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World economy seen shrinking as G20 meeting looms

World economy seen shrinking as G20 meeting looms
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First Published: Thu, Mar 12 2009. 11 30 AM IST
Updated: Thu, Mar 12 2009. 11 30 AM IST
Beijing/Tokyo: The global economy may shrink 1-2% this year, World Bank president Robert Zoellick said, as revised Japanese data confirmed the world’s No. 2 economy suffered its deepest slump since the oil shock of 1974.
The latest grim snapshot of the world economy highlights the need for urgent action as G20 finance chiefs prepare to meet in Britain, but doubts have emerged whether they will make much headway due to divisions over how best to fight the downturn.
“We haven’t seen numbers like that since World War II, which really means the 30s. So these are serious and dangerous times,” Zoellick told Britain’s Daily Mail.
China, the engine of world growth in recent years, saw industrial output growth shrink to a near standstill at the start of the year, but a continued surge in bank lending in February spurred optimism of a rebound soon.
Asian share markets mostly fell, as a burst of optimism fuelled by Citigroup revealing it had been profitable for the first two months of the year proved short lived.
In export-driven Japan, companies such as Toyota Motor Corp and Sony Corp have been aggressively scaling back production and cutting jobs to cope with collapsing demand.
Revised data on Thursday showed the economy shrank 3.2%, or an annualised 12.1%, in October-December, slightly less than the initial estimate.
A rise in inventories led to the slight revision, but analysts said that was nothing to cheer as it reflected slowing demand both at home and abroad and not companies’ appetite to produce more.
“The data confirm that Japan’s economic state is quite severe. We see a sharp decline in exports, which puts Japan in a bad situation because exports are falling everywhere,” said Seiji Adachi, senior economist at Deutsche Securities.
The Nikkei average fell 1.1%, after surging nearly 5% in the previous session alone.
Stimulus working?
China’s annual industrial output growth slowed to 3.8% in January and February from 5.7% in December, the National Bureau of Statistics said, The median forecast of 25 economists polled by Reuters was for a rise of 6.4%.
New yuan loans in February totalled 1.07 trillion yuan ($157 billion), down from the record of 1.62 trillion yuan in January, but still very high by historical standards, suggesting a recovery in business activity in the months ahead. With 10 months to go in 2009, China is already more than halfway towards reaching its goal of at least 5 trillion yuan in new bank lending.
Finance ministers from the G20 group of rich nations and emerging powers meet this weekend in Britain to prepare for a summit in London on 2 April.
Ahead of the meeting, the United States and Britain called on leading economies to ramp up spending to break the recession. But the emphasis on economic stimulus has been met coolly by many European nations, who are more focused on regulatory reform.
“What we’re seeing happen around the world now is without recent precedent,” US treasury secretary Timothy Geithner said on Wednesday, adding he wanted the G20 to “put in place the kind of substantial, sustained commitment to stimulus necessary to lay the foundation for recovery”.
355 Ex-Billionaires
Governments worldwide are pumping money into their economies and central banks have been slashing interest rates in an effort to mitigate the severity of the recession.
The Bank of Korea had cut its base rate by a total of 3.25 percentage points since early October, but on Thursday kept rates steady at a record low 2%, signalling some unease over the weakness of South Korea’s won currency.
“The plunging won and growing inflation pressure have led the central bank to stop its easing cycle,” said analyst Yang Jio-mo at SK Securities. “The authorities are likely to depend on other quantitative measures such as increased fiscal spending to prop up the economy.”
South Korea said on Thursday it would spend additional $4.2 billion to stimulate Asia’s fourth-largest economy. On Wednesday, local media reported the ruling party was planning a supplementary budget this month worth $20 billion to boost domestic demand.
New Zealand’s central bank cut interest rates by 50 basis points to an all-time low of 3 percent and said it saw the economy bottoming in mid-year.
Across the Tasman Sea in Australia, one of the few developed countries not yet officially in recession, unemployment jumped to 5.2% in February, its highest rate in almost four years.
“This is not good news as it is likely to dent consumer sentiment,” said Scott Haslem, chief economist at UBS. “Clearly the risk of a deeper and longer downturn for the Australian economy has risen a bit today.”
Another measure of the impact of the financial crisis was provided by Forbes magazine’s annual survey of the world’s billionaires, who have collectively seen $2 trillion wiped off their net worth.
A total of 355 people dropped off the Forbes list, with names ranging from former Citigroup chief Sanford “Sandy” Weill to alleged Ponzi scheme mastermind Allen Stanford joining the ranks of ex-billionaires.
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First Published: Thu, Mar 12 2009. 11 30 AM IST