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Central banks set for new attack on hordes of recession data
2008-12-04
BRUSSELS (AFP) - European central banks led the latest global onslaught against recession on Thursday with the focus on big rate cuts, boosting stocks after US-China talks promised cooperation despite strains over the yuan. The Swedish central bank spearheaded the expected the interest-rate attack by nearly halving its key rate with a 1.75-point cut to 2.0 percent but also stressed the depths of the difficulty in breaking the credit dam. And France was set to publish a state-spending stimulus expected to total 25 billion euros (31.7 billion dollars), as a contribution to an EU recession-fighting campaign totalling up to 200 billion euros. The impact of the credit crisis is flattening the global auto industry, and the big three distressed US auto makers were returning cap in hand to Congress on Thursday to plead for 34 billion dollars of state rescue funding to help them restructure. The US Federal Reserve central bank said in a report late on Wednesday before a US rate decision on December 16: "Overall economic activity weakened across all Federal Reserve districts since the last report" and that consumer spending was weak and auto sales were "down significantly." British auto sales data showed a 36.8-percent slump in November on a 12-month comparison the biggest drop for more than 28 years. This was the latest in a string of bad figures for European manufacturers, several of which have suspended some production, and the head of the British SMMT auto trade association Paul Everitt called for "urgent action" to raise credit for the industry and its customers. In France, official data showed the unemployment rate rising by 0.1 percent to 7.3 percent in the third quarter but a fall of 0.6 points over 12 months Top central banks are running short of interest rate cuts to throw into the fight to shore up the world economy and ward off a looming threat of deflation. However, the European Central Bank, with a key rate of 3.25 percent, still has room for manoeuvre given that eurozone inflation has slowed dramatically to close to the ceiling target range of just under 2.0 percent. Just hours before the Bank of England and European Central Bank were to announce decisions, the Swedish central bank explained its huge rate cut by saying: "The fact that the interest rate needs to be cut substantially is also due to monetary policy not having such a large impact recently as it normally does." Sterling fell to a record low point against the euro of 1.1526 euros, and in Singapore, the benchmark price of oil fell by 93 cents to 45.86 dollars a barrel, having hit 45.30 dollars, the lowest since January 12, 2005. Stock markets, usually one of the first sectors to respond vigorously to signals of big cuts in the cost of capital for business and of loans for consumers, wobbled initially on Thursday as another day of global crisis began. European shares opened on a weak note, but shot up after the move in Sweden, which often precedes similar action by the ECB. Stocks in London gained 1.48 percent, the Euro Stoxx 50 index was up 1.63 percent, and shares in Frankfurt and Paris rose by 2.0-2.5 percent. Shares in Asia had closed mixed with a fall of 0.62 percent in Tokyo and 1.23 percent in South Korea, although the Hong Kong market gained 0.67 percent and the Shanghai market 3.63 percent From the US standpoint, a long-standing and pivotal issue behind the current crisis is a huge surplus for China in its trade with the US which currency adjustments would reduce. The fall of the dollar in the last two years has had some effect, but the US accuses China of holding down the yuan artificially, although it has risen by about 20 percent since 1995. US Treasury Secretary Henry Paulson said on Thursday after a top-level meeting in Beijing that the talks were marked by a spirit of cooperation on the global crisis. Vice Premier Wang Qishan said: "Jointly dealing with the international crisis is the most pressing task we are now facing." A senior US government official said: "We certainly emphasised the importance in our view of continued currency reform, and that currency reform is important for continuing to re-balance China's economy." He said: "There was a fair amount of discussion on the Chinese side about the challenges they face but also a restatement of their commitment to continued currency reform." Concerns are emerging abroad that China may freeze or reverse currency reform to help its struggling export sector, as evidence mounts the world's fourth biggest economy is increasingly suffering in the global meltdown. But the climb has stalled recently, and the yuan fell sharply early this week. "China will persist in the principle of exchange rate reform," Zhang Xiaoqiang, vice minister of the National Development and Reform Commission, told reporters. "There's no change whatsoever." The psychological effects are also reaching deep. The union head of the US United Auto Workers, Ron Gettelfinger, said his organisation was ready to suspend some contractual rights. "Concessions, I used to cringe at that word," he said. "But now, why hide it?"
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