TOPWRAP 4-World faces slowdown in 2009, hopes pinned on bailouts

Tue Dec 30, 2008 12:55pm EST

* U.S. confidence plunges, home prices down 18 pct

* U.S. auto and home lender GMAC expands lending

* Global growth seen very weak next year - ECB's Hurley

* Euro zone lending stagnates, pressure for rate cut

* Japan is said to mull $110 billion plan to buy bad loans (For stories on the financial crisis, click on [nCRISIS]

By Claudia Parsons

NEW YORK, Dec 30 (Reuters) - Another day, another batch of warnings and data indicating the world will enter 2009 in the throes of a sharp economic slowdown, with governments scrambling to find ways to boost lending and spur growth.

Oil and gold prices dipped on Tuesday, pressured by the gloomy global economic outlook which outweighed tension in the Middle East due to Israel's assault on the Gaza Strip. [O/R]

Tuesday brought more dismal economic news in the United States, with single-family home prices down 18 percent in October from a year earlier and consumer confidence plunging to a record low due to severe job cuts. [ID:nN30339924]

U.S. retailers are also suffering. The International Council of Shopping Centers said the U.S. holiday shopping season was the worst since at least 1970 due to the recession, heavy discounting and harsh winter weather. [ID:nN30335648]

"Really at this point we are not going to be seeing anything fundamentally positive from the U.S. for the time being," said Michael Wolfolk, senior currency strategist at the Bank of New York Mellon in New York.

But U.S. stock markets found some cause for cheer in news that the government expanded its bailout of the auto industry, pumping $5 billion into General Motors' (GM.N) auto and mortgage financing arm GMAC. [ID:nN29320920]

GMAC and its parent GM, the biggest U.S. automaker, announced programs to make it easier for car and truck buyers to get financing, a day after the U.S. government said it was pumping $5 billion into GMAC and lending an additional $1 billion to GM to help it buy shares in GMAC. [ID:nN30334866]

The U.S. 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 in an economy already deep in recession.

2009 GROWTH SEEN VERY WEAK

A senior European banker warned global economic growth will be very weak next year and new data showed loans to companies and households in the euro zone stagnated, raising new concerns about the extent of the credit crunch.

"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 the Irish Times. [ID:nLU26392]

He did not give a global figure but the ECB has already cut its forecast for the euro zone, predicting a 1.0 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. [ID:nLU226461]

Retail spending in the euro zone fell for the seventh straight month in December, [ID:nLU633667] and the head of the German exporters' association, BGA, forecast exports will fall next year for the first time since 1993. [ID:nLU519939]

In Europe, stocks .FTEU3 were on track for a 46 percent loss over the year when trading ends on Wednesday, and on Wall Street, the benchmark S&P 500 .SPX is down about 40 percent, making 2008 one of its worst years ever. [.N]

The euro continued its recent surge against the British pound and the dollar. The contrast of aggressive monetary easing in the United States versus a more cautious ECB is lending support to the euro while hurting the greenback, analysts said. [ID:nN30348974]

REAL ECONOMY HIT

Analysts forecast more pain for consumers and investors in 2009, but said hopes of more government rescue packages were helping to shore up financial markets for now.

The daily newspaper Sankei Shimbun said the Japanese 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. [ID:nT283217]

Japan's gross domestic product has likely shrunk in the fourth quarter by an annualized 12.1 percent, whic would be its sharpest contraction in 34 years, Barclays Capital said. [ID:nT309895]

Japanese stocks finished modestly higher on their last trading day of 2008, capping a grim year which saw the Nikkei index .N225 plunge 42 percent, the biggest loss in its 58-year history, as recession fears battered global markets.

"2008 was the year of the serpent, everyone got bitten," said Paul Biddle, a fund manager with Souls Funds Management in Australia.

In a sign of shrinking economic activity across borders, international airlines saw a huge 13.5 percent fall in cargo traffic in November and a drop of 4.6 percent in passengers, the carriers' grouping IATA said. [ID:nLU83911]

"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.

China announced a 4 trillion yuan ($586 billion) stimulus package last month to tackle a sharp slowdown that many economists forecast could cut growth next year to less than 7.5 percent, the country's lowest since 1990.

(Reporting by Reuters bureaux worldwide; Editing by Clive McKeef)

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