eNews August 15, 2013

August 15, 2013


News Briefs

  1. EU Emerges from Historic Recession with First Growth Quarter Since 2011
  2. Visa, MasterCard Move to Dismiss Retailers' Antitrust Suit
  3. Hot Growth in Singapore Tempered by Fear of Chinese Slump
  4. June Exports Set Monthly Record, Could Signal Better GDP Growth
  5. More Bad News for Electric Car Supporters
  6. U.S. Announces New Initiatives in African Trade Push


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EU Emerges from Historic Recession with First Growth Quarter Since 2011

In a bit of a surprise, the longest post-World War II recession in European history ended in the second quarter on the strength of growth from a mix of usual suspects and unexpected rebounders. However, cautious optimism is likely more appropriate than celebration.

Eurostat, the statistical office of the European Union, reported a 0.3% increase in the euro zone's gross domestic product (GDP) in the second quarter. The EU experienced negative growth in each of the previous six quarters as debt crises in several nations took their toll on the economic bloc.

Germany and France helped lead the way, as did a surprising quarter-over-quarter improvement by former bailout recipient Portugal. Other gainers, both by quarter and annually, were Latvia, Lithuania, Poland, Slovakia, the United Kingdom and, to a slightly lesser extent, Estonia and Hungary. Although some market watchers greeted the news with near hubris, NACM Economist Chris Kuehl, PhD said some of the reactions felt like "a little bit of grasping at straws."

"The expected result was that there would be further decline and, at best, a steady state of mild recession," Kuehl said. "Instead, there was a growth rate of 0.3%. This should hardly motivate some wild dancing in the streets, but the fact is that Europe has been in full recession for almost a year and this marks the first sign of emergence. The next trick will be sustaining that progress." He noted it will largely be up to Germany and France to carry that weight.

Even European Commission Vice President Olli Rehn's similar sentiment fell short of optimistic. "This slightly more positive data is welcome, but there is no room for any complacency," Rehn said. "Self-congratulatory statements suggesting 'the crisis is over' are not for today. There are still substantial obstacles to overcome: growth figures remain low and the tentative signs for growth are still fragile." The vice president added that statistical averages also hid massive differences between the stronger performing states and the weaker ones (Greece, Spain, Italy and Cyprus).

- Brian Shappell, CBA, CICP, NACM staff writer

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Visa, MasterCard Move to Dismiss Retailers' Antitrust Suit

Visa and MasterCard moved this week to dismiss an antitrust lawsuit filed by a group of large retailers that accused the two companies of engaging in anticompetitive practices when setting interchange fees.

Specifically, the card networks said that the plaintiffs' claims are invalid due to their participation in a previous case that was settled in 2003. "All of plaintiffs' claims are barred because they are based on MasterCard and Visa network rules that were the subject of releases plaintiffs previously provided years ago in class settlements with MasterCard and Visa," said the two companies in their motion to dismiss.

Visa and MasterCard also argued that the plaintiffs' case filed in May by a group of 17 mega-retailers—including Macy's, Target, JCPenney and Kohl's—is wasteful given that their claims are "substantially identical" to those currently being litigated in the ongoing multidistrict proceedings surrounding the originally proposed $7.2 billion settlement over interchange fees that was preliminarily approved last November. Short of a full-on dismissal of the retailers' antitrust case, Visa and MasterCard have also sought to have consideration of the case delayed until after the U.S. Judicial Panel on Multidistrict Litigation can rule on whether or not it can be rolled into the other original antitrust proceedings.

The move is the latest in an increasingly complex fight over the future of interchange, or "swipe," fees in the U.S. The originally proposed $7.2 billion settlement allows merchants to pass on their interchange fees to their customers via surcharge, and also provides for $6 billion worth of payments to merchants, as well as $1.2 billion in temporary interchange rate reductions, but it also prevents companies that agree to it from filing similar antitrust lawsuits in the future. "The proposed settlement would perpetuate a broken system, restrict retailers from any future legal action and offer no long-term relief for retailers or consumers," said Target following the filing of the retailers' original suit in May. "Target has no interest in surcharging guests who use credit and debit cards to allow Visa and MasterCard to continue charging illegal fees."

No rulings have been made on Visa and MasterCard's motions to dismiss or to delay the case. In the meantime, while allowing surcharging was originally seen as a victory for merchants strapped by high credit card processing costs, an increasing number of states have moved to ban surcharging altogether.

- Jacob Barron, CICP, NACM staff writer

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Hot Growth in Singapore Tempered by Fear of Chinese Slump

Gross domestic product (GDP) growth in Singapore surged during the second quarter on the strength of several industries including financial services. However, there is reason for significant concern about the effect of a slowdown of growth in China in the future.

Singapore's Ministry of Trade and Industry reported 3.8% growth when comparing to the second quarter of this year and that of 2012. It also reported a 15.5% surge from the first quarter of this year to the second quarter. The growth rate was helped tremendously by the 13.1% annual and 9.2% quarterly increases in the finance and insurance sectors. Also important was the manufacturing sector rebound. Though it grew by only 0.2% compared to 2012's second quarter, it marked a solid rebound from the 6.7% decline posted during this year's opening quarter. Singapore projects overall economic growth for 2013 finishing as high as 3.5%. What the statistics don't indicate is the potential danger that may lie ahead.

A statement from the Ministry noted the importance of economic and fiscal policy in China in the coming months not just for Singapore, but also for several other Asian economies: "The growth outlook for China looks fragile, as recent policies to rein in credit expansion could potentially weigh on investment growth. As China adjusts to its new policies to promote more sustainable growth, unintended consequences, such as an excessive tightening of liquidity, could lead to a sharp slowdown in growth. This could, in turn, have spill-over effects on other export-oriented Asian economies."

Singapore officials did state that they are hopeful that the tenuous recovery in the European Union (see story number 1) and improving growth rate in the United States continue on a positive track to offset less notable growth in China. It also may serve as an impetus for the Asian nations involved in the Trans-Pacific Partnership (TPP) trade agreement to work more diligently to forge the pact. The TPP also includes all three major North American economies as well as Australia, New Zealand and Peru. In the last year, Obama Administration officials have characterized the TPP as perhaps the most important point on the U.S. trade agenda.

- Brian Shappell, CBA, CICP, NACM staff writer

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June Exports Set Monthly Record, Could Signal Better GDP Growth

In addition to exports breaking records on a state-by-state basis, national figures for U.S. exports reached a single-month high of $191.2 billion in June. The previous record, set in December 2012, was $188.7 billion.

June's exports were also 2.2% higher than in May. Over the last 12 months, exports of goods and services have totaled $2.2 trillion, which is 41.5% over the level of exports in 2009, the last year before the Obama Administration launched its National Export Initiative (NEI), the goal of which was to double exports by the end of 2014, meaning essentially an annual total of $3 trillion.

While that level of exporting activity might be too far out of reach in such a short period of time, progress has been steady, particularly to countries with which the United States has negotiated free trade agreements (FTAs). Panama and Colombia have developed into increasingly ravenous consumers of U.S. products since the negotiation of their FTAs, and both Latin American countries are regular residents on the list of major export markets with the largest annualized increases in U.S. goods purchases.

Certain sectors have also driven U.S. export growth, particularly industrial and agricultural products, both of which contributed to the increase between May and June 2013.

Imports also declined in June by 2.2% which, coupled with the record-setting export figures, shrank the U.S. trade deficit by 22% to a three-year monthly low of $34.2 billion. This drop in the trade gap and increase in exporting activity could mean that the 1.7% second quarter GDP growth figure released by the U.S. Commerce Department at the end of July was too low and will need to be revised upward at the end of next quarter.

- Jacob Barron, CICP, NACM staff writer

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More Bad News for Electric Car Supporters

Months after players in the electric car manufacturing market slid into bankruptcy, a producer of chargers for such autos appears to be heading in the same direction.

California-based Ecotality fueled deep concern regarding its future last week by admitting in a Securities and Exchange Commission filing that it may file bankruptcy. The culprits of its financial woes included poor sales figures and problems garnering new private funding. Days later, the U.S. Department of Energy suspended stimulus program payments it had been making to Ecotality, which reportedly had dealt with a number of problems with design and manufacturing defects in the recent past. The company's stock has lost the overwhelming majority of its value during the last week.

The federal government was key in funding the start up of Ecotality, but has also been quick to pull the plug on alternative energy funding in recent months after some federally funded solar products manufacturers publicly fell into insolvency. This included major funding recipient Solyndra, a California-based solar components producer, which was the subject of a well-publicized fraud investigation tied to the Obama Administration and key fundraisers.

Struggles with manufacturers and service providers associated with electric cars, parts for them and associated products like charging stations have occurred with more frequency in 2013. This spring, there were Chapter 11 filings by Coda Automotive and subsequently by its affiliates Miles Electric Vehicles LLP and Lio Energy Systems as sales failed to materialize, especially in the U.S. market. Only Tesla Motors has shown any notable level of market prowess among electric car manufacturers, as the sub-sector trails far behind its hybrid-style counterparts in market share.

- Brian Shappell, CBA, CICP, NACM staff writer

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U.S. Announces New Initiatives in African Trade Push

United States Trade Representative Michael Froman led the U.S. delegation for the 2013 U.S.-Sub-Saharan Africa Trade and Economic Cooperation Forum, also known as the African Growth and Opportunity Act (AGOA) Forum, in Ethiopia this week, resulting in a series of new initiatives aimed at expanding trade with the subcontinent.

The Obama Administration recently began an early push to renew AGOA, which expires in 2015, as part of a concerted effort to expand U.S. trade with sub-Saharan Africa, starting with the East African Community (EAC), a regional economic bloc comprised of Burundi, Kenya, Rwanda, Tanzania and Uganda. In keeping with the Administration's initial focus on East Africa, Froman announced this week that the U.S. and the EAC had agreed to launch formal negotiations on a new Trade Facilitation Agreement, with a view to concluding these negotiations as quickly as possible.

Simultaneously, the U.S. and EAC will add new elements focused on sanitary and phyto-sanitary measures and technical barriers to trade to the existing Trade and Investment Partnership, first agreed to by both entities in June 2012. Froman also highlighted the president's Power Africa initiative, a $7 billion package of regulatory, financing and support programs designed to increase U.S. investment in Africa's energy sector and, more broadly, help Africa leverage its resource wealth to meet the continent's energy needs.

Froman stressed that the Administration's efforts were a departure from previous attempts to support sub-Saharan Africa through direct aid and humanitarian support. "Our Africa strategy goes beyond traditional aid and assistance," he said. "We're focused on mobilizing trade and investment."

The Administration's interest in EAC stems from the fact that the economic bloc has a combined population of more than 130 million people living in countries where trade regulations have become increasingly stable and pro-business. Intra-EAC trade has doubled in the past five years, while its GDP has quadrupled in the last 10. So far, the U.S. and EAC have several technical and ministerial-level meetings to advance their partnership and erase barriers to trade.

- Jacob Barron, CICP, NACM staff writer


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