Recession Prompts Stimulus

By Reuters - Print this article Print

In Europe, the European Commission confirmed that the 15-nation euro zone was in a technical recession and economic growth would come to a virtual standstill next year, and called for coordinated action to prevent further collapse.


While trillions of dollars in bailouts may have averted a banking collapse, the economic outlook is grim, prompting governments to put together fiscal stimulus packages to ease a recession born of the worst financial crisis in 80 years.

"The horizon that this forecast offers is dark ... recession is a real risk," EU Monetary Affairs Commissioner Joaquin Almunia said after the European Commission forecast euro zone growth of just 0.1 percent next year.

A technical recession is defined as two successive quarters of contraction.

Official data supported Almunia's prognosis.

Euro zone manufacturing activity sank in October to a record low. The Markit Eurozone Purchasing Managers Index slumped to 41.1 -- the lowest in the survey's 11-year history.

Berlin aims to safeguard 1 million jobs with pump-priming measures to be agreed in cabinet on Wednesday, by spending more than 30 billion euros.

South Korea announced plans to pump an extra $11 billion into its economy next year. Finance Minister Kang Man-soo said economic growth could fall to its lowest in more than a decade without the stimulus, which will need approval by parliament.

Policymakers will gather again to plot their next moves.

Euro zone finance ministers meet in Brussels to discuss reform of institutions that manage the global financial market and bodies such as credit rating agencies, accounting rules-setters, banks and their management.

And finance chiefs from the "Group of 20" nations gather in Brazil later this week to prepare for a U.S.-hosted November 15 summit of world leaders to chart a way out of the crisis.


Central banks will also put their shoulders to the wheel.

Following rate cuts from the Fed, China and Japan last week, the European Central Bank, Britain and Australia are expected to cut interest rates by at least 50 basis points this week.

The efforts to buoy the world economy encouraged some investors to shop for bargains after world stock markets fell 20 percent in October, their worst month ever.

The MSCI index of stocks in the Asia-Pacific region outside Japan rose 5.9 percent, European shares were flat and U.S. stocks were slightly higher in afternoon trade.

(Editing by Elizabeth Piper and Steve Orlofsky)

This article was originally published on 2008-11-03
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