Grim economic data mirrored by corporate gloom

Evidence of a weakening Chinese economy, poor data from Japan and Britain and a grim corporate outlook reinforced fears on Tuesday of a prolonged recession fostered by the worst financial crisis in 80 years.

China’s inflation fell to a 17-month low of 4% in October and while it posted a record trade surplus last month, a sharp fall in import growth showed domestic demand was flagging.

”It shows the Chinese economy is in a sharp slowdown — production is falling, so is demand,” said Zhang Yongjun, an economist with a government think-tank in Beijing.

In Japan, exports fell nearly 10% in the first 20 days of October, corporate bankruptcies jumped 13,4% year-on-year and sentiment in its service sector hit an all-time low, all signs the world’s second biggest economy was teetering on the brink of recession.

British retail sales fell for a fifth straight month in October and by the biggest amount in more than three years, and a housing industry survey showed home sales slumped to their lowest level in at least 30 years.

”These are seriously poor numbers, especially in the run-up to Christmas,” Stephen Robertson, director general of the British Retail Consortium, said of the sales data.

What began as a financial crisis last year, when bank lending dried up in the face of huge losses in the United States housing market, has created a broad downturn in much of the world, with even fast-growing China proving not to be immune.

Corporate pain
Inevitably, companies that are the building blocks of economies are not escaping unscathed.

Vodafone, the world’s largest cellphone company by revenues, lowered its full-year revenue outlook and is to cut £1-billion of costs, although it reported first-half results slightly ahead of forecasts.

Samsung Securities, South Korea’s biggest brokerage, reported a 69% fall in quarterly net profit due to losses from bond and stock investments on the back of falling financial markets.

And the world’s largest hotelier, InterContinental Hotels, beat forecasts with a 14% rise in third-quarter profits but said it saw a sharp deterioration in October market conditions.

Investors, spooked by worries about the worsening outlook for US companies, sold shares.

Japan’s Nikkei share index dropped 3% and European stocks shed 2% at the open.

Expectations that profits would be hit hard by a deep recession doused Monday’s optimism, sparked by China’s announcement of a nearly $600-billion stimulus package and increased US government support for stricken insurer AIG to the tune of $150-billion.

Deutsche Bank said the equity value of General Motors was now zero, sending its stock to a 62-year low, and analysts said Goldman Sachs could post its first quarterly loss.

US electronics seller Circuit City filed for bankruptcy — the biggest retailer to do so since Kmart in 2002 — and coffee chain Starbucks reported disappointing earnings.

Summit
Leaders of the world’s major economies meet in Washington on Saturday to discuss long-term solutions to the crisis following a series of coordinated moves on interest rates and to recapitalise banks to try to fight the financial turmoil.

The credit crunch has seen banks clam up on lending to each other, businesses and households for over a year.

But officials are downplaying the likelihood of dramatic measures and aides to president-elect Barack Obama — who world leaders have urged to make the credit crisis his number-one priority — said he would not attend the November 15 summit.

Many in Europe want a root-and-branch reform of financial regulation but US officials have sounded more reluctant.

The New York Times reported that Obama urged President George Bush to back immediate emergency aid for car makers at their first post-election meeting at the White House.

Obama is expected to spend hundreds of billions of dollars in a fiscal stimulus package, once he takes power in January. — Reuters

We make it make sense

If this story helped you navigate your world, subscribe to the M&G today for just R30 for the first three months

Subscribers get access to all our best journalism, subscriber-only newsletters, events and a weekly cryptic crossword.”

Related stories

WELCOME TO YOUR M&G

Already a subscriber? Sign in here

Advertising

Latest stories

Roads flooded, buildings washed away in latest Durban downpour

No deaths have been reported after mudslides caused by heavy weekend rains

Nthikeng Mohlele comes up short with ‘The Discovery of Love’

The talented novelist Nthikeng Mohlele’s debut short-story collection lacks the vitality that makes short stories magical

What is at the root of white anxiety in post-apartheid...

Some white people think any discussion of racism or its legacy is an attempt to shame or condemn them for the ‘sin’ of their whiteness

OPINION| ANC’s socialist thinking is crushing South Africa’s future

The Cold War ended more than three decades ago. That period of history showed that socialism, at a country scale, is unsustainable
Advertising

press releases

Loading latest Press Releases…
×