Recession Worries Go Global

With factories cutting output in the U.S., Europe and China, European leaders are clashing over how much public money to spend on battling their recession, Reuters reports. Euro-zone finance ministers recently gathered in Brussels to decide on the European Commission’s 200 billion euro ($252 billion) plan to revive their economies, but Germany rejected calls to step up its stimulus spending. The Commission proposed that European Union countries spend an extra 1.2% of GDP from their budgets, mainly in 2009, to boost investment and consumer demand.

With the U.S. manufacturing at its weakest in 26 years, euro zone factories reportedly also sank to a record low. China’s manufacturing sector slumped as well in November, as new orders tumbled. The Bank of Japan also called an emergency meeting to find ways to cut corporate borrowing costs.

Central banks in Britain, the euro zone, Australia and New Zealand are expected to cut borrowing costs sharply in response to the crisis. Inflation in Thailand, South Korea and Australia plunged in November in sync with a global retreat, giving central banks room to slash interest rates further to soften the blow.

Expectations for more rate cuts in Britain were underlined by a recent index showing manufacturing shrank at a record pace in November after a collapse in new orders. Australia’s central bank is expected to slash its benchmark rate by at least 75 basis points on Tuesday on top of 200 basis points of cuts since early September. ❖