European Business News (EBN), 96-10-11

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated 1100 October 11

CONTENTS

[01] French economy is expected to pick up in second half

[02] Pharmacia & Upjohn expects to show flat earnings for 3rd quarter

[03] Neste swings to a surprise 8-month loss

[04] Yeltsin calls for tax crackdown

[05] Germany's annual inflation rate stays below target

[06] British retail sales moderated in September

[07] Japan's economy continues to show mild recovery

[01] French economy is expected to pick up in second half

The French national statistics institute said gross domestic product is now expected to grow 1.2% in the year, down from the 1.3% the agency predicted earlier. But in the second half, GDP is expected to grow 2%, as industry boosts its production of intermediate and professional goods and rebuilds its inventories. Car sales are also expected to show gains.

The economy is expected to expand 1% in the third quarter and 0.4% in the fourth quarter.

France's consumer price index rose a provisional 0.4% in September from August and was up 1.6% from a year earlier, the national statistics institute said. That compares with a 0.3% month-on-month decline in August and a year-on-year rate of 1.6% in the previous month.

The September rise, which reversed three consecutive months of falling month-on-month inflation, was in line with economist forecasts. Since the beginning of the year, INSEE said CPI rose 1.3%. Food prices rose 0.2% in September, INSEE said, mainly due to a 2.4% rise in fresh food prices, principally fresh vegetables. Excluding fresh foods, food prices fell 0.1%.

Manufactured goods prices rose 0.5%, INSEE said, largely as a function of the end of the summer discounts for clothing and shoes. Clothing and shoe prices rose 2.4% on the month. Other manufactured goods prices fell 0.1% on the month.

Energy prices rose 1.4% on the month mainly due to a rise in gasoline prices. Private sector service prices fell 0.1% on the month, mainly due to a seasonal decline; year-on-year they dropped 2.3%

The institute declined to estimate how much France's economy would expand in 1997.

[02] Pharmacia & Upjohn expects to show flat earnings for 3rd quarter

The Swedish-American drugs company said it expects to post per-share earnings of $0.44 for the third quarter. The stagnant profit picture reflects 'negative foreign-exchange developments,' on sales, particularly the effect of the weakened Japanese yen, said Robert C. Salisbury, executive vice president and chief financial officer.

He also noted that a stronger Swedish krona and Italian lira increased the cost of goods sold.

Pharmacia & Upjohn noted that sales in the quarter rose 2% from the year before, despite the adverse foreign-exchange movements. The company also cited certain 'short-term disruptions often seen in a multinational merger' caused by the integration of the two companies.

The company was formed late last year through the merger of Pharmacia of Sweden and Upjohn of the U.S. But Pharmacia & Upjohn played down the impact of the short-term integration problems, saying that strategy and overall performance remain on track.

The company will release a full report on third quarter performance on October 31.

[03] Neste swings to a surprise 8-month loss

Neste posted a loss before extraordinary items and taxes of 26 million markka ($5.7 million) from a 1.14 billion markka profit the year before. The company said its results were also hard hit by weak petrochemical demand and lower gains on the sale of assets. But Neste said it expects performance during the final four months of the year to improve and that the overall result before extraordinary items will be profitable, albeit substantially poorer than in 1995.'

Sales in the eight months fell 7.5% to 27.65 billion markka. Operating earnings slid 80% to 341 million markka. Analysts had expected the company to post net profit of 295 million markka.

[04] Yeltsin calls for tax crackdown

Speaking in a clear, measured tone in a nationwide radio address, Yeltsin said Prime Minister Viktor Chernomyrdin would head a special commission to enforce payment of taxes and catch tax evaders. 'Everybody will pay taxes and there will be no exceptions,' he said during the seven-minute speech.

It was the second time Yeltsin had taken to the radio waves to show he is in control as he awaits heart bypass surgery. He made a radio speech Oct. 3 to discuss the country's problems.

Yeltsin's tax speech focused on why many Russian workers often go months without being paid. He said the government lacked money for wages and pensions because many businesses and individuals avoid paying taxes and because of poor performance by some local government officials.

Tax evasion is a major problem in Russia with many businesses avoiding taxes, leaving the government chronically short of money to fund the national budget. Yeltsin said the special commission would oversee the tax and customs service to boost their performance, which he said was unacceptable. He also warned tax evaders would face harsh penalties.

He called for understanding, saying that Russia could only fix its economic problems if people pay taxes and restore financial stability. 'I know that our taxes are high today but only making order in fulfillment of tax laws will allow us to lower them. First we will collect taxes and then we will be lowering them,' he said.

[05] Germany's annual inflation rate stays below target

The decline was the second in consecutive months. The annual rate remained well below the Bundesbank's mid-term inflation target of 2.0%. In western Germany, consumer prices also declined 0.1% on the month but rose 1.4% annually. That confirmed preliminary data released late in September that had been based on data from Germany's four largest states.

The German Statistics Office noted that the increase in the western region was mainly due to the energy sector. Energy prices increased an overall 2.2% month-on-month mainly due to higher heating costs, which were up 14.5% from August.

In eastern Germany, consumer prices declined 0.2% since August and rose 1.6% from the year-earlier period, remaining only slightly above the rate for the western states. In the eastern sector, the agency said fuel prices increased by 0.8% from August, while clothing and shoes prices rose 0.6% and entertainment and leisure costs rose 0.3%. Prices were lower from August in the food, drink and tobacco sector due to a 7.2% drop in prices for seasonal foods.

[06] British retail sales moderated in September

The latest survey shows some 63% of retailers indicating that sales were higher in September than the year before, while 17% said they were lower. The difference between the two, a net balance of 46 percentage points, was lower than retailers expected and down from 53 points in August.

Apart from liquor stores, all sectors saw sales volumes rise in September, with pharmacies reporting the strongest rise since December 1993 following a sharp slowdown in August. Grocers, booksellers and stationers and specialist food retailers also reported strong gains, as did sectors closely linked to the recovering housing markets, such as home improvement, furniture and carpet, hardware and china stores.

However, sales of durable goods moderated in September, and clothing retailers reported a slowdown following strong growth in the preceding three months. The findings of the survey may ease anxieties at the Bank of England, which is concerned about the rapid rise of consumer spending and wants an immediate rise in interest rates.

The survey, which questioned 261 retailers between September 5 and October 2, appeared to suggest that wholesalers and manufacturers may soon begin to share more of the benefits of stronger consumer spending. Sales are expected to pick up again in October, orders placed with suppliers are again rising at the fastest rate since July 1988 - they rose at the same rate in July this year - and the number of retailers saying stocks are more than adequate to meet demand fell to the lowest level since the survey began in 1983. Despite the pickup in consumer spending, factories have struggled to step up production in recent months, as retailers clear their shelves of unsold goods before ordering new stock.

Retailers viewed their business as above average for the time of year in September and generally expect it to remain so in October, for the fifth month in a row, should expectations of sales growth be realized.

[07] Japan's economy continues to show mild recovery

In its monthly economic report for October, the agency said 'the economy is continuing to turn around although the current recovery pace is mild.' That view was unchanged from the EPA's economic assessment a month ago.

EPA Director General Shusei Tanaka said the outlook for the economy 'remains fundamentally unchanged', noting that economic growth is still slow. 'For a full-fledged recovery, we need fundamental restructuring of the domestic economy,' he added. He said 'It's certainly not more public works that we need' to stimulate the economy.

The report showed that real, or inflation-adjusted, consumer spending in July fell 7.8% from a year earlier, the worst decline since February 1981. The weak consumer activity, which was partly due to a recent food-poisoning scare as well as a drop in clothing and shoe purchases, is expected to last only a short period.

Overall personal consumption, however, is still on a moderate recovery track, the EPA report said. Sales are gaining at department stores, and there have been brisk sales of electronic equipment. New automobile sales, travel and cash income were all firm, the report said.

Capital investment is on a mild recovery path while there was a decline in the amount of money invested in public works.

The employment condition is still tough with August's unemployment rate at 3.3%, down 0.1 percentage point from a month earlier.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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