Europe in recession, US in pain as world leaders meet

Updated: 2008-11-15

(China Daily) NEW YORK -- Europe officially fell into recession on Friday and the US economy suffered thousands more layoffs and the biggest retail sales dip on record as world leaders headed to Washington to address the worst financial crisis in 80 years.

US President George W. Bush (standing, C) addresses leaders gathered in the State Dining Room before the G20 Summit on Financial Markets and the World Economy in Washington November 14, 2008. [Agencies]

Leaders of the world's 20 most important economies are not expected to make any breakthroughs at the meeting in the US capital, given the absence of US President-elect Barack Obama, whose involvement will be key to any global initiatives.

The financial crisis continues to wreak havoc on the world's major economies, with official data showing the 15-nation euro zone economy had shrunk by 0.2 percent for the second quarter in a row, meaning it technically is in recession.

The United States is probably already in recession, most economists agree, but official data showing that will not come out until January.

"Frankly, we at Dow are looking at an '09 that looks like a pretty protracted global recession, probably going into 2010," said Andrew Liveris, the chief executive of Dow Chemical Co, the largest US chemical maker.

Signs for the US economy worsened on Friday. Retail sales fell a record 2.8 percent in October, according to government data, the biggest decline since comparable numbers were first collected in 1992.

Citigroup Inc, one of the hardest-hit financial companies, will soon announce job cuts of up to 10 percent of its staff, according to a source familiar with the matter. That could affect more than 30,000 employees.

Sun Microsystems Inc said it would slash up to 6,000 jobs, or 18 percent of its workforce, as it looks to save money while demand wanes for its high-end business computers.

Fidelity Investments, the world's biggest mutual fund company, told employees it will cut a further 1,700 jobs on top of 1,300 already announced.

Freddie Mac, the second-largest provider of US home loan financing, reported a $25 billion quarterly loss as the housing slump worsened, forcing it to draw on a $100 billion Treasury Department lifeline.

Meanwhile, approval of a bailout for the big US automakers was in doubt, increasing the possibility of a wave of mass layoffs at General Motors Corp, Ford Motor Co and Chrysler LLC.

The US Senate plans on Monday to take up a bill that would provide emergency aid to automakers, but it remained unclear if there was enough support for it to pass.

The only glimmer of optimism was that US consumer optimism rose slightly, helped by lower gasoline prices.

Confidence might be raised further by moves to reduce skyrocketing home foreclosures by modifying borrowers' loans, but a proposal along those lines by the Federal Deposit Insurance Corp met opposition from the US Treasury and the White House.

More help is on the way for ailing banks. Friday is the deadline for public banks to apply for funds under the capital injection program that is part of the $700 billion bailout plan passed by the US Congress last month. The Treasury expects to approve another 20 banks to receive federal funds, Treasury Interim Assistant Secretary Neel Kashkari told a US House of Representatives committee.

US stocks closed lower, the Dow losing nearly 4 percent after flirting briefly with positive territory following Thursday's strong gains and a winning session in European and Asian stock markets. Oil fell below $57 a barrel.

US Federal Reserve Chairman Ben Bernanke said central banks worldwide were ready to do more to support faltering growth and European Central Bank policymakers signaled further interest-rate cuts were likely.

"Policymakers will remain in close contact, monitor developments closely, and stand ready to take additional steps should conditions warrant," Bernanke said at an ECB conference in Frankfurt.

With Europe as well as parts of Asia and North America suffering, leaders of the G20 developed and emerging countries traveled to Washington to try to find ways to solve the crisis, started by a US housing market crash, and avoid another one.

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 fallout.

The administration of President George W. Bush says there should be no return to greater state control of financial markets. Much of Europe says that without more regulation, a repeat of the last year's turmoil is inevitable.