US economy slumps as world crisis tightens grip

WASHINGTON - The global economic crisis tightened its grip on the United States which posted its worst contraction in 26 years on Friday as grim jobs and earnings data emerged from Japan and Europe.

By (AFP)

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Published: Sat 31 Jan 2009, 10:52 AM

Last updated: Thu 2 Apr 2015, 4:36 AM

Amid the deepening crisis, Britain, Germany, the European Union and China made urgent calls for cooperation and for reform of the global financial system whose malfunctions triggered the downturn.

US government figures showed the world's largest economy shrank by an annual rate of 3.8 percent in the fourth quarter of 2008, sharply accelerating the 0.5 percent contraction seen in the third quarter.

The headline fourth-quarter figure was not as bad as the 5.5 percent drop expected on average by private economists but was the worst since 1982.

Still, few took comfort in the data, which was skewed by a high rate of inventory buildup, suggesting businesses were surprised by the depth of the downturn and may have to cut production further in 2009.

"The headline GDP figure was better than expected but this is very much an illusion supported by an unexpected increase in business inventories," said Sal Guatieri, senior economist at BMO Capital Markets.

Guatieri said that the data suggest an even sharper decline in the first quarter of 2009.

US President Barack Obama warned the data underscored the urgency for Congress to pass his stimulus plan.

"This isn't just an economic concept, this is a continuing disaster for America's working families," Obama said.

Brazil's President Luiz Inacio Lula da Silva meanwhile warned that responding to the economic trouble with protectionist measures would be a grave mistake.

"Protectionism won't solve the problem of the crisis. It's not fair that, now that the rich countries are in crisis, they forget their talk about free trade," he said during a news conference at the World Social Forum taking place in Belem.

At the World Economic Forum in Davos, Switzerland, German Chancellor Angela Merkel and British Prime Minister Gordon Brown argued for tougher control of the international economy, opening up a potential split with the United States on ending the financial crisis.

Merkel said a UN economic council based on the Security Council may have to be created to police the global economy, while Brown said his "shared revolution" would strengthen current international institutions.

Both proposals went counter to US ideas rejecting any global enforcer.

At a summit of Group of 20 developed and developing nations last November, Washington fought for national regulators to take precedence.

Brown called for greater unity in fighting the crisis.

"This is the time... for the world to come together as one," he said, calling for the G20 to join in a "shared revolution" to build a new global financial system.

The new US Treasury chief, Timothy Geithner, meanwhile discussed possible economic reforms in calls to his European and Asian counterparts, his office said.

Geithner is due to join Group of Seven finance ministers next month in Rome as they grapple with the global downturn.

In Japan, massive losses and cutbacks struck top companies on Friday, with electronics giant NEC shedding 20,000 jobs -- the latest in a world avalanche that has seen tens of thousands of job cuts announced this week alone.

Japan announced a triple slump in key economic data, with industrial output, consumer spending and employment all sharply down, and said there was no end in sight to the bad news.

"The problem is very serious," Economics Minister Kaoru Yosano said. "As to when the economy will bottom out, it is impossible to predict at this time as the problem is not only domestic but global."

In Europe, frustration over the social impact of the crisis spilled over into protests in Britain, a day after mass strikes and demonstrations in France.

Hundreds of workers at oil refineries across Britain went on strike to protest the use of foreign labor in engineering and building projects.

Elsewhere in Europe, official EU data released Friday showed unemployment in the countries using the euro rose in December to 8.0 percent, the highest level in more than two years.

With east and west alike battered by the slowdown, China's Premier Wen Jiabao and EU leaders sought to boost cooperation to tackle the crisis.

Decades of rampant growth in China have shown signs of slowing as its export-dependent economy suffers from declining activity elsewhere.

"Globally we face an economic crisis without precedent in the post-war era and no one can claim to be completely immune," said European Commission President Jose Manuel Barroso after talks with Wen in Brussels.

"It is important that we address those issues in a global spirit."

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