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B&E This Fortnight
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Issue Date - 01/03/2012
Inflation in China
A trade-off between inflation and growth is always difficult to manage for countries and so is China finding it to its discomfiture. Inflation in China soared to new heights, reaching 4.5% in January, the highest in the last three months. Food inflation also witnessed a sharp spike, settling at 10.5%, from the earlier 9.1%. High consumer prices are threatening to derail growth in China. Rising inflation also offers a challenge for policy makers in China who have so far been liberal with the purse strings because of heady growth untrammelled by fears of any creepy inflation. But the recent spike in the inflation breaks several months of easing prices after inflation hit a three-year high of 6.5% in July last. A possible reason being cited for the rise in inflation is the New Year, which sees a lot of consumer activity and shopping. But the rise in the consumer price index, a key indicator for measuring inflation, is surprising since despite factoring the festive season in the calculations, inflation for January was projected at 4.1% by several international experts. What is more startling is that in the same period, imports sank 15.3% y-o-y, while exports saw a decline of 0.5% only. The change in these figures indicates faltering domestic demand, which can be a red signal for the future. The drop in exports left China with a trade surplus of $27.3 billion in January, its biggest in six months.

Sony’s ratings
The changing of the guard at Sony, with Kazuo Hirai set to take over as new CEO in April, has failed to impress the market. Standard and Poor’s has lowered its assessment of Sony’s long-term credit worthiness from A- to BBB+, citing poor earnings, price erosion and falling demand as the main reasons. Stiff competition from Korean and Chinese entities also pose a severe threat to the profitability of the Japanese electronics powerhouse. S&P added that Sony’s rating could see a further downfall if it did not see any recovery in earnings within the next six to 12 months. S&P said that a major blame for the current apathetic situation of Sony rests on its strategy of aggressive expansion despite strong competition, massive erosion of prices and its high cost structure as compared with overseas competitors.

Not a good time for arcelormittal
The year 2011 wasn’t good for the world’s largest steel maker, which made a net loss of $1 billion in the Oct.-Dec quarter. The losses are attributed to large tax payout, downward revaluation of fixed assets and restructuring charges. The company has had to cope with deferred tax payment of $ 0.9 billion, a further $0.2 billion on the cost incurred on downward revaluation of fixed assets and another $0.2 billion spent on restructuring associated with its asset optimisation plans. Profit for the full year 2011 was dragged down 22.43% to $2.2 billion vis-a-vis $2.9 billion for 2010 while EBITDA for quarter (Oct.-Dec. 2011) was down by 7.5% to $1.7 billion.

Financial stimulus for uk economy
In order to pull back England’s economy from shrinking, which was the case in the last quarter of 2011, Bank of England has indicated that it will offer a further stimulus of £50 billion to boost the financial system. The Bank justified its decision against a backdrop of a weak economy, uncertain outlook for the eurozone, and falling UK inflation. The stimulus, which was first approved by a nine member monetary policy committee in 2009 to boost growth in the UK, has now crossed the total disbursement figure of £325 billion till date. The bank has kept the interest rates unchanged at a record low level of 0.5%, against European Central Bank’s rate of 1%.


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