Global economic woes deepen, more action urged
Written on January 9, 2009
Bleak economic data in Europe and disappointing December retail sales figures in the United States unsettled financial markets on Thursday, strengthening the case for more government stimulus and encouraging rate cuts.
The Bank of England, which cut its key interest rate to an historic low of 1.5 percent from 2.0 percent, said the world economy appeared to be undergoing an unusually sharp and synchronized downturn.
“Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time,” the British central bank said in a statement.
Wal-Mart Stores Inc, the world’s largest retailer, posted weak December same-store sales, and cut its quarterly earnings forecast as several other retailers also warned that earnings would be worse than expected in the fourth quarter that included the key 2008 holiday shopping season.
The European Commission earlier revealed that economic sentiment in the 15 countries using the euro plunged to an all-time low in December amid rising unemployment and as inflation expectations tumbled.
The euro zone economy is sinking deeper into its first recession in the wake of the credit crunch, which slashed financing to companies and households, curbing demand and causing belt-tightening.
Germany said manufacturing orders had dropped by a much bigger-than-expected 6.0 percent in November, hit by collapsing demand at home and abroad. Exports had fallen by an unprecedented 10 fast personal short loans.6 percent in November as demand for cars and others mainstays of the manufacturing economy plummeted.
Europe’s biggest economy and the world’s largest exporter posted the biggest monthly drop in exports since reunification in 1990, sending the euro lower against the dollar.
The grim economic data is also likely to reinforce expectations of a deep ECB interest rate cut on January 15.
Meanwhile unemployment in Spain topped 3 million people for the first time and is expected to worsen in 2009, according to the government.
However, the number of U.S. workers filing new claims for unemployment benefits fell unexpectedly by 24,000 last week, government data showed, but the number of people remaining on jobless rolls rose to a fresh 26-year high.
The weekly claims data has done little to ease fears that a more comprehensive government report on Friday could show the biggest drop in payroll numbers for 59 years.
POLICY RESPONSE RUSH
Policy makers worldwide are rushing to try to limit the damage from the biggest global economic crisis since the 1930s.
U.S. president-elect Barack Obama will warn that the United States economy may remain mired in recession for years without bold action in a speech on Thursday calling for quick action on a fiscal stimulus package worth around $775 billion.
Filed in: money.