IMF predict that the Treasury may not recover all the money invested in the banks.

September 17th, 2009 by tom | Filed under Central banks, Daily News, Employment, Exchage Rate, Gold, Recession, Retail, Stocks and shares, The Markets, UK Banks.

financial news

Contrary to recent forecasts, the International Monetary Fund (IMF), never known for their optimistic approach to the current financial downturn, have cast serious doubts on the Treasury’s hopes of recovering the money spent bailing out UK banks.

A recent report issued by the IMF has stated that recovery rates for past financial crises were just 55% in advanced countries and as low as 15% in emerging economies.

If the statistics are to be applied to the current situation, then half of the money Gordon Brown committed to rescuing the City may never be recovered. However because of the severity of the current crisis, with bank guarantees equivalent to more than a third of gross domestic product having being issued, even 50% may prove to be an optimistic forecast.

Following the start of the crisis in the global financial sector in 2007, the UK banking sector absorbed losses on loans and securities of around £110 billion by the end of 2008 and raised or arranged around £120 billion of new capital by the middle of 2009. Estimates of further losses of around £130 billion from the loan books and securities portfolios of rated UK financial institutions are expected. Meanwhile it has been reported that negative outlook for credit conditions in the UK banking sector will continue for at least the next 12 – 18 months. Expectations are that the sustained weakness of the economic environment in the UK will continue to feed a situation where loan arrears will continue to grow, both in the consumer and business sectors.

The world’s largest mining group BHP Billiton has predicted that global steel demand is liable to double over the next 15 years as the economic “upswing” already being felt in China would be followed by a rebound in growth from developed nations in 2010.

A spokesman for BHP said that China’s recovery has been stronger than expected and there was little sign that their momentum had stalled during the financial downturn of the last 12-18 months.

China is BHP’s most important customer accounting for 20 per cent of it’s around £30 billion in sales in 2008-09.

The UK’s FTSE 100 index also achieved its highest close for almost a year, rising 22 points to close at 5124.3 while the FTSE 250 rose on Wednesday by 52.60 points to 9305.24.

The pound, after taking a beating over the last few days, made a minor recovery yesterday.

Pound/US dollar 1.6509
Pound/Euro 1.1202
Pound/Japanese Yen 150.504
Pound/Swiss Franc 1.7031

Shares on Wall Street continued upwards thanks to better-than-expected industrial production data.

The Dow Jones Industrial Average closed up 107.5 points at 9,791.71, which makes for an 11-month high. It has now risen for eight of the past nine days. The NASDAQ also moved on up, this time is thirty points to 2133.15.

US consumer prices rose in August from July but analysts said the risks of inflation in the economy remained low. The Consumer Price Index rose 0.4% last month having been flat in July.

The Organisation for Economic Co-operation and Development (OECD) have predicted that the global recession could eventually cost the jobs of 25 million people, despite recent signs that economies of its 30 member countries may be starting to recover.

Fifteen million jobs have been lost so far, and according to the OECD up to 10 million more could go by the end of 2010.

The unemployment rate across the 30 most industrialised nations in the OECD was 8.5% for July 2009, the highest since World War II, having risen from an all-time low of 5.6% at the end of 2007.

Gold extended its push beyond the $1,000 mark on Wednesday, closing in on the record price set last March as bullion was boosted by renewed dollar weakness and concerns about the outlook for inflation.

Gold traded at $1,015 a troy ounce in London, after settling at the end of Tuesday’s session in New York at $1,005.90, its highest ever closing price.

financial