One more time...

For the seventh times, the Fed has decided to cut its interest rates to avoid a potential recession, even if some experts already consider that the recession has started in the US. The interest rate went from 2.25% to 2% which means the rates have drop from 3.25% since last September. This should be a new step to boost the growth because the economic activities remain weak in spite of the US government's tax rebates, which have just started reaching consumers to boost their spending. This is expected to be the last step from the government to "buffer the economy from a credit crunch and housing downturn".

The US economy is going through " a tough time" said the President Bush. Indeed, all the economic factors are not good in the American economy: the US GDP meets some difficulties to progress (0.6% since the beginning of 2008), the consumer spending is at its lowest level since 2001, there is no more business investment and home building continues to fall, recording the biggest drop in 26 years. If the Fed is trying to struggle them with its "economic stimulus plan" to create growth, the Fed should remember that meanwhile, the rise of the prices of energy and commodities represent serious downside risks for growth as they represent inflations signs.

Food crisis - Time to change!

"Since 2005, the prices of staples have jumped 80 percent" World Bank President Zoellick said. The skyrocketing commodity price's impact on the developing countries is huge: 37 countries (21 are in Africa) are facing a serious food crisis as the foodstuffs have gone up 41 percent in price since October 2007.

The UNs World Food Program requires 500USD million to meet emergency calls from 70 million people in 80 countries; Zoellick reckons that the United States, the European Union and the Japan should act now to fill the global food gap otherwise lot of people will suffer and starve.
The World Bank will set up a "Green Revolution" to help poor countries to boost their productivity by lending more: for example in Africa, the organisation will double its lending (from 450 USD to 800 USD). The goal is to give more opportunities and confidence to developing countries to expand their production. But increasing current spending is only a short-term solution. Higher food prices appear to be here to stay...

So where are the problems?

First, the spike in oil prices (103 USD per barrel in recent days which means +72% in 2007) is one problem as it is followed by an increase of the cost of production and the cost of transport of the cereals which have a knock-on effect on the selling price.

Then there is climate change. Jacques Diouf, President of the FAO, claimed that the climat change is a main issue for the worlwide food security. Over the last years some majors cereals suppliers countries such as the United-States, Australia or Europe, had to face some serious natural disasters (dryness or flooding) and so they have not be able to produce sufficient cereals quantities. As a consequence, the worldwide stocks of cereals have been consumed.

However, the fact that the worldwide population is more and more important (more than 6billion of people today and 9billion expected in 2050) should be taken into account. Indeed, India or China which account for the most populated countris in the world, are going through some food habits changes: they tend to leave their traditional way of eating for a more occidental one, which means less vegetable proteins and more animal proteins. The problem is that these proteins need 10 times more space to grow up and meanwhile, the cultivable space becomes smaller due to the urbanization.

These three major reasons of the food crises are truly related; the oil has allowed the food globalisation, the increase of richness and wealth but has led to the environmental pollution! Unfortunately, no end is forecasted for this crises, which could have serious repercussions on the worldwide economic factors.

At the end, this skyrocketing of food prices is the direct result of the human willingness to always looking for a strong growth with two digits even if it is to the detriment of our planet.

World Growth Forecast hacked!

As the result of the subprime crisis, the IMF slashed the Wolrd Growth forecast: the world economy will slow to 3.7% in 2008 and 2009 which is 1.25% lower than the growth in 2007. The US should be the first one to go in recession with an economic growth forecast of 0.5% in 2008 and 0.6% in 2009, which means a slow recovery. But it is known that there is one in four chance of a global recession when the world growth falls below 3%. The subprime crisis represent the largest financial shock since the Great Depression.

The problems in the US housing market will lead to a world downturn as the house price inflation will follow in some European countries such as Spain, Ireland and the UK, making a slowdown more than possible. "House prices have already fallen by around 10% in the US by some measures, and the IMF says that they may be over-valued by more than 20% in the UK, Ireland and Spain".

President Bush reckoned that the US economy is going through a though period (see the article: "One More Time...") as all the economic factors are slow. Even if the Fed is trying to cope with them to reboost the growth, it could become a main issue for Europe, which is the biggest trading partner with the US. In the Eurozone, the growth forecasts are 1.4% in 2008 and 1.2% in 2009, which is higher than in the US where the slowdown has already started. The ECB has kept interest rates unchanged because on the opposit of the Fed (which is looking for the growth), the main objective of the EBC is to cope with the inflation. In future, the EBC could fix the interest rates regarding the rising house prices to avoid it to go "out of normal valuation ranges".

This slowdown should not affect directly the fast growing markets such as China or India economies but they will be affected by a slowdown of the trade with these occidentals economies: the imports into rich countries will slow quickly due to the beginning of the recession and that will lead to a cut in the rate of growth of exports by developing countries.

Once again, the US is worried about their home economic wealth (seven rate cut since September) but seems to forget that its actions have serious repercussions on the rest of the world!

Final discussions for Alitalia

If the current Italian government is agreeable with the offer of the French group, Air France Klm, the trade unions of Alitalia reject it massively. Indeed the French group bid goes with draconian conditions; 2100 job cuts were expected during the first negotiations. Now the French group is ready to make some concessions: it assures that the renewal of Alitalia staff will be quick to reduce the job cuts. But the Europe's biggest airlines wont make anymore modifications to its bid.
The Italian elections plan on April 13th and 14th increase the controversy, as Silvio Berlusconi announced he may have another offer in about three weeks time. But the economic situation of the Italian airline company requires a quick intervention to avoid a collapse. For many, it seems that S. Berlusconi just plays the pre-electoral game and Air France KL is the only serious offer and opportunity for Alitalia to survive.
For the Italian industry, this is a serious issue as the economic patriotism plays a significant role. Since the governments are no longer involved in their national airlines, it has become clear that a huge process of concentration has started and then at the end, it will remain only 5 or 6 European airlines.
The UK highlights with just cause that for a service company such as the airlines company, being bought up should not be a major issue because it does not lead to a delocalisation of the activity.
However, in spite of the European Union, it still remains a strong economic patrotism in some countries; which it may be the scar of the difficult way to the European integration.