Tough economic times ahead

The Straits Times
Nov 23, 2008 | 8:06 PM
Tough economic times ahead

PARIS - INVESTORS braced on Sunday for another topsy-turvy week on trading floors as leading economies prepared new plans to emerge from a financial crisis that world leaders warned would take time to overcome.

US president-elect Barack Obama was expected to unveil his economic braintrust on Monday after announcing a plan to create 2.5 million jobs by 2011, while the British government pledged swift tax relief to households, with both countries staring at recession.

Meanwhile, leaders of 21 Asia-Pacific economies making up around half of world trade vowed during a summit in Lima to resist protectionism, saying it would only worsen the troubled global economy.

Mr Obama, who takes office on January 20, was reportedly expected to present on Monday New York central banker Timothy Geithner, 47, as his Treasury secretary to oversee the country's US$700 billion (S$1.07 billion) bailout package.

The Democrat on Saturday outlined in broad strokes his plan for a broad stimulus package to lift Americans out of economic peril fuelled by sweeping housing foreclosures and job losses.

'We'll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy,' Mr Obama said.

Wall Street staged a strong rally Friday as traders cheered reports that Geithner would become Treasury chief.

The Dow Jones Industrial Average and Nasdaq hit their lowest levels in over five years last week and the broad-market Standard & Poor's 500 fell to its weakest since 1997.

Investors will be looking this week for new indications about the health of the US economy as they pore over a barrage of data including figures on existing and new US home sales and consumer confidence.

Across the Atlantic, British finance minister Alistair Darling will deliver on Monday his pre-budget report to parliament where he is expected to outline plans to slash taxes and boost spending.

'I shall set out measures designed to help people pay their bills, keep businesses afloat, and maintain spending on health and education,' Mr Darling wrote in the Sunday Mirror newspaper.

'Every household will get support now - to help them through the difficult period ahead,' he wrote.

'Like every other country in the world hit by major economic shocks we are in a difficult position. And we, like many advanced economies, are moving into a recession.'

World leaders warned that tough times lie ahead.

German Chancellor Angela Merkel, whose cabinet has approved a 23-billion-euro (S$44 billion) stimulus package, warned in the Welt am Sonntag newspaper on Sunday that 2009 will be 'a year of bad news' for the economy.

But she said she hoped the stimulus plan, which has to be submitted to parliament, will protect jobs and put the economy 'back on its feet in 2010.' Germany has fallen into its first recession in five years.

Outgoing US President George W. Bush expressed a similar sentiment.

'As we look to the future, the tasks facing our nations are no doubt demanding,' he said from Lima where he attended the annual Asia-Pacific Economic Cooperation (Apec) forum.

'Recovering from the financial crisis is going to take time, but we'll recover, and in so doing begin a new era of prosperity,' Mr Bush said Saturday.

Apec leaders warned against sealing trade borders in the face of financial turmoil.

'There is a risk that slower world growth could lead to calls for protectionist measures which would only exacerbate the current economic situation,' Apec leaders said in a joint statement.

While Apec leaders vowed a united front against the crisis, they appeared unlikely to unveil bold initiatives before the meeting adjourns on Sunday.

In Britain, Prime Minister Gordon Brown called for bold and proactive government policies to steer the world economy through the financial crisis and a subsequent sharp downturn.

'Doing nothing is not an option,' Brown said in a speech to be delivered Monday at the annual conference of the Confederation of British Industry (CBI), which is the country's biggest employers' organisation.

'A new approach is now needed if we are to get through this unprecedented global financial recession with the least damage to Britain's long-term economic prospects,' he said, according to an advance copy of his speech. -- AFP