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Nov 13, 2008

German Recession is Now Official

GLOBAL stock markets mostly fell yesterday on news that the German economy was officially in recession, and after heavy losses in Asia and overnight on Wall Street.

New York stocks took a hammering on Wednesday after the US government tore up a plan to buy toxic mortgage assets.

The gloom spread to Asia amid fears of a sharp worldwide economic slowdown.

Germany announced yesterday that its economy has officially entered recession after shrinking for the second successive quarter, as Europe’s biggest economy was slammed by the ongoing global financial crisis.

Adding to the sense of economic doom, British telecoms operator BT Group announced that it would slash 10000 jobs, or more than 6% of its global workforce, as the country also faces a likely recession.

Thousands of British jobs have also been axed this week by British-based cable television firm Virgin Media, telephone directories group Yell, housebuilder Taylor Wimpey and drugs giant GlaxoSmithKline.

German investors fretted over news that the nation’s economy has fallen into recession for the first time in five years as a result of the global financial crisis.

Official data showed yesterday that Germany shrank 0.5% in the third quarter, following a 0.4% contraction in the second quarter.

That met the technical definition of a recession – which is two consecutive quarters of shrinking economic activity.

“Germany – and the eurozone – have to get ready for a serious recession,” warned Bank of America’s senior economist, Holger Schmieding.

Wall Street plunged on Wednesday as global markets were rattled by signs of impending recession in Europe and a shift in the US government’s financial bailout strategy.

A profit warning from the biggest US consumer electronics retailer, Best Buy, also sapped confidence, which was already fragile following weeks of market turmoil sparked by a global credit crunch.

In Kuwait, stock exchange trading was halted after a court ordered the bourse to be suspended in a bid to stem massive losses for small investors

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Evidence of a broad global recession continued to accumulate yesterday, with U.S. officials reporting a spike in jobless claims, Germany confirming that its economy has shrunk for six consecutive months, and the Paris-based Organization for Economic Cooperation and Development projecting a contraction throughout its worldwide membership.

From broad indicators such as the demand for oil to the performance of individual companies, the signs point in the same direction: down.

"The OECD area economy appears to have entered recession," the organization said yesterday in a forecast that was stark in its breadth. OECD members include the United States, Japan, the major European economies and several other nations accounting for the vast bulk of the world's economic activity.

According to the group's latest forecast, the economies of the entire group are contracting and will shrink by a combined 0.3 percent in 2009. Its full-year forecast is for the U.S. economy to contract 0.9 percent next year; Japan to shrink 0.1 percent; and the organization's European members to shrink 0.5 percent.

Unemployment, the agency said, will average 6.9 percent among its members next year and reach 7.3 percent in the United States.

"Projections point to a protracted downturn," OECD economics director Jorgen Elmeskov said in a statement yesterday, arguing that the situation should prompt governments throughout the world to pursue tax cuts, spending programs or other measures to stimulate their economies.

U.S. stock markets slumped initially on the gloomy unemployment news, but soared in the afternoon, partly because of automated trading. The Dow Jones industrial average gained 6.7 percent, or 552.59 points, to close at 8835.25. The blue chip index swung within a 900-point range yesterday, continuing a recent trend of market instability.

In the United States, new claims for unemployment benefits were above 500,000 over the past week -- a number not seen since the days following the Sept. 11, 2001, terrorist attacks and the recession of the early 1990s. The number of weekly claims was 516,000 on a seasonally adjusted basis, a bigger-than-expected increase of 32,000 compared with the week before. Continuing claims reached 3.9 million, the highest in a quarter-century.

Weekly jobless claims are a volatile statistic, easily influenced by hurricanes, strikes and other one-time events. But the recent trend has been steadily higher and translated into a rising unemployment rate.

"The safest course is probably to assume that this reflects a genuine acceleration in the pace of layoffs," Ian Shepherdson, chief U.S. economist for consulting firm High Frequency Economics, wrote in an analysis yesterday.

There were other signs of global slowing.

The International Energy Agency slashed its forecast for global oil demand in 2009, saying that petroleum use will grow by less than half a percent next year. Looking at recent forecasts from the International Monetary Fund, the OECD and others, the agency said countries around the world will need an average of 86.5 million barrels of oil a day next year, compared with 86.2 million this year.

Meanwhile, the latest report from Germany's Federal Statistical Office signaled that Europe's largest economy is in recession. Its gross domestic product fell 0.5 percent over the past three months, after declining 0.4 percent in the previous quarter. Although there are different definitions of recession, two quarters of negative growth is a traditional measure. A drop in exports contributed to the poor showing.

In Asia, China said growth in its industrial output fell to 8.2 percent in October, a decline of more than 25 percent from the previous month.

Concern over reduced consumer demand led Wal-Mart yesterday to lower its fourth-quarter forecast. The strengthening dollar would likely hurt overseas business, the company said.

For the three months ending Oct. 31, Wal-Mart reported a profit of $3.1 billion -- a roughly 10 percent increase over the same period last year. But, in the context of sinking retail sales, the profit boost was seen as a sign of stress among households looking for bargains.

The impact of the global economic slowdown on individual companies also surfaced in Wednesday's warning by chip maker Intel that its earnings for the last three months of the year would be about $9 billion -- $1 billion less than previously forecast. In a statement, the company cited "weaker than expected demand in all geographies and market segments."

In global equity markets, Asian indexes were down as much as 5 percent overnight. European markets were mixed. The Paris stock market was up more than 1 percent, Germany's DAX was up .6 percent, and London was down .3 percent.

Source : DispatchOnline WashingtonPost
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