US politicians managed to cut a deal on the country’s debt ceiling limit close to the wire last weekend, averting a possible Federal government default.
The debt ceiling is to be raised in two stages by a total of $2.4 trillion, covering the period until post-2012 elections.
Politicians also agreed on budget cuts totalling over $2.1 trillion over the next 10 years.
The deal, which was signed into law by a Senate vote of 74 votes to 26, came on the heels of a GDP figure for the second quarter of the year. Economic growth for the period came in much weaker than expected, at 1.3%, versus economists’ expectations of 1.8%.
Consumption, which accounts for 70% of economic activity in the country, slowed sharply, increasing by a mere 0.1%.
As expected, the European Central Bank kept interest rates unchanged at 1.5% on Thursday.
The bank said it is monitoring price risks very closely, as ECB president Jean Claude Trichet indicated that the bank is reluctant to shelve further rate increases while also signalling that it has resumed bond purchases, giving banks more cash to stop the debt crisis from spreading to Italy and Spain. Meanwhile, unemployment in the 17-nation euro area was flat in June, coming in at an annualised rate of 9.9%, the same level as in May.
Unemployment was highest in Spain, at 21%, with Ireland second with 14.2%. Figures for Greece, which is struggling with reforms and budget austerity measures, were not available.
In the UK, the Bank of England also kept interest rates unchanged at the record low of 0.5%, as widely expected. The BoE also kept its bond buying programme at £200 billion but kept open the option of more stimulus under this programme should the need arise.
Meanwhile, manufacturing shrank in July for the first time since the country was in recession two years ago, adding to concerns that the recovery is faltering and increasing pressure on the government to boost growth.
The Purchasing Manufacturers’ Index, which tracks manufacturing activity, came in at 49.1, lower than analysts’ expectations of 51.
This article was compiled by Bank of Valletta plc for general information purposes only.