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Saturday, 21 February 2009

Euro zone in dire descent

BRUSSELS - THE economic crisis is biting ever deeper into Europe with no end in sight, a blast of bad data showed on Friday, increasing the urgency of a G20 planning meeting on Sunday.

A research group's survey put business activity in the 16 euro zone nations at a record low point in February. And an index of buying by businesses in the euro zone's vast service sector fell to a record low level.

Official industrial confidence data in France also showed a record low reading.

The global slump in industrial demand hit London-based mining giant Anglo American, with big interests in South Africa, which reported a 29-per cent drop in 2008 net profit and said it would cut 19,000 jobs this year, blaming a sharp fall in commodity prices.

The euro zone figures were 'dire, disappointing and worrying', said chief European economist at IHS Global insight in London, Howard Archer.

The 'renewed downward lurch' to record low points 'undermines hopes that the rate of contraction in euro zone economic activity could be bottoming out'. Capital economics said the figures suggested 'that the economy continued to contract at breakneck speed in the first quarter of this year'.

Car output in Britain slumped by 60 per cent in January on a 12-month basis, trade data showed. And in Sweden, high-class auto maker Saab, a subsidiary of crippled US giant General Motors, filed for protection from bankruptcy.

European stocks slumped by about three per cent after the Tokyo market shed 1.87 per cent and Wall Street fell to a six-year low point overnight on grim US unemployment figures.

Shares in the biggest Swiss bank UBS fell 10 per cent on a widening US probe into its tax practices.

The euro fell sharply to 1.2609 dollars in London from 1.2673 late on Thursday reflecting gathering alarm about the depth of the downturn in Europe, and particularly on reluctance by German Chancellor Angela Merkel to comment on whether Germany would help bailout any euro zone country in trouble.

'Things are going from bad to worse in Europe,' strategist Daisuke Uno at Sumitomo Mitsui Banking Corporation said in Tokyo.

Citigroup analyst Giada Giani in a note headlined 'Euro area - recession deepens in February,' said that severe weakness in manufacturing was now spreading to other sectors of the economy.

Other data indicated that 'labour market conditions are deteriorating very fast' thereby undermining prospects for household consumption.

'Tentative signs of a stabilisation in January have been completely reversed in February,' she said.

CMC Markets dealer Matt Buckland said in London: 'Investors are quite simply running out of short-term confidence with equities, especially amongst the banks.' And confidence is the pivotal, but elusive, factor required before the winds of recession will turn back, the president of the European Central Bank Jean-Claude Trichet told the European American Press Club in Paris.

As the storm of recession cuts ever deeper across Europe, now threatening financial stability in eastern and central Europe, leaders from the main European economic powers are to meet in Berlin on Sunday to forge a common position for a summit of the G-20 group of top world economies in London in April.

But differences of emphasis in national responses to the crisis have been evident in the last few months and concerns over protectionist pressures remain an issue, as highlighted by the Czech Republic, currently holding the EU presidency.

'We have to prevent prevent populists from going on with the buy Czech, buy American, buy French campaigns,' Finance Minister Miroslav Kalousek warned.' It is our duty to explain ... that this is the road to hell,' he said. -- AFP

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