SIGNS of a deepening global slump have mounted as manufacturing activity in Europe and Asia contracted and banks in Spain and France requested further bailouts last week.
Manufacturing in the 17-nation eurozone shrank for the thirteenth consecutive month, according to figures released Friday.
The Markit manufacturing Purchasing Managers’ Index (PMI) for the euro zone was revised down to 45.1 from an earlier estimate of 45.3. Any number under 50 indicates contraction.
Germany, the region’s most powerful economy, was notably hard hit, as exports fell to their lowest level in three years amid a fall-off in demand from countries hit by the European debt crisis. While the German PMI ticked up slightly, it was only to 44.7.
Two weeks ago, the European Union’s (EU) statistical agency, Eurostat, announced that unemployment in the euro zone hit 11.3 per cent, the highest level of unemployment since the launching of the euro in 1999.
Some 88,000 more eurozone residents were without work in July, bringing the total to 18 million.
The unemployment rate grew by 0.2 points in Spain, to 25.1 per cent, while Greece’s unemployment rate grew 0.5 points to 23.1 per cent, up from 16.8 per cent a year earlier.
Youth unemployment is even worse. Fully 52.9 per cent of Spanish residents under 25 were unemployed, as well as 53.8 per cent of those in Greece.
While the European economy shrank in the second quarter of this year, Germany managed to avoid contraction. However, such an outcome looks increasingly unlikely for the third quarter amid a string of mass layoffs and cutbacks.
Germany’s second largest energy group RWE said August 14 that it plans to cut 10,400 jobs from its total workforce of 72,000 by 2014. Last month, General Motors shortened the workday at two of its Opel plants, affecting 15,500 workers.
France’s manufacturing PMI, at 46, likewise pointed to economic contraction. Auto maker Peugeot, one of the country’s major employers, announced plans to lay off 6,500 workers earlier this year.
Analysts are expecting the eurozone economy to once again contract in the third quarter, an event that would mark the official beginning of the area’s second recession in three years.
The eurozone economy shrank 0.2 per cent in the second quarter of this year, compared to a 0.1 per cent growth the year before.
The slump in the eurozone is part of a global downturn. Manufacturing in China, the powerhouse of the Asian economy, contracted at its sharpest rate since the depths of the 2008-2009 downturn. HSBC said its China manufacturing Purchasing Managers’ Index for August fell to 47.6, the lowest level since March 2009. This was down from 49.3 the month before.
Chinese officials attributed the slump to the slowdown in the eurozone, which is dragging down Chinese exports. The manufacturing contraction in major exporters such as Germany and China is in turn dragging down primary-goods producers such as Australia, whose economy has been hurt by falling iron ore prices.
Manufacturing in South Korea and Taiwan likewise contracted. South Korea’s Purchasing Managers Index was 47.5 in August, while the PMI for Taiwan fell to 46.1 from 47.5. South Korean exports were down by 6.2 per cent last month from a year earlier, led by exports to the eurozone, which fell by 9.3 per cent.
The Japanese government cut its economic outlook for the first time in ten months after the economy shrank at a 3.4 per cent rate in May and grew only 0.4 per cent in June.
The slew of negative economic figures came amid a renewal of financial turmoil in the euro zone. The French government announced Saturday that it would bail out mortgage lender Crédit Immobilier de France after attempts to find a buyer for the troubled lender failed.
The Spanish government’s bank bailout fund meanwhile announced that it would pay another 4.5 billion euros (US$5.66 billion) into Bankia, which took a 19.5 billion euros state bailout in May. The announcement of the new bailout came after the bank announced a loss of 4.5 billion euros for the first half of the year as the default rate on its loans soared.
Amid an accelerating global slowdown and an intensifying European debt crisis, banks and major corporations are drawing up plans for how to respond to an exit of Greece from the euro zone. In such a scenario, the EU would cut off credit to Greece, forcing it to print drachma to prevent mass bankruptcies and the breakdown of its financial system.
“Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable,” the New York Times reported last wekk.
“Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.”
The Times likewise reported that JPMorgan Chase has created accounts for major corporations denominated in a new drachma.
Corporate Executive Board, an advisory company, said that 80 per cent of its clients expect Greece to exit the euro zone, and that another fifth expected other countries to leave as well.
While investors are clamoring for a cut to the euro zone’s benchmark interest rate, which is currently set at 0.75 per cent, there are deep divisions between the euro member states and no firm consensus on how to respond to the crisis.
Four years since the collapse of Lehman brothers, there is every indication that the world is headed for another downturn, perhaps on a scale comparable to that of 2008.
The corporate elite of Europe have responded to the crisis with wage-cutting and austerity, handing trillions of euros to the banks while exacerbating the economic downturn.
The impact of mass unemployment and austerity was starkly presented in comments by Jan Zijderveld, CEO of Unilever, who proclaimed in an interview with the Financial Times, ‘Poverty is back in Europe.’
He said his company would exploit this new reality by importing distribution methods pioneered in developing countries into Europe. “In Indonesia we sell shampoo samples for 2-3 cents each, and yet we make money,” he said.
Corporate lay offs: According to correspondent Barry Grey, major international layoff announcements point to a deepening global economic slump, resulting in sliding workers’ wages and living standards. Over the second half of August, companies in the US, Japan, Denmark and Australia have announced several thousand job cuts.
In Japan, the television maker Sharp announced it would cut 8,000 jobs, or 15 per cent of its global workforce. This marks an increase of 3,000 from the 5,000 cuts the company had announced previously. Kyoto News reported that the embattled TV maker was considering raising its job reduction target to 10,000.
And Sony Corporation said it planned to cut 15 per cent of its mobile phone workforce, or about 1,000 jobs. The mass layoff announcement came after Sony took full control of its mobile phone joint venture with Sweden’s Telefon AB LM Ericsson earlier this year. The layoffs will be carried out in Sweden, as Sony moves the headquarters of its mobile phone unit to Tokyo from Lund, Sweden.
Denmark-based Vestas Wind Systems said it will cut an additional 1,400 jobs. The world’s biggest producer of wind turbines said it expects to have 19,000 employees at the end of this year, a 16 per cent drop from the end of 2011. The additional layoffs are on top of 2,335 cuts the company announced in January. Vestas is also considering eliminating 1,600 jobs in the US, depending on whether a tax credit is extended after it expires this year.
Major layoffs have also been announced in Australia, whose economy is increasingly impacted by the slowdown in China. QR National, a minerals transporter, announced it will lay off 900 workers. Mall operator Westfield Group announced a 10 per cent cut in its workforce, affecting up to 400 employees.
In the US, Southern California Edison announced plans to eliminate nearly one-third of its workforce at the troubled San Onofre nuclear plant in San Diego County. Some 750 workers will lose their jobs.
Defence contractor Lockheed-Martin said Wednesday it will lay off 550 workers at its Marietta, Georgia aircraft plant.
The Semiconductor, based in Phoenix, Arizona, this week announced plans to cut 250 jobs. The power-management chipmaker had a global workforce of nearly 19,500 last year, of which over 2,400 were in the US.
Northwestern Memorial Hospital in Chicago confirmed that it had sacked 230 employees over the past month as part of a plan to slash its costs by a quarter.
The new owners of Fort Lauderdale, Florida-based BankAtlantic said they plan to lay off 365 people, or about one-third of the bank’s employees, between October of this year and February 1, 2013. Financial giant BB&T, which acquired the bank three weeks ago, announced the layoff in a notification to the state.
The BankAtlantic layoffs are part of a wave of layoffs in the financial industry, including at major Wall Street banks. By the start of 2013, Wall Street banks are expected to have anywhere from 10 per cent to 15 per cent fewer employees than at the start of 2012.—Courtesy-WSWS