China downturn deepens, Europe rate cut sought

 

LONDON: China warned yesterday its economic downturn could threaten stability and pressure grew on the European Central Bank to make a big cut in interest rates to help contain the global financial crisis.

In India, emerging Asia’s other economic titan, financial markets were closed after Islamist militants killed more than 100 people in the commercial capital, Mumbai.

Violence in India and political unrest in Thailand highlighted political risk as an extra potential threat to emerging markets battered by the global crisis.

A crisis that began last year with the collapse of the US
housing market has spread around the world, bringing several financial institutions to their knees and pushing the United States, Japan and Europe into recession or to the brink of it.

Unemployment is rising in many countries. ArcelorMittal, the world’s largest steelmaker, said it would cut up to 9,000 more jobs, saving US$1 billion a year.

Central banks around the globe have slashed interest rates to try to ease the flow of credit and restart stalled economies.

Economic sentiment in Europe’s single currency zone hit 15-year lows in November and inflation expectations plunged, boosting the case for a big rate cut from the European Central Bank (ECB) next week.

“The euro zone is in a deep recession, upping the pressure on the ECB to cut interest rates further,” said Christoph Weil, economist at Commerzbank. “We envisage a first move next week on a scale of 75 basis points to 2.5 per cent.”

ECB’s president, Jean-Claude Trichet, said yesterday that pumping in billions into money markets is still vital and cutting back on the amounts is not yet an option.

The Bank of England is also expected to cut rates by 50 basis points or more on Dec. 4, a Reuters poll showed.

Benchmark rates are 3.25 per cent in the eurozone and 3.0 per cent in Britain, against 1.0 per cent in the United States.

China’s central bank cut interest rates by the biggest margin in 11 years on Wednesday in response to a crisis that is reining in its once runaway growth, bringing worries about social unrest as jobs disappear.

China’s State Information Center, a government think-tank, forecast annual growth would slow to 8 per cent this quarter from 9 per cent in the third quarter, a cooling from double-digit rates recorded in the past five years.

The country’s top economic planner said the financial crisis was still spreading and its impact was deepening in China.

“Excessive bankruptcies and production cuts will lead to massive unemployment and stir social unrest,” Zhang Ping, chairman of the National Development and Reform Commission, told a news conference.

JOBS IN JEOPARDY

ArcelorMittal said it would launch a voluntary redundancy scheme for largely white collar-staff to make its job cuts, which could affect about 3 per cent of its workforce.

German car maker Daimler plans to talk to labor groups about reducing working hours at four German Mercedes-Benz assembly plants from January until the end of April.

Should this step be implemented, at least 47,000 employees could have shortened work weeks, for which the German government would compensate wage shortfalls.

General Motors Corp aims to cut staff costs at its European operations by at least 10 per cent, in part by reducing the number of hours employees work.

The number of German unemployed fell in November to its lowest level since 1992, but officials said a labour market boom was fading as recession hits Europe’s biggest economy.

Fujitsu Siemens Computers plans to slash 12 per cent of its workforce in Germany, or about 700 jobs.

In Britain, Woolworths put its variety stores business into administration, jeopardising thousands of jobs. - Reuters