As US recession deepens and UK retailers are desperate over low sales, many leading companies are struggling to keep their businesses afloat.
Global recession roundup
NEW YORK // The US has fallen deeper into recession according to the latest data as the number of people filing for unemployment benefits hit a 26-year high and consumers cut spending for the fifth consecutive month. Elsewhere, Germany became the latest country to approve a new spending programme to jolt its economy while retailers in Britain were hoping for the traditional rush to the sales today to lift poor pre-Christmas spending figures.
Germany announced plans for a second stimulus package, to be capped at ?25 billion (Dh128.65bn), to help Europe's biggest economy weather a growing recession. So far, however, increased spending in economies around the world has yet to boost confidence among businesses, investors or consumers. Data on Wednesday showed that US consumers cut spending last month as their incomes shrank, pointing to a prolonged recession for the world's largest economy.
New orders for long-lasting manufactured goods fell 1 per cent last month, following a steeply revised plunge of more than 8 per cent the month before, while the number of US workers filing for jobless benefits for the first time soared by 30,000 in the week ending last Saturday. Nearly two million US workers have lost their jobs this year, driving the unemployment rate to 6.7 per cent. "I don't think we are going to have a major reassessment of the economic situation based on today's data," said Daniel Katzive, the director of global foreign exchange at Credit Suisse in New York. "All in all, the scenario remains pretty weak."
Many leading companies are also struggling to keep their businesses afloat, resorting to cutting jobs or work days, or reducing benefits to counter weakening demand. For others, the crisis has become too much. In Britain, the retailer, Zavvi, which sells CDs, DVDs, games and books, became the fourth high-profile victim of the crisis in less than 24 hours as it fell into administration. Zavvi was formed 15 months ago from a management buyout of the Virgin Megastore division of the Virgin Group. It joined Woolworths, the tea merchant, Whittard, and the menswear store, The Officers Club, on the growing list of casualties from a severe downturn in consumer spending.
Several major retailers brought forward their traditional post-Christmas sales to slash prices by as much as 90 per cent. "Retailers are offering discounts on an unprecedented scale to encourage customers in," said Richard Dodd, the spokesman for the British Retail Consortium. "The battle between retailers is on for every pound that customers have to spend." Tesco, Britain's biggest retailer by far, began a new wave of discounts, including 70 per cent off some of its clothing lines. The Homewares chain, B&Q, was offering 50 per cent off its kitchens and bathrooms, with discounts of up to 75 per cent on some other items, while the department stores, John Lewis and Marks&Spencer, and the chemist chain Superdrug were among many retailers which started online sales on Wednesday evening and Christmas Day itself.
"I think some retailers will be daring to breathe a sigh of relief because it's clear that customers have left their spending very late rather than cancelled it entirely," Mr Dodd said. "But it won't be until we see the final figures that we know what people are actually spending." Zavvi employs about 2,400 permanent staff and 1,050 temporary staff in Britain and Ireland, although the company's operations in Ireland are not subject to the insolvency proceedings. Thousands of more jobs are thought to be at risk at other retail stores.
The global credit crisis has taken a harsh toll on the British retail sector. The Insolvency Service has reported the collapse of 356 companies in the third quarter, a 39 per cent increase compared with the same period last year. Among the bigger names were ceramics stalwart Royal Worcester and Spode, the queen's tailor Hardy Amies and the MFI furniture group. Germany's intended stimulus plan was smaller than the ?40bn measures originally reported for new projects and was unlikely to ease pressure on the chancellor, Angela Merkel, who has been attacked by politicians and economists who want her government to do more to boost the economy.
Poland's central bank said it was likely to cut rates further next year, while in Russia, a central bank source confirmed that authorities devalued the rouble for the seventh time in a month. "The situation may be exacerbated by a growth in protests, arising from the frustration of workers over the non-payment of wages or those threatened with dismissal," the deputy interior minister, Mikhail Sukhodolsky, said.
* Reuters, Associated Press