Eurozone in 'dire, breakneck' descent

20th February 2009, Comments 0 comments

A research group's survey put business activity in the 16 eurozone nations at a record low point in February.

Brussels -- The economic crisis is biting ever deeper into Europe with no end in sight, a blast of bad data showed on Friday.

The data only increases the urgency of a G20 planning meeting on Sunday.

A research group's survey put business activity in the 16 eurozone nations at a record low point in February. An index of buying by businesses in the eurozone's vast service sector also fell to a record low level.

Official industrial confidence data in France also showed a record low reading.

The global slump in industrial demand hit London-based mining giant Anglo American, which has big interests in South Africa. The company reported a 29-percent drop in 2008 net profit and said it would cut 19,000 jobs this year, blaming a sharp fall in commodity prices.

The eurozone figures were "dire, disappointing and worrying," said chief European economist at IHS Global insight in London, Howard Archer. The "renewed downward lurch" to record low points "undermines hopes that the rate of contraction in euro zone economic activity could be bottoming out."

Meanwhile, a semi-official Chinese survey showed that about 70 percent of multinational companies in China are scaling back recruitment, Chinese media reported.

Car output in Britain slumped by 60 percent in January on a 12-month basis, trade data showed. And in Sweden, high-class automaker Saab, a subsidiary of crippled American giant General Motors, filed for protection from bankruptcy.

Russian President Dmitry Medvedev condemned his officials for reacting too slowly to the crisis that is hitting Russian economy hard. The crisis is also inflicting several independent former Soviet economies in eastern and central Europe.

European stocks slumped by about three percent after the Tokyo market shed 1.87 percent and Wall Street fell to a six-year low point overnight on grim American unemployment figures.

Shares in the biggest Swiss bank UBS fell 10 percent on a widening American probe into its tax practices.

The euro fell sharply to 1.2609 dollars in London from 1.2673 late on Thursday. The fall reflects a gathering alarm about the depth of the downturn in Europe and also a particular concern about German Chancellor Angela Merkel’s reluctance to comment on whether Germany would help bailout any euro zone country in trouble.

"Things are going from bad to worse in Europe," said strategist Daisuke Uno at Sumitomo Mitsui Banking Corporation in Tokyo.

The New York contract oil price fell by 93 cents to 38.55 dollars a barrel in Singapore.

In London, the price of gold crept further upwards to 981.74 dollars an ounce from 980.50 dollars.

Citigroup analyst Giada Giani in a note headlined "Euro area - recession deepens in February," said that severe weakness in manufacturing was now spreading to other sectors of the economy.

Other data indicated that "labour market conditions are deteriorating very fast" thereby undermining prospects for household consumption,” she wrote. "Tentative signs of a stabilisation in January have been completely reversed in February."

CMC Markets dealer Matt Buckland said in London: "Investors are quite simply running out of short-term confidence with equities, especially amongst the banks."

And confidence is the pivotal, but elusive, factor required before the winds of recession will turn back, the president of the European Central Bank Jean-Claude Trichet told the European American Press Club in Paris.

He also revealed that the ECB's exceptional action to support banks through a funding crisis, notably since the collapse of Lehman Brothers investment bank last September, had raised the risks on its balance sheet by about two thirds, equivalent to 600 billion euros (756 billion dollars).

Official French data put industrial confidence in January at a record low point while Markit research said its purchasing managers' index for France fell to an unprecedented low level.

UniCredit analyst Tullia Bucco said these figures amounted to "a real shock."

In Italy, orders placed with industry showed a fall of 15.4 percent on a 12-month basis, official data showed, after 26.2 percent slump in November.

As the storm of recession cuts ever deeper across Europe, now threatening financial stability in eastern and central Europe, leaders from the main European economic powers are to meet in Berlin on Sunday to forge a common position for a summit of the G20 group of top world economies in London in April.

But differences of emphasis in national responses to the crisis have been evident in the last few months and concerns over protectionist pressures remain an issue, as highlighted by the Czech Republic, which currently holds the EU presidency.

"We have to prevent populists from going on with the buy Czech, buy American, buy French campaigns," Finance Minister Miroslav Kalousek warned. “It is our duty to explain ... that this is the road to hell."


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