Weekly Global News - Dec 27 2008

US GDP contracts 0.5%

The gross domestic product (GDP) fell by the annual rate of 0.5% in the summer, according to the final revision from the Bureau of Economic Analysis. The report compares the three month period that ended Sept. 30 to the preceding quarter. The measure was unchanged from the government's prior revision for the third quarter, and it matched economists' expectations. The 0.5% decline marks the biggest drop since the first quarter of 2001. A 3.8% slump in personal consumption during the third quarter helped drag down the overall GDP, according to government figures. GDP rose by an annual rate of 2.8% in the second quarter, according to Commerce Department. Growth at that time was spurred by economic stimulus payouts and strong exports. For the current quarter, economists are predicting a sharp decline of around 6%. This would be the biggest drop since the early 1980s.

UK third-quarter GDP revised down

The UK economy shrank the most since 1990 in the third quarter and mortgage lending dropped to the lowest in 14 years as tightening credit exacerbated the slide into recession. Gross domestic product (GDP) contracted 0.6% from the second quarter, the Office for National Statistics said. The drop was bigger than the previous estimate of 0.5%, which economists had expected would be confirmed. From a year ago, the economy grew 0.3%, the same pace as estimated a month ago. Last year’s growth of 3% for the whole of 2007 was the strongest since 2000. The Centre for Economics and Business Research (CEBR) predicted that the economy will shrink by 2.9% in 2009 - more than at any time since the 1940s. It expects consumer spending to decline and investment in business to slump.

Japan's industrial output shrinks sharply

Industrial production in Japan shrank in November at a record pace, as companies slashed output and cut jobs to ward off the threat from the worst financial crisis in several decades. Separately, core consumer prices fell faster than forecast, putting the Japanese economy on course for another spell of deflation. The grim data could push the Bank of Japan (BOJ) to implement unconventional monetary easing measures as it has little room left to cut interest rates after reducing them to 0.1% to 0.3% last week. Factory output plunged 8.1% in November from October, the Trade Ministry said. This was the largest fall on record and exceeded a median forecast for a 6.8% drop. Industrial output is expected to fall a further 8% in December and 2.1% in January, data from the Ministry of Economy, Trade and Industry showed.

Annual core consumer inflation slowed sharply to 1% in November from 1.9% in October, largely due to the drop in oil prices, and a little bit below a median market forecast of 1.1%. Excluding food and energy, prices were flat, after having finally started to rise in June this year. Other data showed that the jobs-to-applicants ratio for November fell to 0.76, matching a low hit in February 2004, from 0.80 in October. The reading, which fell short of a median market forecast of 0.77, means 76 jobs were available per 100 applicants. The number of new job offers fell 23.7% in November from a year earlier after an 18.1% drop in October. Japanese wage earners' total cash earnings fell 1.9% in November from a year earlier, the first drop in nearly a year.



Ireland injects €5.5bn in three top banks

The Irish government will invest €5.5bn (£5.12bn) in the country's three main lenders, taking majority control of Anglo Irish Bank after a loan scandal there rocked an already beleaguered industry. Dublin will invest €2bn each in market leaders Bank of Ireland and Allied Irish Banks via preference shares giving 25% voting rights over what the government described as key issues. Pressure on the Irish government intensified after Anglo Irish revealed its chairman had kept shareholders in the dark about €87mn (£80mn) worth of loans he had received from the lender. Its shares slumped to a record low of 19 euro cents and the financial regulator launched a probe into directors' loans at all major Irish banks.

Canada offers loans to carmakers

The federal and Ontario governments pledged US$4bn in emergency loans to support the Canadian subsidiaries of US automakers Chrysler and General Motors (GM). The aid package, announced by Prime Minister Stephen Harper and Premier Dalton McGuinty in Toronto, came a day after the White House unveiled a US$17.4bn plan to shore up the US auto sector. Harper said Canadian auto parts suppliers will also get improved insurance while vehicle buyers will get more access to credit. The financial help for Canada's troubled auto sector amounts to 20% of the US aid package.

Big Three's debt ratings cut

General Motors (GM) and Ford had their debt cut further below investment status by Standard & Poor’s (S&P) and Moody’s. GM’s unsecured debt was trimmed one level to C, or 11 grades below investment quality, by S&P. Moody’s lowered its rating on US$26bn in Ford debt by two grades to Caa3, or nine below investment quality. The moves reflect unease over effects on debt holders of the $13.4bn emergency US aid plan for GM and Chrysler, which comes with conditions including labor-cost cuts. S&P said unsecured lenders can expect negligible recovery should GM default, and Moody’s said Ford will need to restructure debt to win union concessions similar to those at GM and Chrysler. The risk of bankruptcy remains high for US automakers, S&P said. The global credit rating agency also cut its corporate credit rating on Chrysler. S&P cut the rating by three notches to "CC," a speculative grade that is just two notches above "D", or default.


The People's Bank of China cut its benchmark lending rates and deposit rates by 27 basis points (bps). The Chinese central bank also cut banks' reserve ratios by 50 bps effective Dec. 25 and reduced refinancing interest rates as well. It said that the moves were part of a moderately loose monetary policy to bolster economic growth amid fears of a prolonged global recession. The cost of one-year bank loans will fall to 5.31% from 5.58%, while the benchmark one-year deposit rate falls to 2.25% from 2.52%, the People's Bank of China (PBOC) said. This was the fifth rate cut move by the Chinese central bank since mid-September. The five biggest banks in China will have to hold 15.5% of their deposits in reserve at the PBOC, down from 16%. The requirement for other lenders drops to 13.5% from 14%. The PBOC last cut required reserves on Nov. 26.