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World crisis deepens as downturn bites in Asia

Grim economic news from China and Japan showed the global crisis hitting ever harder, burning Asia's champion exporters while data from the US signalled more pain to come.

business Updated: Jan 22, 2009 23:08 IST

Grim economic news from China and Japan showed the global crisis hitting ever harder on Thursday, burning Asia's champion exporters while data from the United States signalled more pain to come.

China's powerhouse economy slowed dramatically at the end of 2008, dragging growth of the world's third-largest economy to a seven-year low, official data showed, in a striking sign of the current downturn's strength and reach.

Japan meanwhile warned it was facing a two-year recession and announced new measures to repair battered credit markets after announcing a 35-per cent plunge in exports in December.

"Exports tumbled so much that you cannot believe your eyes," said Naoki Murakami, chief economist at Monex Securities in Japan.

After breathtaking economic growth in recent decades, China had been widely tipped to ride out the world economic storm that has driven the world's biggest economies into recession.

But with the Asian giant now gravely suffering too, reporting just 6.8 per cent growth in the last quarter of 2008, signs emerged on Thursday of a knock-on effect, with Australia warning of the impact on its own prospects.

"The Chinese boom that supercharged Australia's economy over the past five to seven years is receding rapidly," Australia's Finance Minister Lindsay Tanner told reporters.

South Korea said its economy was in the worst shape since the East Asian financial crisis a decade ago while Singapore announced a 13-billion-dollar (10-billion-euro) stimulus package and said it would tap its vast financial reserves for the first time.

US data released Thursday showed unemployment claims hit a 26-year high and housing construction fell to half-century lows, highlighting the depths of the recession facing the new administration of Barack Obama.

"The underlying trend in (jobless) claims is still upwards and we have no hope that the peak is anywhere near," said Ian Shepherdson, chief US economist at High Frequency Economics.

"The corporate sector is rolling over and we probably have not yet seen many job losses stemming from the sudden collapse in international trade."

On the industrial front, US software giant Microsoft said on Thursday it was cutting up to 5,000 jobs over the next 18 months due to "the further deterioration of global economic conditions."

Italy's national auto champion, Fiat, slashed its 2009 forecasts due to slumping demand and said it would not pay shareholders a 2008 dividend.

And in Helsinki Nokia, the world's leading mobile phone maker, reported a near 70 per cent drop in its fourth-quarter net profit.

In Europe, meanwhile there were fresh signs of upheaval in the financial sector, where shares in troubled banks faced more pressure.

Belgian authorities moved to bail out lender KBC, providing up to 3.5 billion euros, and Germany was working on a new rescue package for its banks as last year's 480-billion-euro effort failed to get them lending again.

The financial crisis showed it had further to run as Portugal on Wednesday followed Spain and Greece in having its sovereign debt downgraded by the ratings agency Standard and Poor's.

Some fear such downgrades could increase strains in the 16-nation eurozone where investors are discriminating between weaker and stronger debtors, with powerhouse Germany paying less interest on its bonds than the rest of Europe.

US stocks swung lower Thursday after the jobless and construction figures and amid persistent worries on company earnings. The Dow Jones Industrial Average lost 2.20 per cent in early trade.

In Europe, London's FTSE 100 index closed down 0.19 per cent. Paris fell 1.24 per cent, while Frankfurt lost 0.98 per cent.

Asian stocks rose Thursday in a technical bounce despite the miserable economic data.