Asia, Europe and the Americas all face some combination of rising inflation and stagnating growth as record-high oil prices and the effects of a year-old financial crisis wreak havoc on developing countries and rich economies.
European Central Bank President Jean-Claude Trichet said euro zone inflation will remain above the ECB's desired level for longer than first expected, though last week's rate rise will help control it.
In the United States, data showed home foreclosures soared in June. Federal Reserve Chairman Ben Bernanke said officials are focused stabilizing financial markets.
"The financial turmoil is ongoing, and our efforts today are concentrated on helping the financial system return to more normal functioning," Bernanke said in testimony to Congress.
U.S. Treasury Secretary Henry Paulson, at the same Congressional hearing, said regulators need emergency authority to step in to limit temporary disruptions to markets.
Investors focused on the two largest U.S. mortgage finance companies, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) , whose shares and debt plunged for a second day on fears they may not be able to get the capital they need to survive and continue to support the crumbling housing market.
A survey showed British house prices fell at their sharpest annual pace in at least two decades in June.
A German government source said on Thursday the euro zone's largest economy probably shrank in the second quarter.
In financial markets, U.S. stocks were lower in late trading, capping a volatile day. European shares fell. Oil rose back above $138 a barrel and gold jumped to $946 an ounce, while the dollar dipped. U.S. and government bonds were lower.
SLOWING AND FALTERING
Slowing Chinese export growth and faltering European industry provided further evidence that global growth was teetering, as did the 53 percent annual rise in U.S. home foreclosures in June.
Inflation has spread its tentacles into almost every corner of the world at the same time as economies have weakened. Latin American inflation accelerated in June as higher food costs drove up prices, raising prospects of interest rate hikes in coming weeks.
U.S. and European growth has been slowing sharply, with many economists forecasting recession, and financial markets now greet strong data with scepticism.
For example, the number of U.S. workers filing new claims for jobless benefits dropped by a much bigger-than-expected 58,000 last week. Analysts saw seasonal factors at play in the data, which did nothing to dispel fears of slowing growth. Summer weather, aggressive promotions and tax rebates sent many U.S. consumers shopping in June, providing relief to retailers struggling in the weak economy.
Still, it was store chains that offer good value that performed best -- a sign that cash-strapped consumers are still looking for bargains as they grapple with soaring food and fuel costs, declining home values and job uncertainty.
EVEN JAPAN
Even in Japan, which has battled deflation for years, data showed wholesale prices last month jumped to the highest in 27 years, spelling steeper costs for businesses, which have struggled to pass them on to consumers.
Weak May industrial output data from four euro-zone countries on Thursday added to a picture of sharply slowing activity and bolstered the view that the area's economy probably ground to a halt in the second quarter.
The trade surplus in China, the world's fourth-largest economy, hit $21.35 billion (10.8 billion pounds) in June, up from $20.21 billion. However, the annual pace of exports was slower than expected at 17.6 percent.
"Despite the higher trade surplus, the impact of slowing global demand is evident," BNP Paribas (Paris: FR0000131104 - news) said in a client note.
Chinese exporters say they are facing their toughest year in memory because of the combination of rising domestic costs and softer global demand.
Singapore's economy shrank by the most in five years in the second quarter. Economists still believe it may be able to skirt a recession, traditionally defined as two consecutive quarters of contraction. This would be a relief to policy-makers there, with inflation running at its highest level in 26 years.
The Bank of Korea held rates steady for the 11th straight month at its policy review on Thursday, hoping intervention to prop up its currency will contain price pressures running at their highest in almost 10 years.
Source:http://uk.biz.yahoo.com/10072008/325/economy-shudders-growth-prospects.html
