Facebook sells stake in business

Facebook has sold a 1.96% stake for $200m (£126m) to a Russian internet firm, a move that values the social networking website at $10bn.

Facebook boss Mark Zuckerberg said he had been impressed by Digital Sky Technology’s (DST) “impressive growth and financial achievements”.

DST has investments in a number of internet firms across Russia and Eastern European.

US-based Facebook has more than 200 million global members.

‘Ongoing success’

Facebook said DST would not be represented on its board, or hold special observer rights.

“This investment demonstrates Facebook’s ongoing success at creating a global network for people to share and connect,” added Mr Zuckerberg, Facebook’s chief executive.

“A number of firms approached us, but DST stood out because of the global perspective they bring.”

DST’s internet businesses account for more than 70% of all page views on Russian language websites.

It has investments in sites including Mail.ru, Forticom and vKontakte.

The deal comes two years after Facebook sold a 1.6% stake to Microsoft for $240m.

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Surprise trade surplus for Japan

Japan’s export slump eased in April, leading to an unexpected trade surplus for the world’s second largest economy, official figures show.

Exports fell by 39.1% compared with the same month last year, slightly better than the 45.6% fall recorded in March.

This resulted in a trade surplus of 68.9bn yen ($722.7bn; £452.7bn), much better than economists had expected and Japan’s third straight monthly surplus.

Japan’s economy shrank at a record rate in the first three months of this year.

‘Optimistic’

“Today’s release supports our view that exports are past the worst,” said Chiwoong Lee at Goldman Sachs.

A slump in exports, triggered by the global economic slowdown that hit demand for Japanese cars, electronics and other goods, led to an economic contraction of 4% between January and March this year.

But some economists are predicting a turnaround in the country’s economic fortunes.

Government stimulus and a recovery in exports should ensure that the economy avoids contraction in the current quarter, said Masamichi Adachi at JP Morgan.

“In the short term, we are rather optimistic. But after that, there are many challenges facing the Japanese economy,” he added.

Last week, Japan’s central bank upgraded its economic outlook, saying the worst of the recession might be over.

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Can India boost internet usage?

Vatsank Bakshi is a sleepy student who struggles to get up when the alarm rings.

But even in his pyjama pants and with tousled hair, he is just the sort of consumer that Indian internet companies are after.

Ambitious, smart and in Mumbai for work experience, he normally logs on before breakfast, with the taste of toothpaste still fresh in his mouth.

“I use the internet to stay connected to my friends and family, and at night I play games, and listen to some songs,” he explains.

“Entertainment is also a part of my life through social networking sites. The internet helps me plan my whole day, it has become a routine of my life.”

Growth potential

India has been identified as a massive potential market for internet companies.

Its population is young, with half of the country under the age of 25, and they are increasingly getting their hands on technology and are keen to use more.

Social networking sites are proving popular, and internet gaming parlours are often full of excited kids and fruity language.

Annual economic growth in recent years of 9% has helped to create jobs and boost the spending power of consumers.

And even though growth is slowing this year, it is quick enough to fund the social and rural-based programmes that are putting money in the hands of the country’s poorest people and helping them become consumers.

Global IT market

At the same time, many of India’s biggest companies are flourishing in the global IT market, and its executives are becoming increasingly influential.

India, it would seem, is well placed to become a major force in the online world.

And yet it has not quite managed to live up to its stellar image.

At present, only about one in 10 Indians, or about 100 million people, uses the internet on a regular basis.

Compare that to the mobile phone market, where some 350 million people are using wireless handsets, and it is clear that the online market has a long way to go before it reaches saturation.

Infrastructure problems

One of the biggest problems internet companies face is a lack of infrastructure that would help support the expansion of online services.

Phone cables in cities are often old and poor quality, while in many parts of the country there are simply no connections at all.

As a result, most of the people who log on are young urbanites. For hundreds of millions of other Indians the internet may as well not exist.

The government has identified the problem as a key one it needs to solve, and there are plans to spend heavily on improving India’s infrastructure, not least because it will be a strong driver of economic growth at a time when many of the country’s external markets are struggling.

However, any improvement is going to take some time to happen, and one company that is not prepared to wait is Reliance Communications.

Mobile links

The mobile phone company, and a number of its rivals, have decided that the best way to link up hard-to-reach areas of India is through their wireless network.

“Wherever you can make a Reliance mobile call you certainly get on to the internet,” explains the company’s president Mahesh Prasad.

He adds that by going wireless, the company can reach up to 98% of the country, and has priced its product in such a way that it is affordable to most Indians, including those living in smaller towns and cities, as well as less developed rural areas.

“It is a misnomer that only the metropolises have an internet population,” Mr Prasad says.

“When you look at the youth population they are very familiar with the internet, they are very aware of what is happening around the world and they want to be part of that global citizenship.”

While that may be true, the wireless, shiny world that Reliance Communications and its rivals offer in their smart, air-conditioned sales and gaming rooms is a vision of India’s internet future.

Computers or curry?

For most of the country’s users, the online experience is much more like the one on offer at Net Café in Mumbai.

On a busy street near a teeming train station, Net Café is a little frayed around the edges.

Creaking fans struggle to keep up with the rising summer temperatures, and the computers are elderly witnesses to the speed with which technology changes.

Its customers are students, passing business people and those users who go online so infrequently that it would make no sense to get a subscription at home, even if they could afford it.

The owner, Maksood Butt, complains that the global economic slowdown is making his life harder as clients spend less time on online, and prefer to watch their pennies rather than videos on YouTube.

In fact, things are so bad for Mr Butt that he has had to rent out the front of his shop to a fast food vendor.

Luckily for Mr Butt, the dahi puri are proving as popular as the online experience, and the money he gets from his new client goes a long way to covering his running costs.

The worry for him, though, is that unless India’s infrastructure improves quickly, then the internet is unlikely to become a daily part of everyone’s diet any time soon.

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Gold demand soars among investors – BBC

Demand for gold is soaring among investors, but hard-up consumers are shunning gold jewellery, figures from the World Gold Council show.

Total demand for gold hit 1,016 tonnes in the first three months of 2009, up 38% from a year ago. Demand for gold as an investment rose 248% to 596 tonnes.

Gold is often seen as a safer investment in times of turmoil, and a way to guard against future inflation.

But demand for gold jewellery fell 24%, the council said.

It added that consumer spending on non-essential items such as jewellery had been hit hard by the recession.

However, Chinese demand for gold jewellery increased by 3%.

“This reinforces the view that China’s economy, although unquestionably suffering from a sharp deceleration, nonetheless remains resilient,” the council said.

Industrial demand for gold, which is used in the production of electronics like laptops and mobile phones, fell by 31% from the first quarter of 2008.

The gold price has risen from about $700 an ounce in November last year to above $900 an ounce.

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Toyota braced for historic loss – BBC

Japan’s biggest carmaker Toyota has forecast its first annual loss in 71 years due to plummeting sales and a surge in the value of the yen.

The firm said it expected a loss of 150bn yen (£1.1bn) in yearly operating profits – from its core operations.

Japan also posted a trade deficit of $2.5bn (£1.7bn) in November as exports fell at a record rate.

The rising yen saw export levels down 26.7% from a year earlier, the ministry of finance said.

The carmaker recorded an operating profit of 2.27 trillion yen last year.

Toyota said it still expected to make a profit on a net level for the year ended March but has cut its forecast sharply to 50bn yen, down from a previous estimate of 550bn yen.

It is the second profit warning by Toyota in less than seven weeks.

The latest estimate is far lower than its net profit of 1.7 trillion yen earned the previous year.

Falling sales

Toyota’s president Katsuaki Watanabe said that the company now expected to sell 8.96 million vehicles around the world this year, down 4% from the previous year.

Unlike previous years, he gave no goal for 2009.

Toyota said in a statement it was cutting its profits forecast because of the soaring yen “as well as a review of sales plans following a faster than expected contraction of the auto market”.

Japanese carmakers have all been hurt by plummeting car sales in their key overseas markets, including the US.

The surging yen has eroded their overseas earnings and also hit their profits – the dollar has fallen to 13-year lows against the Japanese currency.

Honda last week cut its annual profit forecast by 67%, and outlined a list of counter-measures such as putting off non-urgent investments to prop up its profitability.

Deteriorating sector

In the United States, President Bush threw the struggling carmakers General Motors and Chrysler a lifeline of up to $17.4bn to stave off bankruptcy as they reel under slumping demand.

Commenting on Toyota’s latest announcement, analysts said it underlined the problems now facing Japan’s car exporters.

“This is very, very, very bad. There’s a chance that they could fall into the red in the next business year as well,” said Koichi Ogawa of Daiwa SB Investments.

“This is also not just a problem for Toyota. What is good for Toyota is good for the Japanese economy.”

Fujio Ando of Chibagin Asset Management added: “This shows how rapidly and badly the auto sector has deteriorated.”

“Toyota will likely revise down its earnings numbers or sales forecast again in late January or February as I don’t think the business environment will become any better,” he said.

Output slashed

Japan typically runs a trade surplus due to strong demand for its products – but the surging yen has hit demand for its goods.

Japanese exports fell sharply to all areas but those to the US were worst-hit, plunging 33.8% – also a record drop.

Shipments to the European Union were down 30.8% while those to China fell 24.5%, the biggest fall since 1995, said Reuters news agency.

Exports to the rest of Asia declined 26.7%.

Imports were also down – 14.4% overall – due in part to lower oil prices.

Japan’s economy – the world’s second-largest after the US – has slipped into its first recession in seven years after two quarters of negative growth in a row.

The government has forecast zero growth in the year ending March 2010.

IMF urges spending to spur growth – BBC

More spending by governments will be needed to stimulate worldwide economic growth, the head of the International Monetary Fund (IMF) has told the BBC.

Dominique Strauss-Kahn said he feared measures announced by the Group of 20 nations last month would not be enough.

The IMF has already cut its forecast for global growth next year, and he said the next projection, due in January, would be even worse.

Mr Strauss-Kahn spoke of “2009 as really being a bad year”.

“I’m specially concerned by the fact that our forecast, already very dark… will be even darker if not enough fiscal stimulus is implemented,” he said in an interview with BBC Radio 4.

‘Less bad solution’

He said it would take a spending stimulus equivalent to about 2% of global Gross Domestic Product, or about $1.2 trillion (£800bn), to make a real difference.

He added that given the choice between increasing the deficit and not fighting the recession, he favoured the “less bad solution”.

He described European Central Bank chief Jean-Claude Trichet’s warning that eurozone governments must keep a lid on borrowing as “noble”.

“He’s the head of the central bank – it’s his job to say things like that,” Mr Strauss Kahn said.

“We are in the biggest crisis we have experienced for 60 or 70 years and we have to take that into account,” he added.

In November, the IMF lowered its global economic growth forecast to 2.2% from 3%.

In the BBC interview, Mr Strauss-Kahn was asked about the level of debt in the UK – 44.2% of GDP.

Shaun Ley, of BBC Radio 4’s The World This Weekend, asked Mr Strauss-Kahn: “Markets seem to have made their own judgements about this: it is cheaper to get insurance against big multinationals like BP and McDonald’s defaulting than it is to get insurance against UK government bonds going under. That is quite disturbing, isn’t it, when a country is viewed in that way?”

“Yes, it is,” Mr Strauss-Kahn said. “That is a good example of the fact that we are facing something which is almost unknown.”

Last week, Mr Strauss-Kahn said the IMF could cut its 2009 forecast for China to around 5% amid an “unprecedented” global slowdown.

Small firms ‘take long Christmas’ – BBC

More small firms are planning to take an extended Christmas break than at any time in 16 years, the Federation of Small Businesses (FSB) has said.

From a survey of its members, the FSB estimates that 10% or 500,000 are planning to close for two weeks over the festive period.

The FSB says the main motivation for the move is to save money.

FSB official Stephen Alambritis said the firms were following the decisions of carmakers such as Land Rover.

‘Reduced bills’

“By closing down for the full two weeks, small firms are looking to save a bit of cash though reduced electricity and fuel bills,” he said.

“Obviously small retailers won’t be closing, but small manufacturers and self-employed workers such as electricians and plumbers, will be downing tools.”

The banking industry recently revised its guidelines for dealing with small firms to try to help them through the economic downturn.

Under the changes, banks will have to be more proactive in contacting firms they think might be in trouble.

The government also announced new measures to help small firms in the pre-Budget report, including the ability to spread tax bills, and increased access to loans.

Public sector borrowing hits high – BBC

The UK’s public sector finances deteriorated sharply in November, with the level of borrowing soaring to a fresh all-time monthly high.

Net borrowing totalled £16bn last month, said the Office for National Statistics, much higher than the £13.7bn predicted by analysts.

Borrowing for the first eight months of the financial year now totals £56.1bn, nearly double the figure one year ago.

The chancellor has already warned net borrowing could hit £118bn next year.

The figures suggest that the government’s is already falling behind its target of borrowing £77bn in this financial year.

“The public finances look pretty awful,” said Vicky Redwood of Capital Economics.

“It’s just worrying that they are that bad this early on in the recession.”

Tax impact

The total government net debt was £650bn, or 44.2% of GDP, compared to £615bn one year ago.

The debt figures have been swollen by the growing cost of the government’s bail-out of the banking sector, including taking major stakes in the Royal Bank of Scotland and Lloyds TSB.

The growing budget deficit is likely to get worse in December, when the government will receive reduced VAT receipts after its cut in the rate to 15%.

“The deepening economic downturn is taking an increasing toll on tax receipts (VAT, corporation tax, income and capital gains tax) while extremely low housing market activity and markedly falling house prices is hitting stamp duty receipts,” said Howard Archer of IHS Global Insight.

Many economists argue that the slowdown is likely to be longer and deeper than the government predicts, which could make the budget deficit even larger than forecast.

Gemma Tetlow of the Institute for Fiscal Studies says that the figures show that tax receipts were down 5.2% on the same month one year ago, while spending was up by 6%. She added that the government’s own projections suggested that tax revenues would continue to fall.

Surprise rise in UK retail sales – BBC

UK retail sales rose unexpectedly last month, official figures have shown.

Total sales volumes climbed 0.3% in November from the previous month, the Office for National Statistics said. Sales were up 1.5% from a year ago.

Analysts had been expecting sales to fall in November, and recent surveys have suggested trading has been weak.

The rise in monthly sales was led by household goods, which were up 3.9% in November – their biggest monthly increase since July 2007.

Food sales were up 0.2% for the month, while those of clothing and footwear were down 0.1%.

The level of overall retail sales made via the internet was 3.8%, up from 3.2% in October.

‘Doesn’t tally’

Analysts had been expecting retail sales to fall 0.6% in November.

“Early Christmas shopping could explain part of the strength, but it doesn’t really tally with the weakness in consumer confidence nor the data seen in the CBI and British Retail Consortium (BRC) surveys,” said James Knightley, an economist at ING.

BRC director general Stephen Robertson said the rise in the official figure for November was “hard to explain”.

However, he put the increase down to high profile price cuts and promotions, combined with the recent falls in interest rates and VAT.

“Some retailers will now dare to breathe a sigh of relief that customers are simply deferring their Christmas spending rather than cancelling it entirely,” he said.

The BRC said last week that total UK retail sales had fallen in consecutive months for the first time in at least 13 years.

It found that sales were November were down 0.4% from a year earlier, following a 0.1% dip in October.

And more timely figures from Experian, which track “footfalls” or the number of people out on the High Street, suggest that the number of shoppers has dropped by 11.5% in the first three days of this week compared to the same period last year.

Meanwhile, official data on Wednesday showed that the number of people out of work in the UK rose by 137,000 to 1.86 million in the three months to October – the highest level since 1997.

Inflation heads south – BBC

Hard to believe though it may seem, inflation is set to tumble below 1% in the second half of next year.

That’s official. We have it from the Bank of England governor himself in his open letter to the chancellor today.

Strangely enough, Mervyn King’s comments came in an explanation of why inflation is so far above the official target of 2%.

With the Consumer Prices Index measure now at 4.1%, inflation in November came in a little higher than analysts had expected.

But the inflation story of this year has been very strange.

As recently as early September, households struggling with soaring food and fuel bills were advised that inflation was public enemy number one.

But by mid-October, the Bank of England’s position had shifted dramatically. Recession was the major threat and inflation was deemed likely to melt away.

That’s not easy for consumers to get their heads around.

Heading too low?

Tumbling commodity prices, not least oil, have pulled down the rate of inflation.

The governor says that almost all the fall in the inflation rate from 5.2% in September to 4.1% in November is accounted for by petrol and food prices and utility bills.

The rapid decline in economic activity since the collapse of Lehman Brothers in September has played a big part too.

There’s nothing like an impending recession to curb price rises on the High Street.

So although inflation is more than double the target rate, the governor shows no sign of concern about it.

On the contrary, he is clearly more worried about inflation falling too low.

He says it’s likely that inflation will return to its 2% target in the first half of next year and then move “materially below it later in the year”.

He added there was a “risk that below-target inflation could persist for a while”.

Crucially Mervyn King acknowledged it was very possible he would be writing a letter explaining why inflation was too low, in other words below 1%.

Worsening outlook

All this helps explain the dramatic cuts in interest rates, from 5% in early October down to 2% now, the lowest level since 1951.

The biggest single cut, of one and half percentage points, came at the November meeting.

This followed the Monetary Policy Committee’s (MPC) reading of the latest Inflation Report which painted a bleak picture for 2009.

Worryingly, Mr King said the economic outlook had deteriorated since then “driven by the continuing difficult conditions in global money and credit markets”.

The governor makes it crystal clear he and fellow MPC members are ready to cut rates again.

The recession and deflation threats seem as vivid as ever. The high inflation story of 2008 now seems consigned to the history books.