Japan became the latest major economy to fall into recession on Monday with France close behind, and the IMF said it needed at least $100 billion to fight the billowing economic crisis enveloping the world.
The US Senate, meanwhile, was to begin debating a bailout for the battered US auto industry later in the day. Germany was to hold talks with General Motors unit Opel. In something of a surprise, Japan slid into its first recession in seven years in the Q3 as the financial crisis curbed demand for Japanese exports. The 0.1% contraction in the world’s second-largest economy in July-September was worse that consensus forecasts. The euro zone is also in formal recession, with two consecutive quarters of contraction, Britain and the United States are on the brink and China is slowing sharply.
Britain’s main employers group forecast on Monday that unemployment could rise to almost 3 million by 2010 while France’s central bank said that the French economy should contract 0.5% in the Q4. Policymakers have little doubt that their economies have not finished declining. “We need to bear in mind that (our) economic conditions could worsen further as the US and European financial crisis deepens, worries of economic downturn heighten and stock and foreign exchange markets make big swings,” Japanese Economy Minister Kaoru Yosano told a news conference. International Monetary Fund Managing Director Dominique Strauss-Kahn told the BBC that his organization was likely to need at least $100 billion in extra funding over the next six months in order to help countries out of the mire.
G20 LAUNDRY LIST
Financial markets continued to shudder under the joint strain of declining economies and ructions in the financial system. Oil fell more than $1 to below $56 a barrel and MSCI’s main world stock index was down half a% for a 46% year-to-date loss. Leaders of the world’s 20 largest economies, meeting in Washington over the weekend, agreed on a host of steps to rescue the global economy. But they left it to individual governments to tailor their response to their own circumstances and troubled industries.
The post-meeting statement from the group of major industrialized and developing countries contained a laundry list of reform pledges aimed at soothing volatile markets and calming consumers’ worries. “This weekend’s G20 summit failed to deliver any new stimulus measures to rescue the world economy from the current recession, but at least it avoided the knee-jerk responses (such as rushed regulation) that would have made things worse,” Julian Jessop at London-based Capital Economics said in a report. “The real purpose of this summit was to agree a work program for reform of the global financial system. In that respect we would suggest that it has been a success.”
The G20 statement said that all financial markets, products and participants would be subject to supervision, vowed tougher accounting rules, a review of compensation practices and greater cooperation between national regulators. Finance ministers were told to develop specific plans with the first set of actions to be completed by the end of March, and a follow-up meeting held by the end of April.
Separately, the IMF said on Saturday that it had agreed with Pakistan on a $7.6 billion emergency loan to stave off a balance of payments crisis and pave the way for a broader economic rescue plan. On Sunday, Iceland said it had reached a deal with several European Union states on how to repay thousands of foreign savers with money in frozen Icelandic accounts, potentially paving the way for an IMF-led package worth as much as $6 billion for the crisis-hit country.
With a $700 billion fund promised to stabilize the battered US financial system, the outgoing Bush administration and its successor was set to tackle the urgent question of how, or whether, to rescue the nation’s “big three” automakers. The Senate was due on Monday to begin debating emergency legislation to provide $25 billion in aid to General Motors Corp, Ford Motor Co and Chrysler LLC.
In Europe, the German government has said it is ready to talk with GM’s Opel, but will not offer blanket aid to entire industries suffering due to the financial crisis. Chancellor Angela Merkel is due to meet Opel representatives on Monday. Officials from the Finance Ministry, Economy Ministry and German states will hold talks on Tuesday to discuss the broader woes in the auto sector. Tens of thousands of German jobs are directly or indirectly, linked to Opel. (Reuters