Saudi Arabia approves cooperation agreement with US for the use of outer space for peaceful purposes    Quality of Life Program CEO highlights Saudi urban transformations at UN-Habitat conference in Cairo    AlHisn Big Time Studios unveiled to transform film and TV production in Riyadh    Saudi Aramco's Q3 net income falls 15.5% to SR103 billion amid a jump in annual cash flows    Almarai wins 'Best Corporate Sukuk' at Asset Triple A Islamic Finance Awards    Top climber falls to death after rare Himalayan feat    US voters flying home in time for election    Drones and snipers on standby to protect Arizona vote-counters    India's Modi condemns violence after Canada temple incident    Harris and Trump make final push in must-win Pennsylvania    Mitrovic's hat-trick leads Al Hilal to 3-0 victory over Esteghlal    Al Ahli extends perfect start with 5-1 victory over Al Shorta    Saudi crown prince, Tunisian president review bilateral relations in phone call    SFDA Chief visits premier biotechnology and medical firms in China    Al-Khereiji: Collective action in combating terrorism is a must for achieving stability and prosperity    Quincy Jones, titan of US music, dies aged 91    Neymar expected to join Al Hilal squad for AFC clash against Esteghlal, says coach Jesus    Al Qadsiah secure 2-0 victory over Al Ettifaq in first Eastern Derby since 2021    Hidden sugars in Asia's baby food spark concerns    HONOR unveils pre-order of the stunning HONOR MagicBook Art 14 Featuring an ultra-slim design, HONOR Eye Comfort Display and AI Cross-OS WorkStation    India puts blockbuster Pakistani film on hold    The Vikings and the Islamic world    Filipino pilgrim's incredible evolution from an enemy of Islam to its staunch advocate    Muted Eid celebrations for millions of Nigerian Muslims    Exotic Taif Roses Simulation Performed at Taif Rose Festival    Asian shares mixed Tuesday    Weather Forecast for Tuesday    Saudi Tourism Authority Participates in Arabian Travel Market Exhibition in Dubai    Minister of Industry Announces 50 Investment Opportunities Worth over SAR 96 Billion in Machinery, Equipment Sector    HRH Crown Prince Offers Condolences to Crown Prince of Kuwait on Death of Sheikh Fawaz Salman Abdullah Al-Ali Al-Malek Al-Sabah    HRH Crown Prince Congratulates Santiago Peña on Winning Presidential Election in Paraguay    SDAIA Launches 1st Phase of 'Elevate Program' to Train 1,000 Women on Data, AI    41 Saudi Citizens and 171 Others from Brotherly and Friendly Countries Arrive in Saudi Arabia from Sudan    Saudi Arabia Hosts 1st Meeting of Arab Authorities Controlling Medicines    General Directorate of Narcotics Control Foils Attempt to Smuggle over 5 Million Amphetamine Pills    NAVI Javelins Crowned as Champions of Women's Counter-Strike: Global Offensive (CS:GO) Competitions    Saudi Karate Team Wins Four Medals in World Youth League Championship    Third Edition of FIFA Forward Program Kicks off in Riyadh    Evacuated from Sudan, 187 Nationals from Several Countries Arrive in Jeddah    SPA Documents Thajjud Prayer at Prophet's Mosque in Madinah    SFDA Recommends to Test Blood Sugar at Home Two or Three Hours after Meals    SFDA Offers Various Recommendations for Safe Food Frying    SFDA Provides Five Tips for Using Home Blood Pressure Monitor    SFDA: Instant Soup Contains Large Amounts of Salt    Mawani: New shipping service to connect Jubail Commercial Port to 11 global ports    Custodian of the Two Holy Mosques Delivers Speech to Pilgrims, Citizens, Residents and Muslims around the World    Sheikh Al-Issa in Arafah's Sermon: Allaah Blessed You by Making It Easy for You to Carry out This Obligation. Thus, Ensure Following the Guidance of Your Prophet    Custodian of the Two Holy Mosques addresses citizens and all Muslims on the occasion of the Holy month of Ramadan    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Economic analysis – Corporate Profits Do Not Alleviate Unemployment Levels
Published in AL HAYAT on 02 - 08 - 2010

The first half of the year ended with contradictory economic indicators worldwide. Generally speaking, these indicators provide a positive outlook of the growth of the private sector. On the other hand, they portray national economies as being in a state of confusion, which officials are attempting to ‘polish' by looking for the causes for declining or stagnating growth in the second quarter, which affected the overall growth rates for the first half and relatively over the whole year.
Starting with the United States, the point of origin of the global economic crisis, the announcements of growth results for the second semester coincided with the publication of a document by the IMF on the U.S economy, which reflected less optimistic forecasts. The document called on the U.S administration to take new crucial measures, bearing in mind that the chairman of the Federal Reserve Ben Bernanke had expressed his readiness for such measures a week ago, with the aim of supplying a dose of growth to the economy whenever the need arises.
The IMF suggests that the measures in the U.S are insufficient, as they were limited to supporting the public sector alone. However, the U.S administration – which deemed both the growth rates in the second quarter and the lesser growth rates in the first quarter to be positive signs driving the economy – believes that the decline of its economic growth is linked to the crisis in Europe, in particular the Greek crisis and the measures that the euro zone was forced to adopt.
Notwithstanding the warnings voiced by the IMF, one cannot overlook the fact that during the second quarter, the U.S administration had indeed enacted a number of important economic, financial and social welfare reforms, the likes of which the country has not seen in decades, and not least of which the healthcare plan bill. This is in addition to reforming the regulations that govern financial markets and institutions. However, the results of these reforms and any positive impact they may have, will not be seen for another two to three years, the length of the economic cycle, and also by virtue of the time needed for those involved in the regulations to assimilate new ones.
In any case, U.S consumer confidence, which remains the key to achieving growth, fell in July for the first time in 9 months. As a result of this decline, the consumer index fell during the second quarter to 1.6 points, compared to 1.9 in the first quarter. This is while a poll by the U.S Angus Reid Public Opinion center showed limited optimism regarding the prospects for economic recovery.
Unlike the U.S economy's vulnerability to the crisis in Europe, the euro zone, which is more exposed to crises than other economies, achieved a variety of positive indicators, as investor sentiment regarding the euro zone economies improved and reached a level not expected by expert; this was also echoed in the rest of the European Union. Also, this region, which is witnessing austerity measures in public budgets as is the case in Britain, France, Spain, Greece, Portugal, Germany and Italy, has also seen its private institutions achieve positive overall growth and unexpected quarterly profits, in contrast with the GDP growth rate estimated at less than one percent over the present year.
Moving from the Atlantic to Asia, where, with the exception of the two emerging economies of China and India, Japan is experiencing deflation and is suffering from a high exchange rate of its currency against the dollar, threatening its exports. Nonetheless, its industrial companies, in particular automakers and manufacturers of electronics, have announced quarterly profits that were higher than their target values or higher than their budgets had forecasted.
Are these paradoxes? Perhaps. However, economic trends run counter to the winds of public concerns. For instance, it is not unlikely that corporations took advantage of the exceptional situation created by the crisis, to curtail the burden of their branches and subsidiary companies and achieve marketing success in both domestic and foreign markets.
In this regard, many companies laid off a large part of their human resources, and subsequently, they rid themselves of bank credits and debts that are otherwise mandated by their expansion. These companies thus became able to draft moderate expenditure budgets and achieve good profit. Meanwhile, other corporations benefited from tax exemptions in return for keeping their staff, while some were allowed to reduce salaries or adopt partial unemployment benefits and unpaid leaves. All this allowed these companies to reduce expenditures that are useless to them, and achieve gains.
It is no secret either that the financial markets managed to gain from increasing company stock values, compensated the losses of the first phase of the crisis, and restored assets to their previous values while incurring profits in their budgets.
Apart from these contradictions and similarities among different countries, the confrontation between the ‘hegemony' of politics and that of money remains paramount, after the latter, especially in financial institutions and banking, managed to overpower the norms of banking operations that prevailed in the United States since 1933 under the Glass-Steagall Act. This act prohibited commercial banks from merging with companies engaged in underwriting transactions and dealing in securities. However, the law was sidelined between 1980 and 1990, and was then completely abolished in 1999. This allowed the emergence of mixed financial institutions and banks that abused the norms of banking operations to achieve – through high risk operations – nearly fraudulent windfall profits, and subsequently dragged the world into the crisis.
While reforming financial institutions began breaking them up into smaller and more specialized institutions, the other outstanding issue is that of reactivating investment institutions in the long run. These institutions, until the end of 2006, possessed 32 trillion dollars broken down into insurance companies (18.5 trillion), sovereign funds and general reserves (2.5 trillion dollars), pension funds and funds with special-purpose contributions (10.8 trillion) and college trust funds.
When these investments will be reactivated, the private sector will be pushed towards comprehensive growth. As a result, political institutions will be reassured by the results of their reforms and measures, and the unemployed will be reinstated in their jobs.


Clic here to read the story from its source.