Connect with us

Hi, what are you looking for?


Global economy sinking into severe recession

TOKYO, December 19 – A major banking group warned the global economy will sink into "severe" recession next year as Japan\’s battle to stave off a prolonged contraction was on Friday hit by predictions of zero growth into 2010.

The Japanese cabinet approved the country\’s first zero growth forecast in real terms in seven years, which came as the central bank continued a two-day meeting to consider slashing interest rates to rock-bottom.

With the world\’s second largest economy battered by slumps in domestic demand and exports, the Washington-based Institute of International Finance (IIF) said the global economy would shrink 0.4 percent in 2009, after 2.0 percent growth this year.

Charles Dallara, managing director of the IIF — which represents more than 375 of the world\’s major banks and financial institutions — called it "the most severe, globally synchronised recession in modern economic history".

The global crisis requires a global coordinated response, he said at a news conference.

Dallara said the economy was mired in a negative feedback loop of weakening economic activity and intense financial market strains.

"You\’ll see much more bang for the buck" with a coordinated response, he said, adding: "It will be important that these measures be complemented in Europe and in Japan."

In a grim assessment, the IIF said in its monthly Global Economic Monitor report: "It should be emphasised that an overall contraction in the global economy is a truly weak outcome, and the first time this has happened in the post-1960 period."

Mature economies — including the US, Britain the 15-nation eurozone and Japan — that are now in recession were forecast to contract a hefty 1.4 percent amid the worst financial crisis since the Great Depression.

Advertisement. Scroll to continue reading.

The US economy, the world\’s largest and the epicentre of the financial tsunami, would shrink 1.3 percent in 2009 after growth of 1.2 percent this year, according to the IIF projections.

The eurozone would contract by 1.5 percent from 0.9 percent growth, and Japan would shrink 1.2 percent after zero growth, the IIF said.

France, a part of the eurozone, said Friday it will sink recession next year for the first time since 1993 while it also faces a steep rise in unemployment.

Tokyo share prices were down 1.10 percent by noon Friday following the zero growth forecast, though trade remained cautious ahead of the Bank of Japan decision on interest rate cuts.

Japanese news reports said auto giant Toyota is likely to suffer its first-ever operating loss in the year to March 2009 due to a stronger yen and a global industry slump It would be Toyota\’s first operating loss since it began releasing earnings figures in 1941, the Nikkei business daily said.

The dollar bounced back from fresh 13-year lows against the yen, which retreated from earlier highs as investors debated whether rates will be cut from the already low 0.3 percent, dealers said.

By late morning, the dollar was at 89.48 yen, the same level as in New York late Thursday. It had fallen to as low as 87.16 Thursday.

The euro fell to 1.4228 dollars in Tokyo trade from 1.4268 in New York and to 127.30 yen from 127.70.

World crude prices held steady above 36 dollars on Friday, at their lowest levels in more than four years, as the OPEC oil cartel\’s announcement of a record 2.2 million barrels per day production cut failed to rally prices.

Advertisement. Scroll to continue reading.

Meanwhile the United Nations Thursday warned countries struggling with the falling value of their currencies to resist hiking interest rates to prevent devaluations.

"Rising interest rates and falling government expenditure will only reinvite speculation and worsen matters in the real economy," said the UN Conference on Trade and Development (UNCTAD) in a policy newsletter.

UNCTAD cited Brazil, Hungary, Iceland, Romania and Turkey as countries facing devaluations.

Click to comment

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...


NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...


NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...


NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...


NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...