27/11/2008 - 06:58

EU, China, US unleash global assault

27/11/2008 - 06:58


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China has lowered its key one-year lending rate 108 basis points to 5.58 percent, the most in 11 years, extending efforts to prevent an economic slump less than three weeks after unveiling a 4 trillion yuan ($586 billion) stimulus plan.

EU, China, US unleash global assault

China has lowered its key one-year lending rate 108 basis points to 5.58 percent, the most in 11 years, extending efforts to prevent an economic slump less than three weeks after unveiling a 4 trillion yuan ($586 billion) stimulus plan.

The People's Bank of China said yesterday that the deposit rate will fall by the same amount to 2.52 percent, with the changes effective today.

China's economy, the biggest contributor to global growth, will expand at the slowest pace in almost two decades next year, the World Bank forecast yesterday.

Manufacturing shrank by the most on record in October as recessions in the US, Japan and Europe cut demand for exports and property prices fell at home.

The China move comes as the EU proposed a 200 billion euros ($A401.85 billion) stimulus package on Wednesday to jolt Europe's economy out of recession, the United States poured yet more cash into the economy.

The EU package, worth $US259 billion ($A398.0 billion), coincided with new evidence of the social effects of the financial crisis and economic slowdown, and as officials in China reported riots by unemployed workers.

Draft proposals of the package obtained earlier by AFP urged EU members to loosen the purse strings and ease some taxes in the face of the worst economic downturn in decades.

"Only through a significant stimulus package can Europe counter the expected downward trend in demand, with its negative knock-on effects on investments and employment," said the draft document.

While Brussels has been drafting pan-European recovery plans, a growing number of individual EU countries have pressed ahead with their own national packages.

German Chancellor Angela Merkel warned against a "race" between EU states over the size of their economic stimulus measures. Germany -- one of the few European states with strong finances -- was already doing enough, she said.

Countries across the world have launched tax and spending programs designed to encourage spending and business activity, with a coordinated EU-wide plan seen as more effective than individual country efforts.

China launched a $US586 billion ($A900.5 billion) economic stimulus package in early November and the country's central bank on Wednesday announced a further cut of 1.08 percentage points to interest rates to spur growth in the emerging giant.

But hundreds of Chinese workers sacked from a toy factory clashed with police and smashed buildings in the southern province of Guangdong, authorities said, in the latest bout of violent unrest linked to rising unemployment.

In other changes linked to the global slowdown, the number of jobseekers applying to the civil service in Hong Kong has soared amid widespread redundancies by private sector firms hit by the global crisis.

The Civil Service Bureau said it had received more than 24,000 applications for just 400 assistant clerical officer vacancies.

In Washington on Tuesday, the Federal Reserve said it would pump a massive $US800 billion more into the economy to try to stabilise the staggering US financial system.

Up to $US600 billion will go towards purchases of mortgage securities, and $US200 billion to asset-backed securities to help get credit to consumers.

The new efforts are designed to thaw credit markets, promote liquidity and bring down borrowing costs for the housing market, which is at the centre of the economic storm that has dragged down the global economy.

In Argentina, President Cristina Kirchner proposed tax and investment incentives to help cushion the impact of the global financial crisis on the nation and to encourage the repatriation of capital.

She also unveiled a massive public spending plan to pump more than $US21 billion into Argentina's infrastructure.

On global stock markets, Asian shares closed mixed, while European markets were under pressure after two days of large gains.

European stocks sank as investors digested the EU plan and the US Federal Reserve's move to unblock credit markets. Frankfurt shed 1.06 per cent, Paris dipped 2.15 per cent and London lost 1.84 per cent near the half-way stage.

"The picture is still very bleak," said Joshua Raymond, Market Strategist at City Index in London.

The Commerce Department reported that the US economy shrank at a pace of 0.5 per cent in the third quarter, in a revised estimate for gross domestic product that many analysts say is the start of a steep downturn.

US President-elect Barack Obama, who has also vowed a stimulus package for the US economy, was to name the former chairman of the Federal Reserve Paul Volcker as a senior economic adviser, the Wall Street Journal reported.

On Tuesday a report by the Organisation for Economic Co-operation and Development said many rich countries faced their worst economic crisis since the 1980s.

Eight million more people could be thrown out of work by 2010 in the 30-country zone of industrialised nations, said the OECD.


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