New orders at Chinese factories tumbled in November while their US retail customers used deep discounts to lure shoppers at the start of a holiday season overshadowed by fears of global recession.
Underlining the China data, South Korea’s exports fell by the most in 7 years last month and both Tokyo and Beijing provided stark warnings on the challenges ahead for their economies, the second- and fourth-biggest in the world. A record drop in a private inflation gauge in Australia and falls in inflation elsewhere in Asia pointed to more cuts in interest rates in the region and globally to fight a financial crisis that is now raising the spectra of deflation.
Central banks in Britain, the euro zone, Australia and New Zealand are expected to slash borrowing costs this week to resuscitate demand. The average benchmark rate in 11 of the world’s major economies has been reduced by 124 basis points so far in 2008. Expectations for more rate cuts in Britain were underlined by a report showing house prices in England and Wales fell 8.1% in November from a year earlier and another suggesting the outlook for factories had deteriorated significantly over the last quarter.
More than a year after the credit crisis began, policymakers are still struggling to prop up their financial systems while also trying to protect their economies, a factor recognized by China President Hu Jintao over the weekend. “In this coming period, we will starkly confront the effects of the sustained deepening of the international financial crisis and pressure as global economy growth clearly slows,” he told senior officials.
The sentiment was reflected in comments by Japan’s economics minister, Kaoru Yosano, in an interview with the Financial Times published on Monday. “I cannot tell you it will be a bright next day. The time for endurance has come,” he said. Yosano has been warning that Japan, which only emerged from a decade-long battle with deflation in 2005, may be headed for a similar situation again, with the economy already in a recession.
The Bank of Japan will hold an emergency meeting as early as this week to introduce measures to make it easier for companies to access capital through the corporate bond market, Japanese public broadcaster NHK said on Monday. The central bank is considering easing criteria for its acceptance of corporate bonds as collateral until next April to help companies tide over the end of the calendar year as well as the financial year, which ends in March, NHK said, without citing sources.
Americans were trying to take advantage of rock-bottom sales prices this holiday weekend, traditionally the start of the busiest period of the year for US retailers. Early results showed sales grew both in stores and online, fuelled by repeat trips, heavier online sales and deep discounts from retailers across the price spectrum. During the four-day holiday weekend from US Thanksgiving on Thursday through Sunday, spending totaled $41 billion.
However, the weekend of activity doesn’t necessarily augur well for retailers’ bottom line. “Regardless of retail sales, retail profits are another matter. Every thing they sold was at a razor-thin margin,” said Ellen Davis, a spokeswoman for the National Retail Federation, which expects total holiday sales growth this year to be the weakest in six years.
American demand for cheap exports from Asia has waned now that the heavy borrowing that financed that spending has been significantly reduced. The result is a startlingly sharp backlash across the region’s factories.
China’s manufacturing industry slumped in November as new orders, especially from abroad, tumbled. Two indexes released on Monday based on surveys of hundreds of business executives across China fell to record lows. “Another grim month for China manufacturing and the first in which the weakness in overseas demand overtook what, until now, has been mainly a domestic slowdown,” said Eric Fishwick, head of economic research at CLSA.
Hu’s weekend comments provided a stark signal that the country’s leadership is disturbed by the social and political implications of a sharp slowdown in growth. The picture was just as bleak in South Korea, Asia’s fourth-largest economy, where data showed exports plunged 18.3% from a year ago, much worse than expected. “The global slowdown is impacting Asian countries through slowing external trade and capital flows, and Korea is getting hurt on both sides,” said Sebastien Barbe, senior economist with Calyon in Hong Kong.
Central banks around the world have had to get increasingly aggressive to offset the endemic lack of confidence in the banking system. Facing a long, deep recession, the Federal Reserve has flooded the market with cheap liquidity, while the futures market reflects a 1-in-3 chance it will cut rates by 75 basis points to 0.25% on or before its next policy decision in two weeks.
Investors will undoubtedly focus on the November US unemployment report due on Friday. A Reuters poll of economists showed a median expectation of a loss of 316,000 jobs, the most since October 2001. Fears about the extent of the global economic malaise has sent investors piling into the relative safety of US government debt, sending the yield on the benchmark 10-year note to the lowest in more than 50 years. (Reuters)