Germany, Spain, U.K. head for recession
European Commission slashes growth forecasts
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- Germany, Spain and Great Britain are headed for recession, the European Commission warned Wednesday in an update to its annual economic forecasts.
The commission, which serves as the executive arm of the European Union, slashed its 2008 growth projection for the 15-nation euro zone, predicting gross domestic product would expand by just 1.3%. The EC previously forecast growth of 1.7%.
The 27-nation European Union is now expected to grow just 1.4%, down from the April forecast of 2%.
"The continuation of the turmoil in the financial markets one year on [from the start of the credit crunch], the near-doubling of energy prices over the same period and the correction in some housing markets have had an impact on the economy," said Joaquin Almunia, the European Union commission for economic and monetary affairs.
The recent fall in oil and other commodity prices and the euro's fall have provided some relief, he said.
But the overall global economic outlook remains "unusually uncertain," the commission's report warned. Business and consumer confidence has fallen across Europe and measures of activity have also started to weaken. Indicators, including industrial production, orders and retail sales, signal deceleration in underlying growth momentum in the European Union and the euro area in recent months.
Recession warning
Meanwhile, Germany, Europe's biggest economy and the anchor of the euro zone, is expected to follow a 0.5% drop in second-quarter GDP with a 0.2% contraction in the third quarter -- meeting the informal recession criteria of two consecutive quarters of negative growth. Germany is still forecast to grow by 1.8% in 2008, unchanged from the April forecast after a strong 1.3% rise in GDP in the first quarter.
Spain, which has been hard hit by a housing-market collapse, is forecast to follow anemic 0.1% growth in the second quarter with a 0.1% contraction in the third quarter and a0.3% drop in the fourth. Full-year growth is pegged at 1.4%, down from the April estimate of 2.2%.
Outside the euro zone, Great Britain is forecast to follow the second quarter's flat GDP performance with drops of 0.2% in the third and fourth quarters.
Inflation 'turning point'
On a positive note, the commission said inflation may be near a "turning point" after surging energy and food prices contributed to sharp rises in headline consumer inflation.
Higher-than-expected inflation forced the commission to raise its euro-zone inflation forecast for 2008 to 3.6%, up from its April estimate of 3.1%. The forecast for Great Britain was also raised to 3.6% from the previous forecast of 2.8%. For the EU as a whole, the commission now forecasts 2008 inflation at 3.8% compared to a previous estimate of 3.6%.
The Bank of England, which had cut interest rates by 75 basis points to 5% between December and April, has remained on hold over the past five months, opting to stay on the sidelines as it wrestles with surging inflation pressures and fears of a potentially sharp economic downturn. The Bank of England's annual inflation target is 2%.
The European Central Bank hiked its key rate by a quarter of a percentage point to 4.25% in July in an effort to anchor rising inflation expectations. The ECB's inflation target is below but near 2%.
"The gradual fading of the impact of past increases in energy and food prices in the coming months suggest, however, that inflation could be at a turning point," the commission said, but warned that future developments in commodity markets and the ability to prevent "second-round effects" will be crucial to the inflation outlook in the euro zone and across the European Union.
ECB and Bank of England officials have warned that high inflation expectations could lead to more aggressive price and wage rises.
The euro trimmed gains against the dollar following the report, but remains around 0.1% higher at $1.4124.
UK industry group predicts recession in late 2008
http://www.businessweek.com/ap/finan.../D9375OE00.htmUK industry group predicts recession in late 2008
September 15, 2008, 8:55AM ET
By RAPHAEL G. SATTER
LONDON
Britain will fall into a shallow recession in the second half of 2008, a British industry group predicted Monday.
Britain's economic output will shrink 0.2 percent between July and September compared to the same period last year, the Confederation of British Industry said in a statement. The group forecast a further 0.1 percent decline in the final quarter of 2008.
But the CBI said Britain's gross domestic product would stabilize in 2009, with weak economic growth gradually pulling the country out of its recession. Two consecutive quarterly contractions are often cited as a sign of recession.
"Having experienced a rapid loss of momentum in the economy over the first half of 2008, the U.K. may have entered a mild recession that will hopefully prove short lived," CBI Director-General Richard Lambert said. "This is not a return to the 1990s, when job cuts and a slump in demand were far more prolonged."
The group said it had downgraded its growth forecast for Britain's GDP over the whole of 2008 from 1.7 to 1.1 percent, bringing it largely in line with the Organization for Economic Cooperation and Development, which has predicted 1.2 percent growth over 2008.
The British government has predicted that the economy would expand by 2.5 percent in 2008, although its own figures show that GDP growth stopped between April and June, ending more than 15 years of continuous expansion.
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Japan's Executives Say Economy Is in a Recession, Survey Shows
By Tatsuo Ito and Jason Clenfield
Sept. 17 (Bloomberg) -- Japan's business leaders say the economy has fallen into a recession, according to a survey released today by the Japan Association of Corporate Executives.
The proportion of respondents who said the economy is in a recession rose to 96 percent in September from 59 percent three months earlier, the report said. It was the worst reading since the October 1998 survey, which followed the collapse of Long Term Credit Bank of Japan.
The world's second-largest economy shrank an annualized 3 percent in the second quarter as exports, the engine that's driven growth, fell for the first time in three years. Consumer confidence dropped to a record low in August as inflation outstripped wage growth.
Some 64 percent of respondents in the survey described the recession as ``mild.'' Asked to compare current conditions with those during the last recession in 2001, 32 percent said conditions were ``somewhat better,'' while 27 percent said things were ``somewhat worse.''
``If I were to describe the economy in terms of the weather, I'd say that we'll have cloudy skies until the middle of next year and we may have some rain,'' said Masamitsu Sakurai, head of the executives' association and president of Ricoh Co., an office equipment maker.
Sakurai called on policy makers to draft an extra budget and implement the government's economic package as soon as possible.
Some 47 percent of the survey's respondents said they expected the recession to last until the fourth quarter of 2009. About a quarter of respondents said the downturn may last until the first half of 2010.
Most surveyed said Japan's recession would end when the U.S. economy rebounds. Others said Japan would recover when commodity prices or financial markets stabilize.
To contact the reporters on this story: Tatsuo Ito in Tokyo at Tito2@bloom; Jason Clenfield in Tokyo at jclenfield@bloomberg.net
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