Evidence of Global Recession Gathers Pace
Thursday September 27, 4:33 pm Eastern Time
By Mark Egan
WASHINGTON (Reuters) - Evidence of a global recession gathered pace on Thursday as grim news on the U.S. economy, from French business and British consumers added to the growing belief that the world economy is facing its bleakest outlook in years.
The latest data, coming more than two weeks after devastating attacks on New York and Washington, showed households and businesses are suffering from the economic earthquake that followed the Sept. 11 strikes.
Policymakers insist that it is too early to fully assess the economic impact of the attacks, which rattled consumer confidence and hammered businesses like airlines, tourism, retailers and insurance firms. But the omens are bleak as the economic proof trickles in.
In the United States, the number of people lining up for unemployment assistance hit its highest level in more than nine years. Jobless claims for the week ended Sept. 22, the first full week of data since the attacks, rose 58,000 to 450,000 from the previous week. New York, where hijacked airplanes destroyed the twin towers of the World Trade Center, was the hardest hit with a spike of 11,000 new claims.
More than 122,000 U.S. aviation jobs already have been lost since the attacks, and the jobless report showed unrelated industries like auto makers were seeing increased layoffs too.
NO JOBS
The dismal job market news further darkens the picture for the world's richest economy, which may have already been heading toward recession before the attacks. And if those newly unemployed Americans were hoping to find work soon, another report showed that may not be a realistic hope.
A report on how many job vacancies were advertised showed that even before the attacks, ``help wanted'' adverts had slumped in August to their lowest level since early 1983.
Yet another report released on Thursday showed a third monthly decline in orders for long-lasting manufactured goods in August -- another bad sign for the economy.
``The (U.S.) economy is in recession. It was slammed by the terrorist attack two weeks ago, but I think with a bit of luck and some deft policy making the economy could be firming up by early next year,'' said Mark Zandi, and economist at Economy.com in West Chester, Pennsylvania.
In Europe, where economic growth is also slowing, polls showed that French business confidence has hit a five-year low and that British consumer optimism slipped to its weakest level since 1980 in the wake of the U.S. attacks.
U.S. and European officials say a rebound has been set back by only a few months and deny that recession is inevitable.
But investors are running for cover from a weakening in the United States, the euro zone and Japan, the world's three largest economies, which some fear could spiral into one of the worst depressions since World War Two.
The Congressional Budget Office said the federal budget surplus for the fiscal year ending on Sunday will be about $121 billion, down from the $153 billion expected a month ago. The report, more proof of a slowing economy, means the government will have used about $50 billion in Social Security surpluses to help fund other programs -- something Congress and President Bush had vowed not to do.
EUROPE ON HOLD
Reflecting the uncertainty over what lies ahead, the European Central Bank kept interest rates on hold as expected at its twice-monthly meeting in Frankfurt.
``We have still not touched the lowest point,'' said Exane economist Emmanuel Ferry, commenting on the French survey. ``It should happen in the first quarter next year, but the economic revival will not come before the second half of 2002.''
The International Monetary Fund said the global economy had been near recession even before the attacks and that the risks of a prolonged slump had now grown.
IMF chief economist Kenneth Rogoff said it was possible the U.S. was already in recession but stressed that was not ``a done deal'' -- a phrase he used on Wednesday but later retracted.
Overall, Rogoff sought to strike an optimistic tone.
``There are grounds to be optimistic that the impact (of the U.S. attacks) will not be that deep or long-lasting,'' Rogoff told reporters in London.
He added that there was ``tremendous uncertainty'' surrounding the world economic outlook but said there was ``a good chance of a good bounce back in 2002.''
The IMF on Wednesday forecast global economic growth of 2.6 percent this year, well below growth of 4.7 percent last year and hovering just above the key level of 2.5 percent growth viewed by economists as indicative of a global recession. But the IMF admitted that its 2.6 percent estimate may now be too high now in light of the Sept. 11 events.
FUNDAMENTALS UNCHANGED
Britain's Prime Minister Tony Blair insisted on Thursday that the ``fundamentals of the economy have not altered.''
``In the end this is as much a matter of confidence as much as anything else and there really is no reason why we cannot carry on and be confident in the basic strength of our economy,'' Blair told reporters in his Downing Street office.
The attacks on the United States have caused the worst decline in U.S. stocks since the Great Depression of the 1930s, eroding the spending power of households that had been helping to keep the world's richest economy afloat.
Some Wall Street investors used the low level of the stock market to bargain hunt on Thursday, helping the stock market overturn early losses. The Dow Jones Industrial Average closed about 1.3 percent higher on Thursday while the technology-laden Nasdaq index ended roughly flat, erasing an earlier drop.
U.S. Treasury Secretary Paul O'Neill reiterated on Wednesday that the U.S. economy will bounce back. ``My own view is the recovery has been slowed by a quarter or so.''
And in Tokyo, Prime Minister Junichiro Koizumi said an economic revival was Japan's ``responsibility to the world.''
Separately, the Bank of Japan intervened in foreign exchange markets to stop the yen's advance from hurting Japanese exports, with the European Central Bank also selling yen for euros at the BOJ's request.
Major central banks have already slashed interest rates to shore up confidence. The U.S. Federal Reserve is expected to cut again when it meets on Oct. 2. The ECB met in Frankfurt on Thursday for the first time since it slashed interest rates 50 basis points on Sept. 17, but left interest rates unchanged.
ECB council members had earlier stressed their confidence in a rebound in growth as soon as the fourth quarter.
It will be months before data gives a reliable guide to what is happening in the economy. In the meantime policymakers have only forward-looking surveys of business and consumer confidence -- something seen as key to the broader outlook.
Sentiment was already dwindling before the attacks and this means that it will be very vulnerable to a further shock.
French business confidence fell in September to its lowest since August 1996, according to a survey by state statistics office INSEE in data collected predominantly before Sept. 11.
A Mori poll published by Britain's Times newspaper and conducted between September 20 and 25 showed economic optimism for the year ahead dropping to minus 56 from minus 31, which was the lowest since March 1980. |
