World recession deepens

The Straits Times
Nov 14, 2008 | 8:00 PM
World recession deepens
Credit crisis worsens ahead of Washington G20 summit

PARIS - THE blast of recession hit Europe on Friday as leaders from more than 20 rich and emerging countries headed for a crisis summit in Washington.

The EU announced that the 15 countries in the eurozone was in recession for the first time ever, with a 0.2 per cent contraction in the second and third quarters.

Italy reported it was in recession, Spain reported its first quarterly contraction in six months and the Netherlands said it had gone through six months of zero growth. France narrowly avoided joining Germany and Britain in recession.

With even Asian trading tiger Hong Kong reporting a shrinking economy and European car-makers reporting a 14.5-per cent sales slump in Oct, pressure grew on world leaders ahead of their summit to discuss how to stop the financial crisis becoming a prolonged recession.

French President Nicolas Sarkozy, European Commission head Manuel Barroso met Russian President Dmitry Medvedev in Nice, France, to work on proposals for the summit.

Japan said it would lend up to US$100 billion (S$151.75 billion) to the International Monetary Fund to help it shore up emerging countries.

Japan will also press for IMF reforms including giving greater influence to China, and said it would support the dollar as the main global currency despite the weight of US debt.

Global stocks rallied despite the new bad news. After a 6.67-per cent leap on Wall Street overnight, shares in London opened with surge of 3.9 per cent and the Tokyo market closed with a gain of 2.72 per cent.

But there was increased pressure on the world leaders arriving for the Washington summit, which starts with a dinner Friday night to start discussions on drawing up new rules for the global economy.

Tensions also appeared with the European Commission warning that it could take action at the World Trade Organisation if a rescue package for US auto majors appeared illegal.

The outgoing US president George W. Bush declared that 'the crisis was not a failure of the free market system' and that 'our aim should not be more government. It should be smarter government.'

Mr Bush argued that it would be 'a terrible mistake to allow a few months of crisis to undermine 60 years of success' in response to calls from many quarters, including France, for extended rules and regulations for economies and boardrooms.

'Many European countries had much more extensive regulations and still experienced problems almost identical to our own,' Mr Bush said. 'We must recognise that government intervention is not a cure-all.'

Mr Sarkozy, currently president of the European Union, said on Thursday, 'I leave for Washington tomorrow to explain that the dollar, which at the end of World War II was the only world currency, can no longer claim to be the sole world currency.'

'The world changes. We are in the 21st century and the French view is that we cannot continue into the 21st century with a system (established) in the 20th century,' he said.

The Organisation for Economic Cooperation and Development said on Thursday that its 30 rich member economies were in protracted recession, and said the US economy would contract by 2.8 per cent in the fourth quarter.

In this rapidly worsening climate, French Economy Minister Christine Lagarde said it was 'astonishing' that France had escaped recession in the third quarter, as shown by official data putting growth at 0.1 per cent after contraction of 0.3 per cent in the second quarter.

The oil price in Singapore fell by 40 cents to US$57.24 in a market marked by the possibility of an emergency OPEC meeting on Nov 29 to discuss a further output cut, but also by an IEA report that demand is falling rapidly. -- AFP