World Bank warns of trouble ahead as German confidence slumps
2008-12-18

Category World Bank OPEC Nations Germany France City Frankfurt Paris States Hessen Category Regions Frankfurt am Main Regions Europe Ile-de-France People Robert Zoellick Event 2008 U.S. Recession Source (AFP)

FRANKFURT (AFP) - Fears of a prolonged world recession deepened Thursday as the World Bank's supremo warned of a turbulent six months ahead and business sentiment in Europe's biggest economy hit a record low.

As oil markets briefly sank below 40 dollars a barrel despite OPEC's decision to slash daily production by nearly 10 percent, further grim jobless data added to the gloom.

Speaking in Singapore, World Bank chief Robert Zoellick said it was vital that countries did not shelter behind protectionism during the economic storm.

"I am afraid that the first six months of 2009 are going to be a problem worldwide," Zoellick told reporters.

"In the discussions that I have had with people around the world, no one has a very good prediction for the length and depth of this crisis," he added.

A World Bank report last week said the global economy would expand a mere 0.9 percent next year and world trade volume would fall 2.1 percent, the first drop in 26 years.

The United States, Japan and much of Europe is already in recession, including Germany where a new survey showed business sentiment in Europe's biggest economy was at the lowest level on record.

The Ifo index recorded a fall for a seventh straight month to a record low of 82.6 points in December and also showed that business activity slumped across the 15-nation eurozone.

"December's fall in the German Ifo business climate index brings further evidence that, far from weathering the storm, the German economy is in the midst of it," Capital Economics economist Jennifer McKeown said.

The previous all-time low of 84.8 points was set during a recession in February 1993.

"The dominant feature of the December decline is the worsening of the firms' current business situation," an Ifo statement quoted institute president Hans-Werner Sinn as saying.

"The downturn is affecting above all the manufacturers of export and capital goods and less, up until now, retailing and construction," he added.

The global slowdown has led to a sharp reduction in demand for oil, reflected in a decision by OPEC on Wednesday to slash daily output by a record 2.2 million barrels.

Although analysts said the move should be enough to halt the downward spiral of prices, a rebound would be some way off.

The cuts "will help to establish a floor for prices, but a rebound up to the price level OPEC is aiming to achieve -- 70-80 dollars -- will be some time in coming," said Simon Wardell, an analyst at the IHS Global Insight consultancy.

Immediately after the announcement, oil prices fell to their lowest level in four and a half years.

However there was a slight rally on Thursday with light sweet crude for delivery in January gaining 24 cents to 40.30 dollars a barrel on the New York Mercantile Exchange (NYMEX) after earlier hitting a low point of 39.19.

On London's InterContinental Exchange (ICE), Brent North Sea crude for February added 29 cents to 45.82 dollars per barrel after sinking as low as 45.08.

Trading was largely steady on the stock markets. Japanese share prices closed 0.64 percent higher on rising expectations the central bank would cut interest rates.

Hong Kong shares closed 0.2 percent higher as measures from China aimed at boosting real estate markets lifted locally listed developers.

But signs of slowdown in China's financial hub were again evident with figures showing unemployment rose to 3.8 percent in November.

European stocks markets held steady at the open on Thursday, with the FTSE 100 index in London down by a marginal 0.01 percent at 4,323.57 points.

In Paris, the CAC 40 index firmed 0.42 percent to 3,255.48 points and Frankfurt's DAX index was up 0.46 percent at 4,730.10.

In the United States, the Securities and Exchange Commission came under more pressure after The Wall Street Journal reported that they had already investigated and discounted fraud allegations against disgraced financier Bernard Madoff.

The report came after Madoff, accused of pulling off a 50 billion dollar fraud, was ordered by a judge to wear and electronic tage and obey a curfew as part of stringent new restrictions under his 10-million dollar bail.