THE world economy has taken a sharp turn for the worse, with early estimates showing global output fell more than 4 per cent in the last three months of last year, with further decline expected over the next six months.
The OECD warned yesterday of a “deep slowdown” in all major industrial economies and most of the emerging economies, including China.
The last official forecasts from the International Monetary Fund had predicted China would continue to record strong growth, while the world economy was tipped to grow 2.2 per cent this year. However, estimates are being revised sharply lower in the wake of huge falls in industrial production in all major world economies.
Although the severity of the global downturn will hit Australia’s prospects, the credit rating agency Standard & Poor’s yesterday said its AAA credit rating was not in jeopardy.
New Zealand, Spain, Greece and Ireland have all been warned over recent days that their credit ratings are at risk.
Wayne Swan said yesterday it was too soon to tell how Australia would be affected by the deteriorating world outlook.
“There’s no doubt if you look around the world at the moment, and indeed if you look at the Standard & Poor’s assessments of other economies, world growth is going to slow, and slow perhaps more rapidly than many had thought towards the end of last year. And that will have an impact on the Australian economy,” the Treasurer said.
The Australian mining industry yesterday announced plans to cut 570 jobs across three states with Rio Tinto shelving nearly $900 million of planned expansions.
Swiss-based mining giant Xstrata said it would cut another 89 contractors and 60 employees at its Mt Isa zinc operation in response to the world financial crisis.
Further job losses will come from Rio’s decision to cancel a copper mine expansion in NSW and the closure by OZ Minerals of zinc mines in Queensland and Western Australia.
The US bank JPMorgan estimates that economic growth in the industrialised world fell at anannual rate of 5.2 per cent in the December quarter while emerging countries contracted by 2.3 per cent.
Official figures will be released over the next six weeks, but JPMorgan estimates the global downturn at 4.6 per cent.
JPMorgan economist Helen Kevans said the bank had been expecting that Australia would enjoy a lift in its exports next year, but had downgraded its forecast and expected Australia to suffer a recession with negative growth in both the December and March quarters.
Monthly surveys of manufacturing production conducted in all major economies indicate that world industrial production slumped 19 per cent in the December quarter.
World steel output tumbled 17per cent between September and November.
“Chinese production was falling sharply, and although it stabilised a bit in November, there were massive falls in the United States and in other steel-producing countries,” ABN-Amro chief economist Kieran Davies said.
He noted that Japan’s industrial production fell by 8 per cent in November, its biggest fall in 55 years. There were smaller falls in industrial production in Germany, France, Britain and Spain.
“Everyone is forecasting big contractions for Japan, the Eurozone and the US, and the weakest growth for China in ages,” Mr Davies said.
The OECD warned yesterday that the seven biggest industrial economies and the major emerging economies were all facing a deep slowdown, based on its “leading index”.
The OECD compiles an index based on figures such as housing starts, share prices and manufacturing employment, which has a proven track record of predicting industrial production growth over the next six months.
The index has been pointing to a sharp downturn in China since the middle of last year, with the outlook deteriorating further in October and November. Brazil is the only major economy expected to record positive growth, and it is also slowing.
ANZ international economist Amy Auster said the figures on world manufacturing output were much worse than for service industries. She said it was possible that manufacturing was being damaged by the reduced availability of trade finance, which was choked by the global banking crisis in October and November.
This had contributed to some huge falls in trade. Taiwan, for example, reported a 42 per cent slump in its exports in November. Korea’s export shipments have also been hit, falling 17 per cent last month, with forecasts of a 30per cent fall this month.
Ms Auster said the OECD leading index showed the global economy was set for a more severe contraction than in 2000-01. “That was a very bad period for Asia in the wake of the tech-wreck, and it looks like we’re on a worse trend than that now,” she said.
The IMF will publish updated forecasts for the world economy before the end of the month. The fund’s managing director, Dominique Strauss-Kahn, said on the weekend that there would be “some decrease” in its forecasts.
Responding to yesterday’s report in The Australian on pressure for planned tax cuts to be brought forward, Mr Swan said the Rudd Government stood ready to unveil further measures to spur growth. However, he said the Government wanted to assess the effect of its $10.4 billion package first.
Opposition Leader Malcolm Turnbull said the need for a further stimulus package had to be assessed week by week as economic numbers came in.
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