Leading European economies are bogged down deep in recessionary territory, business surveys showed on Friday, as policy makers worldwide battle to ward off a long-lasting slump.
British data confirmed the economy had gone into recession for the first time since 1991 as GDP contracted a worse than expected 1.5% in the last quarter of 2008. Prime Minister Gordon Brown said Britain’s prospects depended on countries working together in response to the financial crisis.
Meanwhile, President Barack Obama’s $825 billion stimulus plan and his pick for US Treasury chief cleared hurdles in Congress, a step forward in efforts to contain the economic crisis battering businesses globally.
South Korea’s Samsung Electronics chalked up its first-ever quarterly loss, joining technology leaders such as Microsoft, Nokia and Sony who are suffering slumping demand amid recession in the United States, Japan and much of Europe.
The crisis, born out of a US housing slump, has pushed some banks over the edge, left US carmakers on the brink of collapse and driven the world’s major economies into recession. New data indicated that euro zone services and manufacturing activity declined at a slightly slower pace in January, a touch better than forecasts, but remained deeply negative.
“Aggressive policy actions by the ECB and many European governments seem to have stabilized private sector confidence. However, it is still far too early to dub this a leveling-off. All three PMI indicators are still deep in the red contraction zone,” said economist Carsten Brzeski at ING.
The Markit Eurozone Purchasing Managers’ Index for services companies ranging from banks to bars edged up to 42.5 in January from a low of 42.1 in December -- above the 41.5 consensus forecast from economists, but still well below the 50.0 line that divides growth from contraction.
Euro zone factories also saw a modest deceleration in the steep rate of decline set in the prior month, but still showed significant contraction. The preliminary manufacturing PMI rose to 34.5 from a record survey low the previous month of 33.9.
The weak data is likely to bolster expectations that the European Central Bank will cut interest rates again in March, its cause aided by signs of falls in inflationary pressures.
Companies in the 16-nation euro currency zone have faced a torrid start to the year as credit conditions remain tight, forcing many to cut jobs or offer heavy discounts.
A fresh sign of retrenchment came as Toyota Motor Corp considered cutting full-time employees in Britain and North America, according to a company source, in what would be an unprecedented step for the world’s largest car maker. Toyota is frantically cutting output as sales plummet, putting it course for a first ever operating loss in the year to March. Its US sales in December fell 37%.
Washington moved forward in its bid to revive the world’s biggest economy. A House of Representatives panel rushed through $304 billion in tax breaks and aid to the unemployed, paving the way for a vote on the full stimulus package next week. Timothy Geithner, head of the New York Federal Reserve, won backing from the Senate Finance Committee and looked set to clinch final approval on Monday to lead the new administration’s efforts to stabilize the economy as treasury secretary.
Bank stocks have borne the brunt of anxieties about the global slowdown. In, Britain Barclays Plc shares slumped for a ninth straight day, as concerns persisted it may require further capital or be nationalized, despite another attempt by its chief executive to calm investors.
John Varley said he was confident a second bailout plan unveiled by the British government on Monday would boost credit supply and the economy, and if his bank took part in an asset insurance plan it would probably pay in cash rather than shares.
Worries that the US stimulus plan could be delayed have weighed on stock markets in recent days, but now signs of progress have failed to outweigh the impact of grim corporate reports and economic data.
European shares fell in early trade on Friday, with energy shares slipping as investors continued to worry about slowing demand for crude oil worldwide. Earlier, Asian stocks fell 2% to a 1-1/2-month low, weighed by poor corporate results in the technology sector, while the US dollar drifted higher as investors sought refuge from the deteriorating global economy. (Reuters)