As the US moves towards passing an economic stimulus package and reshaping its banking bailout and assistance, there’s bad news from Asia that should cause tremors here.
The US Senate will vote on the $US872 billion package, the US Treasury Secretary, Tim Geithner is due to outline the bank package overnight Tuesday and now there’s news that Russia is looking to reschedule debt.
That has already shaken currency markets in Asia and Europe after it was reported by the leading Japanese business paper, the Nikkei.
The move was then confirmed by this report on Bloomberg
“Russian banks asked the government to moderate talks to restructure $US400 billion of loans to foreign banks falling due within four years, said the head of the Russian Association of Regional Banks.”
“It would be most effective if the debt were restructured so it’s clear to everyone, creditors and borrowers, how the debt will be paid,” Aksakov said. “The government has the money. Some companies and banks have rather large hard currency liabilities on their balance sheets.”
Speculation of European bank losses on Russian loans drove declines in the euro against the dollar and yen today. Russia has pledged more than $200 billion in emergency funding as plunging oil prices push the world’s biggest energy supplier into its worst economic crisis since 1998 when it defaulted.
The euro fell sharply on the report, sliding against the US dollar and the yen. The Australian dollar also fell under 66 US cents, down nearly 2 cents in a day.
The newspaper quoted a Russian banking industry official as saying up to $US400 billion in debt was at stake.
Nikkei claimed that a proposal for postponing repayment had been submitted to the government and some foreign banks have already agreed to start negotiations.
The news overshadowed more worrying news from China, Taiwan and Japan.
Chinese inflation fell to its lowest pace in over two years at 1% in January and a senior researcher with the Bank of Japan, the country’s central bank, has warned that the country’s economy faces a severe contraction.
Chinese producer prices fell 3.3%, the lowest in around seven years as the slumping in oil and fuel prices, plus the slowing economy, continued to curtail price pressures seen for most of 2008.
The fall in price pressures came after exports fell in December and growth cooled to an average 6.8% in the 4th quarter (and in reality probably didn’t move at all). That was the weakest growth for 7 years.
Figures mentioned in media reports for January’s exports suggest a further fall after December’s weakness. We should know today or tomorrow.
The 1% rise in consumer prices in January from January 2008, when prices started rising after higher oil prices and the impact of huge winter storms pushed up food and power costs, was after they rose by 1.2% in December.
China’s economy grew 9% in 2008 after a 13% rise in 2007.
In Taiwan, a combination of the Chinese New Year and the global recession saw the country’s exports slump by more than 40% in January, a terrible outcome.
Taiwan is Asia’s sixth-largest economy and exports in January exports fell 44.1% from the same month of 2008, the biggest drop since government records began in 1972. It was also the fifth consecutive month that exports have fallen.
Japanese exports in December plunged 35%, South Korea’s by 32%.
In Japan the Bank of Japan’s top researcher warned on Monday of an “unimaginable” contraction in the Japanese economy in the current quarter after new figures revealed soaring bankruptcies and another fall in machinery orders.
The Financial Times said that the comments from Kazuo Momma, head of the central bank’s research and statistics department, "underscore the gloom surrounding the world’s second largest economy as export orders dry up, companies shut down production lines and consumers snap shut their wallets and purses".
“From October to December the scale of negative growth (in GDP) may have been unimaginable – and we have to consider the possibility that there could be even greater decline between January and March,” Mr Momma warned in a speech yesterday.
It would be “quite a while” before inventories adjust.
Nissan this week revealed 20,000 job cuts and a loss of close to $US2.9 billion. Last Friday Toyota warned of its biggest ever loss in the year to March 31 of over $US4 billion.
On Friday, it cut its global production estimate for the year to March to 7.08 million, down 20%, as it put a third of its global assembly lines on a single shift.
"The sales environment has worsened dramatically in the past month and a half in the main markets of Japan, North America and Europe," Executive Vice President Mitsuo Kinoshita told a news conference.
For the year to the end of March, Toyota now expects an operating loss of ¥450 billion ($US4.95 billion), three times what it forecast in late December
Car sales in Japan fell the most in 35 years last month.
Before Toyota on Friday Mitsubishi and Mazda revealed big loss estimates. Panasonic, Hitachi, Toshiba and NEC, giants of Japanese and global business in their sectors, all warned of losses of a size not even contemplated by the most pessimistic of forecasters four weeks ago.
Panasonic will lose around $US4 billion and is sacking thousands of workers, as is NEC and the other companies.
It’s no wonder the country is heading for its worst postwar recession as factory output slumped an unprecedented 9.6% in Decembe
