There are positive signs for the Economy this week as Australia raises its main interest rate to 3.25% from 3%, becoming the first G20 nation to do so as the global economy begins to recover.

Supprising as this may seem, it is not unexpected. This move by the central bank of Australia had been expected for some time now, mostly due to the fact that Australia was the only country in the developed world to expand in the first half of 2009. This coupled with the fact that Australia only saw its economy contract for one quater of 2008 makes is seem that Australia rode through the storm quite well.

This was mostly thanks to the quick and decisive actions of the Australian Government, who helped the economy with major stimulus spending. This spending totaled around 42bn Australian dollars ($35bn; £21bn), which was spent on schemes such as cash handouts for pensioners and for low and middle-income families, and a number of infrastructure projects.

These actions kept consumer spending high enough for the Australian economy to survive and as of this year, enable Australia's economy to grow 0.4% in the first quarter and by 0.6% in the second, rebounding from the 0.5% contraction in the last months of 2008.

However, do not think that Australia is fully out of the woods yet. Even though the interest rates are now at 3.25%, these are still extremely low. The move to a 4% interest rate will be a gradual one so as to avoid a contraction again. Yet, market strategist Rory Robertson is optermistic that if the Australian economy continued to expand as expected, rates could return to "a more normal 5%" in the next year or two.

As well as its Government's actions, Australia owes its economic rescilience to the strength of its mining sector. This sector has been kept alive by high demand of its iron ore from China, as well as other mining comodities.

Whatever the reasons, it is clear that the economy is improving and showing definite signs of growth, hopefully 2010 will tell.

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. 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.

Humble but nimble

Europe’s smaller firms are coping fairly well with the recession, in spite of their banks’ reluctance to increase lending.

Not much about Die Königliche Porzellan-Manufaktur, a royal porcelain factory (right), has changed since it was taken over in 1763 by Frederick the Great. Privatised by the state of Berlin in 2006, the firm still moves to a slow rhythm; it makes its tableware mainly by hand, and each of its painters is trained for three and a half years before starting work. Its products are expensive, at about €80 ($110) for a cup and saucer, and are hardly essential. Yet despite this the firm and its 180 employees are doing well amid the economic crisis. That is partly because customers are still willing to pay for its high-quality products, and partly because the company invested and hired prudently in recent times. “Conditions in our industry have been challenging, so we are well prepared for any downturn,” says Christiane von Trotha, the firm’s marketing director.

In contrast to the doom and gloom coming from Europe’s biggest firms, many small and medium-sized enterprises (SMEs) are cautiously optimistic. The main umbrella organisation for Germany’s more than 4m SMEs predicts that its members’ sales will contract by only 2% this year. The country’s renowned Mittelstand will therefore outperform the economy as a whole, which the government expects to shrink by 6%. A survey last month of 804 French SMEs found that just over half of them expected revenues to either stay flat or increase in 2009. “I was surprised by how good the numbers were,” says Jean-François Roubaud, president of a French lobbying group for SMEs, “and the data confirms what I see out in the field.”
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That is good news for governments, because Europe’s SMEs, defined as firms with fewer than 250 employees, collectively employ 88m people and account for two-thirds of private-sector employment. As big companies send jobs overseas in an effort to reduce costs, smaller firms are becoming increasingly important as domestic employers. And although most SMEs are tiny mom-and-pop operations, with little capacity or desire to grow, their number also includes fast-growing, innovative firms which, if properly nourished, could become tomorrow’s champions.

To be sure, SMEs are facing tough times. They have fewer assets and smaller cushions of retained earnings than big firms. They often depend on a small number of customers, and they are unable to spread business risk by operating across several product lines and geographies. Along with falling demand, they face an unprecedented shortage of bank credit.

Five weeks ago, for example, Laurent Vronski, managing director of Ervor, a French manufacturer of air compressors, decided to test the loyalty of his banks, HSBC and Société Générale, by asking them for a larger overdraft. Although Ervor has the highest credit rating awarded by the Bank of France for a company of its size and expects the same sales this year as last, Mr Vronski is still waiting for an answer. “I don’t like that,” he says, “especially since banks wanted us to leverage up to our necks two years ago.”

So far, however, it appears that the majority of SMEs are finding ways to cope. In Britain, the number of corporate liquidations jumped to 4,941 in the first quarter of this year, up by 56% compared with the same period a year earlier. Most victims were SMEs. But a recent survey by the Federation of Small Business, which represents the smallest SMEs in Britain, found that 60% of businesses were performing as well as or better than last year.

In Germany the corporate death-toll for January and February was little changed from a year earlier. That is in large part because German domestic consumption is holding up, and SMEs serving the home market are doing relatively well. Exporting firms, by contrast, are in acute pain. Machine-tool manufacturers expect sales to slump by 60%, for example. Even at such firms, however, job losses are expected to be below the national average, because their employees’ skills are so valuable. In France the corporate bankruptcy rate jumped by 21% for the first quarter of 2009, but 70% of the failures were at the very tiniest firms with no employees other than their founders, and so have limited impact.

Although SMEs are always more vulnerable to downturns than big firms, argues Ludo Van der Heyden, a professor at INSEAD, a French business school, they are also much better at managing through them. To start with, they are usually more efficient and flexible. They “tend not to make the kind of stupid responses that big companies make, such as cutting costs deeply and indiscriminately, so they recover faster”, he says. SMEs are much closer to their customers and there is often more trust between managers and workers, meaning greater labour flexibility. One example is Sonogar 5, a retailer based in Paris which sells fancy multimedia and navigation equipment for cars. Its owner, Hugo Delpierre, has cut his own salary and plans to halve the firm’s shop-floor space in central Paris and share with another firm, “in order to survive”, he says.

Big companies are of course the main recipients of state aid so far, but small businesses are getting help, too. Governments are ordering banks to lend to them, providing credit guarantees, suspending some tax obligations and forcing public bodies to pay up more quickly. Belgium, France and Italy have taken the hardest line with banks; Belgium and France have both introduced nationwide networks of credit mediators, with powers to intervene with banks on behalf of SMEs, and Italy is monitoring its banks. The mediators can be highly effective, say businesspeople, although most SMEs are too frightened of angering their bankers to use them.

Eyetronics, a 10-year-old Belgian firm which does three-dimensional scanning for Hollywood films and for video games, took seven months to secure financing for its next phase of growth, despite a successful record. It is young, innovative SMEs that are most threatened by the credit crunch and recession and most need government support, argues Reinhilde Veugelers of Bruegel, a think-tank in Brussels, since their products are new and not yet widely accepted. Banks have long been wary of lending to them, preventing most innovators from growing into giants.

Only three firms founded in Europe since 1975 have joined the ranks of the world’s 500 biggest listed companies, according to Bruegel, compared with 25 in America and 21 in emerging economies. European countries have particular reason, therefore, to help their most innovative SMEs through the crisis.

'Buy now pay later' deals rising

The amount of credit for "buy now, pay later" deals has risen during the economic downturn, according to industry figures. In-store credit, often for items such as settees and electrical goods, was up 24% in March compared with the same month a year earlier. The figures from the Finance and Leasing Association (FLA) show that the availability of loans remains tight.

One charity said there was a debt risk for people in socially deprived areas. Chris Tapp, of Credit Action, said that the final cost of a hire purchase deal was often much higher than buying a product outright.

The FLA said that £5.1bn was lent by its members in the UK - such as credit card and motor finance providers - in total in March, down 12% on the same month a year earlier. With the wholesale lending markets still squeezed, loans, typically secured on borrowers' homes, fell by 76% over the same period. However, in-store credit deals leapt by 24%. These deals allow shoppers to put down relatively small or no money upfront while taking their new television or sound system home. They pay off the lump sum with interest in instalments over subsequent months.

"With a depressed housing market, many people are choosing to improve their homes and replace furnishings rather than move house," said Geraldine Kikelly, head of research at the FLA. "Retailers and lenders have been offering attractive interest-free credit and deferred payment deals on store instalment credit. "We have seen a similar trend in recent months in the motor market. The proportion of car sales represented by instalment-type credit available in the dealerships has grown from 48% to 54% over the last year. This is mainly a response to competitive pricing and reduced availability of other sources of credit."

The risk for borrowers is that if they fail to keep up with payments, the provider of the credit can take the product back. This would mean they would have been paying for something they no longer had.

The FLA said that the relatively small cost of items such as sofas meant that the default risks were lower than for bigger loans, even during a downturn. But Mr Tapp said that those in socially-deprived areas could still be hamstrung by the regular payments. "It is no surprise that this is an area which is growing during the credit crunch, but it can be more costly in the long run," he said. The FLA figures showed that unsecured loans dipped by more than a third year-on-year in March, and credit card lending also fell slightly.

Debt charities advise people in financial trouble to prioritise their repayments, paying utility bills and council tax bills first. Hire-purchase payments are slightly lower on the list, but are higher than credit card repayments. However, anyone fearing they might miss payments should contact their lender to come to an agreement.

Useful Revision Sites for the 3rd June!

Is your hand hurting after revising too long? Or are you just getting bored? Then I have the solution for you!

Practise more mathematical based questions on the price elasticity of demand (PED) and income elasticity of demand (YED) for the forthcoming economics exam! Here are a list of websites that will help you:

1. http://wps.aw.com/aw_miller_econtodmic_14/63/16358/4187703.cw/index.html
( there are 4 individual quizzes on this website)
2. http://www.oup.com/uk/orc/bin/9780199286416/01student/questions/lipsey_student_ch04/page_01.htm

They are all in the format of multiple choice questions like on the exam with 4 different options, so it will help with the technique as well.

Good luck to all!

Profits jump at Virgin Atlantic

Virgin's Steve Ridgway on the company's success

Virgin Atlantic has reported a sharp rise in profits in the year to the end of February, bucking the trend seen by other airlines.

Annual pre-tax profits reached £68.4m ($109m), nearly double the £34.8m seen in the year earlier.

It said the results had been helped by a rise in premium fare passengers.

The results are in contrast to other airlines, including British Airways which reported an annual loss before tax of £401m last week.

BA said the level of premium fare travellers had fallen by 13% in the second half of its financial year and it had seen a rise in fuel costs.

Fuel costs

Virgin Atlantic chief executive Steve Ridgway said: "We are winning market share from our competitors during the toughest trading environment ever."

Talking to the BBC, Mr Ridgway added that successful hedging of fuel had helped the firm. Hedging involves buying fuel at set prices in advance to avoid fluctuations in costs on the open market.

During the year, the price of oil veered from as much as $147 a barrel to as little as $38. The carrier spent close to £1bn on fuel for the year.

Tony Dixon, editor of Airliner World magazine, said hedging successfully was a key factor in boosting profits.

Conversely, airlines can be hard hit if they buy fuel "at the wrong time", as Ryanair did, he added.

Another factor hitting airlines in recent months, including BA, was the weaker pound, as fuel is bought in dollars.

Mr Dixon said the outlook for 2009/10 was likely to be better for airlines, amid signs that fuel prices were more stable now than last year and the pound had recovered against the dollar.

Volatile

Sir Richard Branson, the president and founder of Virgin Atlantic, said: "The last financial year has proven to be the most volatile yet in our 25-year history."

"To increase profits against a backdrop of such a severe recession is an excellent achievement by all of our staff at Virgin Atlantic."

But Mr Ridgway warned: "This year is going to be tough," adding that the airline would "cut costs as aggressively as possible".

Group sales, which include sales from tour operator Virgin Holidays, increased by 8.4% to £2.579bn from £2.38bn in the year before.

Virgin Atlantic is challenging a possible tie-up between BA and American Airlines, citing competition concerns.

The airline, which employs about 8,500 staff, is 51%-owned by Sir Richard Branson with Singapore Airlines owning the rest.

German car sales continue to rise

Germans are being encourage to trade in their old cars for new models

German car sales climbed 19% in April compared with the same time a year ago, as a trade-in plan to scrap old cars continued to encourage purchases.

The VDA automobile federation said new vehicle registrations totalled 380,000 last month.

However, the rise was not as sharp as March, when sales leapt by 40%.

Germans have been taking advantage of a scheme that gives drivers 2,500 euros (£2,220; $3,170) for trading in a car more than nine years old.

The scheme will be phased out by the end of 2009. The UK is introducing a similar scheme this month.

Germany has been a rare bright spot for car sales.

Data released this week showed that new car sales fell by 7% in France and by 7.5% in Italy.

However, vehicle production in Germany has been hit hard by the downturn, falling 34% in April from a year earlier. Exports fell 48%.

Ferrero accused in hazelnut fraud

By Anthony Reuben Business reporter, BBC News

Ferrero uses large quantities of hazelnuts for its confectionery

The talk around the High Court's Chancery Division was about the legal battle over whether the ambassador had, actually, been spoiling his guests.

And for those in on it, the joke was, well, "excellente".

But sadly for fans of the much-quoted 1980s television advertisement, that was not the matter being heard.

The case at the court is indeed against Ferrero, the company behind Ferrero Rocher chocolates as well as Nutella spread and Tic-tacs.

But there is no challenge to the quality of the confectionery.

Seven years after the event, a fraud case involving two major banks, Ferrero, and the world's biggest supplier of hazelnuts, is finally nearing its conclusion.

Switched nuts

By February 2002, Bank of Tokyo Mitsubishi and Belgium's KBC Bank had lent 22.8m euros ($29.6m; £20.3m) to the Turkish hazelnut supplier Baskan Gida.

The banks thought that the money would be used to buy hazelnuts from growers and would then be repaid by companies such as Ferrero paying for them.

Instead of the money for the hazelnuts going to Baskan Gida it would go directly to the banks.

But by the time Ferrero came to buy the nuts, they were bought not from Baskan Gida, but from another company called Aksu Gida.

The banks allege that all of the assets, including the hazelnuts, had been transferred to Aksu Gida and another company called Baskan Yuksel.

This left Baskan Gida as "a worthless shell", the court heard, although it is hard to tell if the lawyers involved have spotted the pun.

As a result, the banks only got about 2m euros of their money back.

The banks allege that Ferrero was involved with the switch, and indeed that it authorised it, but the Italian company denies that.

Another defendant, Shabbir Abidali, is accused, along with two companies with which he worked, of being involved in the switching of the assets, and he also denies the allegations.

Seven other defendants are named, but they have either not turned up for the proceedings or are companies in liquidation.

The judge could still find against them, but it is unlikely that the banks would be able to get a significant amount of money from them.

'Hardly a masterpiece'

The case finally began before Mr Justice Briggs last October and a judgment is expected in May or early next month.

"It is obvious that the Ferrero defendants were very well aware of what Baskan Gida was doing... but were prepared to put their commercial interests first on the basis that they thought that the prospects of anyone ever discovering the truth were so small as to be discountable," the counsel for the banks submitted.

But the counsel for Ferrero reached a very different conclusion.

"The picture the banks seek to paint is of a Ferrero, which paid vast sums of money to assist a fraud by Baskan Gida, in return for a hazelnut mountain for which it had no use and five years of litigation for which it had no wish."

"Even painted impressionistically, as the banks have sought to do, it is hardly a masterpiece."

Mr Abidali's lawyers say that the hazelnuts that were transferred were not even the ones on which the bank loans were secured.

Lengthy case

In a nutshell, it is a complicated case by any standards.

Turkey grows 70% to 75% of the world's hazelnuts

The opening arguments submitted by the banks and the two defendants run to a total of more than 500 pages, including extensive discussions of the state of the Turkish hazelnut market and how hazelnuts are priced.

The case has called on the expertise of a Queen's Counsel (QC) and two other barristers for the claimants, a QC and two other barristers acting for Ferrero and another barrister acting for Mr Abidali, not to mention the solicitors involved and what the submission for the banks described as a "painstaking investigation".

The case was in court for a total of 84 days.

But the action in London is not the only one - there is also a case underway in Italy.

Price of litigation

A jurisdiction battle earlier in the process decided that the fraud case should be heard in London while the contractual dispute takes place in Italy.

London is relevant to the case because the loans made to the Turkish hazelnut supplier came from the London branches of the two banks and one of the defendant companies, Indo Mediterranean Commodities, which is in liquidation, was based in London.

Taken over the seven years of this case, with an extremely long hearing in London and a parallel trial in Italy, the cost of the legal action will be astronomical.

Indeed, well-informed sources have suggested that if the legal costs of the banks, Ferrero and Mr Abidali were added together, the total would not be far off the 22.8m euros at the centre of the case.

Proceedings in the Italian case included a recent estimate of Ferrero's costs alone of 11m euros.

Under such circumstances, when the verdict comes, the awarding of costs may become the most important part of the ruling.

Making news pay online

The last print edition of the Seattle Post-Intelligencer went on sale on 17 March

By Vincent Dowd Reporter, BBC World Service

In his fifties and still full of energy, Gene Stout may have hoped his job on the Seattle Post-Intelligencer would see him to the end of his career.

For 25 years, he was the pop music critic. But in March, faced with annual losses of $13m, media conglomerate Hearst closed the print publication in March.

Now, some 20 journalists keep the Post-Intelligencer alive online, compared with some 150 previously. The Rocky Mountain News, founded in 1859, also closed in Colorado recently.

And well-known titles such as the Chicago Tribune, San Francisco Chronicle and New York Times all have financial problems. At least 12,500 jobs have gone in US print journalism in two years.

'System collapsing'

Mr Stout said the problem became painfully obvious. "The traditional newspaper model for making money is under duress in America," he said. "It's the loss of readers to the internet plus a drift of classified advertising to the likes of Craigslist.

Income across the board will be far lower than traditionally we sold a page of print for Steve Swartz, Hearst

"In fact the paper's online readership was through the roof -- but what actually made us profitable was selling print ads. With fewer readers for the physical newspaper, the system was collapsing."

Mr Stout admits a 20-year-old sitting in a Seattle bedroom might prove a great music writer.

"Look at the online music bloggers," he said. "Some are very good and some are awful - but they've changed what we expect journalism to be. And financially those sites can do a lot with very little."

The big question is can online-only sites ever make enough cash to support the hugely expensive business of general journalism - reporting what happens in your local council or in a war half a world away? And if the money isn't there what's going to happen to the journalism we have long taken for granted?

New approach

Hearst is based in an extraordinary Norman Foster-designed tower in Manhattan. It was there that the new president of Hearst Newspapers, Steve Swartz, took the decision to axe the print edition of the Post-Intelligencer.

The Hearst Tower in New York City was designed by Norman Foster

"Many big US newspapers now have unsustainable cost structures -- especially if there's more than one newspaper in a given market," Mr Swartz said.

He admits that for now the Post-Intelligencer website has traffic lower than when it was linked to the newspaper -- but he's looking to the future. "The next important wave is the move toward digital subscription products on smart phones, the Amazon Kindle and other digital reading devices," Mr Swartz said.

Currently even the most popular website makes a tiny proportion of the money agencies used to pay for a page in a major paper. The 'eyeballs' just aren't there yet and no one's quite convinced how effective online advertising is.

"So we're constructing a multiple digital approach," Mr Swartz said. "Our sales people aren't just selling the ad inventory on seattlepi.com -- they'll also be selling Yahoo inventory and search engine marketing for Google and MSN. You need a multitude of digital products to make the equation work."

Challenging future

He is clear about the challenge ahead. "Income across the board will be far lower than traditionally we sold a page of print for," Mr Swartz said. "You're talking thousands of dollars, not hundreds of thousands."

In the UK the Guardian is often held to be the great example for how to extend a newspaper's presence online. Janine Gibson, editor of guardian.co.uk, says traffic varies between almost 2 million on a really big news day or "half that on a wet Saturday".

A third of all hits come from the US, with a third from the UK and the remaining from the rest of the world. She said one thing which helped guardian.co.uk internationally (and the likes of The Huffington Post in the US) was the decision by the New York Times in 2005 to put its comment behind a pay-wall.

The policy flopped totally and was abandoned two years later. Ms Gibson said perhaps the Wall Street Journal was the only one to make real money that way.

The New York Times, struggling under debt, sold its flagship building in March

Clicks to profits

So how do you turn a profit from online news?

"Well, until this year we were doing all right with advertising. This year everyone's finding it tough. It's important not to confuse the immediate position with the questions which have always baffled mainstream media around digital -- how can we sustain our organisation in a new world order where people expect content to be free?" Ms Gibson said.

And she suggests that many large media companies have not found any answers because they do not like what they hear.

"It's going to mean much smaller incremental revenues you're going to have to extract from a lot of people -- through advertising or through direct payments," Ms Gibson said. "With new iPhone applications you make a payment and you get a certain amount of stuff. It's part of how journalism will be paid for."

Mr Swartz in Manhattan and Ms Gibson in London share a vision of micro-payments one day sustaining good journalism as readership continues to migrate online.

The cost to the reader would increasingly derive from ease of delivery and less from advertising. It's as if a newspaper had no cover price -- but cost the customer much more to get delivered.

And all of this may one day work. But what if it does not?

Adidas sees profits drop by 97%

Sales of Adidas gear fell 6% this winter when compared with last winter.

Sportswear giant Adidas has reported a 97% fall in profits during the January to March quarter after sales were hit in the economic downturn.

Adidas made 5m euros ($6.7m; £4.4m) in pre-tax profits during the first quarter, down from 169m euros in 2008.

Sales were down 6% on a year ago, and the company said it was facing higher raw material and wage costs. Shares in Adidas fell 10% in Frankfurt.

The firm also said it will close some offices and might shut some stores.

Adidas is to close some regional offices in Europe and Asia as it aims to save more than 100m euros per year.

It will also carry out a review of under-performing retail stores.

'Urgent restructuring'

"We are now in a position to make a game-changing structural refinement to our business," said Herbert Hainer, group chief executive and chairman.

"The current economic climate adds urgency to accelerate our plans.

"Our results have been materially affected by higher input prices, currency devaluation effects and restructuring costs.

"Although some of these items will recur again as we go through the balance of the year, I am convinced we will put most of these effects behind us in the current year."

Adidas is the world's second-biggest sporting goods maker after Nike.

The German firm bought Reebok in 2006 to help it compete against Nike, but Reebok still struggles, particularly in North America where Adidas saw its sales fall by 14% in 2008.

In January Adidas announced it would close its Reebok office in Bolton, ending a 116-year association with the town.

Rival Nike has also been hit by falling consumer demand. In March it said it planned to halt production at three shoe factories in China and one in Vietnam.