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Wednesday, 17 December 2008

Economic crisis batters Europe

PARIS - EUROPEAN car sales slumped, inflation slowed and governments issued gloomy forecasts on Tuesday ahead of an expected record cut in US interest rates aimed at breathing life into the world's largest economy.

Consumer prices in the United States plunged a record 1.7 per cent in November, raising fears of deflation that were echoed in Britain and France, which both reported sharp drops in their 12-month inflation in November.

'This disinflation movement is very brutal,' Mr Nicolas Bouzou, head of Asteres, an economic consultancy, said in reference to the sharp slowdown in France's inflation which he blamed on falls in world commodity prices.

In another round of economic gloom, US housing starts took a record 18.9-per cent tumble during November and European trade body ACEA reported a year-on-year plunge of 25.8 per cent in new car sales in Europe in November.

'The collapse has become clear,' said the Kommersant business newspaper in Moscow, referring to an industrial output slump during November of 10.8 per cent - the worst result since the fearsome 1998 financial crisis.

The news from Russia's ex-Soviet neighbour Ukraine was even more alarming.

Ukrainian President Viktor Yushchenko said economic contraction in the first quarter of 2009 could be as high as 10 percent following a crisis in the banking system and a slump in demand for steel, Ukraine's main export.

In Europe's biggest economy, Germany, the Frankfurter Allgemeine Zeitung quoted a government memo saying contraction in 2009 could be three per cent or more, which would be the worst recession in Germany's post-war history.

South Korea also cut its 2009 economic growth forecast by one percentage point to three per cent, with President Lee Myung Bak telling the cabinet that 'next year will be the most difficult year, especially the first half'.

And in Japan, French global luxury group Louis Vuitton announced that it was scrapping ambitious plans for a flagship store in central Tokyo, which had been set to rival its Paris outlet, because of a slump in demand.

The grim economic news came as the fallout continued from a massive alleged scam run by Wall Street figurehead Bernard Madoff, which could force some of the world's biggest banks to wipe billions off their balance sheets.

London-based HSBC, Spain's Santander and Fortis Bank Netherlands alone revealed potential losses of more than five billion dollars as a result of the pyramid scheme fraud, which has turned the spotlight on US market regulation.

Wall Street appeared to shrug off the downbeat reports and stocks swung higher in early trading on Tuesday ahead of the expected US interest rate cut.

A meeting of the Federal Reserve was expected to end at around 1915 GMT (3.15am Singapore time).

European Central Bank (ECB) president Jean-Claude Trichet meanwhile urged Europe's banks to pass on the ECB's historic interest rate cuts to the eurozone economy, suggesting the central bank might mark a pause in the cuts.

Now 'we have to get it in the real economy', Mr Trichet said late on Monday.

In other market developments, the dollar fell while oil prices held steady ahead of an Opec meeting on Thursday expected to announce output cuts.

In Vienna, Opec said that global demand for oil was shrinking and that if the recession deepened, 'the growing imbalance on the oil market ... presents a real challenge for all market participants'.

Amid all the economic doom and gloom, Spanish pawnshops have reported brisk trade, with the Confederation of Spanish Savings Banks saying 11.6 per cent more loans were made in the first half of 2008 than during the same time last year.

'The amount of pawnshop loans has increased bit by bit until this year, probably because of the crisis it has grown in a much more pronounced way,' said Mr Javier Ubeda, head of the confederation's pawnshops division.

On a more encouraging note, Christmas tree growers in Denmark said sales were holding up despite the crisis.

'Crisis or no crisis, the demand from importers is as strong as in the past, and is even greater than the supply available,' said Mr Kaj Oestergaard, head of the Danish Christmas tree growers' association. -- AFP

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