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Japan slips into recession

Posted by By ALEX AKAO on 2008/11/18 | Views: 269 |

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Japan slips into recession

Japan became the latest major country to fall into recession Monday as global economic fears deepened after a Washington summit offered markets scant hope for action to contain the damage, analysts said.

Japan became the latest major country to fall into recession Monday as global economic fears deepened after a Washington summit offered markets scant hope for action to contain the damage, analysts said.

Markets showed little initial enthusiasm for a vague pledge at the weekend from Group of 20 leaders to join forces to galvanize growth and overhaul the world's financial architecture. The G20, grouping developed and developing countries, stopped short of announcing specific steps such as coordinated stimulus spending.

"In the midst of an emergency crisis, to have a statement that reads 'We will cooperate with each another' is all but meaningless," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp. "Market sentiment has soured and with all eyes back on the theme of global recession," he said.

Major European stock exchanges fell at the opening of trade, following a mixed performance in Asia, but later pared their losses. The yen strengthened as risk-averse investors, despite news of a Japanese recession, sought shelter in what they saw as a safe currency. In London the FTSE 100 index was down 0.11 percent at mid-morning while Paris had edged up 0.34 percent and Frankfurt 0.18 percent.

Stocks closed down 2.5 percent in Sydney and 0.9 percent in Seoul, while Hong Kong was 0.4 percent lower in late trade. Tokyo managed to eke out a gain of 0.7 percent as investors hunted for bargains. Chinese share prices closed with a gain of 2.22 percent, led by airlines following reports that two of the nation's biggest carriers could get government aid, dealers said.

The dollar fell to 96.91 yen in Tokyo afternoon trade, down from 97.06 in New York late Friday. The euro dropped to 1.2567 dollars from 1.2591 and to 121.77 yen from 122.24. "The economic spillover of the financial crisis has increased and there is uncertainty about when conditions will stop getting worse," said Saburo Matsumoto, chief forex strategist at Sumitomo Trust Bank.

"Equities are struggling to rise and traders are reluctant to buy the dollar, euro and other currencies, pushing up the yen," he said. There was no let-up in the flow of bad economic news. Official data showed Japan, the world's second largest economy, contracted 0.1 percent in the third quarter, following Germany, Italy and Ireland into recession.

"This is not going to be a short or painless recession," warned Noriko Hama, a professor and economist at Doshisha University. The last time Japan was in recession usually defined as two or more consecutive quarters of economic contraction was in 2001 after the Internet bubble burst. The Bank of France predicted Monday that the French economy was likely to contract by 0.5 percent in the last quarter of the year, leaving growth for the year at just 0.9 percent.

France narrowly escaped recession with growth of 0.1 percent in the third quarter after its economy shrank 0.3 percent in the second. US president-elect Barack Obama, who did not attend the weekend G20 gathering, vowed to make fighting a looming recession a top priority, notably with fresh stimulus spending and help for the auto industry.

He said there was a common understanding that "we have to do whatever it takes to get this economy moving again." "And that we shouldn't worry about the deficit next year or even the year after. That short term, the most important thing is that we avoid a deepening recession," he told the CBS television network in an interview.

The parlous state of the US auto industry was also threatening car manufacturers elsewhere. German Chancellor Angela Merkel was due to hold crisis talks with executives at car maker Opel, which has said it needs state guarantees for its bank loans as its US parent company, General Motors, struggles to stave off bankruptcy.

But German Finance Minister Peer Steinbrueck ruled out a financial rescue package for the auto sector. "An economic programme for the entire automobile industry makes no sense," Steinbrueck told the mass-circulation daily Bild, stressing that the state is "not responsible for errors committed by industrialists."

The head of the International Monetary Fund meanwhile told the BBC on Monday that the IMF, which offers credits to cash-strapped countries that agree to strict reforms, would likely need an extra 100 billion dollars to meet appeals for help over the next six months. "The number of countries having problems at the same time has dramatically increased and they come to the IMF asking for support," IMF Managing Director Dominique Strauss-Kahn said. "So we need more resources."

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