Wednesday 31 December 2008
by: Kim Coghill and Claudia Parsons, Reuters
Woman checks inventory at foodbank in Memphis Tennessee. As 2008 comes to a close, Americans are bracing for tough economic times ahead. (Photo: Jim Weber / Commercial Appeal / Lando)
Singapore / New York - Many investors said good riddance on Wednesday to one of the worst years on record and prayed that government rescue plans will pull the global economy out of its fierce tailspin later in the new year.
More pain is expected in the near-term as bleak economic reports roll in, flagging more bankruptcies, bad debts and layoffs through at least early 2009, and more sleepless nights for everyone from central bankers to consumers struggling to pay off mortgages and credit card bills.
The biggest financial crisis in 80 years, sparked by a U.S. mortgage meltdown, made this year one of the worst ever for investors as recession stalked the global economy.
"It has been a shocking year, hardly anything was spared in the market carnage," said Michael Heffernan, senior client adviser and strategist at Austock Group in Australia.
The slump wiped out nearly $14 trillion in market value, according to the benchmark MSCI world index of larger companies.
For all markets, the damage was probably much worse. The World Federation of Exchanges, which tracks stock markets in 53 developed and emerging economies, said some $30 trillion in market value evaporated through to the end of November.
The crisis also radically changed the financial landscape, bringing down U.S. investment banks Bear Stearns and Lehman Brothers, saddling many other banks with huge losses and freezing the credit system that keeps the world economy humming.
The U.S. S&P 500 benchmark has lost about 40 percent with just one trading day left in 2008. Its biggest yearly drop was in 1931 during the Great Depression, when it fell 47.1 percent.
Victims of the crisis are still piling up, with announcements almost daily of fresh company losses, more layoffs, and slumping prices for assets from cars to homes.
Oil slid below $37 as economic slowdown bit into demand. Gold was one of the few commodities to end the year higher, gaining about 4 percent, as panicky investors grabbed assets seen as safer in times of trouble.
Tuesday brought news from the United States that single-family home prices were down 18 percent in the year to October and consumer confidence was at a record low.
On Wednesday, data showed Finnish industrial output down over 10 percent in the year to November, the biggest drop in 17 years.
Hope
But with central banks cutting interest rates to spur growth and governments pumping money into the system, some investors see more positive signs for 2009.
"I think we'll move ahead a bit in the new year and then stabilize for a while. Global policymakers are doing their utmost to ensure the recession doesn't degenerate into a deflationary malaise," said Mike Lenhoff, chief strategist at Brewin Dolphin.
World governments have pumped more than $1 trillion into their economies, and more aid is expected in 2009 as leaders battle to stave off an even deeper recession.
China's central bank reaffirmed on Wednesday that it would implement a moderately loose monetary policy as it seeks to reinvigorate its once fast-growing economy.
Some economists forecast as little as 5 percent growth next year, which would be the country's lowest rate in nearly two decades. The Chinese central bank has cut interest rates five times since mid-September.
Indonesia's president promised further fiscal stimulus to help Southeast Asia's biggest economy withstand the slump. It is still growing but may not reach the 6 percent analysts say it needs to prevent unemployment from rising.
Global credit markets are showing some signs of improvement, but banks remain reluctant to lend to businesses and consumers, fearing a rash of bad loans as economies worsen.
Government stimulus plans, corporate bailouts and rate cuts also take time to be felt, and their full benefits are still being hotly debated by analysts and economists.
Mounting job losses are raising fears of social unrest in some countries, and piling pressure on governments to act quickly, even if it means huge deficits and debts that will have to be paid off somehow in the future.
Investors are now looking to January, when Barack Obama is sworn in as U.S. president on January 20. He is expected to unveil a government spending program which sources say could range from $675 billion to $775 billion over two years.
The new year will also mark attempts by policymakers to overhaul outdated regulatory systems to head off future crises and give them more power to oversee increasingly complex financial products.
Outgoing U.S. Treasury Secretary Hank Paulson said the U.S. government had to battle the financial crisis without the tools needed to do the job effectively, the Financial Times newspaper reported on Wednesday.
"We're dealing with something that is really historic and we haven't had a playbook," he said.
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Reporting by Reuters bureaux worldwide; editing by Matthew Tostevin.
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