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World leaders head for summit, euro zone in recession
2008-11-14
LONDON (Reuters) - World leaders headed to Washington on Friday to seek ways to tackle a global economic crisis that has plunged much of Europe into its first recession since the euro currency was formed. The worst financial crisis in 80 years has weakened the world's major economies and official data showed the 15-nation euro zone economy had shrunk by 0.2 percent for the second quarter in a row. "We will probably see further falls in output in the first few months of next year, before a gradual improvement later in the year, but we think that there will be no real recovery before 2010," said Nick Kounis, an analyst at Fortis Bank. U.S. Federal Reserve Chairman Ben Bernanke said central banks worldwide were ready to do more to support faltering growth and European Central Bank policymakers signaled further interest rates were likely. "Policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," Bernanke said in remarks prepared for delivery to an ECB conference in Frankfurt. With Europe, as well as parts of Asia and North America, suffering, leaders of the G20 developed and emerging countries travel to Washington to try to find ways to ensure the crisis, started by a U.S. housing market crash, is not repeated. But agreement among the G20, which represents 85 percent of the world's economy and two-thirds of its population, is unlikely over whether more regulation of markets can protect consumers, savers and companies from the fall-out. Washington says there should be no return to greater state control of financial markets. Much of Europe says without more regulation, a repeat of the last year's turmoil is inevitable. COORDINATED ACTION British Prime Minister Gordon Brown called for more coordinated measures to spur economic growth, a policy area where there may be more consensus at the summit. "By acting now we can stimulate growth in all our economies. The cost of inaction will be far greater than the cost of any action," he told reporters in New York late on Thursday. European Commission President Jose Manual Barroso said he hoped to draw more emerging economies into global financial institutions such as the International Monetary Fund, saying Europeans were ready to lower their representation to make more room for countries such as China. "There is an openness to accommodate an increased role of the emerging economies," the International Herald Tribune quoted Barroso as saying. Work on the crisis should not stop in Washington, Russian President Dmitry Medvedev said. "I fully support the idea to hold the next summit after Washington without delays and fast enough," he told a news conference after a Russia-European Union summit in France. Some in the West hope countries with large reserves, notably in the Gulf, will help fund the IMF, which has offered loans to economies laboring under heavy debts. Pakistan, where reserves are barely enough to cover nine weeks of imports, said it had asked the IMF for a $9 billion bailout along with help from other lenders to avoid a balance of payments crisis. Ratings agency Standard & Poor's cited the delay in securing foreign assistance for a decision to lower its rating on the nation's sovereign debt deeper into junk bond territory. Former Soviet Latvia said it might approach the IMF for help, but now it was holding precautionary talks on aid with the European Commission. FRANCE BUCKS TREND Before the euro zone reported it was in a recession, Germany, Europe's largest economy, Spain and Italy all said their economies shrank in the third quarter. France escaped, reporting growth of 0.1 percent in the third quarter but analysts said it was a semantic debate. "Both the surveys and indicators we've seen leave no doubt that in spite of this slight rebound the economy is on quite a bad trajectory," said Jean-Louis Mourier, economist at Aurel Leven. Spanish third quarter gross domestic product fell 0.2 percent, its first weakness in 15 years. Italy's economy contracted by 0.5 percent in the third quarter, its steepest decline in 10 years. European shares jumped more than 2 percent, following gains in Asia, but U.S. stock futures pointed to a lower start on Wall Street. "You might have seen the initial euphoria, but nothing has really changed from yesterday. The negativity is still about," said Dominic Vaughan, senior dealer at CMC Markets in Sydney. Companies continued to suffer, with some scrambling to cut costs. In Europe, cash-strapped carmakers scrambled to cut output as sales in Europe fell for the sixth month running. Freddie Mac, the second-largest provider of funding for U.S. residential mortgages, said it lost $25.3 billion in the third quarter as the housing slump took another lurch for the worse. Royal Bank of Scotland was considering cutting 3,000 jobs at its investment banking arm, after telecoms company BT said earlier this week it would cut 10,000 jobs. And Sumitomo Mitsui Financial Group, Japan's third-largest bank, said its quarterly profit halved on ballooning bad-loan costs and losses on its stock portfolio, and it stuck to its full-year forecast for a fall of 61 percent. (Additional reporting bureaux worldwide; Editing by Mike Peacock)
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