Companies suffer, China says outlook ‘grim’

China’s president said on Friday the economic outlook was grim and companies from Japan to France were punished as a downturn born of the worst financial crisis in 80 years took root.

The gloomy combination sent markets nosediving. Shares in Japan dropped to their lowest in five-and-a-half years, the dollar hit a 13-year low versus the yen and European stocks shed 4,6%.

”The current world economic situation is grim and complicated,” Chinese President Hu Jintao told Indonesia’s president ahead of a two-day Asia-Europe Meeting (Asem) of 27 EU member states and 16 Asian nations, Xinhua news agency reported.

Britain’s economy is expected to have shrunk 0,2% in the third quarter after registering no growth in the second, official data are expected to show later on Friday.

A range of corporate giants are reeling too, not just the banks who were hit first and hardest by a financial crisis that began with a US housing market collapse and now threatens recession across much of the globe.

Sony’s shares tumbled 13% to a 13-year low after it halved its profit forecast because the fallout of the financial crisis hit demand for its cameras and flat TVs.

French carmaker PSA Peugeot Citroen cut its full-year operating margin target on Friday and said it planned to make ”massive” production cuts in the fourth quarter after posting a 5,2% fall in third quarter sales.

And world number two truck maker Volvo posted a surprise fall in third-quarter pretax earnings.

Chinese call to arms
Authorities around the world have committed nearly $4-trillion in a variety of schemes including deposit and debt guarantees and taking stakes in struggling banks, to restore confidence to the financial system.

Seven French banks took advantage, requesting a total of €5-billion ($6,4-billion) in loans from a state refinancing vehicle, the refinancing body’s chief said on Friday.

In Washington, the Treasury Department and bank regulators plan to announce as soon as this weekend the next batch of banks receiving capital injections as part of its bank bailout package, a source familiar with the Treasury’s thinking said.

The European Union wants China, with the world’s biggest hoard of currency reserves and the world’s fastest-growing major economy, to help shape global financial reforms.

Leaders of the world’s major industrial nations and other big economies like China, India and Brazil will discuss the crisis at a special summit on November 15 in the United States.

”I very much hope that China gives an important contribution to the solution of this financial crisis,” José Manuel Barroso, Ppesident of the European Commission said on Thursday.

Chinese spokesperson Liu Jianchao said his government was ”actively considering” attending the Washington summit.

The Asean group of South-east Asian states agreed with Japan, China and South Korea to upgrade a long-established $80-billion web of currency swap lines among central banks in the region.

The purpose is to allow a country plunging into a foreign exchange crisis to rapidly call up financial firepower by swapping its currency for those of its neighbours.

IMF poised
The International Monetary Fund is hurrying to approve by early November a package allowing certain emerging economies exchange their currencies for US dollars to ease short-term credit strains, officials familiar with the plans said.

The so-called liquidity swap facility would be available to a group of pre-selected ”top tier” emerging market countries — those that are well-run but may be having difficulties obtaining credit, the officials told Reuters.

So far, Hungary, Iceland, Belarus, Ukraine and Serbia are in talks with the IMF on economic programmes backed by financing. But the IMF denied market speculation it was preparing a $1-trillion aid package.

Interbank lending, which froze for much of the last year as banks hoarded cash fearing peers might collapse, has shown tentative signs of thawing following cash injections, bank bailouts and interest rate cuts worldwide.

In Singapore, interbank overnight dollar deposits were quoted between 1% and 2%. They have fallen from a peak of 10% after last month’s collapse of Lehman Brothers.

Markets expect the Federal Reserve to cut US interest rates aggressively next week to help head off a sharp recession. – Reuters

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