14 Nov 2008

Bleak outlook for leading world economies

12:58 pm on 14 November 2008

Three of the world's largest economies painted bleak pictures of their current conditions on Thursday as the United States, China and Germany all released data providing more evidence of the global economic slide.

Adding to the overall gloom, the Organisation for Economic Cooperation and Development cut its economic output forecasts for the US, Japan and euro zone, seeing a tumble into recession for all three.

The forecast comes as leaders of the G20 group of industrialised and emerging nations gather in Washington for a meeting on the financial crisis.

The G20 meetings on Friday and Saturday brings together key emerging-market countries including China, India, Brazil and Saudi Arabia with the so-called Group of Seven industrial nations to begin examining the causes of the turmoil and plot solutions.

US President George Bush on Thursday rejected attempts to blame weak American financial regulations for the international economic meltdown.

But, while defending the free market, he did concede reforms to the global financial system are needed.

The OECD has forecast a fall in US economic activity of 0.9% in 2009, with the Euro area contracting by 0.5% and Japan by 0.1%.

Economic growth in the 30 countries of the OECD is forecast to fall by 0.3%, before growing by 1.5% in 2010. The US is expected to contract by 2.8% in the final quarter of this year.

The average unemployment rate in the OECD area is projected to climb to 6.9% in 2009 and to 7.2% in 2010, up from an estimated 5.9% this year.

The full economic outlook containing detailed forecasts and analysis for all OECD countries and other major economies will be released on 25 November.

Germany in recession

The worst financial crisis in 80 years, which rippled around the world following the collapse of the US housing market, is taking a heavy toll.

Germany, Europe's biggest economy, has officially slipped into recession for the first time since 2003.

Germany said its economy contracted by 0.5% in the third quarter. The decline - much sharper than the 0.2% forecast - was accentuated by German export growth grinding to a halt. It has now reported two quarters of negative growth.

The fall in economic output, driven by falls in exports, was greater than many analysts had expected, and they believe the situation will only get worse.

Orders for goods produced by Germany fell 8% between August and September, according to the economy ministry in Berlin. Orders from outside Europe fell 11.4%, while domestic orders dropped 4.3%.

Grim data

In the US, the already moribund employment picture looked bleaker when initial claims for unemployment insurance, a weekly economic indicator, moved to 516,000 in the week to 1 November.

The worse-than-expected data was the grimmest since the weeks following the September 11, 2001 attacks.

In China, which has unveiled a 4 trillion yuan ($US586 billion) stimulus package, annual industrial output growth slowed to 8.2% in October, the weakest since October 2001, as manufacturers scaled back production.

After a series of big rate cuts by central banks, the OECD said it was time for more governments to provide an extra boost to their economies by way of fiscal stimulus in the form of tax cuts or increased government spending.

President-elect Barack Obama is advocating a second US fiscal package and help for American carmakers, Japanese politicians are debating the details of a pump-priming plan and the British government is expected to follow suit in its pre-budget report later this month.