Europe Starts to Feel Pinch as U.S. Slowdown Spreads

(Bloomberg) -- The European economy may be starting to suffer collateral damage from the U.S. subprime mortgage slump.

Banks are making borrowing harder, industrial production is shrinking and investor confidence is waning just as the U.S. skirts recession. With the euro's appreciation to a record hurting exports, more economists are betting the European Central Bank will be forced to lower interest rates.

``There is a clear downtrend in the economy now,'' said Michael Schubert, an economist at Commerzbank AG in Frankfurt. He revised his ECB forecast last week and predicts two cuts by October after previously projecting one in the final quarter.

The ECB has so far refused to follow the Federal Reserve and the Bank of England in lowering borrowing costs as contagion from the U.S. housing recession spreads, arguing that inflation pressures are too strong. Government and industry surveys this week may nevertheless show growth risks are mounting and finance ministers meet in Brussels today to discuss the outlook.

Europe's manufacturing and services industries probably expanded at the slowest pace since June 2005 and German business confidence fell to the lowest in two years, according to surveys of economists by Bloomberg News.

Europe's Stoxx 600 index today extended its decline to 20 percent since its 6 1/2-year high on June 1, satisfying the definition of a bear market. The euro fell to a five-month low against the yen after ECB council member Nout Wellink said yesterday that growth may slow more than officials had expected.

Credit Costs

The slowdown is undermining policy makers' hopes that the region will avoid the fallout from the subprime mortgage collapse, which drove up global credit costs.

Luxembourg Finance Minister Jean-Claude Juncker, who will chair today's talks, said Jan. 14 the European Commission may lower its growth projection for this year to 1.8 percent from 2.2 percent previously. That would be the slowest pace since 2005.

Industrial output fell enough in November for economists at Royal Bank of Scotland Group Plc to declare that manufacturing has slipped into its first recession since 2001, while investor confidence in Germany crumbled to the lowest since 1992.

European banks will make it harder for companies and consumers to get loans in the next three months, an ECB survey showed on Jan. 18.

``The days of easy credit appear to be over,'' said Martin van Vliet, an economist at ING Bank in Amsterdam. Royal Bank of Scotland publishes the manufacturing and services reports on Jan. 23 and the Munich-based Ifo institute releases business confidence figures a day later.

 

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U.S. energy chief pleads for more Saudi, OPEC oil

(Reuters) - U.S. Energy Secretary Sam Bodman repeated his plea on Monday for more oil from top exporter Saudi Arabia, undeterred by OPEC's cautious response to Washington's request so far.

Oil has fallen by more than 10 percent from a record high of $100.09 a barrel hit early this month, easing some of the pressure on OPEC to raise supplies, analysts said.

Bodman told reporters in Abu Dhabi there were short-term concerns about the performance of the U.S. economy and he was hopeful Riyadh would steer a decision to increase oil supplies at OPEC's meeting on February 1 in Vienna.

"I continue to believe in my earlier statement that we are hopeful they will increase supplies," he said. "I am of the view that there needs to be increased supply in order to call the markets of the world well supplied with oil."

Bodman, who met the Saudi oil minister at the weekend, said the United States expected oil inventories to drop in the first half of 2008 but the Saudis held "different views".

The United Arab Emirates Oil Minister Mohammed al-Hamli said OPEC would examine all options when its ministers meet.

"OPEC ... will look then at all the options," Hamli told reporters on the sidelines of a green energy conference. "There is a disconnect between fundamentals and the price."

 

Read more at Reuters

BHP Billiton reportedly taps more banks for Rio bid

(Reuters) - BHP Billiton(BHP.AX: Quote, Profile, Research) has brought in more banks to help it find the $70 billion it needs to fund its planned takeover of Rio Tinto (RIO.AX: Quote, Profile, Research), Britain's Sunday Times newspaper reported.

Citing no sources, the paper said BHP has tapped Barclays (BARC.L: Quote, Profile , Research), UBS (UBSN.VX: Quote, Profile, Research), Goldman Sachs (GS.N: Quote, Profile, Research), HSBC (HSBA.L: Quote, Profile, Research), BNP Paribas (BNPP.PA: Quote, Profile, Research) and Santander (SAN.MC: Quote, Profile, Research) to work alongside original banker Citigroup on the funding.

Merrill Lynch, originally the other provider of finance alongside Citi, will remain as broker to BHP but will not provide any money, the paper said.

The new financing arrangements, which come as a global credit crunch makes raising money more difficult, will give BHP the flexibility to execute a $30 billion share buyback proposed as part of the deal, or add cash to the current around $130 billion all-share offer, the paper said.

BHP, the world's biggest miner, must make a formal offer by February 6 or leave Rio alone for at least six months under a deadline imposed by the UK Takeover Panel.

 

Read more at Reuters