Europe's Recession
Europe has entered its first recession in 15 years with sales, profits and hiring dropping rapidly. The European Central Bank responded belatedly with the fastest interest rate cuts in its history accompanied by fiscal stimulus in many countries. The ECB last week lowered its benchmark rate by a half point to 3.25 percent, the second cut in a month.
As recently as July the ECB raised rates to fight inflation. That move is now widely seen as a mistake. The downturn may last longer in Europe than in the U.S. and Asia because Europe was slower to respond.
Europe's economy is important to the U.S. because it is a major trading partner. As much as one-third of the profits of major U.S. companies comes from Europe and a decline in activity there leads directly to the loss of jobs in the U.S.
Europe's downturn surprised economists. In July they predicted a 35 percent chance of a recession in 2008. Policy makers expressed confidence that the economy would dodge a recession even as the U.S. faltered.
The major shocks hurting Europe's economy included the euro's rise to a record $1.60 in mid-summer (making exports too expensive), the strongest inflation in almost 16 years and oil's jump to $147 a barrel in July. The credit crunch then hit after the September collapse of Lehman Brothers.
(compiled from Bloomberg news and other sources)
Interesting Statistics
U.S. stocks yesterday rallied the most in two weeks, with the Standard & Poor's 500 Index jumping 6 percent in the final hour after being down significantly earlier in the day.
More than $30 trillion has been erased from the value of global equity markets this year as credit losses and writedowns totaled $959 billion in the worst financial crisis since the Great Depression.
Earnings for companies in the Stoxx 600 in Europe will fall 8.4 percent this year, according to data compiled by Bloomberg News as of Nov. 7. That compares with an estimate for 11 percent growth at the start of the year.
www.bloomberg.com
www.ft.com
Europe has entered its first recession in 15 years with sales, profits and hiring dropping rapidly. The European Central Bank responded belatedly with the fastest interest rate cuts in its history accompanied by fiscal stimulus in many countries. The ECB last week lowered its benchmark rate by a half point to 3.25 percent, the second cut in a month.
As recently as July the ECB raised rates to fight inflation. That move is now widely seen as a mistake. The downturn may last longer in Europe than in the U.S. and Asia because Europe was slower to respond.
Europe's economy is important to the U.S. because it is a major trading partner. As much as one-third of the profits of major U.S. companies comes from Europe and a decline in activity there leads directly to the loss of jobs in the U.S.
Europe's downturn surprised economists. In July they predicted a 35 percent chance of a recession in 2008. Policy makers expressed confidence that the economy would dodge a recession even as the U.S. faltered.
The major shocks hurting Europe's economy included the euro's rise to a record $1.60 in mid-summer (making exports too expensive), the strongest inflation in almost 16 years and oil's jump to $147 a barrel in July. The credit crunch then hit after the September collapse of Lehman Brothers.
(compiled from Bloomberg news and other sources)
Interesting Statistics
U.S. stocks yesterday rallied the most in two weeks, with the Standard & Poor's 500 Index jumping 6 percent in the final hour after being down significantly earlier in the day.
More than $30 trillion has been erased from the value of global equity markets this year as credit losses and writedowns totaled $959 billion in the worst financial crisis since the Great Depression.
Earnings for companies in the Stoxx 600 in Europe will fall 8.4 percent this year, according to data compiled by Bloomberg News as of Nov. 7. That compares with an estimate for 11 percent growth at the start of the year.
www.bloomberg.com
www.ft.com