The European economy's close ties to emerging markets are turning from a blessing to a curse.
Already skirting recession, the 15 euro nations face greater pain as economies which gave them an edge over the U.S. and Japan stumble. Neighbors to the east, that buy about a third of the region's exports, are faltering as their banks weaken and currencies slide. Meanwhile, the halving of oil prices since a July record is slowing demand from the Middle East.
European companies such as France's Schneider Electric SA and Finland's Kone Oyj are saying orders will weaken as emerging-market countries from China to Argentina succumb to the credit crunch. Citigroup Inc.'s economists now expect deeper interest-rate cuts and a recession in the euro region.
“It's a huge threat to the euro area,'' said Nick Kounis, chief European economist at Fortis in Amsterdam. “It had been hoped these markets would hold up better and drive European growth.''
As recently as Oct. 6, European Central Bank President Jean-Claude Trichet was betting “ongoing growth in emerging- market economies might support a gradual recovery'' next year. Yesterday, he said the bank may lower rates next week as the financial crisis damps inflation.
The 14-month credit crunch is prompting investors to sell riskier stocks, bonds and currencies, while punishing banks they view to be short of capital. Emerging-market stocks dropped to a four-year low yesterday.
Lines at IMF
Ukraine, Hungary, Belarus and Pakistan are seeking aid from the International Monetary Fund and Argentina's markets are in turmoil after its government tried to take over private pension funds. European Union spokeswoman Amelia Torres said today the bloc is preparing a package to help Hungary.
Russia has pledged more than $200 billion to stem its worst banking crisis since 1998 and China is slowing after expanding more than 10 percent for five years.
At the same time, U.K. Prime Minister Gordon Brown said today the IMF is running out of cash and China and Persian Gulf oil-producing nations should pay into a new fund to help eastern Europe.
“The IMF has $250 billion available,'' Brown said. “This may not be enough. We need a multilateral solution. The big surplus countries are in a position to help the most.''
Vulnerable
Europe's vulnerability to a downturn in emerging markets is reflected by how it benefited from their upswing. Exports to them were equivalent to about 6 percent of the continent's gross domestic product in 2006, compared with about 4.5 percent in 2000 and less than 4 percent in the U.S., says Juergen Michels, an economist at Citigroup Inc. in London.
The dozen, mostly Eastern European, nations which joined the broader European Union since 2004 account for 15.3 percent of the euro-area's foreign demand, up a third since the start of the decade, according to the ECB. The contributions of China and Russia have almost doubled. By contrast, the U.S. and U.K. portions have each dropped about 4 percentage points to 11.9 percent and 14.5 percent respectively.
“With a higher share of exports to emerging markets, the European countries benefited much more than the U one hour cash loan.S. from booming emerging-market economies in recent years,'' said Michels. Now they are “more exposed'' to their downturn.
Turbulence
The euro-area economy will contract for the first time since 1993 next year, forcing the ECB to cut its benchmark rate to at least 2 percent from 3.75 percent, he predicts. The Bank of England said in a report today that turbulence in emerging markets is posing heightened risks to Britain's financial stability.
Schneider Electric, the world's biggest maker of circuit breakers, now expects emerging markets to slow after four years. Even China “isn't immune to external forces,'' Chief Executive Officer Jean-Pascal Tricoire said Oct. 22. Kone, a manufacturer of elevators, said the previous day that investment is slowing from Mexico to India to Qatar and that Russia is a “question mark.''
Gareth Williams, an equity strategist at ING Bank NV in London, says more companies will downgrade earnings forecasts. Firms in Austria, Portugal and Spain have the most revenues from emerging markets, while Ireland, Greece and Italy have the least, he said in a report to clients yesterday.
Key Risk
Eastern Europe is “rapidly becoming a key risk'' to the euro area, said Stephane Deo, chief European economist at UBS AG in London. He estimates 30 percent of euro-area exports at the start of this year went to its eastern trade partners, double the shipments to the U.S. Germany and the Netherlands are most at threat with 3.5 percent of their GDP accounted for by sales to the former communist bloc, he said.
Buoyant demand from Russia and the Middle East is ebbing as falling oil prices curb their purchasing power. Crude rose 625 percent from 2001 to a record $147.27 per barrel in July, enabling oil producers to buy equipment such as MAN AG's trucks and “Made in Europe'' luxury goods including handbags from Gucci Group NV.
The demand was strong enough for Europe to recoup two- thirds of its higher oil bill in the past five years, calculates Klaus Baader, chief European economist at Merrill Lynch & Co. While the drop in energy costs will “be good in the short-term for domestic demand, over the medium term, reductions in demand for exports are going to weigh on the European economy,'' he said.
Already retrenching as they try to cover $221.8 billion in losses and writedowns, European banks also stand to be hurt more than most if emerging markets goes sour, said Stephen Jen, chief currency strategist at Morgan Stanley in London.
European banks lent $3.5 trillion to these economies, compared with $500 billion from the U.S. and $200 billion from Japan, according to his estimates. Those in Austria and Spain were particularly exposed, he said. Three quarters of loans to China and India originate in Europe.
“Pressures on emerging-market economies could have a particularly negative boomerang effect on European banks,'' Jen said.
South Korea on Monday delivered its largest ever interest rate cut and pledged more spending and tax cuts next year to help economic growth, already at a four-year low and likely to be hit further by the global financial storm.
But the 75 basis point rate cut to 4.25 percent failed to lift share prices after they dropped their most on record last week on growing fears that the economy, along with company profits, will buckle under the strain of the downturn across world markets.
“What investors really want isn’t just a rate cut but measures to cure a liquidity squeeze,” said Kim Joong-hyun, an analyst at Goodmorning Shinhan Securities. “It is the nervousness in the market that keeps credit tight.”
South Korea’s banks have looked particularly exposed to the global credit crunch, finding it difficult to roll over foreign currency loans, many of which are linked to forward covering of major export deals by local firms.
This lack of liquidity makes the banks in turn reluctant to lend at home, threatening domestic firms with their own credit crunch. This combination prompted the central bank’s rate cut.
The Monetary Policy Committee slashed the base rate by 75 basis points to 4.25 percent — its first emergency rate cut since the days after the September 11, 2001 attacks in the United States.
It was also the second cut this month. The central bank had cut rates by 25 basis points hours after a concerted rate cut among major central banks world wide aimed at boosting market confidence in the face of the deepest financial crisis in decades internet pay day loan.
Bank of Korea Governor Lee Seong-tae told reporters the central bank was also considering its first ever purchase of commercial bank bonds to put cash into the financial system.
“We have not decided how much liquidity we would inject with bond purchases, but we are considering 5-10 trillion won ($3.5-7.0 billion),” he told reporters.
Some analysts said the central bank may need to make more rate cuts.
“The rate cut could help lessen the burden of household debt and play a role as a stepping stone to boost the economy … Additional rate cuts are possible. A cut in rates might take place in December but more likely early next year,” said Cho Seong-joon, economist at Meritz Securities.
South Korean household debt totaled about 500 trillion won by the end of August. The ratio of debt to disposable income has risen sharply, especially debt to non-bank lenders, which charge higher rates than banks.
The central bank also cut its special interest rate for small- and medium-sized companies by 75 basis points. These companies are the country’s main employers, accounting for about 90 percent of the workforce.
BOOSTS SPENDING
President Lee Myung-bak is a budget speech to parliament said the government planned to further boost spending and cut taxes next year and stood ready to inject liquidity into the system until markets calm.
Iceland secured an emergency bailout loan of about $2.1 billion from the International Monetary Fund after the collapse of the island's banking system paralyzed much of its foreign exchange market.
“This program will enable us to secure funding and gain access to the necessary technical expertise required to stabilize the krona and to provide support for the development of a healthier financial system,'' Prime Minister Geir Haarde said at a press conference in Reykjavik today. “Iceland will commit to a sustainable long-term economic policy.''
The economy of Iceland, the first western nation to seek aid from the fund since the U.K. in 1976, faces a prolonged period of contraction, possible hyperinflation and rising joblessness. Gross domestic product will shrink as much as 10 percent next year, forecast Paul Thomsen, head of the IMF delegation to Iceland, at a press conference.
“It's practically unheard of that a western European country that was at one time rated AA is going into IMF-led exercises,'' said Luis Antonio Maglanoc, head of global credit research at Bayerische Hypovereinsbank in Munich, before the announcement. “Of course in hindsight, it looks like Iceland was doomed.''
Encourage Lending
The agreement must be approved by the IMF board in Washington. Iceland will be able to draw $833 million immediately after the board's approval, the government said in a statement, and hopes the deal will “encourage'' lending from other sources. Neighboring Nordic governments have signaled they may provide aid to the Atlantic island after it comes under IMF management.
“The approximate need for the next two years would be $6 billion,'' including the IMF loan, Thomsen said. He said in an interview the government will take its case for help to a meeting of Nordic finance ministers in Helsinki on Monday. Japan was also involved in the negotiations, he said, and the Russian authorities have reiterated an earlier statement that they may also help.
“Iceland has put together an ambitious economic program, which aims to restore confidence to the banking system, to stabilize the krona through strong macroeconomic policies, and to help the country achieve medium-term fiscal consolidation,'' said IMF Managing Director Dominique Strauss-Kahn in a statement from Washington. The program “is focused on the essential upfront measures needed to restore confidence and economic and financial stability.''
Insufficient Support
The government took control of the island's three biggest banks, Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf this month after they were unable to secure short-term funding. That precipitated the collapse of the krona, with the central bank attempting a currency peg, only to abandon the measure the following day citing “insufficient support free credit report instantly.''
The three banks have together amassed debt worth $61 billion, equivalent to about 12 times the size of the economy, according to Bloomberg data. The government has yet to provide a clear plan on how that debt will be repaid, with Glitnir and Kaupthing already having failed to make bond payments.
According to credit analysts Eileen Zhang at Standard & Poor's, the government is “ring-fencing'' the domestic interests and “probably abandoning'' external liabilities, she said in an Oct. 9 interview.
The failure of banks on the island, with a population of only 320,000, is affecting investors and depositors across the globe. Kaupthing is poised to become the first European bank to default in Japan's samurai bond market after investors said the Icelandic lender missed a coupon payment scheduled for Oct. 20. Kaupthing has a grace period lasting until Oct. 27 to honor the obligations.
Just Too Big
“Many investors who were looking at Iceland were not really aware that there were many big problems looming ahead,'' Maglanoc said. “In a normal country, not Iceland, the three big banks would have been supported, which happens in most European countries. In Iceland's case the banks were just too big.''
The central bank on Oct. 15 cut the benchmark interest rate by an unprecedented 3.5 percentage points to 12 percent, indicating policy makers have given up trying to control inflation. Prices may surge as much as 75 percent in coming months, Christensen estimates.
A nation that was ranked the fifth-richest in the world per capita in the UN 2007/2008 Human Development Index may now face shortages of imports including food and clothing. The central bank on Oct. 10 called on commercial lenders to prioritize foreign currency transactions to cover payment for essential imports such as food, fuel and medicine.
The last western nation to seek IMF support was the U.K. Britain's 1976 application for IMF aid under then Prime Minister Jim Callaghan left the Labour Party in tatters as it was forced to abandon spending pledges it had been voted into office on.
The period of economic turmoil, including a 16 percent slump in the pound against the dollar in 1976, was also pivotal in securing backing for the Conservative Party, leading to the election of Margaret Thatcher in 1979.
Moody's Investors Service had rated Iceland's government bonds Aa1 until Oct. 8 this year. The rating company now ranks the island's state debt A1. Moody's also cut its foreign currency bond rating to Aa1 from Aaa on Oct. 8.
U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record as home prices fell and stricter mortgage standards made it harder for homeowners to sell or refinance, RealtyTrac said.
A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most since records began in January 2005, the Irvine, California-based seller of default data said in a statement today. Filings rose 3 percent from the second quarter and fell 12 percent in September from August as state laws created to keep people in homes slowed the pace of defaults.
“I wouldn't be surprised to see foreclosures increase as the economy slows down,'' Rick Sharga, executive vice president for marketing at RealtyTrac, said in an interview. “The people living paycheck to paycheck are at risk if they lose their jobs. It will cause more people to lose their homes.''
The worst U.S. housing slump since the 1930s is being compounded by a recession that began in the third quarter and may last a year or more, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association. Home prices in 20 U.S. metropolitan areas fell in July at the fastest pace on record, and sales of previously owned homes in August were 32 percent below the peak reached in September 2005.
Government Rescue
The government may buy home loans and related securities to help property owners struggling with monthly payments, even as “people are walking away from their mortgages,'' Treasury Secretary Henry Paulson said in an interview with PBS television's Charlie Rose on Oct. 21. Congress passed a $700 billion financial-rescue fund that may be used to modify loans and inject capital to banks and unfreeze credit markets.
A new law in California, which accounted for 27 percent of the foreclosure filings in the third quarter, helped slow the process in September as notices of default dropped 51 percent compared with the previous month, RealtyTrac said. In North Carolina, default notices fell 66 percent last month after lawmakers required lenders to give homeowners an additional 45- day notice.
In Massachusetts, filings rose 465 percent in September from August after a law was passed requiring a 90-day notice before foreclosures could proceed, RealtyTrac said.
After a summer lull, defaults “jumped back up close to the level we were seeing earlier in the year,'' James Saccacio, chief executive officer of RealtyTrac, said in the statement advance america cash advance.
Spillover Effect
Homeowners may be buffeted by a deepening recession as consumer spending contracts and job losses mount, especially in states such as Michigan and Ohio where manufacturing has declined, said Brinkmann of the mortgage bankers group.
“The length of the recession will depend on how this bleeds over to employment,'' he said. The housing bust is the main reason more than 98,000 jobs in Florida and 77,700 in California were lost in the year through August, Brinkmann said.
Six states accounted for more than 60 percent of defaults in the third quarter, led by California with 210,845 foreclosure filings, more than double the amount from a year earlier, according to RealtyTrac. Florida more than doubled its total to 127,306 from the same period a year ago and Arizona almost tripled to 40,419. Ohio, Michigan and Nevada reported third- quarter filings of more than 30,000 each.
New York had 14,477 filings, up 19 percent from a year earlier, and New Jersey had 17,893 filings, up 95 percent.
California Leads
California had six of the 10 metropolitan areas with the highest foreclosure rates in the quarter, led by Stockton, where 3.69 of the housing units received a default filing in the quarter. Riverside-San Bernardino ranked third, Bakersfield was fourth, Sacramento was seventh and Fresno and Oakland ranked ninth and 10th, respectively, RealtyTrac said.
Las Vegas had the second-highest metro foreclosure rate with 3.48 of its housing units receiving a filing in the third quarter, more than double the amount from a year earlier. Fort Lauderdale and Orlando in Florida ranked fifth and eighth, respectively, said RealtyTrac, which has a database of more than 1.5 million properties.
Nationwide in September, one in every 475 U.S. housing units received a foreclosure filing.
The state of the U.S. economy is emerging as a key issue in the presidential race between Democrat Barack Obama of Illinois and Arizona Senator John McCain, a Republican.
Obama supports an economic stimulus plan to boost the economy, while McCain wants the government to purchase troubled mortgages.
France's investment in its six biggest banks brings to at least $128 billion the amount European governments are pouring into financial institutions as the U.S. prepares to carry out a similar plan to unlock lending.
France will purchase subordinated debt from banks including BNP Paribas SA and Societe Generale SA to help shore up capital, Finance Minister Christine Lagarde said at a press conference in Paris yesterday. In exchange, the banks will have to boost lending to companies and consumers, she said.
European governments have led the U.S. in efforts to recapitalize banks and thaw credit markets. Britain, France, Germany, Spain and the Netherlands are among countries that pledged more than 2 trillion euros ($2.65 trillion) to guarantee bank loans and take stakes in lenders. U.S. Treasury Secretary Henry Paulson, who at first rejected calls to invest directly in financial companies, plans to spend $250 billion buying equity in banks.
Leaders in Europe “were a lot earlier than in the U.S. to understand that banks needed more capital to help solve the liquidity side of the equation,'' said Jonathan Tyce, a London- based analyst at Fox-Pitt Kelton. “It is an evolution and the approaches are becoming more tailored to the banks' needs.''
BNP Paribas, Societe Generale and Credit Agricole SA rose in Paris trading after Lagarde announced her 10.5 billion-euro plan. BNP Paribas, France's biggest bank, advanced 7.7 percent to 59.12 euros by 12:33 p.m., while Societe Generale climbed 9.5 percent to 48.12 euros. Credit Agricole gained 12 percent to 11.69 euros.
Swedish banks, including SEB AB and Swedbank, also rallied after the government pledged as much as 1.5 trillion kronor ($205 billion) yesterday to guarantee loans and created a fund that may buy shares in banks.
Capital Outpaces Losses
European financial institutions have raised about $266.5 billion from investors and governments since the credit crisis began last year, more than the $228 billion of credit losses and writedowns they reported, data compiled by Bloomberg show. In the U.S., capital raisings still trail writedowns, the figures show.
In addition to France's three largest publicly traded banks, the government will invest in customer-owned Credit Mutuel, Caisse d'Epargne and Banque Populaire. The funds will boost the banks' shareholder equity and increase solvency ratios without being dilutive for shareholders, said France's central bank. The purchases are part of the 360 billion-euro state rescue package France announced last week.
“It's a balanced approach,'' said Gilles Moec, an economist at Bank of America Corp. in London. “The government wants to avoid a contraction in the French credit markets at all costs. The banks now have more than enough to protect themselves from the risks that have paralyzed them since the summer.''
Helping the Economy
Like governments in London and Berlin, French President Nicolas Sarkozy is attaching strings to the capital injection. U.K. Prime Minister Gordon Brown has demanded banks offer help to homeowners struggling to pay mortgages and accept government- appointed board members savings account payday advance. German Chancellor Angela Merkel insists on “state influence'' over management decisions.
“The goal of this operation isn't to recapitalize those banks that need it but to support financing for the economy,'' said Christian Noyer, European Central Bank governing council member and governor of the Bank of France.
Credit Agricole, which operates France's largest consumer- banking network, will sell 3 billion euros of subordinated debt, BNP Paribas 2.55 billion euros and Societe Generale 1.7 billion euros. Caisse d'Epargne and Banque Populaire will sell 1.1 billion euros and 950 million euros of debt respectively. Credit Mutuel will issue 1.2 billion euros of debt.
`Not a Gift'
“The state is not giving a gift to the banks,'' Lagarde said. “The pricing of these securities will be based on available market references. They will generate substantial revenue for the state.''
The French actions follow efforts across Europe. The Dutch government bought local units of Fortis and ABN Amro Holding NV for 16.8 billion euros. Zurich-based UBS AG agreed to sell a stake of 6 billion Swiss francs ($5.2 billion) to the government and split off as much as $60 billion of risky assets into a fund backed by the central bank.
The U.K.'s Royal Bank of Scotland Group Plc may sell as much as 20 billion pounds of stock to the government unless investors agree to buy shares. On Oct. 19, the Netherlands said ING Groep NV, the biggest Dutch financial-services firm, will get 10 billion euros after it warned of its first quarterly loss.
In the U.S., Paulson allocated an initial $125 billion to nine of the largest banks, including Citigroup Inc. and Morgan Stanley, and now plans to inject $125 billion into other lenders, using funds from a $700 billion bailout package to buy the non-voting preferred equity stakes.
French Growth Slowing
Lagarde said yesterday that French growth in 2009 will probably fall short of the government's 1 percent forecast as the financial and economic crisis limits any expansion. French statistics institute Insee estimates the euro region's second- largest economy slipped into a recession in the third quarter.
The growth in lending to the private sector slowed to 10.2 percent in August from a year earlier, compared with 12 percent just two months before, according to Bank of France statistics. In another central bank survey, more than half of the banks said they would tighten lending criteria in the third quarter.
The French government last week said it will set up two entities, one that will lend up to 320 billion euros to banks and another that will spend as much as 40 billion euros to take equity stakes in banks, if needed. The measures, designed to restore liquidity to financial markets, were part of a plan agreed by the 15 countries that use the euro.
Merger talks between ailing automakers General Motors Corp. and Chrysler LLC. are reportedly picking up amid increased interest from lenders eager to close a deal.
A report in the Wall Street Journal said banking giant JP Morgan Chase & Co. (JPM, Fortune 500) and Cerberus Capital Management, a private equity fund, are the "major players driving the deal."
JP Morgan is advising Chrysler in the talks while Cerberus would like a stake in a combined GM-Chrysler, the Journal said, citing people familiar with the situation.
But a deal is far from certain http://payday-loans-e.com. The report said certain members of GM’s (GM, Fortune 500) board gave the deal "a cool reception." And it is unclear whether the parties will agree to swapping Chrysler for GM’s 49% stake in GMAC LLC, according to the Journal.
Despite the uncertainty, some top-level executives remain "bullish" on the prospects of a merger, the report said.
French manufacturing confidence slumped in September to the lowest in 15 years as new orders dropped “markedly'' and the economy probably fell into a recession, the Bank of France said.
The Paris-based central bank said its index of manufacturing confidence fell to 87 from 94 in August, the lowest reading since the same month in 1993. Economists expected the index to fall to 92, according to the median of 4 forecasts in a Bloomberg News survey.
“Industrial activity recorded a significant decline in September,'' the French central bank said in its monthly business survey. “Activity is expected to continue to decline in the short term.''
Euro-zone nations will expand little next year as the global credit crunch saps corporate investment and consumer spending, the International Monetary Fund predicted this month cheap payday advance. European benchmark stock indexes tumbled 22 percent last week, the steepest slide in two decades as bank lending seized up leaving companies scrambling for cash.
Gross domestic product probably shrank 0.1 percent in the third quarter, the Bank of France said, revising last month's forecast for a 0.1 percent GDP increase in the period. The French economy contracted 0.3 percent in the second quarter.
In another sign that French growth is slowing inflation in September slowed more than economists expected to 3.3 percent, from 3.5 percent in August, a separate report showed today.
Retail sales rose 1.8 percent in September from August, when they dropped 1.4 percent, the Bank of France also said.
The world’s rich nations vowed on Friday to take all necessary steps to unfreeze credit markets and ensure banks can raise money but they offered no collective course of action to avert a deep global recession.
In a surprisingly brief statement following a 3-1/2 hour meeting, the Group of Seven stopped short of backing a British plan to guarantee lending between banks, something many on Wall Street saw as a vital step to end 14 months of turmoil and growing panic on financial markets.
“The G7 agrees today that the current situation calls for urgent and exceptional action,” the United States, Canada, Britain, France, Italy, Germany and Japan said.
After the meeting, U.S. Treasury Secretary Henry Paulson said Washington was developing plans to buy equity stakes in financial institutions as a way to repair balance sheets damaged by huge credit losses.
The finance leaders agreed to use all available tools to support “systemically important” financial institutions and prevent their failure, and ensure banks can raise capital “in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.”
Analysts said the statement was unlikely to allay the sense of panic that has swept through global markets in recent weeks after Lehman Brothers tumbled into bankruptcy and triggered a wave of risk aversion that left banks hoarding cash.
The Dow Jones industrial average on Friday took a 1,000-point roller-coaster ride before ending down 1.5 percent at 8,451.19 as investors tried to pin down what might come out of the G7 gathering and other meetings of world finance officials in Washington this weekend.
“The markets wanted maybe more assurance that there would be a unified global backstopping of the banks, and it doesn’t sound like that’s in there,” Kim Rupert, managing director of global fixed income analysis at Action Economics, said of the statement from the seven economic powerhouses.
Swiss unemployment rose for the first time in five years in September as a worsening global credit squeeze weighed on economic growth.
The seasonally adjusted jobless rate climbed to 2.6 percent from 2.5 percent in August, the State Secretariat for Economic Affairs in Bern said. That's the first gain since September 2003. Economists expected the jobless rate to remain unchanged, the median of 10 forecasts in a Bloomberg survey shows.
Swiss companies are seeking ways to cut costs after the credit crisis pushed up lending costs, prompting global central banks to cut interest rates to shore up growth. Swiss leading indicators fell in September and manufacturing shrank for the first time in three years. The International Monetary Fund said on Oct. 7 the global economy is headed for a recession in 2009.
“We're feeling the full impact of the global turmoil,'' said David Marmet, an economist at Zuercher Kantonalbank in Zurich. “It's a crisis of trust given current uncertainties. Companies will curb investment and thus economic growth.''
The Swiss National Bank on Oct. 8 cut its key rate by 25 basis points to 2.5 percent in a coordinated effort with the world's largest central banks to bolster growth. The Zurich- based central bank said the “recent intensification of the financial crisis'' has augmented “downside risks to growth.''
Lending Squeeze
Commercial banks are refusing to lend to each other after the U.S. housing slump caused the collapse of New York-based Lehman Brothers Holdings Inc instant cash advance no fax. and forced governments across Europe to bail out banks. SNB President Jean-Pierre Roth said on Oct. 8 that “further measures are always possible.''
The Swiss government said earlier this month that it still expects the economy to expand 1.9 percent this year and 1.3 percent in 2009. The Zurich-based KOF economic research institute said Sept. 28 the economy will probably contract in the six months through March, adding to the number of jobless.
Swiss companies are already growing more pessimistic. The share of manufacturers forecasting a gain in orders in the current quarter fell to 25 percent from 33 percent in the previous three months, a survey conducted by UBS AG showed yesterday. Thirty-five percent of companies expect a drop in earnings, up from 32 percent in the third quarter.
Tornos SA, Europe's biggest maker of lathes for the watch industry based in Moutier, is cutting working hours to reduce capacity as demand from the auto industry wanes. Zurich-based UBS, the European bank worst hit by the credit crisis, plans to cut its workforce from 25,000 to about 17,000 by year-end.
The unadjusted jobless rate held at 2.4 percent in September, today's report showed. The number of people looking for jobs rose 2,388 last month to 145,937. Companies had 14,132 open jobs in September, up 369 from the previous month.
A Japanese Finance Ministry official downplayed the need for Group of Seven nations to take joint action on currencies or interest rates to stem the deepening global financial crisis.
Finance ministers and central bankers won't necessarily coordinate action just because they are meeting this week, the official told reporters today on the condition of anonymity. Joint action on currencies and rates should depend on market and economic conditions of each country, the official said.
Officials from the G-7 nations meet on Oct. 10 in Washington amid mounting speculation policy makers may agree on joint action to stabilize world financial markets. Federal Reserve Chairman Ben S. Bernanke yesterday signaled policy makers are ready to lower interest rates as the credit freeze worsens the outlook for U.S. economic growth.
European Central Bank President Jean-Claude Trichet last week said his board discussed cutting interest rates, while Bank of Japan Governor Masaaki Shirakawa said yesterday policy action should depend on each nation's situation.
The dollar has weakened more than 10 percent against the yen this year as investors bet the Fed will resume cutting rates. The euro has dropped about 17 percent against the yen this year as deteriorating credit markets prompted European governments to pledge bailouts for troubled banks (pay day loans).
Currencies
The official wasn't sure if currencies will come up in discussions at the G-7 meeting, adding that nations will focus on recent turmoil in global financial markets.
The recent movements in the stock markets are very volatile and nations at the meeting will discuss what they can do about the global rout, the official said, adding that tension in global markets is rising and that the turmoil is hurting the world economy.
U.S. stocks fell yesterday, sending the Standard & Poor's 500 Index below 1,000 for the first time since 2003. Japan's Nikkei 225 Stock Average fell 9.4 percent today, the third- biggest drop on record.
The effect of the global financial crisis on Japanese banks has been very limited, the official added. Whether to use taxpayer money to boost banks' capital is up to each nation, the person said.
The G-7 includes Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
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