Friday, November 14, 2008

World Recession Deepens

Source : The Straits Times, Nov 14, 2008

Credit crisis worsens ahead of Washington G20 summit

PARIS - THE blast of recession hit Europe on Friday as leaders from more than 20 rich and emerging countries headed for a crisis summit in Washington.

The blast of recession hit Europe on Friday as leaders from more than 20 rich and emerging countries headed for a crisis summit in Washington. -- PHOTO: REUTERS

The EU announced that the 15 countries in the eurozone was in recession for the first time ever, with a 0.2 per cent contraction in the second and third quarters.

Italy reported it was in recession, Spain reported its first quarterly contraction in six months and the Netherlands said it had gone through six months of zero growth. France narrowly avoided joining Germany and Britain in recession.

With even Asian trading tiger Hong Kong reporting a shrinking economy and European car-makers reporting a 14.5-per cent sales slump in Oct, pressure grew on world leaders ahead of their summit to discuss how to stop the financial crisis becoming a prolonged recession.

French President Nicolas Sarkozy, European Commission head Manuel Barroso met Russian President Dmitry Medvedev in Nice, France, to work on proposals for the summit.

Japan said it would lend up to US$100 billion (S$151.75 billion) to the International Monetary Fund to help it shore up emerging countries.

Japan will also press for IMF reforms including giving greater influence to China, and said it would support the dollar as the main global currency despite the weight of US debt.

Global stocks rallied despite the new bad news. After a 6.67-per cent leap on Wall Street overnight, shares in London opened with surge of 3.9 per cent and the Tokyo market closed with a gain of 2.72 per cent.

But there was increased pressure on the world leaders arriving for the Washington summit, which starts with a dinner Friday night to start discussions on drawing up new rules for the global economy.

Tensions also appeared with the European Commission warning that it could take action at the World Trade Organisation if a rescue package for US auto majors appeared illegal.

The outgoing US president George W. Bush declared that 'the crisis was not a failure of the free market system' and that 'our aim should not be more government. It should be smarter government.'

Mr Bush argued that it would be 'a terrible mistake to allow a few months of crisis to undermine 60 years of success' in response to calls from many quarters, including France, for extended rules and regulations for economies and boardrooms.

'Many European countries had much more extensive regulations and still experienced problems almost identical to our own,' Mr Bush said. 'We must recognise that government intervention is not a cure-all.'

Mr Sarkozy, currently president of the European Union, said on Thursday, 'I leave for Washington tomorrow to explain that the dollar, which at the end of World War II was the only world currency, can no longer claim to be the sole world currency.'

'The world changes. We are in the 21st century and the French view is that we cannot continue into the 21st century with a system (established) in the 20th century,' he said.

The Organisation for Economic Cooperation and Development said on Thursday that its 30 rich member economies were in protracted recession, and said the US economy would contract by 2.8 per cent in the fourth quarter.

In this rapidly worsening climate, French Economy Minister Christine Lagarde said it was 'astonishing' that France had escaped recession in the third quarter, as shown by official data putting growth at 0.1 per cent after contraction of 0.3 per cent in the second quarter.

The oil price in Singapore fell by 40 cents to US$57.24 in a market marked by the possibility of an emergency OPEC meeting on Nov 29 to discuss a further output cut, but also by an IEA report that demand is falling rapidly. -- AFP

Eurozone sinks into recession: official data
BRUSSELS - THE economy of the 15 nations sharing the euro has slumped into recession for the first time ever, EU data released on Friday revealed, with GDP falling 0.2 per cent in the second and third quarters.

The 27-nation EU as a whole avoided the same fate only by recording zero, rather than negative, growth in the second quarter.

On a 12-month comparison, the eurozone economy grew 0.7 per cent in the third quarter, down sharply from 1.7 per cent in the previous quarter, the official Eurostat agency said. -- AFP

Italy in recession
MILAN - ITALY fell into recession in the third quarter, with the economy contracting 0.5 per cent from the second quarter when it shrank 0.3 per cent, official figures showed on Friday.

The preliminary estimate by the national statistical agency ISTAT was much steeper than expected for the eurozone's third largest economy.

A Dow Jones Newswires consensus had forecast a 0.2 per cent contraction for the period.

The recession is the first in Italy in four years.

Third-quarter performance was down 0.9 per cent compared with the third quarter of 2007, against a forecast of 0.3 per cent.

ISTAT is to confirm the figures on December 10.

The government in September - before the full extent of the world financial crisis became apparent - officially forecast growth of 0.1 per cent this year and 0.5 per cent in 2009.

The International Monetary Fund was much more pessimistic, predicting that GDP would shrink 0.2 per cent in 2008 and 0.6 per cent next year.

The European Union, for its part, has forecast zero growth for both years.

Recession fears deepened on Monday with figures showing industrial output slumped 2.1 per cent in September from August, the biggest single-month drop since December 1998.

It was 5.7 per cent less than a year earlier and down 2.3 per cent for the first nine months of 2008, ISTAT said. -- AFP

France avoids recession
PARIS - FRANCE narrowly avoided slipping into recession in the third quarter of 2008 with growth of 0.14 per cent compared to the second quarter, Economy and Finance Minister Christine Lagarde said on Friday.

'The figure is astonishing because everyone was expecting a negative figure and preparing for a recession, which is technically two consecutive quarters of negative growth,' Ms Lagarde said.

The French statistics institute INSEE, due to release official figures later Friday, earlier estimated that the economy would contract 0.1 per cent in the three months to Sept after shrinking 0.3 per cent in the second quarter.

'France, unlike Germany on minus 0.5 (per cent) or Britain on minus 0.5 (per cent) has a positive 0.14 per cent,' Lagarde said.

'This is good news and shows that France is not technically in recession,' she said, adding that 'government policies are beginning to have an impact.'

Household consumption and business investment 'are the two drivers which in the third quarter pushed France past Germany and Britain,' the minister said.

Household consumption held up better than in the second quarter, she said, while business investment grew 0.3 per cent after a fall of 1.0 per cent in the three months to June.

External trade, the other major component of the economy, was neutral.

The French government expects overall growth of 1.0 percent this year but recently cut its 2009 forecast to a range of 0.2-0.5 per cent.

The European Commission puts French growth at 0.9 per cent this year and zero in 2009 while the International Monetary Fund expects a recession next year with a contraction of 0.5 per cent. -- AFP

IMF sees significant Philippines growth slowdown in 2009
MANILA - PHILIPPINE economic growth is expected to drop further to about 3.5 per cent next year from a significantly lower 4.4 per cent expansion forecast for this year amid the global financial crisis, the International Monetary Fund said on Friday.

Lower state revenues from a slowing economy would jack up the national government?s budget deficit this year to about 0.9 per cent of gross domestic product (GDP), and to 1.7 per cent of GDP next year or about 150 billion pesos (S$4.7 billion), it said.

An IMF mission held talks with President Gloria Arroyo's economic managers here to review the government's plans to navigate through the crisis, mission chief Lee Il Houng told a news conference.

Lee expressed concern that 'domestic taxes have performed weakly through the year' and have remained at around 14 per cent of GDP despite revenue gains from high oil prices.

He warned that tax revenues could fall close to levels seen before the government raised a value-added tax by two percentage points to 12 per cent in 2005 - owing to increased income tax exemptions and a planned corporate income tax cut.

'This could re-kindle investor concerns, especially in the context of expected tight external financing conditions for emerging markets next year,' he added.

The mission backed a bigger budget deficit next year 'to soften the reduction in growth while containing any adverse market reaction' but said Manila needed to reform excise taxes on tobacco and alcohol products, trim fiscal incentives given to investors and step up tax administration reform.

It said with inflation expected to average 9.8 per cent this year and six per cent next year amid an economic slowdown, 'monetary policy could be eased in the period ahead'.

The IMF mission urged Manila to keep its foreign exchange reserves 'at a sufficiently high level' to sustain confidence in the peso.

Mr Dennis Arroyo, a senior official of the economic planning ministry and no relation to the president, told reporters the IMF's economic growth as well as budget deficit projections were broadly in line with the government's own figures.

The lower end of the government's GDP growth targets has been pared to 4.2 per cent this year and 3.7 per cent for 2009, the Filipino official said.

He gave the government's expected budget deficit next year at about 165 billion pesos, up from about 75 billion pesos this year. -- AFP

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