PARIS, May 24--The OECD slashed its growth forecasts for the German economy on Tuesday and predicted that the eurozone’s biggest economy would remain in breach of the EU’s budget rules both this year and next year, AFP reported.
At the same time, the Organization of Economic Cooperation and Development urged the government to press ahead with its economic reforms a day after Chancellor Gerhard Schroeder announced he was bringing forward the general election in a high-stakes gamble to defend his ambitious program of social and labor market reforms.
In its spring Economic Outlook, the OECD predicted that the German economy would grow by around 1.25 percent this year and then by 1.75 percent next year as the upswing would broadened.
The forecasts are sharply lower than the OECD’s autumn report, when the think-tank had been penciling in growth of 1.4 percent for the eurozone’s biggest economy in 2005 and 2.3 percent in 2006.
The forecasts are adjusted to take account of inflation, seasonal factors and the differing number of working days.
“Growth remains weak and heavily dependent on foreign demand,“ the OECD diagnosed.
“But both non-residential investment and--somewhat later--household consumption are projected to pick up in the course of 2005,“ it added.
Nevertheless, growth would still not be strong enough to curb Germany’s public deficit which has already exceeded EU limits for the past three years and is expected to do so again both in 2005 and 2006.
Under the terms of the European Stability and Growth Pact, eurozone countries are not allowed to run up deficits in excess of 3.0 percent of gross domestic product (GDP).
The German deficit ratio stood at 3.6 percent in 2004 and the government has vowed to bring it back below the 3.0-percent limit this year.
However, most experts remain skeptical and even Finance Minister Hans Eichel conceded recently that the goal was becoming increasingly difficult as growth consistently disappoints, tax revenues fall short of target and unemployment payments soar.

LONDON, May 24--A major Chinese welfare fund is set to win long-awaited approval to make foreign investments and could start buying stocks and bonds offshore before the end of the year, a top official said in an interview published on Tuesday, AFP reported.
Speaking to Britain’s Financial Times newspaper, Xiang Huaicheng, chairman of the body managing the National Social Security Fund, said China’s cabinet--the State CouncilÑwas close to issuing detailed provisional regulations making such investment possible for the first time.
“I believe the State Council will approve the provisional regulations in the next month,“ Xiang, a former finance minister, said, adding that he “hoped“ to begin investing overseas before the end of 2005.
Such a move would enable the fund--the country’s welfare fund of last resort--to profit from international capital markets as part of a drive to help meet the growing pension needs of China’s ageing population, the economic daily reported.
The fund controlled about 171 billion yuan ($21 billion, 16 billion euros) in assets at the end of 2004.
The State Council backed the idea of offshore investment last year, triggering interest among fund managers and investment banks in Hong Kong.
Xiang said the fund planned to recruit one or two top class financial institutions to help oversee its foreign investment spree, but warned that Hong Kong would not be the automatic choice and that the initial investment would be relatively small.
Highlighting the need for cash, the official pointed out that by 2030, 28 percent of China’s people would be aged 60 or over with the figure rising to 31 percent by 2060.
“And one in every four will be really old,“ he told the Financial Times. “This problem is very serious.“

BRUSSELS, Belgium, May 24--The eurozone booked a trade surplus of 4.2 billion euros ($5.3 billion) in March, an initial estimate published Tuesday by the European Union’s statistics arm, Eurostat, showed, AFP reported.
The figure exceeded the surplus in February of 3.6 billion euros but was less than the 10.4 billion euros positive balance chalked up in March 2004.
Eurostat said that exports, on a seasonally adjusted basis, were stable in March compared to February while imports rose 1.0 percent.
The 25-nation EU showed a trade deficit of 6.5 billion euros for March which compared with a deficit of 6.8 billion euros the previous month. In March 2004, the EU 25 had a trade deficit of 1.7 billion euros.
In the EU 25, exports rose 1.3 percent in March from February while imports increased 2.5 percent.

Despite peace and Angola's oil wealth, most of the population continues to live in abject poverty.

LUANDA, Angola, May 24--Angola needs up to $30 billion over the next decade to rebuild its war-shattered infrastructure, a step to maintaining stability in the African oil producer, a World Bank official said on Monday.
“Experience internationally with post conflict countries has shown that if you don’t do that (rebuild) in four or five years you have a tremendous risk of the conflict relapsing,“ Laurence Clarke told Reuters in an interview.
Confirming that the Bank was ready to provide around $200 million in aid and credit over the next two years, Clarke said the exact amount would depend on whether Angola improved its economic and governance record.
“Even though reforms have been made by the government progressively since 2002 there’s still a long way for Angola to go in terms of how the world perceives it,“ he said.
Angola’s devastating civil war--which spanned three decades, displaced millions of people and ruined the country’s infrastructure--ended three years ago.
Despite peace and Angola’s oil wealth, most of the population of around 13 million continues to live in abject poverty while the government has been accused of cloaking its finances in secrecy and permitting large-scale graft.
Observers are watching how Angola, now sub-Saharan Africa’s second largest oil producer after Nigeria, manages its $600 million windfall which, thanks to high oil prices, had swollen the country’s coffers over the last 12 months.
“The challenge for Angola in the context of whether the economy is doing well or not is to manage those incremental flows as quickly as possible, as well as possible to compensate for a time when oil prices will probably decline,“ Clarke said.
“In that sense I think the jury is still out in terms of the management of the economy. But in terms of getting the budget disciplined, conformed to, I would say so far they’re doing quite well,“ he added.
Angola needed around $2 billion for a priority phase of reconstruction from 2003 to 2006 and between $15 billion and $30 billion in a decade, Clarke said.
The $200 million from the World Bank was only a beginning and Clarke acknowledged that the bulk of the financial support would come from the private sector or bilateral agreements.

Leftists stage a protest against a bill raising the value-added tax in Manila, Philippines, March 3, 2005. (AFP Photo)

MANILA, Philippines, May 24--President Gloria Arroyo on Tuesday signed a controversial tax measure aimed at nursing the Philippines back to fiscal health despite concerns from activists, business and economists.
The measure increases corporate income tax to 35 percent from 32 percent and gives Arroyo the authority to hike the value added tax (VAT) by two points to 12 percent next year under certain conditions.
The law also ends VAT exemptions enjoyed by some industries, such as power, electricity, air and sea transport.
The bill was approved despite criticism that it would deeply hurt private business while failing to raise the revenues that the government desperately needs.
Arroyo signed the document before a closed door meeting of her cabinet ministers and members of Congress, presidential palace officials said.
The president thanked the legislators for passing the measure, which is part of a tax reform package she sent to Congress last year amid warnings of a possible debt default.
“The signing of the amended (VAT) bill into law caps the first phase of the Arroyo administration’s economic reform agenda,“ said Finance Secretary Cesar Purisima after the signing. “It is a milestone piece of legislation that will significantly broaden our tax base this year and the next,“ he said.
Officials said the law could raise revenues by as much as $1.94 billion by next year and help the government plug a chronic fiscal deficit and pay off debts.
But members of the political opposition as well as consumer welfare groups charge that the measure could trigger higher prices for basic commodities.
On Tuesday, a group of protesters burned pictures of Arroyo and hoisted banners denouncing the new tax law as a burden to the poor.
Astro del Castillo, managing director of First Grade Holdings, said the law was a “possible disincentive to certain foreign investors“ who would balk at the country’s 35 percent corporate income tax, one of the highest in the region.
While the law retained the 10 percent VAT this year, Arroyo has the power to raise this to 12 percent next year and she has said she will not shy from making that decision if needed.

BRUSSELS, Belgium, May 24--Europe does more than the United States, Japan and Canada put together in helping developing states trade their way out of poverty, the EU Executive Commission said on Monday, Reuters reported.
During 1999-2003, the European Commission said almost half of its imports came from developing countries and 79 percent of those goods entered the bloc duty free or at low rates of duty.
Europe cornered a 63 percent share of exports from the world’s 50 poorest countries (excluding petrol) with rich states Canada, the United States and Japan accounting for the remainder, the report added.
“The European Union is already today through its trade policy giving developing countries many of the chances they desperately deserve,“ EU Trade Commissioner Peter Mandelson told a European Parliament committee.
The EU is revising its system of trade preferences for developing states and wants to give the poorest states extra market access.
Developing country concerns are at the center of the latest round of global trade talks with the EU under pressure to cut its lavish farm subsidy regime.

LONDON, May 24--Google shares jumped 5.7 percent to a record on Monday amid speculation that the internet search engine will be added to the key Standard & Poor’s 500 index, BBC reported.
Google shares surged to $255.45, taking gains over the past week to 11 percent.
Inclusion in the S&P 500 pushes stocks higher because many investors are only allowed to put money into companies that are listed in the biggest indexes.
Apple shares rose 5.9 percent after the Wall Street Journal reported it is in talks to use Intel chips in its computers.
By putting Intel microprocessors in its computers, Apple would be able to produce cheaper products which could compete better with low-cost rivals such as Dell, analysts said.
Calls for Google to be included in the S&P have been mounting as internet stocks have recovered and balance sheets have improved.
Technology stocks were the best performers on Wall Street on Monday and investors said that including a heavyweight internet stock like Google would help the S&P benefit from such gains.
The S&P 500 tracks the biggest companies in the US and members must have a market capitalization of more than $4 billion and at least 50 percent of its shares available to be traded. Share trading must also be liquid, or in other words easy for investors to buy and sell.
Google, one of the heaviest traded stocks on Wall Street, qualifies on all counts with a market value of almost $71 million and 64 percent of shares in the market.
“I wouldn’t be surprised if Google, given its size, were to be added to the S&P 500,“ said David Garrity, an analyst at Caris & Co.
Standard & Poor’s declined to comment on the rumors.
Apple’s stock jumped closed at $39.76 on Monday, giving the biggest boost to the Nasdaq. The Wall Street Journal reported that the firm was considering ditching its long-term supplier IBM and start using Intel chips.

Sinan al-Shabibi

LONDON, May 24--Iraq’s central bank governor, Sinan al-Shabibi, urged foreign banks in an interview published Tuesday to set up operations on the ground despite their persistent security fears, AFP reported.
Britain’s HSBC and Standard Chartered were issued licenses to operate in the country six months ago, but have yet to put in an appearance.
“Those banks were very eager to come and participate,“ Shabibi told the Financial Times newspaper.
“But because of security concerns they shied away a little bit,“ he said.
The central bank also gave a license to the National Bank of Kuwait, which has bought a majority stake in the Credit Bank of Iraq, the newspaper reported.
Similarly, HSBC reached a partnership agreement last week with the Dar al-Salaam Bank, while shareholders of the Bank of Baghdad struck a deal with the United Gulf Bank, which is based in Bahrain.
But Shabibi said he hoped to attract international expertise to Iraq rather than just cash injections.
“I think there should be a decision for banks to actually come and work, despite the risks involved,“ he told the economic daily.