Job losses prompt action
Policymakers facing mounting job losses prepared new measures to ease the pain on Monday and a gathering of top central bankers said the world’s major economies would shrink this year but should then recover.
With Germany finalising fresh stimulus steps, Britain striving to protect jobs and the next United States president reshaping rescue plans, central bankers at the Bank for International Settlements (BIS) said there should be some economic pick-up in 2010.
“The global economy will slow down significantly in 2009 with the industrialised economies having negative figures,” said European Central Bank chief Jean-Claude Trichet, who chairs the BIS gathering.
“It is also noted that 2010 should be the year of the recovery,” he said.
The Organisation for Economic Cooperation and Development’s leading indicator for the Group of Seven nations fell to 93,3, pointing to “deep slowdowns in the major seven economies and in major non-OECD member economies, particularly China, India and Russia”.
Dismal European data have raised expectations that the ECB will cut rates by half a point to a record low of 2% this week although Trichet made no comment on that.
German politicians meet later on Monday to agree on new action after the head of the Federal Labour Office said unemployment could rise by about one million this year to about four million, pushing the jobless rate above 9%.
Chancellor Angela Merkel’s coalition of conservatives and Social Democrats (SPD) has said a plan worth up to 50-billion euros ($67-billion) over two years could be agreed, comprising investment in public services, tax cuts and other economic aid.
Data from the US on Friday showed more than half a million Americans lost their jobs in December, making 2008 the worst year for employment since World War II.
A survey from Australia and New Zealand Banking Corp on Monday showed the number of job advertisements in Australia slumped to recessionary levels in December.
And in Britain, where the number claiming jobless benefit leapt by the largest amount in 17 years in November, Prime Minister Gordon Brown pledged to spend £500-million ($754-million) to prevent unemployment spiralling out of control.
“This will not happen on my watch,” Brown told industry leaders at a jobs summit in London.
Companies will get £2 ,500 for recruiting people who have been out of work for more than six months. The money is part of the government’s £20-billion fiscal stimulus package announced in November.
Brown said Britain would announce measures to increase bank lending later this week.
Bank landscape changed
The stream of bad news knocked Asia-Pacific shares outside Japan 2,7% lower on Monday. The leading index of European shares shed 1,1%.
“The US payrolls numbers were pretty dreadful and helped underline fears the US labour market is undergoing a severe deterioration,” BTM-UFJ currency economist Lee Hardman said.
In a sign of how the banking landscape has changed forever, the British state is to take a 43,4% stake in the combined Lloyds TSB-HBOS after shareholders largely shunned both lenders’ rights issues, the two banks said.
The break-up of US banking powerhouse Citigroup moved a step closer, as it closed in on a deal to join its Smith Barney business with Morgan Stanley’s brokerage operation, people familiar with the matter said.
Commercial banks deposits at the European Central Bank surged to a new record, figures showed on Monday, as they hoarded more than €315-billion ($421,8-billion) at the central bank rather than lend to each other.
Bank lending has atrophied ever since they started reporting colossal losses tied to the US housing market, in 2007.
Luxembourg Prime Minister Jean-Claude Juncker, who heads the Eurogroup of euro zone finance ministers, said while banks were telling him there had been no reduction in their lending, companies were saying the opposite.
“It is therefore logical to demand more commitments (to lend) from financial establishments.
Governments must be able to put pressure on them,” Juncker told French newspaper Le Figaro.
US President-elect Barack Obama vowed on Sunday to restructure a financial rescue plan to save more families from home foreclosures, as he considered whether to ask Congress for the remaining $350-billion of a $700-billion bailout programme.
Top Obama aides Larry Summers and Jason Furman were holding closed-door meetings to discuss not only the bailout funds but also a proposed new $775-billion stimulus package Obama says is needed to pull the US out of a slump.
Asia’s export-driven economies continued to show the strain of sagging consumer demand from Europe and the US.
An official source told Reuters that China’s Cabinet would discuss measures this week to support its slumping car and steel industries.
A Reuters poll of economists forecast China’s economy grew 7% year-on-year in the fourth quarter, its weakest rate in nearly a decade. Eight percent growth is seen as the minimum needed to create enough new jobs to maintain social stability. - Reuters