Global recession risks rose again on Monday as business confidence
slumped in Europe and Japan and data from the United States
indicated the worst is yet to come.
With economic reports painting an increasingly gloomy picture,
central banks in the Group of Seven major industrialized countries
are expected to cut interest rates again, with the US Federal
Reserve expected to lead the way on Tuesday in Washington.
Monday's data underlined the threat of simultaneous slowdown in the
world's three main economic blocs, as the economic earthquake that
followed the Sept. 11 attacks on the United States continues to be
felt around the world.
A
report from the University of Michigan showed the attacks had a
"significant impact" on US consumer confidence -- which must remain
buoyant for the economy to avoid recession.
The report showed sentiment held up well in the week after the
attack but plunged in the last two weeks of September. Even more
worrisome, the data suggested spending will fall through the start
of 2002 as Americans worry about the fallout from an extended war
on terrorism.
"The initial reaction of consumers was to reassert their
confidence, but they quickly concluded that the repercussions of
the terrorist attack would significantly harm an already weakened
economy," Richard Curtin of the University of Michigan said in a
statement.
RECESSION NOT IN DOUBT
"A
recession is no longer in doubt," he said. "The only issue is how
long the downturn will last."
Even in August -- before the attacks -- consumers spent cautiously
despite the fiscal stimulus of a tax rebate, a Commerce Department
report showed on Monday.
Consumer spending accounts for two-thirds of US economic activity
and has kept the economy afloat through a slowdown that has seen
the manufacturing sector fall into recession.
A
separate Commerce report showed construction spending took its
biggest tumble in more than a year in August.
But a report from the National Association of Purchasing Managers
gave some hope the factory sector made tentative recovery steps in
September, although the group said the full impact of the attacks
likely was not reflected.
US
stocks closed with tepid losses as investors kept up their guard
amid the weak data and more corporate profit warnings.
Economic reports from Europe and Japan also showed trouble. The
Reuters Eurozone Purchasing Managers' Index of manufacturers hit
the lowest level in its four-year history in September and a key
indicator of Japanese corporate confidence, the "tankan" survey,
tumbled.
Companies have slashed thousands of jobs in the aftermath of the
attacks on New York and Washington, led by the airline industry.
SwissAir Group was the latest to declare it needed a cash bailout
to stay airborne.
Global growth had already slowed sharply this year in the world's
three main economic blocs before Sept. 11. Some had hoped it had
found a bottom after the second quarter and was heading for
recovery, but the data tell a different story.
And economists warn that the fallout from last month's attacks will
be much worse if it turns out that economic activity had already
taken a hit over the summer. Monday's data increased this risk
because much of the gloom it uncovered did not reflect reaction to
the Sept. 11 catastrophe.
WORST TO COME
"These figures just underline that we haven't seen the worst yet.
The euro zone downturn is going to deepen before we see any chance
of a recovery," David Brown of Bear Sterns in London said of the
survey of euro zone manufacturers.
Purchasing manager surveys also fell in Sweden, Denmark and Britain
in further proof that no country was immune. In defense, European
officials have maintained a campaign of defiant optimism and were
at it again on Monday.
European Central Bank Vice President Christian Noyer told the
French newspaper Liberation the shock from the destruction was a
"one-off" which would only have a short-term impact.
The news from abroad was not comforting for Japan, which relies
heavily on exports and where growth was already shrinking in the
second quarter this year.
Japanese Finance Minister Masajuro Shiokawa described the tankan
survey of corporate sentiment, which tumbled much than had been
expected in September, as "very bad."
"There's a need for further, aggressive economic steps. We shall
implement various measures in a concentrated fashion," he told
Reuters.
GLOBAL STAGNATION
The chief economist for the Organization for Economic Cooperation
and Development -- a group of 30 mainly rich industrialized
countries -- said the US economy will post a recession in the
second half of this year and the global economy will stagnate early
next year.
"Growth in the second half of this year will be negative in the US
-- the sign of recession -- and very low in the EU," Ignazio Visco
said. "There will be global stagnation during this period."
While the US Fed has cut interest rates by 3.5 percentage points
this year in one of its most aggressive campaigns ever, the country
is still staring down the gun barrel of recession.
The Fed is expected to lower rates again on Tuesday, taking them
below 3 percent for the first time since the 1960s.
Its emergency half-point cut before Wall Street reopened on Sept.
17 was followed by other G7 central banks and the betting is high
that others will follow its lead again.
The Bank of England has a meeting scheduled for Wednesday and
Thursday and some say it will ease by a quarter of a point. In
Frankfurt the ECB has its next scheduled council meeting on Oct.
11, following a weekend gathering of G7 finance ministers and
central bank governors in Washington.
(China
Daily 10/02/2001)