Euro Zone in Recession as World Leaders Head for Summit
The worst financial crisis in 80 years has weakened the world’s major economies. The Euro zone said growth fell 0.2 percent — the first time the 15-nation bloc has suffered recession since the birth of the common European currency.
With Europe, as well as parts of Asia and North America, suffering, leaders of the G20 developed and emerging countries head 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.
British Prime Minister Gordon Brown called for more coordinated measures to spur economic growth, a policy area where there may be more consensus. “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 on Thursday.
NEED EMERGING ECONOMIES
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.
Some in the West say they hope that 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 expected the IMF and other lenders to provide billions of dollars in loans soon, and it expects China to pitch in with $500 million to avert a balance of payments crisis.
Shaukat Tarin, the country’s top economic adviser, told Reuters late on Thursday that the government would soon send a letter of intent to the IMF. “We want to get it as quickly as possible … Hopefully it will be available in the next few weeks,” he said.
FRANCE BUCKS TREND
Germany, Europe’s largest economy, has reported it is in recession, and Spain and Italy said their economies shrank in the third quarter. France escaped the clutches of recession, reporting growth of 0.1 percent in the third quarter, but analysts said it was a semantic debate.
“Whether we’re in recession or not is only a technical debate,” said Jean-Louis Mourier, economist at Aurel Leven. “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.”
Spanish third quarter gross domestic product fell 0.2 percent quarter-on-quarter, its first contraction in 15 years. “This was as bad as expected, but next quarter will be worse and the start of next year won’t be very nice either,” said Giovanni Zanni, analyst at CSFB.
Italy’s economy contracted by 0.5 percent in the third quarter, confirming that the Euro zone’s third largest economy has been in recession since the spring.
Emerging economies have also been hit, analysts say. China, which has enjoyed a booming economy, reported capital spending on Friday that was slightly lower than expected, the latest in a series of indicators pointing to slowdown for the world’s fourth-largest economy.
MARKETS
Stock markets bounced after days of falls. Stocks in Asia were broadly higher after U.S. shares gained nearly 7 percent. Oil held onto gains after hitting a 22-month low on Thursday.
European shares jumped 2 percent. “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, most notably banks, continued to suffer, with some scrambling to cut costs by axing jobs.
British media reported that Royal Bank of Scotland was to cut 3,000 jobs worldwide in the next few weeks. An RBS spokeswoman would not confirm the cuts.
The world’s largest municipal lender, Dexia, posted a quarterly loss of €1.544 billion ($1.93 billion) and said it had agreed to sell its FSA insurance business to Assured Guaranty.
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)
By Elizabeth Piper
LONDON, Nov 14 (Reuters)