France's Budget Plan Focuses on Tax Hike on Rich and Business Unlike Spain, France's 2013 Budget focused on tax hike on business and the rich, rather than spending cut. The government pledged to narrow the deficit to 3% of GDP in 2013 from 4.5% this year and eventually to 0.3% by 2017, compared with 0% in previous estimates. Prime Minister Jean-Marc Ayrault described the budget plan as "a fighting budget to get the country back on the rails". Yet, with record unemployment rate and sluggish macroeconomic data, the government faces challenges even on meeting the newly announced deficit target. Read more... Spain Pledges To Reduce Spending Further To Meet Fiscal Target The Spanish government confirmed in the 2013 Budget that the deficit targets are 6.3% of GDP this year and 4.5% next year, down from 8.9% in 2011. In order to achieve this goal in the face of economic contraction and sluggish employment condition, the government announced additional fiscal tightening measures which mainly focused on reduction in spending rather than tax increase. While the market remains skeptical over whether the target can be achieved, the plan should ease the process for the Spanish government to request financial assistance from the EFSF/ESM. Read more... Tensions Between China And Japan This Time May Hurt Trades More Seriously Than 2005 Tensions between China and Japan over the inhabited Diaoyu/Senkaku Islands intensified after the Japanese government announced on September 11 that it would nationalize three of the island chain by purchasing them from the Kurihara family for 2.05B yen. The Chinese government was furious about the issue and declared that the islands have been under Chinese territory since ancient times and China would do anything to protect it sovereignty. Reports also showed that nationalists protested on streets and destroyed shops owned by Japanese in China. Last week, China's Vice President Xi Jinping spoke after weeks' of disappearance about the latest Sino-Japanese conflict. He said that Japan's 'purchase' of the islands was a farce and 'Japan should rein in its behavior and stop any words and acts that undermine China's sovereignty and territorial integrity'. Despite heightened tensions, we believe that military conflicts are unlikely. Yet, deterioration of relationship between the world's second and third largest economies in the period of global economic turmoil would inevitably have impacts on the economic developments in the East Asian region, and the world as a whole. Read more... |
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