Economic slump hits world industry

Economic slump hits world industry


The writing's on the wall: A cyclist rides past a store near Manchester, northern England. Global industry activity has slumped, forcing even retailers to call in administrators. Picture: Reuters
LONDON/BEIJING

Tuesday, December 2, 2008

EUROPEAN and Chinese industry activity slumped in November, Japanese officials said their economy was slowing rapidly and eurozone finance ministers gathered yesterday to discuss plans to curb recession.

The Bank of Japan called an emergency meeting for today to find ways to help corporate finance. Governor Masaaki Shirakawa warned access to funding was becoming increasingly tough for Japanese firms, to an extent comparable with a credit crunch a decade ago.

"Sluggishness in economic activity has increased rapidly. Overseas economies are experiencing the same kind of rapid change," Shirakawa said of the broader Japanese economy.

Eurozone manufacturing activity sank to a record low in November and the outlook was equally grim.

The Markit Eurozone Purchasing Managers Index (PMI) for the manufacturing sector slumped to 35.6 in November, a low not seen in the survey's 11-year history and way below the 50 mark that separates expansions from contraction.

"The extremely weak ... survey intensifies fears that the eurozone's recession will be deep and prolonged," said Howard Archer, economist at IHS Global Insight.

The eurozone was officially declared in recession this month following a second quarterly contraction in economic output. Analysts do not see the economy growing again until the third quarter next year and then only marginally.

The financial crisis that began with a US housing market collapse last year and escalated into a full-blown global downturn has already knocked several big economies into recession, including the eurozone. Most economists believe the United States and Britain will soon follow.

Similar surveys from China showed its manufacturing industry slumped in November as new orders tumbled, showing the world's fourth-largest economy being sucked deeper into the global maelstrom.

Japan's economy minister was gloomier even than Shirakawa.

"We are moving to the next phase of shrinking consumption some call it deflation production going down and prices going down," Economy Minister Kaoru Yosano told the Financial Times in an interview published yesterday.

Central banks in Britain, the eurozone, Australia and New Zealand are expected to cut borrowing costs sharply this week in response to the crisis. Politicians are also poised to weigh in.

Eurozone finance ministers meet later to pick over a menu of economic measures drawn up by the European Commission, which could inject up to €200 billion (US$258.8 billion) of extra government spending, although that figure includes national schemes already announced.

Agreement may prove elusive. German Chancellor Angela Merkel told her party yesterday the government, which has already unveiled a €32-billion plan, would not take part in a "senseless" competition to spend billions more.

Stocks slid, with investors caught between aggressive steps by central banks and grim economic data.

European shares shed three per cent and stock futures pointed to a lower start on Wall Street ahead of US manufacturing data, which are also forecast to offer up a bleak reading.

Inflation in Thailand, South Korea and Australia plunged in November in synch with a global retreat, giving central banks room to slash interest rates further to soften the blow from the worst financial crisis since the 1930s.

Expectations for more rate cuts in Britain were underlined by the UK's PMI index showing manufacturing shrank at a record pace in November after a collapse in new orders.

Australia's central bank is expected to slash its benchmark rate by at least 75 basis points today on top of 200 basis points of cuts since early September, with a bigger move seen as a strong possibility.

The European Central Bank and Bank of England deliver their verdicts on Thursday.

Hopes the consumer may ride to the rescue looked optimistic.

German retail sales rose slightly in October, helping to offset the impact of slackening exports, but with unemployment expected to rise, the outlook for next year is cloudy.

Sales, including turnover at gas stations and cars, rose by 0.4 per cent, Bundesbank data showed. A narrower measure excluding gas stations and auto sales had earlier shown a decline of 1.6 per cent on the month.

In the US, shoppers tried to take advantage of rock-bottom sales prices over the holiday weekend, traditionally the start of the busiest period of the year for US retailers. But the weekend of activity does not necessarily augur well for retailers' bottom line. Reuters