BRUSSELS, February 13 – The European Union officially plunged into recession on Friday as the US Congress prepared to vote on a massive spending and tax cuts package aimed at reviving the US economy — the world\’s largest.
A 1.5-percent drop in gross domestic product (GDP) for the last quarter of 2008 in the EU as a whole was the region\’s second consecutive quarterly contraction — the most widely used definition of a recession.
The eurozone also contracted by 1.5 percent in the biggest drop since the creation of the European single currency, the EU data agency Eurostat said.
Howard Archer, chief European economist at London-based research group IHS Global Insight, said the eurozone figures were "horrific."
Capital Economics, a British consultancy, said the recession was "deepening at an alarming rate" and saw "few signs of light at the end of the tunnel."
Jorg Radeke, an economist at the Centre for Economics and Business Research in London, said: "Today\’s data wipes out any illusion that the eurozone is getting off lightly in this global downturn.
Adding to the gloom, the European Automobile Manufacturers Association (ACEA) reported that European new car sales slumped by 27 percent in January to the lowest level for 20 years.
As governments went into crisis mode, finance ministers from the Group of Seven leading economies gathered in Rome to discuss the downturn amid stern warnings against a rising tide of protectionism.
The G7 nations — Britain, Canada, France, Germany, Italy, Japan, and the United States — met as controversy raged over a "Buy American" clause in the US stimulus package and state loans for the French auto industry.
Ahead of the Rome talks, Japanese Finance Minister Shoichi Nakagawa lashed out against the US and the EU boosting domestic industry at the expense of their trade partners, calling the tendency an "absolute evil."
In the United States, Congress was set to vote on a highly contentious 789-billion-dollar (613-billion-euro) package that US President Barack Obama has billed as the only way of avoiding "catastrophe."
Global financial markets reacted negatively earlier this week to a separate plan for rescuing US banks proposed by US Treasury Secretary Timothy Geithner, which was seen as lacking in detail and clarity.
"When they finally pass our plan, I believe it will be a major step forward on our path to economic recovery," Obama said on Thursday ahead of the vote.
And US national intelligence director Dennis Blair said Thursday the crisis was now America\’s top security concern because of instability risks.
Warning that a prolonged downturn raised the worldwide risk of "regime-threatening instability," Blair said that social unrest in Europe has already highlighted the security risks triggered by the spreading malaise.
There was more gloomy corporate news too, as Europe\’s biggest airline Air France-KLM reported a 194 million euro (250 million dollar) operating loss for the third quarter of 2008 and announced up to 1,200 jobs would be axed.
On the markets, the dollar fell against the euro and oil prices rose but struggled to hit 35 dollars a barrel as the OPEC oil cartel forecast a drop in demand in 2009 because of "economic depression" in industrialised countries.
Referring to the dollar\’s decline, John Kyriakopoulos from Australian bank NAB Capital said: "Investors (are) worried that Obama\’s economic stimulus and bank rescue plans would not prevent a deep and prolonged US recession."
European stocks meanwhile gained in early afternoon trading, with London rising 0.82 percent, Frankfurt up 1.03 percent and Paris up 2.06 percent.
Asian shares rose as bargain-hunters moved in following heavy losses the day before and as dealer sentiment picked up on hopes for economic stimulus plans.
China led the rally, adding 3.23 percent. The hike helped lift Hong Kong shares by 2.5 percent, Taipei 2.82 percent and Tokyo 0.96 percent.
Australia\’s parliament passed a 42 billion Australian dollar (28 billion US dollar) stimulus package that had been briefly blocked by the opposition.
"The most irresponsible thing to do today, with the worst global economic recession since the 1930s staring us in the face, would be to do nothing," Australian Prime Minister Kevin Rudd said.
Germany\’s lower house of parliament also approved Chancellor Angela Merkel\’s 50-billion-euro (64-billion-dollar) stimulus package aimed at lifting Europe\’s biggest economy out of its worst postwar recession.