Germany, China, US feel pain of global downturn

Three of the world's largest economies have painted bleak pictures of their current conditions 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 Co-operation and Development (OECD) cut its economic output forecasts for the US, Japan and euro zone, seeing a tumble into recession for all three.

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 said its economy, Europe's largest, contracted by 0.5 percent in the third quarter, putting it in recession for the first time in five years.

The decline – much sharper than the 0.2 percent forecast – was accentuated by German export growth grinding to a halt.

"We are going to have to face up to a very difficult and long-lasting economic crisis," Germany's Deputy Economy Minister Walther Otremba said.

Analysts agreed with that grim forecast.

"The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy," said Carsten Brzeski of ING Financial Markets.

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 ending November 1.

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

"We no longer have hurricanes or other special factors to blame for elevated numbers as we did say in September," said Dana Saporta, analyst at Dresdner Kleinwort.

"So the higher level we are seeing is probably reflecting a fundamental weakening in the labour market. It suggests that the unemployment rate in the US . .. will continue to rise, probably hitting 7.5 percent or more sometime in 2009," said Saporta.

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

In global company news:

- British telecoms company BT Group said it was cutting 10,000 jobs at home and overseas.

- Intel Corp cut its fourth-quarter revenue estimate on weak global demand.

- Goldman Sachs suspended its rating on General Motors Co and said the automaker needs at least US$22 billion in federal aid to survive.

US stocks were mixed in morning trading after three-straight down days.

TIMELY BOOST?

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.

Obama, who will take office in January, is also considering appointing an auto czar when he takes office, according to an aide.

G20 GATHERING

Leaders of the G20 industrialized and emerging nations will gather in Washington on Friday to discuss the crisis with investors hoping for concrete policy action.

Japan is prepared to offer foreign reserves worth up to US$100 billion to the International Monetary Fund (IMF) if the Washington-based lender needs extra funds to help emerging economies, a government source said on Thursday.

Japanese Prime Minister Taro Aso will make the proposal at the G20 summit, the source said.

The summit falls at an awkward time politically as US President George W Bush prepares to leave office. He travelled to Wall Street on Thursday to outline his views on the financial markets.

The price of oil hit a 22-month low at US$55 a barrel on worries that a recession will curb demand before bouncing back above US$57.

Stocks in Europe were 0.7 percent lower, the third-straight day of losses and US stock futures extended losses after a steeper-than-expected surge in the number of Americans filing for jobless benefits.

Banks from Asia to Europe warned of tough times ahead.

Mizuho Financial Group, Japan's No 2 bank, plans to raise up to US$3.1 billion after unveiling a US$402 million quarterly loss. Bank of Ireland's profits fell by a third and it cancelled its cash dividend and shares in Commonwealth Bank of Australia hit a four-year low after it warned investors to expect a big jump in bad debts.

- Reuters