EU turns toward recession amid global financial crisis Agence France-Presse

Published: Monday November 3, 2008





Print This Email This WASHINGTON (AFP)  New data Monday showed the global financial crisis is pushing the European Union into recession, as South Korea unveiled a stimulus package and automakers reported a terrifying plunge in US vehicle sales.



The European Commission forecast a short but shallow recession for the 27-nation EU, predicting its combined economy would shrink 0.1 percent in both the third and fourth quarters of 2008.



"The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis that deepened during the autumn and is taking a toll on business and consumer confidence," said EU Economic Affairs Commissioner Joaquin Almunia.



The forecast by the EU's executive arm also said the economy of the 15 nations that use the euro shrank 0.2 in the second quarter and was set to contract by 0.1 percent in both the third and fourth quarters.



If confirmed, it would be the first time that the eurozone had slumped into recession -- broadly defined as two consecutive quarters of economic contraction -- since the single currency was introduced in 1999.



In the face of sharply slowing growth, the commission forecast unemployment would return as a major headache after a steady decline in recent years.



It predicted that the unemployment rate in the eurozone would creep up from a low of 7.2 percent in March to 8.7 percent in 2010.



The impact of the slowdown was highlighted by a year-on-year 7.3 percent fall in new car sales in France, according to official figures for October.



The motoring sector employs, directly or indirectly, 10 percent of the French workforce, and companies have ordered massive production cuts, with several plants temporarily shuttered.



Automakers were also at the forefront of stoppages in Germany where more than 45,000 metal and electronics workers staged warning strikes, escalating a pay dispute with firms already reeling from the global economic slowdown.



In the United States, General Motors its October US sales tumbled 45 percent from a year ago, saying the industry was on track for its worst month in 25 years.



Mark LaNeve, vice president at GM North America, said the slump "reflects an unprecedented credit crunch that is dramatically impacting the entire US economy -- from the housing market to big and small companies to banks to family-run businesses."



Ford Motor Co. reported US sales plunged 30.2 percent from a year ago as American consumers remain cautious in the face of a credit squeeze and likely recession. Japan's Toyota Motor Co. on Monday reported US sales slid 25.9 percent.



Despite the grim news, Europe's main stock markets rose.



London's FTSE 100 closed up 1.51 percent while in Paris, the CAC 40 index gained 1.17 percent. Frankfurt's DAX rose 0.62 percent.



Zach Witton at Economy.com said European bourses closed at their highest levels since mid-October.



"Financial stocks gained ground as investor speculation increased that both the Bank of England and European Central Bank will ease monetary policy on Thursday, and short-term money market rates remained on a downward trend," he said.



The European markets tracked similar gains in Asia, where Hong Kong's Hang Seng index closed 2.7 percent higher and Australian shares rose 5.06 percent by close. Tokyo was closed for a public holiday.



US stocks drifted in and out of positive territory in early trading, with investors cautious on the eve of the country's presidential election.



The Dow Jones Industrial Average was virtually flat, losing 0.06 percent, while the Nasdaq gained a modest 0.31 percent and the broad Standard & Poor's 500 index shed 0.25 percent.



Despite the rises on the stock markets, fears of recession loomed large, with South Korea unveiling a stimulus package to cushion the blow of the financial crisis.



The government in Seoul, saying it expected a significant slowdown in exports, promised an extra 11 trillion won (8.5 billion dollars) in spending next year as well as tax cuts of three trillion won to lift domestic demand.



British Prime Minister Gordon Brown said US leadership was central to restoring stability to the world economy, adding that "even more international cooperation" will be needed to counter financial turbulence in coming months.



The International Monetary Fund said it has tentatively agreed a loan of "at least" 60 million dollars to help Kyrgyzstan endure the global financial crisis.



Norway said it is ready to give Iceland a long-term loan of 500 million euros (635 million dollars) to help it pull itself out of financial crisis.



Meanwhile Standard & Poor's said global stock markets suffered their worst month in history in October, losing a whopping 5.79 trillion dollars.



S&P said the loss for the 52 main global equity markets measured in dollar terms topped the record loss of 4.0 trillion dollars set a month earlier.



