Saturday, April 4, 2009

Recession threatens Chinese stability

A stark warning by state media yesterday of possible mass unrest in China signalled deepening fears over the global recession, as Europe grappled with more job losses and an energy cutoff during a winter freeze.

The Chinese economy might become so bad in the next few months that the fabric of the most populous nation could start unravelling, authoritative weekly Outlook, published by the Xinhua news agency, warned in its latest edition.

The magazine said that "enterprise closedowns, layoffs and labour disputes have significantly increased" and with workers' livelihoods threatened, "their pent-up discontent could easily burst out … and spark mass conflicts".

European workers are also feeling the global recession. Official data showed that the number of people out of work in Germany rose by 114 000 last month to 3.1 million.

On Britain's high street, iconic retailer Marks & Spencer said it would slash up to 1 230 jobs and close 27 stores as consumer spending, the driver of the British economy, shrank.

Analysts expect the Bank of England to intervene in this climate today and cut its key interest rate to a record low.

UK finance minister Alistair Darling said he could not predict an economic turnaround any time soon, as recession in Britain was expected to be officially confirmed by data later this month.

"In the current climate, no responsible finance minister could say that's the job done; far from it. We are far from through this," Darling told the Financial Times.

As most of Europe shivered in freezing temperatures, Russian state-run energy giant Gazprom cut Europe-bound gas deliveries through Ukraine.

More than a dozen European countries have reported shortfalls in gas delivery due to the payment dispute. About 80 percent of Russian gas exports to the EU pass through Ukraine.

"The Czech EU presidency and the European Commission demand that gas supplies be restored immediately to the EU and that the two parties resume negotiations at once," the EU said on Tuesday.

After recent rallies, oil prices slid in morning trade in London yesterday as traders awaited the latest weekly snapshot of crude inventories in the US.

The grim US economic outlook led European stocks to open lower, following a mixed performance by Asian bourses.

The US Federal Reserve indicated on Tuesday that the US economy was likely to be stuck in recession well into this year, with a "moderate recovery" in 2010, according to minutes from last month's policy meeting.

Tokyo stocks climbed to a two-month high, still optimistic about stimulus plans and on overnight gains on Wall Street, which also lifted the dollar against the euro and the yen.

But in India stocks plunged 7.25 percent on a billion-dollar fraud scandal at major software firm Satyam Computer, and Hong Kong closed 3.4 percent lower on China telecoms and banking stocks, dealers said.

In the biggest cellular market, the Chinese government issued long-awaited third-generation (3G) licences, which are expected to pour billions of dollars into new networks.

Analysts said that although it might be years before 3G services became popular in China, issuing licences would immediately benefit equipment makers such as Siemens, Ericsson and Nokia, as well as local rivals.