Canada is in recession

WASHINGTON - THE World Bank offered a grim 2009 outlook on Tuesday of just 0.9 per cent growth for the global economy, while a recession was declared in Canada and a rescue for US automakers hung in the balance.

In its 'Global Economic Prospects' report, the World Bank sharply cut its growth forecast and predicted world trade volume would fall 2.1 per cent as a worldwide credit crisis hits rich and poor nations alike.

Developing countries' economies would likely expand at a reduced annual pace of 4.5 per cent while wealthier, developed economies are expected to contract 0.1 per cent, the multilateral development lender said.

'The global economy is at a crossroads, transitioning from a sustained period of very strong developing country-led growth to one of substantial uncertainty as a financial crisis rooted in high-income countries has shaken financial markets worldwide,' said World Bank chief economist Justin Lin.

In Canada, the central bank lowered its key interest rate Tuesday by 0.75 point to 1.50 per cent and said the Canadian economy had slid into a recession amid the global financial crisis.

'The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated,' the bank said in a statement.

In Washington, the White House demanded that Detroit automakers prove their 'long-term viability' in return for a US$15 billion (S$22.6 billion) rescue bailout but said a deal with Congress was in sight.

President George W. Bush's administration is making 'good progress' in its talks with congressional leaders over legislation to shore up General Motors, Ford and Chrysler, White House spokesman Dana Perino told reporters.

'We are still working through a number of issues, some of them just small and technical, and other ones a little bit more meaty in scope, but, all in all, making sure we're headed in the right direction,' she said.

In Geneva, the International Air Transport Association forecast that airlines would likely lose US$2.5 billion in 2009 due to the economic crisis.

'The outlook is bleak,' said Giovanni Bisignani, the association's director general and chief executive.

'We face the worst revenue environment in 50 years.' In Britain meanwhile, data showed manufacturing output sank 1.4 per cent in October from September, the eighth monthly drop in a row, and was down 4.9 per cent on a 12-month basis, the Office for National Statistics said.

The monthly fall was the largest decline since March 2005 and marks the country's longest consecutive contraction in manufacturing output since 1980.

In Japan, Sony said it would cut investment in its electronics business by 30 percent, cut 10 percent of its manufacturing sites and exit unprofitable businesses to cope with the downturn.

The announcement came just hours after Tokyo said the Japanese economy shrank 0.5 per cent in the third quarter - 1.8 percent on an annualised basis - even worse than initially estimated.

'The data suggests that the economy is contracting faster than previously thought, and the depth of the recession will be more severe,' said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong.

Stock markets saw mixed fortunes on Tuesday, but investor fear was underscored by new precedents on the bond market as investors flocked to safety.

The yield on the three-month US Treasury bill fell below zero - as low as negative 0.051 per cent around 1500 GMT (11pm Singapore time), ending the day at negative 0.001 per cent - for the first time as worried investors snapped up government bonds in search of shelter.

'Investors are desperate to cover short-term and end-of-year funding needs, making them willing to accept negligible - and now even negative - returns to protect their capital,' said Sara Kline at

On Wall Street, the Dow Jones industrials sank 2.72 per cent, ending a two-session winning streak. The tech-dominated Nasdaq dropped 1.55 per cent and the broad Standard & Poor's 500 index lost 2.31 per cent.

The London FTSE 100 index closed with a gain of 1.89 per cent, the CAC 40 in Paris added 1.55 per cent and the Frankfurt Dax closed 1.34 per cent higher, helped by a better-than-expected reading on German investor confidence.

'The market wants to believe in a rebound,' said Jean-Bernard Parenti of Swiss Live Gestion Privee. 'The selling pressure has eased a bit.'

In early Asian trading on Wednesday, Australian share prices opened 0.95 per cent lower as falling banking stocks weighed down the market for the second straight day. Japan's benchmark Nikkei-225 index fell 0.24 per cent in the first minute of trading. But South Korean shares opened 0.6 per cent higher, despite Wall Street's overnight fall. -- AFP


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