| | |  Business News | January 2009 
Factories Slash Output and Jobs Around the World
 Jason Subler & Claudia Parsons
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| | Workers wearing T-shirts with company slogans at the Shenzhen High-Tech Industrial Park in the southern Chinese city of Shenzhen in Guangdong province, November 25, 2008. (Reuters/Bobby Yip) | |
Beijing/New York - Factories in China, India and Eastern Europe joined the United States and other developed countries in slashing output and jobs in December, another sign recession is spreading to emerging markets.
U.S. factory activity fell to a 28-year low in December, according to a report on Friday from the Institute for Supply Management showing a more severe contraction than expected.
The ISM index of U.S. national factory activity fell to the lowest since 1980 amid mounting evidence that demand is collapsing in the Western countries that developing nations rely on as export markets.
Economists and policy-makers had seen China, Russia, India and Brazil, with their vast markets and rising wealth, as the engines of growth that could save the world from recession. Those hopes are fading fast and forecasts are getting gloomier.
From job losses at Chinese factories to the biggest drop in South Korean house prices in five years, there were signs the export slowdown was rippling through emerging markets.
"What is worrying is that the weakness has spread rapidly from the externally-oriented sectors to domestically-oriented sectors too," analysts at OCBC Bank in Singapore said in a note after the country announced gross domestic product data.
In contrast to the rapidly darkening economic outlook, the mood in markets has brightened slightly. Having squirreled cash into safe havens for much of the past quarter, investors are eyeing assets pummeled in the financial turmoil of 2008.
STOCKS RISE
Global stocks as measured by the MSCI world index were up 1.7 percent and U.S. indexes were up more than 1 percent by mid-morning. U.S. Treasuries prices eased, in a sign investors' appetite for risk was growing after a year in which $14 trillion was wiped off world stock markets.
"It feels like we've passed through the eye of the storm," Robert Rennie, chief currency strategist at Westpac in Sydney, said of the financial crisis. "That's not to say there isn't another storm on the horizon, but for the moment the intense pessimism of October and November seems to have eased."
World governments have pumped more than $1 trillion into their economies to stem the financial crisis and spur growth, and investors are eagerly awaiting more details of U.S. President-elect Barack Obama's infrastructure stimulus plan.
Obama plans to meet congressional leaders on Monday to discuss their legislative agendas, including how to jump-start the U.S. economy, according to a Democratic congressional aide. Obama officials have been discussing an economic stimulus bill in the range of $675 billion to $775 billion.
Oil kicked off the new year feebly, with prices still weighed down by expectations of reduced demand with world economies hobbled by recession.
FROM CHINA TO THE EURO ZONE
China's manufacturing activity fell for a fifth month, the Purchasing Managers' Index showed.
"With five back-to-back PMIs signaling contraction, the manufacturing sector, which accounts for 43 percent of the Chinese economy, is close to technical recession," said Eric Fishwick, head of economic research at CLSA, which publishes the index.
For Chinese policy-makers worried about social stability, the most alarming news may be the employment sub-index, which showed factories shedding jobs at the fastest pace on record.
Russia's PMI showed a contraction in manufacturing deeper than the slump during its 1998 financial crisis. The Czech Republic and Poland also reported sharp falls in manufacturing indices on Friday.
In India, factories cut jobs to reduce costs for the first time in the survey's 3-1/2 year history. The central bank slashed its two key short-term interest rates by 100 basis points to try to stimulate the economy.
Manufacturing activity in the euro zone sank to a record survey low in December, and the outlook remains grim as new orders sank.
"It casts an even darker shadow over the state of the euro zone economy," said Bank of America economist Gilles Moec.
"We think it is consistent with a major contraction in GDP both in the fourth quarter of 2008 and the first quarter of 2009 - probably something like a contraction of a full percentage point in both quarters."
Britain's manufacturing sector also contracted for an eighth month. More signs of gloom came from another steep fall in UK house prices in December and a record low in mortgage approvals for house purchases in November.
Smaller Asian exporters are bracing for a double blow from the collapse in Western demand and from regional customers.
South Korea, which ships a fifth of its exports to China, said export growth this year would be about 1 percent, the weakest since 2001.
Singapore's government cut its 2009 economic forecast to a range between a decline of 2 percent and growth of 1 percent. Citigroup said that was still too optimistic.
(Reporting by Reuters bureaus worldwide; Writing by Dayan Candappa, Matthew Tostevin and Claudia Parsons; Editing by Dan Grebler) |
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