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Fear and uncertainty roil world economies

— PHOTO: AFP

COORDINATED ACTION: U.S. President George W. Bush speaks on the status of the U.S. and global economy in the Rose Garden of the White House in Washington D.C. last week-end.

In Korea, exporters are suddenly struggling.

In India, industrial growth has slowed substantially.

In Sweden, Volvo is cutting thousands of jobs.

In Japan, which thought it was immune to the current 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 credit-worthy 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 last week.

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 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, for instance, seems to be going through a revolving door. After releasing billions of euro into the market, the bank took in a record euro 102.8 billion on September 30 and euro 64.4 billion on Thursday last week 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 ultralow 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 U.S., and was now operating independent of the American business cycle, is all but dead. Asia is 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.

But the International Monetary Fund predicts growth in the 15 nations that use the euro will fall during the second half of this year and barely rise in 2009. (And that estimate was prepared in advance of this weekend’s IMF and World Bank meetings in Washington and was already considered out of date by many experts.) Britain, the only major European economy outside the euro zone, is expected to shrink through next year.

Many in Asia, despairing of help from the West, are looking toward Beijing.

But facing slower growth, Beijing is suddenly trying to goose its economy by cutting interest rates and taxes and lowering reserve requirements. But the government is finding the economy is already looking a little out of breath.

Economists see annual growth slowing from 12 per cent a year ago to 8 or 9 percent this winter.

South Korea is already hurting. “The problem is the global recession — people don’t buy consumer electronics, this means less exports and fewer dollars for us,” said Choi Hae Pyong, an electronics parts manufacturer in south of Seoul. “It’s like walking in a thick fog.”

Lower exports have an impact throughout Asian economies, on real estate for instance. As long as the region kept exporting and kept saving the proceeds, investors bid up real estate and share prices. Now prices of both have a long way to fall.

Last week showed the first concrete signs that the financial crisis may be starting to damage Japan’s broader economy. On Wednesday last, Tokyo Shoko Research, a market research company, released data showing the number of corporate bankruptcies jumped 34.4 per cent last month from a year earlier, to 1,408 failures, a five-and-a-half-year high. Economists said the increase might reflect a growing credit squeeze in which Japanese banks cut back on loans to smaller, lesser-known companies.

Since mid-September, lending to even credit-worthy companies has dried up in Europe.

Banks, in a fashion, are blaming consumers. Steven Cooper, Managing Director for local business banking at Barclays, said some small businesses simply failed to accept that their businesses would make less money in the future.

Unemployment is rising, sapping the client base of restaurants and hotels, but nervous suppliers are often demanding more money up front, squeezing businesses on both.And that is why government actions — from the $700 billion bank bailout in the U.S. to the coordinated cutting of interest rates by central banks last week — have had little effect on freeing up money and getting banks to lend to each other or their customers.

For instance, Mr. Cooper said easing the cost of credit will not make Barclays clients more creditworthy in a downturn. “It’s not just about the cost of funds. Credit is risk-weighted and the risk in the economy is not necessarily changed by this,” he said. — AP

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