Economic chill spreads in Europe, while US housing woes deepen

Aug 15, 2008
RECESSION REPORT
Global gloom
Economic chill spreads in Europe, while US housing woes deepen

BRUSSELS: The German, French and other Eurozone economies braked
sharply in the second quarter, shrinking for the first time in more
than a decade.

The data, coupled with a report from the United States that home
foreclosure notices jumped by half last month, creates a worrying
picture of a global economy on the brink of recession.

Singapore is also feeling the pinch, with the Government calling on
Singaporeans last week to brace themselves for a bumpy year ahead.

The growth forecast for the full year has been revised down to
between 4 and 5per cent, from an earlier projection of 4 to 6per
cent.

With high fuel and food prices holding back consumer spending, growth
in the 15 economies that share the euro currency contracted by 0.2per
cent from the first quarter, expanding just 1.5per cent from the same
period a year ago, the European Union's statistics office, Eurostat,
said.

Eurostat said the quarterly decline was the first since its data
series for the euro zone started in 1995.

A second successive quarterly drop in growth will officially put the
eurozone into recession.

'There is a good chance that the economy is already in recession, but
even if it isn't, the outlook remains for subdued growth in the
quarters to come,' said Mr Stuart Bennett, senior forex strategist at
Calyon.

The world's second biggest economy, Japan, is also flirting with
recession, having shrunk 0.6per cent in April-June, but the United
States grew by 0.5per cent.

The eurozone fall was driven by Europe's two largest economies,
Germany and France.

The German economy, the world's biggest exporter, contracted by
0.5per cent in the second quarter from a 1.3per cent rise in the
first quarter.

While the fall was smaller-than-expected, it was the first fall in
almost four years, driven by a slump in the construction sector, hurt
by the credit crunch.

The stronger euro and weakening global growth have also dampened
demand for German exports while higher inflation has curbed domestic
spending.

France, Europe's second biggest economy, suffered a sharper 0.3per
cent drop in second quarter growth. In another blow, the expansion
previously reported in the first three months of the year was also
trimmed.

In Spain, a country whose economy looks especially vulnerable because
of its boom-to-bust housing market, the economy eked out growth of
0.1per cent in the second quarter, a figure greeted with scepticism
by some analysts.

Only one EU country is now in recession: the small Baltic economy of
Estonia.

Eurostat did not give a figure for Ireland, once a booming tiger
economy, but which contracted in the first quarter.

France's Economy Minister, Ms Christine Lagarde, pointed out that
France was suffering along with other European countries from an
unfavourable global environment, but said the fundamentals of the
French economy were sound.

She noted easing crude oil prices and signs that inflation had
stabilised, and said the situation should begin to improve at the end
of the year and the start of next year.

'There is no question of a recession,' she said on radio.

But some economists were less optimistic.

Business and consumer confidence in the euro area plunged to the
lowest level in more than five years in July.

The euro jobless rate also started to climb in April from the all-
time low it reached in December.

Meanwhile, in the US, more than 272,000 homes received notice of a
mortgage default, forced sale or bank repossession last month, up
55per cent from the same month last year, according to RealtyTrac,
which records property in various stages of foreclosure.

That means one in every 464 US households received a foreclosure
filing last month.

The combination of weak housing sales, falling home values, tighter
mortgage lending criteria and a slowing US economy has left
financially strapped homeowners with few options to avoid
foreclosure.

Many cannot find buyers or owe more than their home is worth and thus
cannot refinance into an affordable loan.

Even with more government help on the way, nearly 2.8million US
households will either face foreclosure, turn over their homes to
their lender or sell the properties for less than their mortgage's
value by the end of next year, predicts Moody's Economy.com.