Chrysler in bankruptcy but economic optimism grows

Chrysler in bankruptcy but economic optimism grows
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First Published: Wed, May 13 2009. 04 28 PM IST
Updated: Wed, May 13 2009. 04 28 PM IST
Chicago/Tokyo: Chrysler filed for bankruptcy protection on Thursday, the first such move by a major US automaker, but stock markets were upbeat on fresh hints the US and global downturns may be moderating.
A widening of the swine flu outbreak mostly failed to subdue investors, who saw signs of an economic rebirth in a drop in US jobless claims, upbeat reports from the American heartland and better-than-expected corporate profits.
Chrysler, which makes iconic brands such as Jeep and Dodge, filed for bankruptcy in New York and announced an industry-changing deal with Italy’s Fiat after weeks of talks to restructure its debt broke down.
“It’s a partnership that will give Chrysler a chance not only to survive but to thrive in a global auto industry,” US President Barack Obama said.
Both Chrysler and General Motors, its larger and also struggling rival, “are going to come back,” Obama said.
Some analysts warned the ripple effect of bankruptcy at Chrysler could threaten the nascent US recovery.
“It will create a great deal of uncertainty for the industry and suppliers,” said Bill Kohlder, co-chair of Butzel Long’s Global Automotive Practice.
The auto news took some of the shine off US stock markets, which briefly turned negative at midday. But major indices were still on track to finish out the month with big gains.
Positive data
The number of US workers filing new claims for jobless benefits unexpectedly fell in the latest week by 14,000 to a still-high 631,000.
The data, taken with a slightly more robust employment reading from Germany and an improvement in Japan’s industrial output for the first time in six months, helped to brighten global stock market sentiment.
“The cumulative weight of the evidence over the last several weeks is that the economy is moving closer to a trough,” said David Resler, chief economist at Nomura securities in New York.
That view, reflected in the US Federal Reserve’s statement after its policy meeting this week, was backed up by the Chicago purchasing managers report.
The Chicago index jumped unexpectedly to its highest level since September and its upbeat tone was mirrored in regional surveys from Milwaukee and Kansas City.
“At the least, the industrial economy is transitioning from meltdown to a more normal downturn,” said Ian Shepherdson, chief US economist with High Frequency Economics in Valhalla, New York.
Policy-makers have started to acknowledge a more positive tone in economic data.
The Bank of Japan joined the Fed in offering a more optimistic view of the global economy, helping markets to offset worse-than-expected job losses in Europe.
“The Japanese economy is moving in a desirable direction and is likely to recover gradually in the second half of fiscal 2009/10,” BoJ Governor Masaaki Shirakawa said.
Still, the BoJ said Japan’s economy was now expected to shrink by 3.1% in the year to March 2010, sharper than its previous forecast of a 2% contraction.
In Europe, where Germany forecast an annual contraction of 6% on Wednesday, European Central Bank Governing Council member Ewald Nowotny also offered optimism.
“I do indeed see green shoots for the European economy, although the general perspective is of course that we will have negative growth rates in 2009,” Nowotny said. “I do see perspectives for a positive development in 2010.”
Similar comments came from Christina Romer, a top adviser to Obama, who said she saw glimmers of hope the US economy was stabilizing but that it was still “hard to know” if a recovery would start this year.
Mexico’s economy hit
The MSCI’s all-country stocks index was on course for a 12% rise for April — the biggest monthly gain in its 20-year history.
“The downside momentum is slowing, that is what the leading indicators are telling us, be it in the US or the euro zone,” said Michael Klawitter, senior foreign exchange strategist at Dresdner Kleinwort in Frankfurt.
“Despite the discussion of swine flu, the market no longer sees this as an economic risk.”
That was not the case for Mexico, the country worst hit by the new flu strain with some 176 deaths. President Felipe Calderon told his people to stay home from Friday for a five-day partial shutdown of the economy.
Mexico’s central bank warned the outbreak could deepen the nation’s recession, hurting an economy that has already shrunk by as much as 8% in the first quarter.
The World Health Organization (WHO) has declared the world is on the brink of a pandemic. Twelve countries have reported cases of the H1N1 strain, with the Netherlands the latest to join the list.
The International Monetary Fund’s chief economist warned that some countries could see a “quite drastic” impact from the illness.
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First Published: Wed, May 13 2009. 04 28 PM IST