Global economy slows

Sept. 7, 2008

There is some growing evidence of a more widespread slowdown in global economic growth as growth rates fell again in the leading European economies. Unemployment still remains below 8 % in both France and Germany and in the leading EU economies.But according to official data growth has fallen   in the leading and largest European economies. Second quarter growth growth in the GDP fell to -0.5 %in Germany and to minus 0.3% in France and Italy. The first quarter growth rates were positive but fairly anemic. 1.3 % in Germany and 0.4 % in France, 0.5 % in Italy. The leading Euro 12 countries experienced - 0.2 % growth in the second quarter down from 0.7 % growth in the first quarter.The trend is downword. To back that up retails sales in the euro area have slumped . They are down from last year by as much as 1.3 % in Germany, 4.7 % in Italy ,6.2 % in Spain and 1.7 % for the Euro area as a whole.Despite these worsening conditions the European central bank refuses to cut interest rates, arguing that interest rates should remain stable to ward off the risk of inflation.This does not bode well for future unemployment rates in Europe in the near future.

Growth has slowed to a standstill in Britain as well with second quarter growth 0.0 % down from 0.3 % in the first quarter. House prices have also fallen by 12 %. Despite these obvious signs of a slowdown the Bank of England stubbornly refused to lower rates at their last rate setting excercise.The key rate stands at 5.0 % in the U.K. and 4.25 % in Europe.

Growth has also turned negative in Japan.

The US continues to deal with the fallout from the sub prime crisis as the Government today announced that it was taking the giant private mortgage banks Freddie Mac and Fannie May with combined mortages of over 5 trillion dollars into Conservership, essentially public ownership and trusteeship in order to guarantee the mortgage market against complete panic and collapse. Billions of dollars of common stock ownership in the two giant mortgage banks will be lost( these stocks were worth over 100 bilion over a year ago but had fallen in value over the past months). The Government will be in control of a majority of the preferred shares of the two companies in return for guaranteeing the securities issued by the two banks to finance the mortgages they hold. More than 5 trillion dollars in senior debt and mortgage backed securities holdings will be guaranteed by the effective nationalization of the two companies. Leading business spokesmen in the mortgage industry supported the move as necessary in order to prevent financial panic.