Europe Starts to Feel Pinch as U.S. Slowdown Spreads

(Bloomberg) -- The European economy may be starting to suffer collateral damage from the U.S. subprime mortgage slump.

Banks are making borrowing harder, industrial production is shrinking and investor confidence is waning just as the U.S. skirts recession. With the euro's appreciation to a record hurting exports, more economists are betting the European Central Bank will be forced to lower interest rates.

``There is a clear downtrend in the economy now,'' said Michael Schubert, an economist at Commerzbank AG in Frankfurt. He revised his ECB forecast last week and predicts two cuts by October after previously projecting one in the final quarter.

The ECB has so far refused to follow the Federal Reserve and the Bank of England in lowering borrowing costs as contagion from the U.S. housing recession spreads, arguing that inflation pressures are too strong. Government and industry surveys this week may nevertheless show growth risks are mounting and finance ministers meet in Brussels today to discuss the outlook.

Europe's manufacturing and services industries probably expanded at the slowest pace since June 2005 and German business confidence fell to the lowest in two years, according to surveys of economists by Bloomberg News.

Europe's Stoxx 600 index today extended its decline to 20 percent since its 6 1/2-year high on June 1, satisfying the definition of a bear market. The euro fell to a five-month low against the yen after ECB council member Nout Wellink said yesterday that growth may slow more than officials had expected.

Credit Costs

The slowdown is undermining policy makers' hopes that the region will avoid the fallout from the subprime mortgage collapse, which drove up global credit costs.

Luxembourg Finance Minister Jean-Claude Juncker, who will chair today's talks, said Jan. 14 the European Commission may lower its growth projection for this year to 1.8 percent from 2.2 percent previously. That would be the slowest pace since 2005.

Industrial output fell enough in November for economists at Royal Bank of Scotland Group Plc to declare that manufacturing has slipped into its first recession since 2001, while investor confidence in Germany crumbled to the lowest since 1992.

European banks will make it harder for companies and consumers to get loans in the next three months, an ECB survey showed on Jan. 18.

``The days of easy credit appear to be over,'' said Martin van Vliet, an economist at ING Bank in Amsterdam. Royal Bank of Scotland publishes the manufacturing and services reports on Jan. 23 and the Munich-based Ifo institute releases business confidence figures a day later.

 

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Across Asia, food is the new oil as prices surge

(Reuters) - From India to Indonesia, governments across Asia are scrambling for solutions as it dawns on them that sky-high food prices might not fall any time soon.

With food accounting for a third of China's consumer price basket and even more in some other countries, the high prices are a ticking time bomb for the region, where fuel increases periodically touch off sometimes violent protests.

"If the inflation problem gets out of hand, it could have devastating implications for not only economic but also political stability," said Yiping Huang, an economist with Citigroup in Hong Kong.

In Pakistan, where the government has blamed a shortage of flour on smugglers and hoarders, paramilitary troops have begun escorting wheat trucks to deter thieves.

Malaysia briefly rationed cooking oil this month before the government boosted supplies of subsidized oil.

In China, where inflation is at an 11-year high, the government has taxed grain exports to boost local supplies and resorted to command economy-style price controls.

 

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"Help Wanted" highlights skills drain in U.S

(Reuters) - Only half the machines are running at precision parts maker Hamill Manufacturing, nestled in the Allegheny Mountains just east of Pittsburgh, once the booming center of the U.S. steel industry.

But the factory's overcapacity is the result not of a shortage of business -- it has more orders than it can fill, despite a slowing U.S. economy -- but because of a shortage of skilled workers.

"I'd hire 10 machinists right now if I could," said John Dalrymple, president of the company, which makes high-end parts for military helicopters and nuclear submarines. "That's eight to 10 percent of our workforce."

While millions of jobs making everything from textiles to steel have moved to new powerhouses like China in recent years, precision manufacturing remains a crucial niche in the United States, one that is overworked and chronically understaffed.

And, in a bad sign for the United States and its declining economic might, that shortage of skilled workers is likely to get worse as Baby Boomers retire -- with no younger generation of manufacturing workers to take the baton.

"Our workforce is an aging workforce," said Chief Executive Jeff Kelly, whose father founded Hamill nearly 60 years ago. "There isn't a queue of people lining up to come into the industry."

Some 20 percent of small to medium-sized manufacturers -- those with up to 2,000 workers -- cited retaining or training employees as their No. 1 concern, according to a survey by the National Association of Manufacturers. The survey was carried out in 2007 but has not been published yet.

 

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U.S. energy chief pleads for more Saudi, OPEC oil

(Reuters) - U.S. Energy Secretary Sam Bodman repeated his plea on Monday for more oil from top exporter Saudi Arabia, undeterred by OPEC's cautious response to Washington's request so far.

Oil has fallen by more than 10 percent from a record high of $100.09 a barrel hit early this month, easing some of the pressure on OPEC to raise supplies, analysts said.

Bodman told reporters in Abu Dhabi there were short-term concerns about the performance of the U.S. economy and he was hopeful Riyadh would steer a decision to increase oil supplies at OPEC's meeting on February 1 in Vienna.

"I continue to believe in my earlier statement that we are hopeful they will increase supplies," he said. "I am of the view that there needs to be increased supply in order to call the markets of the world well supplied with oil."

Bodman, who met the Saudi oil minister at the weekend, said the United States expected oil inventories to drop in the first half of 2008 but the Saudis held "different views".

The United Arab Emirates Oil Minister Mohammed al-Hamli said OPEC would examine all options when its ministers meet.

"OPEC ... will look then at all the options," Hamli told reporters on the sidelines of a green energy conference. "There is a disconnect between fundamentals and the price."

 

Read more at Reuters