Leaders head for summit as EU zone in recession
London, November 14, 2008
World leaders headed to Washington on Friday to try to find ways to tackle a global economic crisis that has plunged much of Europe into its first recession since the euro currency was formed.
The worst financial crisis in 80 years has weakened the world's major economies and official data showed the 15-nation euro zone economy had shrunk by 0.2 percent for the second quarter in a row.
'We think that the situation is likely to get worse before it gets better,' said Nick Kounis, an analyst at Fortis Bank.
'We will probably see further falls in output in the first few months of next year, before a gradual improvement later in the year, but we think that there will be no real recovery before 2010.'
Analysts said they expected the European Central Bank to cut interest rates further to try to spur economic growth.
With Europe, as well as parts of Asia and North America, suffering, leaders of the G20 developed and emerging countries travel to Washington to try to find ways to ensure the crisis, started by a U.S. housing market crash, is not repeated.
But agreement among the G20, which represents 85 percent of the world's economy and two-thirds of its population, is unlikely over whether more regulation of markets can protect consumers, savers and companies from the fall-out.
Washington says there should be no return to greater state control of financial markets. Much of Europe says without more regulation, a repeat of the last year's turmoil is inevitable.
British Prime Minister Gordon Brown called for more coordinated measures to spur economic growth, a policy area where there may be more consensus.
'By acting now we can stimulate growth in all our economies. The cost of inaction will be far greater than the cost of any action,' he told reporters in New York on Thursday.
European Commission president Jose Manual Barroso said he hoped to draw more emerging economies into global financial institutions such as the International Monetary Fund, saying Europeans were ready to lower their representation to make more room for countries such as China.
'There is an openness to accommodate an increased role of the emerging economies,' the International Herald Tribune quoted Barroso as saying.
Some in the West say they hope that countries with large reserves, notably in the Gulf, will help fund the IMF, which has offered loans to economies laboring under heavy debts.
Pakistan, where its reserves are barely enough to cover nine weeks of imports, said it expected the IMF and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million to avert a balance of payments crisis.
Before the euro zone reported it was in a recession, Germany, Europe's largest economy, Spain and Italy all said their economies shrank in the third quarter.
France escaped the clutches of recession, reporting growth of 0.1 percent in the third quarter but analysts said it was a semantic debate.
'Whether we're in recession or not is only a technical debate,' said Jean-Louis Mourier, economist at Aurel Leven.
'Both the surveys and indicators we've seen leave no doubt that in spite of this slight rebound the economy is on quite a bad trajectory.'
Spanish third quarter gross domestic product fell 0.2 percent quarter-on-quarter, its first contraction in 15 years. Italy's economy contracted by 0.5 percent in the third quarter.
Emerging economies have also been hit. China, which has enjoyed a booming economy, reported capital spending on Friday that was slightly lower than expected, the latest in a series of indicators pointing to slowdown for the world's fourth-largest economy.
Asia stocks bounce back
Stock markets bounced after days of falls. Stocks in Asia were broadly higher after U.S. shares g