Data shows European economies in recession

Fri Jan 23, 2009 10:39am GMT

By Nigel Davies and David Lawder

LONDON/WASHINGTON (Reuters) - Leading European economies are bogged down deep

in recessionary territory, business surveys showed on Friday, as policy makers worldwide
battle to ward off a long-lasting slump.

British data confirmed the economy had gone into recession for the first time since 1991
as GDP contracted a worse than expected 1.5 percent in the last quarter of 2008.

Prime Minister Gordon Brown said Britain's prospects depended on countries working
together in response to the financial crisis.

Meanwhile, President Barack Obama's $825 billion (608.5 billion pounds) stimulus plan
and his pick for U.S. Treasury chief cleared hurdles in Congress, a step forward in efforts
to contain the economic crisis battering businesses globally.

South Korea's Samsung Electronics chalked up its first-ever quarterly loss, joining
technology leaders such as Microsoft, Nokia and Sony who are suffering slumping
demand amid recession in the United States, Japan and much of Europe.

The crisis, born out of a U.S. housing slump, has pushed some banks over the edge, left
U.S. carmakers on the brink of collapse and driven the world's major economies into
recession.

New data indicated that euro zone services and manufacturing activity declined at a
slightly slower pace in January, a touch better than forecasts, but remained deeply
negative.

RED ZONE

"Aggressive policy actions by the ECB and many European governments seem to have
stabilised private sector confidence. However, it is still far too early to dub this a levelling-
off. All three PMI.L indicators are still deep in the red contraction zone," said economist
Carsten Brzeski at ING.

The Markit Eurozone Purchasing Managers' Index for services companies ranging from
banks to bars edged up to 42.5 in January from a low of 42.1 in December -- above the
41.5 consensus forecast from economists, but still well below the 50.0 line that divides
growth from contraction.

Euro zone factories also saw a modest deceleration in the steep rate of decline set in the
prior month, but still showed significant contraction. The preliminary manufacturing PMI
rose to 34.5 from a record survey low the previous month of 33.9.

The weak data is likely to bolster expectations that the European Central Bank will cut
interest rates again in March, its cause aided by signs of falls in inflationary pressures.

Companies in the 16-nation euro currency zone have faced a torrid start to the year as
credit conditions remain tight, forcing many to cut jobs or offer heavy discounts.
A fresh sign of retrenchment came as Toyota Motor Corp (7203.T) considered cutting full-
time employees in Britain and North America, according to a company source, in what
would be an unprecedented step for the world's largest car maker.

Toyota is frantically cutting output as sales plummet, putting it course for a first ever
operating loss in the year to March. Its U.S. sales in December fell 37 percent.

Washington moved forward in its bid to revive the world's biggest economy. A House of
Representatives panel rushed through $304 billion in tax breaks and aid to the
unemployed, paving the way for a vote on the full stimulus package next week.

Timothy Geithner, head of the New York Federal Reserve, won backing from the Senate
Finance Committee and looked set to clinch final approval on Monday to lead the new
administration's efforts to stabilise the economy as treasury secretary.

GRIM REPORTS

Bank stocks have borne the brunt of anxieties about the global slowdown. In, Britain
Barclays Plc (BARC.L) shares slumped for a ninth straight day, as concerns persisted it
may require further capital or be nationalised, despite another attempt by its chief
executive to calm investors.

John Varley said he was confident a second bailout plan unveiled by the British
government on Monday would boost credit supply and the economy, and if his bank took
part in an asset insurance plan it would probably pay in cash rather than shares.

Worries that the U.S. stimulus plan could be delayed have weighed on stock markets in
recent days, but now signs of progress have failed to outweigh the impact of grim
corporate reports and economic data.

European shares fell in early trade on Friday, with energy shares slipping as investors
continued to worry about slowing demand for crude oil worldwide.

Earlier, Asian stocks fell 2 percent to a 1-1/2-month low, weighed by poor corporate
results in the technology sector, while the U.S. dollar drifted higher as investors sought
refuge from the deteriorating global economy.

South Korea's Samsung Electronics OO5930.KS, the world's top maker of memory chips
and LCD screens, posted a fourth-quarter operating loss of 937 billion won (497 million),
more than twice as big as expected.

Sony Corp (6758.T) fell 7 percent after the electronics and entertainment conglomerate
reported a record annual loss, while Microsoft Corp (MSFT.O) shocked Wall Street by
missing its profit target and planning to cut up to 5,000 jobs.

(Reporting by Reuters bureaus around the world; Writing by Tomasz Janowski and David
Holmes; Editing by Kim Coghill)