Recession fears hit stock markets

South Korean elementary school students pass by a screen (Nov 20).

Concerns are increasing over the scale of the slowdown

World shares have fallen amid concerns that the world economy will enter a protracted downturn.

The US Dow Jones index Industrial Average fell 2.3% in early trade while the wider S&P 500 Index shed 3%.

London’s FTSE 100, the Paris-based Cac and Frankfurt’s Dax were all down more than 3% in afternoon trade. Earlier, Asian shares had fallen sharply.

Concerns over a sharp slowdown in factory activity in the US added to concerns over the economy.

An official from the Philadelphia Federal Reserve said factory activity in the US Mid-Atlantic region had fallen to its lowest level in 18 years in November, underlining the scale of the contraction.

People are looking for any kind of positive and there are just no positives out there

Miles Remington, BNP Paribas Securities

On Wednesday, the Dow Jones index had fallen 5% to below the 8,000 mark after the US central bank cut its economic growth forecasts for 2009.

In Asia, Japan’s Nikkei index ended 6.8% lower and Hong Kong’s main index fell more than 4%.

Mounting problems

The deepening global recession is being felt in a number of ways:

  • Mining shares have been hit hard on fears that demand for steel and other raw materials will be hit as the economy slows. Steel giant Arcelor-Mittal lost 8% and Vedanta Resources lost 8.5%
  • Oil shares were among the main fallers with BP, Royal Dutch Shell and Total all at least 5% lower as sweet crude oil fell below $50 a barrel.
  • Japan’s exports to Asia dropped in October for the first time in six years
  • Job losses are mounting worldwide, with aerospace firm Rolls Royce, AstraZeneca and French carmaker Peugeot Citroen announcing a total of 6,100 cuts
  • China has warned its employment outlook is “grim”, amid worries that economic problems could lead to social unrest
  • Switzerland has cut its key interest rate to 1% in a surprise move.
  • The IMF has approved a $2.1bn (£1.4bn) loan for Iceland. Turkey is set to agree to a precautionary stand-by deal with the IMF soon
  • Retail sales fell and public sector borrowing rose in the UK.

Depressed outlook

The BBC’s Duncan Bartlett in Tokyo says several East Asian countries – including Japan, Singapore and Hong Kong – are already in recession, and the thought that the US may be about to join them has been enough to send shares tumbling across the region.

Bad news from the US has worried Japanese firms like Toyota and Nintendo which usually depend on American consumers for much of their profit, our correspondent adds.

“We’ve gone past the poor sentiment stage,” Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong, told the Associated Press news agency.

“People are looking for any kind of positive and there are just no positives out there. Everyone seems to be united in the depressed global outlook. Whether it’s commodities or equities, everything seems to be on a downturn.”

On Wednesday, the US Federal Reserve said the country’s gross domestic product – the value of all goods and services – could be flat or grow only marginally this year, and might shrink in 2009.

It said positive economic growth was only likely to return in 2010 and predicted further interest rate cuts might be necessary.

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