Financial thoughts

China’s growth could well slow to its weakest pace in almost two decades next year, the World Bank said, the latest grim prognosis for a global economy buckling despite the concerted efforts of policymakers.

What started more than a year ago as a meltdown in the U.S. market for high-risk mortgages has engulfed the world, freezing access to credit, sparking bank collapses and requiring the financial bailout of entire countries.

Qantas Airways, motorcycle maker Honda Motor and camera company Canon added their voices to a chorus of firms warning of the effects of the slowdown.

But the U.S. government’s weekend rescue of No.2 bank Citigroup Inc provided some respite for battered equity markets, with Asian shares up more than 3 percent on Tuesday following a surge on Wall Street the previous session.

A 20 billion pound plan to kickstart the British economy announced on Monday and hopes for an aggressive stimulus package from U.S. President-elect Barack Obama also provided some relief.

In an effort to free up lending to cash-strapped consumers, U.S. Treasury Secretary Henry Paulson plans to announce a program to boost the availability of auto loans, student loans and credit cards, the Wall Street Journal reported.

CHINA CHALLENGE

China this month unveiled a 4 trillion yuan ($586 billion) spending package to help prop up its economy, but growth would still likely slow to around 7.5 percent in 2009, from 9.4 percent this year, the World Bank said in a report.

That would be China’s slowest growth since 1990 and below a pace of 8 percent that conventional wisdom suggests is needed to absorb newscomers to the workforce free business cards.

But World Bank country director David Dollar said at the forecast rate of growth, China would continue to create enough jobs and the labor market would remain “pretty tight.”

More than half the forecast growth next year would come from Beijing’s stimulus package, while net exports, by contrast, would lop 1 percentage point off growth as overseas demand for Chinese goods slows, the bank said.

In Oman, Gulf Arab finance and foreign ministers were meeting to hammer out a final agreement on a joint central bank for the six members of the Gulf Cooperation Council. The global turmoil is taking an increasing toll on the oil-rich region and has given a sense of urgency to the long-standing plan for monetary union.

Evidence continued to mount about the parlous state of the global economy elsewhere too.

In Japan, which suffered years of economically damaging deflation, the cost of business services fell the most in five years in October, while the Bank of Japan cut its assessment on exports and output.

The Organisation for Economic Co-operation and Development is due to present a report on its global economic outlook later on Tuesday. Developed economies, including the United States, Japan and the euro zone are widely expected to shrink next year, dragging emerging economies into a punishing slowdown as access to credit remains tight and consumer confidence evaporates. 

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