The effect of the financial crisis on major economies was brought into focus on Monday as China’s growth slowed, Britain fell deeper in debt and the United Nations said worldwide unemployment could rise by 20-million.
While markets rallied at the start of the week’s trading, a 10% slump in shares in France’s Société Générale and a lifeline for giant Dutch bank ING underlined the prevailing sense of panic in the banking industry.
Sweden, meanwhile, became the latest government to shore up its financial sector, presenting a plan worth 1,5-trillion kronor (€152,2-billion).
Midway through trading in Europe, London’s stock exchange was up 1,69%, Frankfurt climbed 0,86% and Paris rose 1,35%.
On Wall Street the Dow Jones Industrial Average rose 1,21% in early trades, while the Nasdaq composite was up 1,46%.
Tokyo closed up 3,59%, Hong Kong surged 5,3% and Seoul gained 2,3%, while Shanghai won 2,25% despite news that China’s economic growth had slowed in the third quarter.
Investors were partly cheered by the weekend announcement that United States President George Bush and European leaders have planned several summits to address the financial crisis, but were also prowling for bargains after recent heavy falls.
The proposed summits have ”contributed to creating a climate in which investors can have positive expectations”, said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC. But he added: ”Markets are still surrounded by uncertainty.”
The announcement that China’s growth had slowed to 9% in the third quarter was blamed by the Beijing government on the emergence of ”more uncertain and volatile factors in the international economic climate”.
It was the first time since 2005 that quarterly growth had slipped into single digits and the lowest figure since the second quarter of 2003, providing the strongest indicator yet that China is not insulated from the global downturn.
In Geneva, the head of the UN’s International Labour Organisation (ILO) warned the financial crisis could lead to a 20-million rise in the number of unemployed worldwide by the end of 2009.
Estimates from the ILO indicate that the ”number of unemployed could rise from 190-million in 2007 to 210-million in late 2009”, said Juan Somavia, marking the ”first time in history that we pass 210-million”.
There was more gloom in Britain, with the release of figures showing its public decifit worsened to £12,6-billion last month. The September figure compared with a deficit of £8,7-billion 12 months earlier, said the Office for National Statistics.
Governments around the world have been striving to safeguard the banking sector, underwriting interbank bank loans worth more than a trillion dollars, in a desperate bid to restore liquidity.
The Netherlands on Sunday announced a $13,4-billion bailout for ING, one of the world’s largest banks, after it had forecast a loss of €500-million in the third quarter.
Swedish Finance Minister Anders Borg has repeatedly said the country’s banks are not in need of state handouts but he nevertheless presented a plan on Monday to allow financial institutes with liquidity problems to apply for loans.
The financial crisis erupted over the collapse of the market in high-risk subprime US home loans last year. The loans, repackaged as derivatives, had been resold to investors and banks around the world.
Widespread defaults set off a chain reaction through the financial system, eventually leaving banks short of cash and hesitant to make the interbank loans essential to the system’s smooth functioning.
The crisis has been compounded by an economic slowdown and fears of recession — broadly defined as when economies are in decline for two consecutive quarters.
Russian Prime Minister Vladimir Putin, whose country’s position amid the global turmoil has been bolstered by huge foreign-currency reserves of more than half-a-trillion dollars, said the West was caught off guard by the crisis.
”American, European, British structures, despite all the differences in how their systems are organised and how they work, were caught equally unawares,” said Putin, a former president who is now Russia’s powerful premier.
”We did not allow ourselves to be caught unawares by the financial crisis,” he added at a meeting with foreign investors. — Sapa-AFP