger than when they entered it, economists said.

Cuts in Hungary and Romania “have exacerbated the recession, but, if sustained, would imply substantially reduced vulnerabilities going forward that should bolster investor sentiment and contribute to lower interest rates,” Radoslaw Bodys, an economist at Bank of America Corp.’s Merrill Lynch unit.

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Japanese manufacturers increased production for a fourth month in June, capping the fastest quarterly output expansion in more than half a century and helping the economy rebound from its deepest postwar recession.

Production rose 2.4 percent from May, the Trade Ministry said today in Tokyo. Output gained 8.3 percent last quarter from the first three months of 2009, the most since 1953.

Companies said they also planned to increase manufacturing in July and August to replenish inventories and meet demand spurred by more than $2 trillion in government spending worldwide. Honda Motor Co. and Nissan Motor Co. shares soared after incentives from the U.S. to China to buy fuel-efficient cars helped the automakers report earnings that beat estimates.

“You’re seeing a dramatic inventory-driven production spike,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “It’s a good, solid set of data; it suggests the inventory cycle is very powerful and it’s going to keep running for a few months to come.”

The yen traded at 94.97 per dollar at 11:36 a.m. in Tokyo from 95.08 before the report was published. The Nikkei 225 Stock Average rose 0.03 percent at the lunch break, and has gained 43 percent since reaching a 26-year low on March 10.

Today’s report adds to signs the deepest global recession since the Great Depression is abating. The U.S. Federal Reserve said yesterday that most of its 12 regional banks detected a slower pace of economic decline in June and July. China, South Korea and Vietnam all reported faster growth last quarter.

Honda, Nissan

Honda climbed as much as 9 percent, the most in three months, after raising its net income estimate and unexpectedly reporting quarterly profit of 7.5 billion yen ($79 million). Nissan gained as much as 8.7 percent to a nine-month high after reporting a smaller loss than analysts predicted.

The U.S., Germany and China are offering consumers credits, tax breaks and subsidies for trading in old cars for new fuel- efficient models. Japan’s own stimulus has boosted sales of environment-friendly cars like Toyota Motor Corp.’s Prius.

Manufacturers planned to boost output 1.6 percent in July and 3.3 percent in August, today’s report showed. The ministry said production is “on a recovery trend” after last month describing it as “showing signs of recovery.”

“The forecasts fuel hope that the rebound will last a bit longer than we’d thought,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo.

Exports Rebound

Japanese exports rose in June from May, buoyed by sales to China and the U business

German investor confidence probably rose to a three-year high this month on signs the contraction in Europe’s largest economy is coming to an end, a survey of economists shows.

The ZEW Center for European Economic Research will say its index of investor and analyst expectations rose to 47.8 from 44.8 in June, according to the median of 36 forecasts in a Bloomberg News survey. That would be the highest since May 2006. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim today.

Industrial output jumped 3.7 percent in May from April, the biggest gain in almost 16 years, and business confidence increased for a third month in June. The benchmark DAX share index has advanced 28 percent in the past four months. Even as the economy stabilizes from its first-half freefall, the government expects gross domestic product to plunge 6 percent this year, the most since World War II.

“The economic contraction is over,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “However, the recovery will be anemic and slow.”

ZEW’s gauge of the current economic situation probably rose to minus 87.8 from minus 89.7 in June, the economist survey shows.

Volkswagen AG’s luxury Audi division is forecasting “light” growth in auto sales next year following this year’s contraction, Peter Schwarzenbauer, the brand’s sales chief, said on July 8.

Stimulus Measures

HeidelbergCement AG, Germany’s biggest cement maker, said the same day it’s seeing initial signs of improvement in some markets, particularly Asia, as local stimulus packages start kicking in cash advance lenders.

Chancellor Angela Merkel’s government has pledged to spend about 85 billion euros ($117 billion) in an effort to rekindle growth in Germany, including tax breaks and a 2,500-euro payment for consumers who scrap their old car and buy a new one.

The European Central Bank has cut its key interest rate to a record low of 1 percent, offered to lend banks as much cash as they want and started purchasing 60 billion euros of covered bonds to help revive lending.

“The prevailing mood has changed, thanks to the latest positive data but also due to the government stimulus package and lower interest rates,” said Matthias Huth, an economist at Landesbank Baden-Wurttemberg in Stuttgart. “Still, there’s a risk that the green shoots are exaggerated.”

The euro-area economy will probably shrink 4.8 percent this year and 0.3 percent in 2010, the International Monetary Fund said last week.

“The good news is that the forces pulling the economy down are decreasing in intensity,” IMF Chief Economist Olivier Blanchard told a July 8 press briefing. “The bad news is that the forces pulling the economy up are still weak.”

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Many European governments’ finances are as risky as Argentina’s were at the height of its worst financial crisis, and the U.K. gives cause to be “extremely nervous,” Harvard University professor Niall Ferguson said.

“It is a myth that countries don’t go bust, you only have to look at the history of Latin America to see that they do,” Ferguson told Bloomberg Television today. “When you look at the financial position of many European countries today, especially east European countries but also some west European countries, it’s every bit as bad as Argentina was in 2002.”

The average euro region budget deficit will swell to 6.5 percent of output this year, more than double the European Union’s limit, the European Commission forecasts. In the U.K., Prime Minister Gordon Brown’s government predicts an annual shortfall almost twice that size because of the cost of bank bailouts and a slump in tax receipts from the recession.

“One has to be extremely nervous about the situation in the United Kingdom, borrowing on the same scale as the U.S. but without a reserve currency,” Ferguson said.

The U.K. Treasury predicts its deficit will reach 175 billion pounds ($287 billion) this fiscal year, or 12.4 percent of gross domestic product. The government plans to sell an unprecedented 220 billion pounds of debt to cover the shortfall and the cost of propping up banks payday loan company.

Deficit Measures

In Eastern Europe, deficit-cutting measures are being imposed by international lenders as part of the price for more than $90 billion in aid doled out since September. Latvia may be preparing to run a deficit of 9.2 percent of GDP, the Baltic News Service reported today.

Measures taken by government officials in the U.S. and Europe to bail out banks have saddled the financial system with firms that ought to have collapsed, Ferguson said.

“We’ve got dinosaurs on life support at the moment in the form of major banks that only are alive because of massive capital injections and guarantees from taxpayers,” he said. “That’s inhibiting the process of evolution that ought to be creating new and better firms that ought to be taking the place of these failed firms.”

Argentina’s economy contracted 3.4 percent in 2002 in the aftermath of its $95 billion bond default. The peso lost two- thirds of its value while unemployment soared to a record 22 percent that year and the government imposed capital restrictions to stem outflows.

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Thailand’s economy shrank the most in a decade as exports and spending slumped, pushing the nation into its first recession since the Asian financial crisis.

Gross domestic product fell 7.1 percent last quarter from a year earlier, after declining a revised 4.2 percent in the previous three months, the government said today. The median estimate of 17 economists in a Bloomberg survey was for a 6.5 percent drop.

“The first quarter should be the worst,” said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. “There is a strong likelihood the economy will grow in the fourth quarter.”

Exports, Thailand’s main economic driver, sank 16.4 percent last quarter, prompting companies including General Motors Corp. and Seagate Technology Inc. to cut production and fire workers. The central bank said last week there are signs the contraction is moderating, and the stock market is poised for its best quarterly advance since 2003.

“We can see light at the end of the tunnel,” Ampon Kittiampon, secretary-general at the National Economic and Social Development Board, said at a briefing on the economic report today. “We hope the government’s second stimulus package can jump-start the economy by the fourth quarter.”

The government “will do whatever we can” to ensure economic expansion by this year’s final quarter, Prime Minister Abhisit Vejjajiva said on May 20. The same day, the Bank of Thailand ended its most aggressive string of rate cuts ever, keeping borrowing costs at 1.25 percent even while saying risks to the economy remain.

‘Worst is Behind’

Production has picked up in electronic and automotive industries and exports, and consumer demand is recovering, Finance Minister Korn Chatikavanij said May 7.

“Orders have started to come back,” said Santi Vilassakdanont, chairman of the Federation of Thai Industries, a group of manufacturers. “The worst is behind us and things should get better now.”

Thailand’s economy will contract less each quarter before returning to growth in the final three months of this year, the median estimate of the economists surveyed by Bloomberg shows. The Bank of Japan on May 22 raised its view of the economy on signs that a record contraction in the first quarter represented the worst of the recession. Singapore and Taiwan last week said their economies may be past the worst.

Stocks, Baht

Exports have fallen for six months through April, the longest contraction in seven years.

Thailand’s SET Index of stocks declined 0.3 percent to 552.42 as of 10:30 a.m., trimming the quarterly advance to 28 percent. The baht slipped 0.1 percent against the dollar.

“I don’t see any strong sign of recovery yet,” said Veeravat Kanchanadul, Senior Executive Vice President at Charoen Pokphand Group, Asia’s biggest animal-feed producer free credit score. “We can’t be sure about the state of the economy when small players are still struggling.”

Manufacturing declined 14.9 percent in the first quarter, compared with a revised 6.7 percent drop in the previous three months. Private consumption fell 2.6 percent. Total investment retreated 15.8 percent.

GDP may shrink as much as 3.5 percent this year, the government’s economic adviser, the NESDB, said today. That would be the first annual contraction in 11 years and matches the median estimate of economists surveyed by Bloomberg. The economy grew 2.6 percent last year.

Far From Good

Consumer confidence is at its lowest level in seven years. An emergency decree was imposed for 13 days in Bangkok last month to quell anti-government riots that left two people dead.

“Business was really bad after the riots,” said Doris Gerecht, general manager at Bangkok’s Montien Hotel, adding that occupancy has averaged about 50 percent so far this year compared with 75 percent a year ago. “We’re starting to see a bit of a pickup in corporate bookings, but things are still far from good.”

Thailand’s economy hasn’t shrunk for two straight quarters since the first three months of 1999. That was the last of eight quarterly contractions triggered two years earlier, when the nation cut a peg to the dollar that had overvalued the baht and slashed exports. The economic crisis eventually extended to the Philippines, Indonesia, Malaysia, Taiwan and South Korea.

Political Rifts

Premier Abhisit has pledged to call elections once stability is restored in the nation of 66 million people. The protesters say the prime minister’s rule is illegitimate because he came to office after a court dissolved the former ruling party.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him, hurting successive governments’ ability to implement spending plans.

Abhisit’s seven-party coalition is strong enough to pass a borrowing plan and next year’s 1.7 trillion-baht ($49 billion) budget, he said last week. That’s in addition to a 1.4 trillion- baht, four-year investment plan, and a 116.7 billion-baht stimulus package aimed at stemming this year’s economic slide.

GDP contracted a seasonally adjusted 1.9 percent in the first quarter from the previous three months, according to today’s statement. Economists surveyed by Bloomberg expected a 1.7 percent decline.

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India’s newly elected government will seek to get the fiscal budget approved by parliament by July 31, cabinet minister P. Chidambaram said today.

The first session of parliament will be held starting June 1, and lawmakers will select a speaker, Chidambaram told reporters in New Delhi today health insurance plans.

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Sales of newly constructed homes rose unexpectedly in February, rebounding nearly 5% after sinking to the lowest level on record in January, according to a government report released Wednesday.

The U.S. Census Bureau reported that new home sales rose 4.7% to a seasonally adjusted annual rate of 337,000 in February from a revised 322,000 in January. It was the first increase since July, and comes after sales tumbled to an all-time low in the previous month.

Economists were expecting a sales rate of 300,000, according to consensus estimates compiled by Briefing.com.

While February purchases were up from January’s record low, the sales rate is still down more than 41% from February 2008, when sales were an estimated 572,000.

The report is "generally a good sign," said Andreas Carbacho-Burgos, an economist at Moody’s Economy.com. "But it’s definitely not enough to say that the housing market is starting to recover," he said.

Carbacho-Burgos noted that new home sales have recorded monthly increases several times over the past few years even as the overall trend in sales declined.

"This is only a single month’s worth of data," he said. "You need at least three months of increases before you can say the market is recovering."

The report also showed that the median sales price of new houses sold in February was $200,900, down 18% from $245,300 a year ago. That was the biggest year-over-year decline in history, according to real estate analysts at Weiss Research payday loans.

The estimated number of new homes for sale at the end of February was a seasonally adjusted 330,000. At the current sales pace, it would take more than a year to sell through that inventory, according to the report.

Wednesday’s report was the latest in a series of better-than-expected readings on the housing market. But many analysts remain wary of the prospects for a long-term recovery.

"The worst of the drop in sales is over but a sustained recovery…is a way off still," wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a research note.

On Monday, the National Association of Realtors said that existing home sales rose 5.1% in February to a seasonally adjusted annual rate of 4.72 million units from a rate of 4.49 million in January.

Last week, the Commerce Department reported that initial construction of new homes surged 22% in February to a seasonally adjusted annual rate of 583,000, up from a revised 477,000 in January. It was the first time housing starts increased since June.

Meanwhile, a report from the Mortgage Bankers Association showed Wednesday that the number of Americans applying for home loans jumped 30% last week, driven mostly by applications to refinance existing loans.  

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