Policymakers around the world scrambled for ways to bolster their economies and banks with South Korean and Australian leaders holding emergency meetings in the face of mounting signs of a severe global downturn.
Authorities in Seoul met to discuss emergency steps to shore up the country’s banks and Australia’s Prime Minister held a summit with industry leaders who gave a grim assessment of business conditions in the face of global financial turmoil.
European Commission President José Manuel Barroso and French President Nicolas Sarkozy are set to meet United States President George Bush on Saturday to discuss a global summit to overhaul the world’s financial system.
South Korea is seen by many analysts as one of the region’s most vulnerable to the financial crisis because of its heavy load of foreign debt relative to the size of its economy, Asia’s fourth largest. Shares in Korean financial firms fell sharply in volatile trade.
After governments pledged $3,2-trillion to stabilise the financial sector, money markets have shown tentative signs of healing, though the significant damage to short-term lending markets has far to go before it returns to where it was 14 months ago before the crisis began.
Policymakers were still trying to stabilise their financial systems. Singapore, one of Asia’s richest economies, and Malaysia both said they would guarantee all bank deposits until 2010, following similar moves by other governments.
Asian shares edged up for the first weekly gain since August on reduced risks of a total meltdown, though US Treasury debt prices and the US dollar also rose as investors held on to defensive strategies.
Both investors and world leaders have turned their attention to the economies, which began to suffer in the last few months amid a series of bank failures and heavy stock market losses.
Recession looms
The world’s richest nations are in or close to recession and further interest rate cuts are needed to stimulate demand, Reuters polls of economists showed.
”Bearishness surrounding the US economic outlook is rampant and well-priced, but downside risks to other economies probably less so,” said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong.
Signs of trouble in China’s manufacturing heartland increased uncertainties about the world’s main source of growth on Friday.
Hundreds of workers gathered outside a shuttered toy factory in southern China, after a Hong Kong-listed toymaker closed as tough times were made worse by US economic weakness.
Smart Union Group said it appointed a provisional liquidator to help wind down operations.
Factories in the southern Chinese province of Guangdong have suffered over the past year-and-a-half from a credit crunch, rising labour costs and China’s strengthening currency, which makes their products more expensive.
An executive at China’s biggest bank said in New York the current global financial crisis was driving down demand for exports from China, threatening the world’s fastest growing economy.
”The signs of a slowdown have already appeared in small and medium size enterprises in the coastal regions,” Jiang Jianqing, president and chairperson of Industrial & Commercial Bank of China, told a conference at Columbia University through an interpreter.
China’s economy is expected to grow 9,9% in 2008 and 9% in 2009, according to a Reuters poll ending five consecutive years of double-digit gains. That level of growth, however, is still expected to be one of the rare bright points in an otherwise bleak economic scene.
Australia, another major economy that until recently, successfully weathered global headwinds, also showed signs of growing strains.
The country’s top industry lobby told Prime Minister Kevin Rudd at an emergency summit, credit was drying up and smaller firms were collapsing despite government assurances that the economy was in good shape.
In Korea, top finance officials held emergency talks to discuss ways to shore up confidence in its banks after the won suffered its biggest single-day decline against the US dollar in 11 years on Thursday.
Korea’s growth will likely slow to 2,2% next year, the slowest since the 1997/1998 Asian financial crisis, from the 4% seen this year, Moody’s Investors Service said.
Standard & Poor’s Ratings Service on Wednesday placed seven major Korean financial institutions on creditwatch with negative implications, meaning their debt rating could be downgraded imminently.
Safety first
Safety continued to be the touchstone for investors with gains in Asian stocks this week cut after hopes for an easing in the financial crisis were tempered by US and European economic data that pointed to recessions.
The MSCI index of Asia-Pacific stocks outside Japan rose 0,8% after an 8,2% slump in the previous day. The index has gained slightly more than 1% this week, heading for its first weekly gain since the end of August.
Japan’s Nikkei average rose 1,4%, clawing back after falling 11,4% on Thursday in its biggest loss since the 1987 crash.
”The economic problems are the main theme of the market right now and everybody knows this, so rises will be limited,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Japan.
Japanese Prime Minister Taro Aso said on Friday recent volatile stock market moves will likely have a significant negative impact on the nation’s economy.
”The impact on the Japanese public is quite big,” Aso told parliament.
He said earlier this week that recent stock market falls showed investors believed Washington has not done enough to shore up its banking sector.
Some high-profile technology companies such as Google and Advanced Micro Devices managed to post better-than-expected results but offered only cautious comments on the outlook.
International Business Machines, the biggest technology services company, said it has managed to stay on track with its goal to boost profit by $10 to $11 a share by 2010, partly because of continued growth in emerging markets. – Reuters