Recession blues play on

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By Jeremy Gaunt

LONDON (Reuters) - World economic misery spread on Thursday with forecasts of a global recession running well into 2009, Japan's exports to Asia falling for the first time in six years and job losses mounting.

Switzerland's central bank also weighed in with a surprise interest rate cut of a full percentage point.

All this was accompanied by another sharp sell-off on global equity markets and Wall Street looking set for a second consecutive day of steep losses.

The International Monetary Fund stepped in to bail out troubled Iceland, leading a $10.2 billion help package, and was set to make as much as $40 billion available to Turkey.

The deepening global recession was also eating into company outlooks. Prospects for a U.S. bailout of its automakers faded and General Motors underlined its troubles by announcing a two-month production shutdown in Thailand.

Financial giant Citigroup remained in focus after its shares plunged 23 percent on Wednesday as investors questioned its survival on mounting losses from toxic assets.

On the jobs front, French carmaker PSA Peugeot Citroen said it would cut 2,700 jobs, Anglo-Swedish drugmaker AstraZeneca saw 1,400 losses over coming years, and engine maker Roll-Royce expects up to 2,000 job cuts next year.

Planned layoffs since September at non-financial companies worldwide now total at least 172,000. To that can be added 89,500 in financial sector job losses.

World stocks tumbled more than 2.4 percent to 5-1/2 year lows with volatile emerging market equities down more than 4.5 percent. European shares lost 2.7 percent and Japanese stocks plunged nearly 7 percent.

The moves followed heavy losses on Wall Street overnight and were accompanied by U.S. stock index futures predicting yet more losses later in the day.

LONG DOWNTURN

The world's leading economies will likely be in recession for around a year, a Reuters poll of economists showed.

The survey of around 250 economists across the Group of Seven nations showed economies facing a recession for as much as five quarters.

"All developed economies will contract in 2009. It's the worst we have had in a century. But to say it's going to look like 1929 again for all these economies is a bit excessive, it's too pessimistic," said Marco Annunziata, chief economist at UniCredit.

The U.S. Federal Reserve said on Wednesday that the U.S. economy would contract through the first half of next year.

"No end in sight," ING economists said in a note on Thursday, a sentiment widely shared by investors.

Japan's exports to Asia fell in October for the first time since 2002, suggesting that the fallout from the credit crisis has spread to neighbors such as China.

Shipments to Asia had previously cushioned the impact on Japanese exports of weakening demand from the United States and Europe. But Thursday data showed they fell 4 percent from a year earlier.

"The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

IMF TO THE RESCUE?

With investors looking increasingly to governments and other authorities to stop the rot, the IMF moved to prop up both Iceland and Turkey.

The Fund approved a $2.1 billion loan for Iceland, battered by a severe banking crisis. It was part of a larger $10.2 billion package.

"The whole IMF package, which includes British and Dutch loans to the Icelandic deposit guarantee agency, is about $10.2 billion, out of which the Nordic countries' share is about a quarter," Finland Finance Ministry Under-Secretary Martti Hetemaki told Reuters.

The Fund said Iceland's economy was likely to shrink 9.6 percent next year and unemployment would quadruple to 5.7 percent.

Sources in Turkey, meanwhile, told Reuters that the IMF was ready to agree a precautionary stand-by agreement of $20-40 billion, the size depending on talks regarding the country's 4 percent economic growth target for next year.

CAR TROUBLES

Officials again pledged help. Among them:

-- Prime Minister Vladimir Putin said Russia would not allow the global financial crisis to capsize its economy and announced a package of stimulus measures and help for people who lose out in the downturn.

-- Hong Kong's central bank vowed it would not set a limit on persistent injections of liquidity into the money market aimed at keeping the local currency within its tight trading band.

-- European Central Bank Executive Board member Lorenzo Bini Smaghi told a Portuguese newspaper more interest rate cuts by the European Central Bank were possible.

Other official help looked less certain. Chances for a $25 billion bailout of the U.S. auto industry faded further, with little expectation that Democratic leaders in Congress will support a compromise that hinges on negotiations supported by Republicans and the "lame-duck" White House.

"I won't say it's completely over," Sen. Robert Bennett, a Utah Republican, said in reference to the chances of lawmakers striking a deal on aid for General Motors Corp, Ford Motor Co and Chrysler LLC that could pass.

"I'm still having conversations with people. But it doesn't look good.

(Editing by Ralph Boulton)

(Additional reporting by Tetsushi Kajimoto, Jason Subler and Reuters bureaux worldwide)

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