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Record Rate Cuts and Economic Props Light Up Europe
By Mike Caggeso
Associate Editor
Money Morning
A spree of economic props dominoed across Europe today (Thursday) all sharing the same theme – stopping the global financial crisis from getting worse.
The European Central Bank took a drastic step to protect the Eurozone economy from shrinking further by lowering its benchmark interest rate by three-quarters of a percentage point to 2.5%.
As ECB President Jean-Claude Trichet announced the largest cut in the Eurozone’s 10-year history, he said that the region is bracing for negative growth next year.
“Global and euro-area demand are likely to be dampened for a protracted period of time,” Trichet said at a press conference in Brussels today, Bloomberg reported.
The ECB estimates average annual real gross domestic product (GDP) growth to be between 0.8% and 1.2% in 2008, between -1.0% and 0.0% in 2009 and between 0.5% and 1.5% in 2010.
The ECB’s rate reduction followed two other huge central bank cuts in Europe.
The Bank of England cut its rate by one percentage point to 2%, its lowest level since 1951. That cut followed its 1.5 percentage point cut to 3% less than a month ago. Sweden’s central bank also slashed a record 1.75 percentage points from its primary interest rate.
Meanwhile, France unveiled its own economic stimulus plan today – a $32.9 billion (26 billion euro) injection that will target infrastructure, support local authorities and help its own ailing auto industry. The goal is to increase its GDP by 0.6% next year and push its deficit to 3.9% of the GDP, Reuters reported.
Wrapping everything together, are the Eurozone’s latest economic statistics, also released today, that said that GDP shrank 0.2% in the second quarter, investment dropped 0.6% and household spending remained flat.
Holger Schmeiding, chief European economist at Bank of America in London, said Europe is facing a “very serious recession.”
“Despite a major monetary stimulus and some help from lower oil prices and a looser fiscal policy, we do not expect the economy to recover before late 2009,” Schmeiding told Bloomberg.
Outside the Eurozone, four other countries recently slashed their primary lending rate earlier this week.
- New Zealand reduced its interest rate by 1.5 percentage points to 5.0%, a five-year low.
- Indonesia made its first interest rate cut since December 2007, reducing its key interest rate by one-quarter of a percentage point to 9.25%, Reuters reported.
- The Bank of Thailand cut its main interest rate one percentage point to 2.75%, its biggest reduction in eight years and its first cut in 16 months.
- Australia also cut its lending rate by a full percentage point to 4.25%, a six-year low.
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Toyota Spends 1.2 Billion Baht to Acquire Tasi
Toyota Boshuku Japan, Toyota’s main automotive interior systems supplier, is spending 1.2 billion baht to purchase a local automotive seat producer, the Thai Automotive Seating and Interior Co (TASI).
Earlier, Toyota Boshuku held a stake of 50 percent in TASI. NHK Spring in Thailand with 35 percent and NHK Spring Japan are other stake holders. The deal has been made through Toyota Boshuku Asia Co., Toyota Boshuku’s Thai operation. Toyota Boshuku Asia general manager Akihiko Shimanouchi said that Toyota Boshuku Japan and Toyota Boshuku Asia would hold 50 percent each in TASI after the acquisition.
Toyota Boshuku Asia’s capital that would be raised to 210 million baht this month from 30 million would finance the investment. Operating cash flow and loans would also be the sources of 500 million baht funds.
Mr. Shimanouchi said that Toyota Boshuku Asia was mainly involved in research and development for automotive interior systems. Accordingly, it has revenue of 13.41 billion baht last year and is the group’s second-largest revenue contributor in Asia.
Two hundred ninety-two (292) billion baht was Toyota Boshuku Japan’s recorded total revenue in 2006 from its global operations. From these figures, 13.5 percent or 40 billion baht was earned from Asian operations.
With registered capital of 250 million baht, TASI recorded revenue of 3.5 billion baht last year, which were mainly from sales to Toyota for its passenger cars.
Every year, Toyota Motor Thailand produces nearly 140,000 passenger cars.
Mr. Shimanouchi continued that the acquisition would mark the Toyota Boshuku Asia as the group’s production base in Southeast Asia. Toyota, with total management control, could share its facilities and transfer technology from the parent company. It could also coordinate marketing initiatives.
He added that they envision a strong opportunity to grow in line with the automotive sector in Thailand. Furthermore, he said that all major car makers including Toyota have invested in large production in the country, which recently has made a big expansion. They also foresee an opportunity to take one step higher to take orders from other car makers aside from Toyota.
TBAS plans to invest more in research and development and production. Moreover, it plans to use TASI as a base to further export its products outside the country.
About Toyota
In 2006, Toyota, maker of quality Toyota cold air intake was engaged in several projects which were designed to solidify its foundations while continuing to grow.
Lexus, being the front product, launched its new flagship model – the LS – and the new global Camry went on sale. In Japan, a new Corolla range was introduced, highlighting the significance of this best-selling car.
As regards manufacturing, various new projects were initiated around the world. In May, manufacture of the Camry began in Guangzhou, China. Aside from this, the United States (Kentucky plant), which in October celebrated 20 years of production, began manufacturing the first Toyota hybrid vehicle to be built in North America – the Camry Hybrid. Furthermore, the Texas plant in November began producing the new Tundra truck, a key vehicle in Toyota’s North American lineup. And in Japan, the Toyota Motor Kyushu, Inc. began full-scale operations at its engine factory, while Toyota Motor Tohoku Co., Ltd. augmented its manufacturing capacity.
About the Author
Kaye Leery is has a degree in Information Technology. She enjoys her profession as an IT consultant. She is also passionate about writing and plans to pursue a Creative Writing workshop in Iowa.
