BEIJING (Reuters) – New orders at Chinese factories tumbled in November while their U.S. retail customers used deep discounts to lure shoppers at the start of what is expected to be a difficult holiday season overshadowed by a global recession.
Underscoring the tightening grip of the downturn, Bank of Japan Governor Masaaki Shirakawa warned in a speech that economic conditions in Japan were deteriorating rapidly, and Japanese firms were finding it increasingly difficult to secure credit.
South Korea's exports fell by the most in 7 years last month and both Tokyo and Beijing provided stark warnings on the challenges ahead for their economies, the second- and fourth-biggest in the world.
A record drop in a private inflation gauge in Australia and falls in inflation elsewhere in Asia pointed to more cuts in interest rates in the region and globally to fight a financial crisis that is now raising the specter of deflation.
Anticipation of rate cuts spurred investors to push Asian stocks higher for a seventh session in a row on Monday.
Central banks in Britain, the euro zone, Australia and New Zealand are expected to slash borrowing costs this week to resuscitate demand. The average benchmark rate in 10 of the world's top economies has been reduced by 144 basis points so far in 2008 to the lowest in three years.
Expectations for more rate cuts in Britain were underlined by a report showing house prices in England and Wales fell 8.1 percent in November from a year earlier and another suggesting the outlook for factories had deteriorated significantly over the last quarter.
More than a year after the credit crisis began, policymakers are still struggling to prop up their financial systems while also trying to protect their economies, a factor recognised by China President Hu Jintao over the weekend.
"In this coming period, we will starkly confront the effects of the sustained deepening of the international financial crisis and pressure as global economy growth clearly slows," he told senior officials.
The sentiment was reflected in comments by Japan's economics minister, Kaoru Yosano, in an interview with the Financial Times published on Monday.
"I cannot tell you it will be a bright next day. The time for endurance has come," he said.
Yosano has been warning that Japan, which only emerged from a decade-long battle with deflation in 2005, may be headed for a similar situation again, with the economy already in a recession.
Shirakawa's comments suggested he was ready to take action to ease credit markets, economists said.
Indeed, the Bank of Japan will hold an emergency meeting as early as this week to introduce measures to make it easier for companies to access capital through the corporate bond market, Japanese public broadcaster NHK said on Monday.
The automobile industry in Japan, some of the country's best-known exporters, struggled amid falling global demand.
Sales at top-ranked Toyota Motor Corp, excluding the Lexus brand, fell 27.7 percent in November, while Nissan Motor Co fell 29.5 percent and Honda Motor Co retreated 21.6 percent, the Japan Automobile Dealers Association said.
Americans were trying to take advantage of rock-bottom sales prices this holiday weekend, traditionally the start of the busiest period of the year for U.S. retailers.
Early results showed sales grew both in stores and online, fueled by repeat trips, heavier online sales and deep discounts from retailers across the price spectrum.
During the four-day holiday weekend from U.S. Thanksgiving on Thursday through Sunday, spending totaled $41 billion.
However, the weekend of activity doesn't necessarily augur well for retailers' bottom line.
"Regardless of retail sales, retail profits are another matter. Every thing they sold was at a razor-thin margin," said Ellen Davis, a spokeswoman for the National Retail Federation, which expects total holiday sales growth this year to be the weakest in six years.
American demand for cheap exports from Asia has waned now that the heavy borrowing that financed that spending has been significantly reduced. The result is a startlingly sharp backlash across the region's factories.
China's manufacturing industry slumped in November as new orders, especially from abroad, tumbled. Two indexes released on Monday based on surveys of hundreds of business executives across China fell to record lows.
"Another grim month for China manufacturing and the first in which the weakness in overseas demand overtook what, until now, has been mainly a domestic slowdown," said Eric Fishwick, head of economic research at CLSA.
Hu's weekend comments provided a stark signal that the country's leadership is disturbed by the social and political implications of a sharp slowdown in growth.
The picture was just as bleak in South Korea, Asia's fourth-largest economy, where data showed exports plunged 18.3 percent from a year ago, much worse than expected.
Central banks around the world have had to get increasingly aggressive to offset the endemic lack of confidence in the banking system.
Facing a long, deep recession, the Federal Reserve has flooded the market with cheap liquidity, while the futures market reflects a 1-in-3 chance it will cut rates by 75 basis points to 0.25 percent on or before its next policy decision in two weeks.
Investors will undoubtedly focus on the November U.S. unemployment report due on Friday. A Reuters poll of economists showed a median expectation of a loss of 316,000 jobs, the most since October 2001.
Fears about the extent of the global economic malaise has sent investors piling into the relative safety of U.S. government debt, sending the yield on the benchmark 10-year note to the lowest in more than 50 years.
(Reporting by Reuters bureaus worldwide; Writing by Kevin Plumberg)