Failing lights at GM cast shadows across Europe

March 6, 2009
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, LONDON, March  6 – Grim prospects for General Motors and for US jobs, a worsening outlook for leading economies and gloom over the scale of a Chinese stimulus programme, soured financial markets on Friday.

Alarm over the fate of GM, with financial experts now questioning whether it can survive, and over its European subsidiary Opel, was given a new edge with reports that the US Treasury now holds Opel patents in return for state aid.

The Bild-Zeitung newspaper and Dow Jones newswires reported in Germany that the Treasury now held the patents, as German officials study ways of helping Opel which is also a matter of deep concern for European Union officials in Brussels.

Opel employs 26,000 people in Germany and 50,000 across Europe, and a trade union official has suggested that a total of 400,000 European jobs depend on the company.

Conservative German Interior Minister Wolfgang Schaeuble told the business newspaper Handelsblatt: "In a case like that of Opel, one must also seriously consider resorting to declaring bankruptcy."

US employment data was expected to show that the economy shed 650,000 jobs last month on top of a loss of 598,000 in January which was the highest figure since 1974.

This was expected to push the US unemployment rate up to 7.9 percent from a 16-year high point of 7.6 percent in January.

"The current recession, which initially affected the housing and financial sectors, has now disappointingly spread across a broad swath of the economy," Mike Fitzpatrick at MF Global said.

The vice of downturn or recession is tightening on leading economies around the world and there is little sign of the crisis stabilising soon, the Organisation for Economic Cooperation and Development said in Paris.

Leading indicators for January "continue to point to a weakening outlook for all the major seven economies," the OECD said.

And the data for all 30 OECD countries fell again "to a new low and little clear indication of stabilisation soon," the OECD said, giving particularly big figures for worsening prospects in Russia.

Brazil joining China, India and Russia in a group of countries with sharply slowing leading signals.

Prospects for the US economy fell by 1.4 points on the index in January and showed a 12-month drop of 10.8 points.

The index for the eurozone fell by 0.6 points in the month and 8.4 points over 12 months, and for Japan by 1.5 points and 9.6 points.

Outside the OECD area, the index for China fell by 2.1 points in the month and 14.8 points over 12 months.

Leading European stock markets were moderately mixed after a sharp fall in Asia after a new 12-year low point on Wall Street.

Japanese shares fell 3.50 percent to a four-month low after New York had plunged overnight, and on disappointment about the scale of a huge Chinese plan to boost social spending and at a lack of detail on Chinese total stimulus intentions.

"The UK and European markets seem barely able to get off the floor this morning ahead of what will be a critical day for global sentiment," MF Global analyst Manus Cranny said here.

Equities were also hit by news that Iceland entered an official recession in the fourth quarter of 2008 as its financial sector was devastated by the world credit crisis.

In Hungary, the forint fell to a record low point of 316 to the euro at the end of a week in whuch much concern has been expressed about the varying conditions of economies in eastern and central Europe.

In Bucharest, analysts commented that a push by Romania to seek a loan from the International Monteray Fund was intended to reasure investors.

"While the view of Romania on international capital markets is very bad, an agreement with the IMF would be a form of guarantee for foreign investors," Ionut Balan, an independent economic analyst, said.

The Polish central bank was quoted by the Polish news agency PAP as saying it might cut its interest rates.

"New reductions are highly likely," central bank governor Slawomir Skrzypek said. "It\’s economic growth which is a problem."

There was favourable press comment in Britain to a decision by the Bank of England on Thursday to cut its base interest rate to 0.50 percent accompanied with the injection of specially created money into the economy. "The UK central bank is acting in proportion to the severity of the crisis, the Financial Times said.

But the British cut, and a similar half-point cut by the European Central Bank to 1.50 percent made little evident impression on market sentimentl although the euro firmed.

The euro rose to 1.2684 dollars from 1.2538 late Thursday in New York.
On the oil market, the New York contract gained 80 cents to reach 44.41 dollars a barrel.

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