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World recession fears mount after finance crisis
2008-10-15
Fears grew Wednesday that the financial crisis will mutate into a worldwide recession with leaders calling for new global action to counter the economic slowdown. As EU leaders started a summit devoted to the financial turmoil, new data backed a statement by a top US central bank official that the United States is already in recession and stocks suffered a new slump. German Chancellor Angela Merkel said the Group of Eight wealthy nations would hold a special summit, probably in November. British Prime Minister Gordon Brown called for speedy efforts to radically reform the world financial system. Janet Yellen, president of the San Francisco Federal Reserve, said there was "essentially no growth at all" in the world's biggest economy and "growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely." US retail sales slumped 1.2 percent in September, the steepest drop since August 2005, new US government data showed. Ian Shepherdson, economist at High Frequency Economics, said "there can be no doubt now that the (US) economy is in recession." Japan's Prime Minister Taro Aso has already said he has "huge fears" for the future of the world's second biggest economy and Merkel said Germany, ranked third, faces a major test of its strength. "Germany is strong but Germany is going to go through a difficult period," she warned as she urged parliament to pass a 480-billion-euro (655-billion dollar) bank rescue package. Merkel said the G8 and leading developing nations would hold a special crisis summit, which she wants in November, to decide measures to prevent a repeat of the crisis. In Brussels, the British prime minister urged EU leaders to unite against the underlying problems behind the turmoil. Brown said the financial system has stabilised but added: "I believe we must now move to stage two ... to make sure that problems that develop in financial systems, problems we know originated in America, do not occur again." Brown called for a complete overhaul of global financial regulations and institutions, such as the International Monetary Fund (IMF). Governments announced more measures to douse the financial storm. -- The European Central Bank (ECB) moved to make it easier and cheaper for eurozone banks to borrow dollars and Swiss francs, with procedural changes that one analyst called "huge." -- The European Commission proposed that minimum state guarantees on bank deposits should be increased within one year to 100,000 euros (136,000 dollars) from a recently agreed 50,000 euros in a new bid to strengthen confidence. -- Iceland's central bank cut its key interest rate by 3.5 percentage points to 12 percent in a move hurried forward because of the financial storm has left the country fighting national bankruptcy. -- Norway cut its key lending rate 0.5 percentage points to 5.25 percent, the first reduction in four years. -- Greece announced government cash injections and loan guarantees of 28 billion euros (38.6 billion dollars) for banks. -- Spanish Prime Minister Jose Luis Rodriguez Zapatero said mergers were likely in the country's banking sector, which has so far escaped the worst of the crisis. European Union nations have already committed more than 1.8 trillion euros (2.4 billion dollars) to fighting the crisis by buying bank shares and providing loan guarantees to keep credit markets moving. The United States has a 700 billion dollar rescue plan and the administration announced Tuesday that 250 billion dollars from that would be used to take stakes in nine major banks. US President George W. Bush defended his action in response to the crisis and promised the US economy would recover. "We have taken extraordinary measures because these are extraordinary circumstances," said Bush, who has been put on the defensive by criticism from the right wing of his Republican party that the government is taking too much control of the economy. "It's very important for the American people to know that the programme is designed to preserve free enterprise, not replace free enterprise," he said. Worries about a worldwide slowdown and the crisis in the money markets have given global stock markets a battering and shares fell again Wednesday. New York's Dow Jones Industrial Average was down 3.37 percent at midday. London's FTSE 100 index of leading shares shed 7.16 percent, while in Paris the CAC 40 fell 6.82 percent and the Frankfurt DAX gave up 6.49 percent. In Asia, Tokyo added 1.06 percent, building on Tuesday's record 14 percent gain but Hong Kong closed down 5.0 percent and others also fell.
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