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Bush, Sarkozy to meet as signs of recession mount
October 17, 2008 / 3:01 AM / 9 years ago

Bush, Sarkozy to meet as signs of recession mount

NEW YORK (Reuters) - Evidence piled up on Friday that the world is slipping into recession but the White House played down expectations for a weekend meeting between lame-duck U.S. President George W. Bush and European Union leaders.

<p>Traders work on the floor of the New York Stock Exchange, October 17, 2008. REUTERS/Brendan McDermid</p>

U.S. consumer confidence and new-home construction plummeted in recent weeks in further signs of economic slowdown. U.S. stock indices ended down on Friday despite better than expected earnings in the technology sector.

Bush, who leaves office in January after a November 4 election, said on Friday intervention by governments in the United States and Europe in the past week needed time to work.

The U.S. president played down expectations for Saturday’s meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso. The Europeans have said they want the meeting to pave the way for talks on an overhaul of the global financial regulatory system.

Interbank lending rates fell this week for the first time since July providing some hope that the worst of the global banking crisis may have passed, but stock markets around the world remained volatile, weighed down by recession fears.

European shares ended higher and oil rose $2 a barrel, but a rise in the U.S. dollar was a sign of investors seeking safety.

Among benchmark U.S. stock indexes the Dow Jones Industrial Average ended down 127 points or 1.41 percent after trading in a 560 point range. The S&P500 index ended down 0.62 percent.

Adding to the gloom about the U.S. economy, a senior Federal Reserve policy maker said the jump in the U.S. jobless rate suggests the economy will likely slip into recession.

Bush said he would continue “close consultations” with European leaders at the meeting on Saturday afternoon.

“Our European partners are taking bold steps. They show the world that we’re determined to overcome this challenge together. And they have the full support of the United States,” Bush said in a speech at the U.S. Chamber of Commerce.

But he did not specifically mention calls by European leaders to reform the financial system that the world has been operating under since 1944, and White House spokeswoman Dana Perino said the U.S. focus was on the immediate crisis.

“I think the most important thing we can do is make sure that we stop the bleeding here before we move on to the next project,” she told reporters.

Barroso and Sarkozy met Canadian Prime Minister Stephen Harper on Friday and agreed on the need for an international summit before the end of the year. Sarkozy said it should include China, India and other non-G8 countries.

Writing in the Washington Post on Friday, British Prime Minister Gordon Brown said post-World War II financial institutions were out of date.

Bush’s ability to act on such longer-term reforms is hamstrung by the fact that he will leave office in January.


A Reuters/University of Michigan survey said U.S. consumer confidence in October suffered its steepest monthly drop since the survey began in 1952. Earlier a U.S. government report showed construction starts on new homes fell to their slowest pace since January 1991.

“Confidence is collapsing so that’s not good even as you have gas prices falling,” said Doug Smith, chief economist for the Americas at Standard Chartered in New York. “People are seeing what’s happening to their 401ks, stocks and home prices. It’s just awful.”

<p>France's President Nicolas Sarkozy addresses a news conference at the end of a two-day European Union summit in Brussels October 16, 2008. REUTERS/Thierry Roge</p>

Charles Evans, president of the Federal Reserve Bank of Chicago, said the U.S. economy was likely to be “very sluggish” well into 2009, but actions to restore liquidity to financial markets would kick in over time.

Evans said the current spike in the U.S. jobless rates was a likely precursor to recession. “Unemployment rarely goes up this much without a recession following,” he told reporters.

A four-week moving average of new U.S. government jobless claims last week hit its highest point in seven years. Economists warn the outlook is grim going into the end of the year when companies assess their budgets for next year.

In the past week alone, companies including PepsiCo Inc and Danaher Corp said they would lay off thousands of workers, and the state of Massachusetts disclosed plans to cut its payroll by 1,000 as it faces a tax shortfall.

Despite Friday’s fall the Dow Jones Industrial Average still snapped a three-week losing streak with its best weekly gain in 5-1/2 years, a weekly rise of 4.75 percent.

Billionaire investor Warren Buffett wrote in the New York Times on Friday that he was buying U.S. stocks for his personal account, saying the market was likely to move higher before sentiment or the economy changed. “So if you wait for the robins, spring will be over,” he wrote.

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Interbank lending rates for dollars, euros and the pound fell, suggesting central banks’ efforts to provide liquidity were beginning to thaw frozen money markets.

Overnight rates on U.S. commercial paper fell to their lowest in nearly two weeks. It was a welcome move in the credit market, which has struggled after the bankruptcy of Lehman Brothers caused an upheaval in the industry.


Efforts to stabilize troubled economies continued.

Ukraine said the International Monetary Fund was prepared to give it $14 billion in credit.

Iceland faced more uncertainty as Russia indicated it was not yet convinced it should issue it a loan.

In Russia, Finance Minister Alexei Kudrin said investors had pulled $33 billion out of the country from August through September.

Hungary slashed its forecast for growth next year by almost two percentage points, after agreeing on a 5 billion-euro ($6.7 billion) deal with the European Central Bank.

In Asia, governments from Malaysia to Singapore scrambled to find ways to shore up their banks and avert recession.

A panel of Japan’s ruling Liberal Democratic Party was considering ways to recapitalize big banks with government money, Kyodo news agency reported.

In South Korea, authorities pledged action to stabilize markets. Media reports said the steps, to be announced on Sunday, could include funding for banks struggling to find international banks willing to lend dollars.

There was more bad news in the banking sector, which has been at the heart of the crisis. Dutch bank ING, the Netherlands’ biggest listed bank, said it expects its first quarterly loss ever, sending its shares to a 13-year low.

Reporting by Reuters bureaus around the world; Editing by Brian Moss and Steve Orlofsky

Our Standards:The Thomson Reuters Trust Principles.
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