NEW YORK (Reuters) - Three of the world’s largest economies painted bleak pictures of current conditions on Thursday as the United States, China and Germany all provided fresh evidence of the global economic slide.
Adding to the overall gloom, the Organisation for Economic Cooperation and Development (OECD) cut its economic output forecasts for the United States, Japan and euro zone, seeing a tumble into recession for all three.
The worst financial crisis in 80 years, which rippled around the world following the collapse of the U.S. housing market, is taking a heavy toll.
Germany said its economy, Europe’s largest, contracted by 0.5 percent in the third quarter, putting it in recession for the first time in five years.
The decline — much sharper than the 0.2 percent forecast — was accentuated by German export growth grinding to a halt.
“We are going to have to face up to a very difficult and long-lasting economic crisis,” Germany’s deputy economy minister, Walther Otremba, told Reuters.
Analysts agreed with that grim forecast.
“The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy,” said Carsten Brzeski of ING Financial Markets.
In the United States, the already bleak employment picture looked gloomier when initial claims for unemployment insurance, a weekly indicator, moved to 516,000 in the week ended November 1.
The worse-than-expected number was the grimmest since the weeks following the attacks of September 11, 2001.
“We no longer have hurricanes or other special factors to blame for elevated numbers as we did, say, in September,” said Dana Saporta, analyst at Dresdner Kleinwort. “So the higher level we are seeing is probably reflecting a fundamental weakening in the labour market.”
The United States also said it started off its fiscal year with a record — and unexpectedly high — budget deficit of $237.18 billion (161.58 billion pounds) in October as financial bailout costs piled up. In October 2007, the deficit was $56.84 billion.
In China, which has unveiled a 4 trillion yuan ($586 billion) stimulus package, annual industrial output growth slowed to 8.2 percent in October, the weakest since October 2001, as manufacturers scaled back production.
In global company news:
* British telecommunications company BT Group said it was cutting 10,000 jobs at home and overseas.
* Intel Corp cut its fourth-quarter revenue estimate on weak global demand.
* Goldman Sachs suspended its rating on General Motors Co and said the automaker needs at least $22 billion in federal aid to survive.
Still, U.S. stocks ended sharply higher on Thursday on widespread bargain-hunting after three down days in a row. The Dow Jones industrial average rose more than 550 points, or 6.7 percent.
After a series of big rate cuts by central banks, the OECD said it was time for more governments to provide an extra boost to their economies by way of fiscal stimulus in the form of tax cuts or increased government spending.
U.S. President-elect Barack Obama is advocating a second U.S. fiscal package and help for American carmakers, Japanese politicians are debating the details of a pump-priming plan and the British government is expected to follow suit in its pre-budget report later this month.
Obama, who will take office in January, is also considering appointing an auto czar when he takes office, according to an aide.
Leaders of the G20 industrialized and emerging nations will gather in Washington on Friday to discuss the crisis with investors hoping for concrete policy action.
Japan is prepared to offer foreign reserves worth up to $100 billion to the International Monetary Fund if the Washington-based lender needs extra funds to help emerging economies, a government source said on Thursday.
The summit falls at an awkward time politically as U.S. President George W. Bush prepares to leave office. He travelled to Wall Street on Thursday to outline his views on the financial markets.
Bush defended the free market system, but acknowledged there should be some reforms to correct the problems that led to the global financial crisis.
“While reforms in the financial sector are essential, the long-term solution to today’s problems is sustained economic growth,” the president said. [ID:nN13546369]
While Bush was in New York, the U.S. Congress pressed some in the financial community about the current state of the industry.
Some of the world’s richest and most powerful hedge fund managers said they support greater transparency for the secretive industry, but offered divergent views on whether the industry contributed to the financial crisis.
George Soros, chairman of Soros Fund Management, said hedge funds were an integral part of the financial market bubble that has now burst.
“A deep recession is now inevitable and the possibility of a depression cannot be ruled out,” Soros said at a U.S. House Oversight and Government Reform Committee hearing.
John Paulson, Philip Falcone, James Simons and Kenneth Griffin also testified.
The price of oil hit a 22-month low at $55 a barrel on worries that a recession will curb demand before bouncing back. Stocks in Europe ended down 0.4 percent, the third successive day of losses.
Banks warned of tough times ahead.
* Mizuho Financial Group, Japan’s No. 2 bank, said it plans to raise up to $3.1 billion after unveiling a $402 million quarterly loss.
* JPMorgan Chase & Co could face $1.6 billion-$1.7 billion of writedowns in the fourth quarter, according to analysts who cover the bank.
* Bank of Ireland said profits fell by a third and it cancelled its cash dividend.
* Shares of Commonwealth Bank of Australia hit a four-year low after it warned investors to expect a big jump in bad debt.
Reporting by Reuters bureaus worldwide; Additional writing by Keith Weir, Tony Munroe and Yoko Nishikawa; Editing by Brian Moss, Steve Orlofsky, Gary Hill