World economy gets reality check after G20 euphoria

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WASHINGTON, April 4 (AFP): Gloomy data from the world's leading nations yesterday provided a stark reminder of the perilous state of the global economy a day after euphoria stemming from a G20 summit in London.
The US jobless rate leapt to a 25-year high of 8.5 per cent in March as employers shed 663,000 jobs, offering evidence the crisis is far from over.
"Obviously, this is hitting the United States hard," US President Barack Obama said, as he addressed the deepening economic slump during a joint news conference with German Chancellor Angela Merkel on a visit to Germany. "If we do not have concerted action, we will have collective failure."
There was also another decline in the key US services sector, which contracted for the sixth consecutive month in March instead of the uptick analysts expectated for the sector that dominates the world's top economy.
The Institute for Supply Management said its nonmanufacturing index stood at a seasonally adjusted 40.8 per cent in March, 0.8 per centage point lower than the 41.6 per cent registered in February. The ISM index sets 50 per cent as the barrier between growth and contraction.
Economists said the unrelenting surge in joblessness was not surprising because recovery will begin to show up in other data.
Douglas Porter, economist at BMO Capital Markets, said the view looking forward is not as bleak as in the rear-view mirror. "Employment will be among the last major indicators to turn the corner," he said.
"First, sales must revive, and then be sustained, then business will try to squeeze more out of remaining employees, then add hours to the workweek, and only then add to payrolls. So, even as jobs spiral lower, another broad array of indicators this week suggested that the howling recession winds may be easing a touch."
Ethan Harris at Barclays Capital said that the test for the economy will be to sustain recovery with the help of government stimulus even if rising unemployment dents consumer spending, the key driver of activity.
"The fiscal stimulus will be overwhelmed if the job market does not begin to stabilize in the coming months," he said.
The outlook was dismal in Europe too, where the Spanish central bank forecast an unemployment rate of 19.4 per cent next year and Ireland said its recession-hit economy would shrink by about 7.0 per cent in 2009.
There was a note of optimism however as the Purchasing Managers Index in the eurozone improved. The PMI level rose to 38.3 points from 36.2 points in February-although still far below a 50-point threshold indicating contraction.
The upward revision of the index "marginally boosts hopes that the rate of contraction could be starting to moderate," said Howard Archer, chief European economist at IHS Global Insight, an economic research consultancy.
There was also fresh data from China indicating manufacturing activity expanded in March for the first time in six months, pointing towards a "stabilizing" economy following massive stimulus measures by Beijing.
The official Purchasing Managers Index for China's manufacturing sector rose to 52.4 in March from 49 in February, the China Federation of Logistics and Purchasing said in data released late Thursday.
Elsewhere, Russia's economy contracted seven per cent in the first quarter of 2009, Economic Development and Trade Minister Elvira Nabiullina announced.
And Mexico said it would tap into a credit swap with the US Federal Reserve, after this week seeking to open a 47-billion- dollar IMF credit line, as the crisis hits hard below the US border.
With a tumbling peso and some 80 per cent of exports to the United States, Mexico aims to help businesses with dollar debts and reassure foreign investors with the moves.
The Group of 20 summit in London on Thursday culminated in a 1.1- trillion-dollar injection into major multilateral institutions such as the IMF to help battle the spreading global recession.
US President Barack Obama hailed the moves as a "turning point" for the world economy but warned this did not guarantee swift recovery. British Prime Minister Gordon Brown said the talks ushered in a "new world order."
The summit outcome was generally well received by observers but there was a note of caution in some media. "Some useful progress but still a way to go," said an editorial in the Financial Times business daily.