World leaders head for crisis summit, euro zone in recession

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HONG KONG/LONDON, Nov 14 (Reuters): World leaders headed to Washington on Friday to discuss ways to protect the global economy from a repeat of the worst financial crisis in 80 years.
The worst financial crisis in 80 years has weakened the world's major economies and official data showed the 15-nation euro zone economy had shrunk by 0.2 percent for the second quarter in a row.
"We will probably see further falls in output in the first few months of next year, before a gradual improvement later in the year, but we think that there will be no real recovery before 2010," said Nick Kounis, an analyst at Fortis Bank.
Germany, Europe's largest economy, has reported it is in recession, and Spain said its economy shrank in the third quarter. Other countries, including Singapore, New Zealand, Ireland and Estonia, have fallen into recession.
Leaders of the G20 developed and emerging countries, which represent 85 per cent of the world's economy and two-thirds of its population, will discuss ways to try to ensure the crisis, started by a U.S. housing market crash, is not repeated.
But agreement is unlikely over whether more regulation of markets can protect consumers, savers and companies from the fall-out of such a crisis, when banks failed, savings were lost and small and medium-businesses collapsed.
Washington says there should be no return to greater state control of financial markets. Much of Europe says without more regulation, a repeat of the last year's turmoil is inevitable.
The Organisation for Economic Cooperation and Development (OECD), the IMF and the World Bank have forecast that advanced economies will contract next year.
Emerging economies have also been hit, analysts say.
China, which has enjoyed a booming economy, reported capital spending on Friday that was slightly lower than expected, the latest in a series of indicators pointing to slowdown for the world's fourth-largest economy.
Some countries have been forced to turn to global lenders for funds to prop up faltering economies.
Pakistan said it expected the IMF and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million to avert a balance of payments crisis.
Shaukat Tarin, the country's top economic adviser, told Reuters late on Thursday the government would soon send a letter of intent to the IMF.
Markets bounced after days of falls. Stocks in Asia were broadly higher after U.S. shares gained nearly 7.0 per cent. Oil held onto gains after hitting a 22-month low on Thursday.
European shares jumped 2.5 per cent.
Companies, most notably banks, continued to suffer.
The world's largest municipal lender, Dexia, posted a quarterly loss of 1.544 billion euros ($1.93 billion) and said it had agreed to sell its FSA insurance business to Assured Guaranty.
Sumitomo Mitsui Financial Group, Japan's third-largest bank, said its quarterly profit halved on ballooning bad-loan costs and losses on its stock portfolio, and it stuck to its full-year forecast for a fall of 61 percent.
An AFP report from Washington adds: New US data yesterday showed an alarming drop in trade and Germany officially plunged into recession, as gloom deepened ahead of a Washington summit on the worldwide economic crisis.
News that the recessionary blast is now sweeping deep into advanced economies overtook preparations for talks among world leaders in Washington Friday and Saturday on halting the damage.
But it didn't stop Japan's Nikkei index from rising more than five per cent in early trade Friday after a powerful rally on Wall Street.
Germany, the biggest European economy and number three worldwide, pitched officially into recession as output contracted for the second quarter running, by 0.5 per cent in the third quarter, according to figures from the national statistics service Destatis.
In the United States, data showed a steep drop in both imports and exports, highlighting the slowdown in the world's biggest economy and a likely global recession.
The Commerce Department said the US trade deficit narrowed 4.4 percent in September to 56.5 billion dollars. What normally would be seen as an improvement in the trade balance set off alarms with a record drop in imports and a plunge in exports.
Xinhua adds from Vienna: The overall world economy would further decline in next few months, according to a forecast report released by the Austrian Institute for Economic Research (Wifo) Thursday.
The report said that the actual growth rate of the world economy will touch only 3.0 per cent this year after an average growth rate of 5.0 per cent for the past four consecutive years, and is estimated to be even lower next year.
Due to the deepening economic crisis, the world economy is "further weakening" and the sliding tendency will not halt in the near future.
In addition, the current global financial rescue plans "may not really permanently stabilise the financial system." The premise of a real recovery of the world economy is that "the American real estate market appears a favourable turn, and the liquidity and solvency problems of financial institutions are solved."
The report forecasted that the average growth rate of the U.S. economy for the whole 2008 may be as low as only 1.5 per cent. Influenced by the downturn of the U.S. economy, the economy of the European Union (EU) is also weakened. Countries like Britain, Ireland and Spain are facing more serious economic situations due to severe real estate crisis.
The gross domestic production (GDP) of the eurozone decreased by 0.2 per cent for the second quarter of 2008 compared with the same time last year, and the economy further decelerates in the second half of the year, which may attribute to an actual economic growth rate of only 1.2 per cent for the eurozone for the whole 2008.
Although new EU countries may still seen an economic growth of 4.9 per cent this year, due to an overall deteriorated financial condition, consumption in private sectors of the EU is estimated to be "obviously lower", and the general EU economy will " further decelerate".
The report also pointed out that the currently declining international prices of raw materials, especially the oil prices which have dived to about half of the peak price of early summer this year, have admittedly eased the tension of inflation.