Automakers especially hard-hit as recession officially hits EU

BRUSSELS: The European Union officially plunged into recession on Friday as the US Congress prepared to vote on a massive spending and tax-cuts package aimed at reviving the US economy - the world's largest.A 1.5-percent drop in gross domestic product (GDP) for the last quarter of 2008 in the EU as a whole was the region's second consecutive quarterly contraction - the most widely used definition of a recession.

The eurozone also contracted by 1.5 percent in the biggest drop since the creation of the European single currency, the EU data agency Eurostat said.

Howard Archer, chief European economist at London-based research group IHS Global Insight, said the eurozone figures were "horrific."

Capital Economics, a British consultancy, said the recession was "deepening at an alarming rate" and saw "few signs of light at the end of the tunnel." Jorg Radeke, an economist at the Center for Economics and Business Research in London, said: "Today's data wipes out any illusion that the eurozone is getting off lightly in this global downturn.

Adding to the gloom, the European Automobile Manufacturers Association reported that European new car sales slumped by 27 percent in January to the lowest level for 20 years.

As governments went into crisis mode, finance ministers from the Group of Seven leading economies gathered in Rome to discuss the downturn amid stern warnings against a rising tide of protectionism.

The G7 nations - Britain, Canada, France, Germany, Italy, Japan and the United States - met as controversy raged over a "Buy American" clause in the US stimulus package and state loans for the French auto industry.

Ahead of the Rome talks, Japanese Finance Minister Shoichi Nakagawa lashed out against the US and the EU boosting domestic industry at the expense of their trade partners, calling the tendency an "absolute evil."

In the US, Congress was set to vote on a highly contentious $789 billion (613 billion euro) package that President Barack Obama has billed as the only way to avoid "catastrophe."

Global financial markets reacted negatively earlier this week to a separate plan for rescuing US banks proposed by Treasury Secretary Timothy Geithner which was seen as lacking in detail and clarity.

"When they finally pass our plan, I believe it will be a major step forward on our path to economic recovery," Obama said Thursday ahead of the vote.

And US national intelligence director Dennis Blair said Thursday the crisis was now America's top security concern because of instability risks.

Warning that a prolonged downturn raised the worldwide risk of "regime-threatening instability," Blair said social unrest in Europe had already highlighted the security risks triggered by the spreading malaise.

In gloomy corporate news, Europe's biggest airline Air France-KLM reported a 194 million euro ($250 million) operating loss for the third quarter of 2008 and announced up to 1,200 jobs would be axed.

On the markets, the dollar fell against the euro and oil prices rose but struggled to hit $35 a barrel as the OPEC oil cartel forecast a drop in demand in 2009 because of "economic depression" in industrialized countries. - AFP