Global growth will be very weak next year, a senior European banker warned on Tuesday, and loans to companies and household in the euro zone stagnated, raising new concerns about the extent of the credit crunch. In New York, a private research group said US consumer confidence hit an all-time low in December, dropping unexpectedly in the face of layoffs and deteriorating markets for housing, stocks and other investments. The Conference Board's Consumer Confidence Index fell to 38 in December, from a revised 44.7 in November. Economists surveyed by Thomson Reuters had expected the index to rise incrementally to 45. The separate Present Situation index, which measures how respondents feel about business conditions and employment prospects, fell to 29.4 in December from 42.3 in November. It is now close to levels last seen after the 1990 to 1991 recession. Japan was reported to be considering a $110 billion scheme to buy bad loans from banks, the latest in a series of government moves aimed at fighting the worst downturn since the 1930s. Japanese stocks finished modestly higher on their last trading day of 2008, capping a grim year which saw the Nikkei index plunge 42 percent, the biggest loss in its 58-year history, as recession fears battered global markets. In Europe, the main stock markets were on track for a 46 percent loss over the year when trading ends on Wednesday. “Problems in financial markets are affecting the real economy across the world and global growth is expected to be very weak in 2009,” European Central Bank Governing Council member John Hurley said in an article for the Irish Times. He did not give a global figure but the ECB has already cut its forecast for the euro zone, predicting a 1 percent fall in gross domestic product next year. Lending to euro zone companies and households stagnated in November, the weakest result on record, bolstering expectations that the European Central Bank will keep cutting interest rates to ward off a deep recession. “The sharp slowdown in euro zone private sector lending in November is likely to raise concern at the ECB over a credit crunch in the region,” ING Financial Markets economist Martin Van Vliet said. Retail spending in the euro zone fell for the seventh straight month in December. The head of the German exporters' association, BGA, forecast exports will fall next year for the first time since 1993. Analysts forecast more pain for consumers and investors in 2009 as bleak economic news continued to flood in from around the world, but said hopes of more government rescue packages were helping to shore up financial markets for now. “Everyone's pinning their hopes on economic stimulus policies by the United States and possibly China,” said Tomomi Yamashita, a fund manager at Shinkin Asset Management. The US government expanded its bailout of the auto industry late on Monday, pumping $5 billion into General Motors' auto and mortgage financing arm GMAC and lending an additional $1 billion to GM to help it buy shares in GMAC, which is considered crucial to GM's survival. The loan to GM, the biggest US automaker, would come on top of assistance it was given earlier this month. The US government agreed on Dec. 19 to rescue GM and Chrysler LLC with up to $17.4 billion in loans to stave off a collapse that would have cost hundreds of thousands of jobs and dealt a severe blow to an economy already in recession. Japan's government may also be weighing fresh moves to keep the country from sliding deeper into recession. The daily Sankei Shimbun reported on Tuesday that the government and central bank hope to launch a $110 billion scheme by the end of March to buy bad loans and other financial assets from banks using public money to ease the corporate credit crunch. The move would theoretically free up banks to lend more money to companies which are struggling to raise funds through more traditional means such as selling bonds or new shares. But analysts doubted whether any such plan would be as effective today as in the late 1990s, when Japanese banks were saddled with a much bigger pile of bad loans. Japan's gross domestic product has likely shrunk in the fourth quarter of 2008 by 12.1 percent on an annualized basis, in what would be its sharpest contraction in 34 years, Barclays Capital said. South Korea pledged on Tuesday to ramp up support for its banks next year as more grim economic news flooded in. South Korea's industrial output fell 10.7 percent in November, the biggest monthly decline since 1987, as domestic and export demand slumped. Many forecasters believe the downturn will continue well into mid-2009, with more layoffs and bankruptcies to come, but investors are hoping battered stock markets will rebound sooner in anticipation of a recovery.
