Sydney, Dec 5, 2008 (ABN Newswire) - The gathering pace of the global slump is forcing more and more central banks to hack their official interest rates lower.
The Bank of England chopped its rate by 1% to 2%, the lowest in almost 60 years; the European Central Bank lopped 0.75% off its key rate to 2.5% and the Bank of Sweden dropped its key rate by a huge 1.75% to 2%.
The ECB said they eurozone region would be in recession in 2009, echoing the forecast from the IMF.
So no change. The Bank of England is looking at another tough year for the country's economy. House prices dropped 2.6% last month in the UK.
France revealed a $50 billion spending package to try and boost the economy including aid to its major car makers, Renault and Peugeot. Germany's parliament passed a $A63 billion package.
Denmark's central bank also cut its key interest rate by 0.75% to 4.25% in line with the ECB cut.
New Zealand took an axe to its official cash rate, slashing it by a record 1.5%, two days after the Reserve Bank cut Australia's rates by a record equalling 1% for the second time in two months.
Thailand's central bank cut its official rate 1% Wednesday as the political instability seemed to ease.
The Bank of Japan is reportedly meeting to discuss the economy and a lending plan for business and banks.
Sweden's central bank brought forward a normal meeting from December 16 to overnight and surprised with a huge cut which reflects the growing concern at the deepening recession.
Sweden's economy is dependant on exports which account for nearly half annual economic output.The country is already in recession, like New Zealand.
The New Zealand cut came as the central bank tried to counter the impact of a deepening recession (at least we in Australia are trying to stave off a recession).
The cut to 5% for the country's official cash rate had been tipped as a succession of figures showed New Zealand was falling deeper into a slowdown that started in the second quarter.
"Ongoing financial market turmoil and the marked deterioration in the outlook for global growth have played a large role in shaping today's decision.
"Activity in most of our trading partners is now expected to contract or grow only very slowly over the next few quarters," Reserve Bank Governor Alan Bollard said in a statement posted on the bank's website.
"Economic activity in New Zealand will be further constrained as a result, compared with our view in October.
"Today's decision takes monetary policy to an expansionary position," echoing the comments made by the Reserve Bank of Australia when it cut our rates 1% on Tuesday.
"Our growth figures for the September quarter were bad with non-farm growth declining 0.3%, consumption weak, business investment looking spotty and the economy facing a crunch mid year when commodity prices are much lower."
Looking at recent reports, you can see why central banks are hacking.
Take Sweden: to bring forward a meeting by a fortnight is a major move, but with car companies like Saab and Volvo caught up in the dramas surrounding their US owners (GM and Ford respectively) and reporting sliding sales, the situation is serious.
They are all major exporters, which are being hurt by the slowdown in Europe and the US.
But then one of the country's big truck makers, Scania, reveals it is cutting production for a month across Europe because no one is ordering trucks.
It will run from Sunday week for four weeks. Bus production will stop for three weeks from just before Christmas
Orders for heavy trucks plunged by 41% in Sweden, but in western Europe, Scania's biggest market, they dived by 69% and 45% in eastern Europe.
German car registrations fell 17.6% in November, not as bad as America's 37% plunge, but bad enough. Japanese and South Korean car sales were down 27% last month.
Australia's car sales plunged 22% in the year to November (and 11% from October)
Spanish car sales are down 26% so far this year. These falls are being reflected in the plunging levels of confidence, demand and activity in manufacturing in major economies
More worrying is the emerging picture showing that service sectors in major economies are slumping as fast, if not a bit faster than manufacturing.
Overnight US factory orders fell more than 5% in October, more than expected and a worrying sign of the damage being done from slumping demand for US manufactured goods.
US jobless numbers were again over half a million last week, for the 5th week in a row.
Same store retail sales at major chains in November (except huge Wal-Mart) fell 2.7%.
Last weekend's shopping surge was less than expected, which means a rotten Christmas. Some big US chains like Gap and JC Penny, saw same store sales plunge more than 10% last month.
Wal-Mart sales rose 3.4% as it continues to suck in business from its rivals.
A spate of surveys of manufacturing index surveys on Monday revealed record lows in China, Australia and the US, among others.
Now service industries in the US, Australia, Europe the UK have experienced the same sort of slump. In the US the service sector contracted the most in at least 11 years.
In Australia it was a record low, as was the report for the UK.
Europe's was poor: the revised eurozone purchasing managers' indices service sector output contracting at the fastest rate since the surveys began in mid-1998.
But it also should be remembered that there's a bit of cross-pollination happening here: a drop in confidence produces a drop in demand, which in turn forces the index down that generates poor publicity, which starts the process all over again.
America's Institute for Supply Management's index (ISM) of non-manufacturing businesses, which make up almost 90% of the economy, fell to 37.3 in November, the lowest level since records began in 1997. It was forecast to fall to 42.
And yesterday the Fed produced its so-called Beige Book, which is a collection of reports on the economy in each of its 12 districts.
It's anecdotal, and it was gloomy with strong indications that the US economy's plight has worsened since the last report six weeks ago. It will be used for the next Fed meeting on December 16.
Retail sales, tourism spending and manufacturing declined in most places, housing markets were "weak" and commercial real estate "weakened broadly," the Fed said its Beige Book.
"Overall economic activity weakened across all Federal Reserve Districts since the last report.
"Districts generally reported decreases in retail sales, and vehicle sales were down significantly in most Districts. Tourism spending was subdued in a number of Districts.
"Reports on the service sector were generally negative. Manufacturing activity declined in most Districts, and new orders were soft.
"Nearly all Districts reported weak housing markets characterized by reduced selling prices and low, but stable, sales activity. Commercial real estate markets declined in most Districts.
"Lending contracted, with many Districts reporting reductions in residential, commercial and industrial lending and tightening lending standards.
"Agricultural conditions were mixed with a relatively good harvest but concerns about profitability. Mining and energy production and exploration started to soften due to lower output prices.
"District reports generally described labor market conditions as weakening. Wage pressures were largely subdued.
"District reports characterized price pressures as easing in light of some decreases in retail prices and declines in input prices, particularly energy, fuel, and many raw materials and food products."
AIR publishes a weekly magazine. Subscriptions are free at http://www.aireview.com.au