Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

China Offers Glimmer

Photo Credit :


China's manufacturing downturn showed tentative signs of bottoming out on Wednesday, offering a rare glimmer of hope for the world economy mired in its worst slump in decades.

Underscoring the severity of the crisis, US auto sales plunged more than 40 per cent in February, existing home sales plumbed record lows and Australia's long-resilient economy finally succumbed to global headwinds, shrinking unexpectedly in the final quarter of last year.

With the United States, the euro zone and Japan all deep in recession and the list of economies shifting into reverse getting longer almost every week, all eyes are on Beijing and its efforts to revive growth in the world's third-largest economy.

The Chinese economy slowed sharply late last year and the government has ramped up investment, pledging nearly $600 billion in extra spending to step into the breach left by a collapse in exports and a downturn in the domestic property sector.

A third monthly improvement in China's official Purchasing Managers' Index and the first rise in output since September suggested those efforts were beginning to bear fruit.

"China's economy is possibly on the road to a sustainable recovery," said Zhang Liqun, a government economist who comments on the survey for the logistics federation.

"Policies are beginning to show their effectiveness, supporting quite fast economic growth," he said.

However, private economists voiced doubts about whether the recovery could last given the dramatic collapse in global demand on which China has relied for years to act as the world's growth engine.

"Factories will struggle to sustain the increase. I think we'll bounce along at low rates of activity for the next six months or so," said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.

The collapse in demand was evident in US auto sales data, a gauge of consumer sentiment that showed a 16th consecutive monthly drop that brought volumes to levels last seen almost three decades ago.

US President Barack Obama acknowledged the data suggested another dismal quarter for the world's biggest economy, but insisted Washington's efforts to revive lending would bear fruit and said that Wall Street stocks were a "potentially good deal."

"I'm absolutely confident that credit is going to be flowing again, that businesses are going to start seeing opportunities for investment, they're going to start hiring again," he said in a meeting with visiting British Prime Minister Gordon Brown on Tuesday.

Federal Reserve Chairman Ben Bernanke, however, warned of more pain to come in the battered financial industry.

Speaking a day after American International Group posted the largest US corporate loss ever and got a $30 billion government lifeline, Bernanke left open the possibility that even more money may be needed to prevent a costly catastrophe.

Nagging worries about the health of the global financial system and ballooning costs of averting an all-out meltdown kept investors on edge. The US S&P 500 index closed below 700 for the first time since October 1996 on Tuesday and Asian shares followed, sliding for the fifth day on Wednesday.

The dollar, which benefits from bouts of heightened risk aversion, hit a three-year high against a basket of currencies.

With interest rates heading towards zero and lending still tight, central banks around the world have been looking for new, innovative ways of funneling funds to cash-starved companies and consumers.

On Tuesday, the Federal Reserve detailed a plan to spur consumer lending that could grow to $1 trillion, in its latest effort to reverse the economy's steep slide and a financial market implosion triggered by mortgage defaults.

In Canada the central bank, which halved its main interest rate to a record low of 0.5 per cent, signalled that it may take extra steps to pump money into a system that remains stubbornly short of credit.

In Britain, where the Bank of England is expected to deliver a similar cut on Thursday, sources told Reuters it will get a go-ahead from the government this week to buy assets to pump money into the economy in a process know as quantitative easing.

Japan's central bank launched its direct purchases of corporate bonds, saying it will buy a first $1.5 billion batch beginning from next week.

Also the European Central Bank is considering adding new tools such as buying short-term commercial debt, two of its governing council members said on Tuesday. The ECB is expected to to cut its benchmark rate to a record low of 1.5 per cent on Thursday.

The global downturn, which the OECD group of developed nations says will be the worst global slump since the end of World War Two, [ID:nL2586304] caught up with Australia, which saw its economy shrinking by 0.5 per cent in the fourth quarter.

The data came just a day after the Reserve Bank of Australia paused in its rate-cutting campaign and revived expectations of more aggressive easing in the face of looming recession.

(Reuters)


Tags assigned to this article:
dell honeywell payu yahoo weather app ali raza