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Economic uncertainty spreads
(Agencies)
Updated: 2008-10-11 16:21 In Korea, exporters are suddenly struggling. In India, industrial growth has slowed drastically. In Sweden, Volvo is cutting thousands of jobs. In Japan, which thought it was immune to the market chaos, a credit squeeze seems to be forcing small companies into bankruptcy.
Around the world, fears of recession have fed a stock market panic, as worries about toxic assets spread from the financial sector to the credit markets and now to the broader economy. Companies from Germany to Asia are hoarding cash because credit markets are tight. The sheer uncertainty of it all is upending plans for businesses to expand. Consumers have pulled back, just as they received some relief from high oil prices. Even creditworthy companies cannot get money in Europe. And across Asia, export growth has slowed to a crawl or started declining in real terms - and that was before American retailers announced steep sales declines on Wednesday. The United States, once the engine of the global economy, is ailing and in no position to inspire confidence, much less point the way around or out of recession. Americans are seen as both the root of the problem, and powerless to solve it. But no government effort has been able to stanch the bleeding - even the unprecedented coordination of central banks on three continents, which only generates more fear. The liquidity provided by the European Central Bank seems to be going through a revolving door. After releasing billions of euros into the market, the bank took in a record 102.8 billion euros on Sept. 30 and 64.4 billion euros on Thursday for banks. Instead of lending their spare cash to each other or the rest of the economy, banks have parked it with the central bank at extraordinarily low interest rates. "No sane banker with good contacts and clients would do this," Erik Nielsen, chief Europe economist at Goldman Sachs in London, said. "It would be a huge arbitrage profit if they wanted to lend, but they don't." The short-lived notion that Asia had decoupled from the United States and was now operating independently of the American business cycle is all but dead. Asia has been the biggest beneficiary of the rise in global trade over the last two decades. Its corporate earnings, real estate prices and much more are dependent on a steady inflow of dollars and euros through exports to the West. |
