EU Loans to IMF May Open Door to Funds From Brazil, China

An agreement by European Union leaders to boost the International Monetary Fund’s resources may open the door to similar loans by nations from South Korea to Brazil in a global effort to stem the European debt crisis.

European leaders meeting in Brussels agreed to make bilateral loans to the IMF of as much as 200 billion euros ($267 billion) and bowed to European Central Bank demands for a tightening of anti-deficit rules. The move raises the odds for aid from Group of 20 nations, which held back last month because they said Europe wasn’t doing enough to help itself.

“We can contribute if some conditions are met,” Sohn Byung Doo, director general of the G-20 bureau at South Korea’s finance ministry, said in a telephone interview today. “We’re closely watching the final outcome of the European leaders’ meeting” and will be looking for a workable plan that can restore market confidence, he said.

Using the IMF as a conduit for aid for developed euro- region nations may help damp any domestic criticism in poorer emerging markets, in particular if the deal involves a greater say for poorer countries in international economic dialogue, analysts said. With Europe’s crisis hurting exports from Japan to Thailand, outside regions have an incentive to help stem the damage to global markets.
.....................................................

German, French Slowdown Raises Risk of Recession

German exports fell in October and French industrial output stagnated, adding to signs that the euro region may slide into recession as leaders struggle to solve the sovereign debt crisis.

German exports dropped 3.6 percent from September, the Federal Statistics office in Wiesbaden said today, almost three times economists’ median forecast for a 1.3 percent decline. In France, industrial production was flat in October after falling 2.1 percent a month earlier, more than the initial 1.7 percent estimate, Paris-based statistics office Insee said.

Slowing growth in the euro area’s two largest economies may tip the 17-nation currency bloc into recession as European governments boost their rescue fund and tighten fiscal rules in the latest attempt to stamp out the debt crisis. The turmoil is hurting global growth by damping European demand for foreign goods. Chinese manufacturing contracted for the first time since 2009 last month, a report showed on Dec. 1.
...................................................

China Inflation Cooling to 4.2% May Presage More Monetary Easing: Economy

China’s inflation reached a 14-month low and industrial production rose less than forecast, bolstering the case for more stimulus measures to shore up growth in the world’s second-largest economy.

Consumer prices rose 4.2 percent from a year earlier, the statistics bureau said on its website. Output gained 12.4 percent, the smallest increase since August 2009 and below a median forecast of 12.6 percent. A separate report showed passenger-car sales rose the least in six months.

Premier Wen Jiabao’s government may telegraph at an annual economic works conference in coming days that growth is now a greater concern than inflation, given risks posed by Europe’s crisis and a domestic property-market slowdown. Investors have been paring back expectations for gains in the yuan as China slows, with 12-month non-deliverable forwards today suggesting a 0.8 percent decline against the dollar.
.............................................................

Trade Deficit in the U.S. Probably Widened

The trade deficit probably widened in October as a strengthening U.S. economy helped drive up the nation’s import bill while exports cooled from a record high.

The gap grew to $44 billion from the prior month’s $43.1 billion shortfall that was the smallest this year, according to the median estimate of 79 economists surveyed by Bloomberg News. Consumer sentiment rose to a six-month high in December, another report may show.

Import growth may be sustained as the world’s largest economy shows signs of strength entering 2012. Demand from developing nations that has been driving sales at companies such as Dow Chemical Co. (DOW) may help cushion the U.S. from any slowdown in Europe.

“Consumer spending picked up so we can expect imports to have increased,” said Neil Dutta, an economist at Bank of America Corp. in New York. “The global trade cycle may have stalled as the European sovereign-debt crisis intensified in October. Longer term, the story is still one of rising exports and an ongoing narrowing of the trade gap.”

The Commerce Department will release the trade figures at 8:30 a.m. in Washington. Estimates in the Bloomberg survey ranged from $40.3 billion to $46 billion.

The dollar has fallen 11 percent since a post-recession peak in June 2010 against the currencies of six major trade partners as tracked by IntercontinentalExchange Inc.’s Dollar Index. The drop makes American goods cheaper abroad and is spurring manufacturing, which expanded in November at the fastest pace in five months, according to the Institute for Supply Management.
.......................................................................

South Korean Economy to Forecast Grow 3.7% in 2012, Bank of Korea Says

South Korea’s growth is set to slow and inflation may ease next year, the Bank of Korea said a day after leaving borrowing costs unchanged on concern Europe’s debt crisis poses risks to Asia’s fourth-biggest economy.

Gross domestic product is likely to expand 3.7 percent in 2012 and 4.2 percent in 2013, compared with 3.8 percent this year, the central bank forecast in a statement released in Seoul today. Consumer prices may increase 3.3 percent next year after a 4 percent gain in 2011, it said.

Governor Kim Choong Soo left the seven-day repurchase rate at 3.25 percent for a sixth month yesterday, the longest pause since tightening began in July 2010. Downside risks to growth are “high” because of the European turmoil, possible slumps in major economies and unrest in international financial markets, the central bank said in its statement yesterday.

“The BOK will likely use a rate cut as the last resort only when the economy faces a risk of recession,” Kong Dong Rak, a fixed-income analyst at Taurus Investment & Securities Co. in Seoul, said before the release. “It will likely stay pat well into the first half of next year, opting to wait for a clearer picture in Europe.”

The won fell 0.7 percent to 1,138.90 per dollar as of 9:46 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi stock index dropped 2 percent.

Growth Forecast Cut
The Bank of Korea may have to cut its forecast for 2012 GDP again if the crisis in Europe worsens beyond the first quarter of next year, which seems unlikely at the moment, Lee Sang Woo, director-general of the Bank of Korea’s research department, told reporters in Seoul today.
............................**************..............