Europe hit by economic slowdown

European economies contracted in the fourth quarter of last year, with some countries registering the worst figures in decades, official data shows. The eurozone economy shrank by 1.5% in the previous quarter and 1.2% on the year, Eurostat said. Germany’s economy shrank by 2.1% compared with the previous quarter, its worst quarterly performance since 1990. France shrank by 1.2%, initial data shows, while Italy registered a drop of 1.8%, the steepest drop since 1980. The data puts pressure on the European Central Bank to cut interest rates. In the whole of 2008, the economy in the 15 countries using the euro grew by 0.7% against the previous year, Eurostat said. Slovakia joined the eurozone on 1 January 2009, making it a 16-country club.    Germany is being punished for its heavy dependence on exports  Stephanie Flanders, BBC economics editor Stephanomics – the blog The Dutch economy shrank 0.9% during the quarter while the Austrian economy eased by 0.2%, the first drop in nearly eight years. In the same quarter, Portugal’s economy contracted by 2% on the previous quarter and 2.1% on the previous year. “These are huge contractions in Europe, the largest in living memory in most cases,” said Ken Wattret, economist at BNP Paribas. Companies have cut investment and exports have dropped as the global recession has taken hold. European companies hit by the slowdown include Air-France KLM, which reported a third-quarter operating loss on Friday, and Michelin, whose final-year profits fell as the crisis in the global car industry took its toll on the tyre maker. The decline in demand for cars was further highlighted by data released on Friday. The number of new cars sold in Europe in January was down 27% compared with January 2008, the European carmakers’ association, Acea, said. German gloom The slowdown was the most dramatic in Germany, which registered the biggest fall since German reunification in 1990.   German exporters have been hit hard by the slowdown The 2.1% contraction was the third consecutive quarterly drop in Europe’s biggest economy, according to the initial data from the Federal Statistics Office, worse than the 1.8% anticipated by analysts. Year-on-year, the German economy shrank by 1.6%, after growing by 1.4% in the third quarter. Many are now gloomy about the prospects for 2009. “This shows things went downhill sharply at the end of the year,” said Juergen Michels, an economist at Citigroup. “We’ll likely head down again the first and second quarter.” “This number makes it plain that we’re in a very serious recession – the most serious since World War Two. It’s no surprise that exports and investment have tumbled,” said Dirk Schumacher at Goldman Sachs, adding that the rise in inventories did not bode well for the first quarter. The situation “can hardly get worse,” said Carsten Brzeski at ING Financial Markets. “The German industrial production has run out of steam with companies working only off their backlogs. Foreign demand has plummeted over the last months,” he added. Last month, the German government forecast that the economy would shrink by 2.25% this year. France slowdown The slowdown in the French economy was slightly worse than analyst expectations of a 1.1% drop.   The French economy minister has warned of tough times ahead The French economy expanded slightly in the third quarter, by 0.1%, which means that France has not officially entered a recession – which is defined as two consecutive quarters of contraction. With consumer spending up by 0.5%, some analysts found cause for hope. “Consumer spending has held up quite well so you can say there is still money out there to be spent and French households are spending it,” Alexander Law, chief economist at Xerfi said. Companies also reduced their inventories in the fourth quarter, shaving 0.9% off gross domestic product, a fact that could bode well for industrial production in the first quarter. With warehouses emptier, companies may increase production. Many say that tough times lie ahead. “The first quarter will be difficult,” Christine Lagarde, France’s economy minister, said. “We will have a difficult year. “ The data increases pressure on the European Central Bank to cut rates. The bank cut the benchmark rate to 2% in January, the lowest in the bank’s 10-year history and kept the rate unchanged in February. Its next decision is due on 5 March.

Microsoft to launch retail chain

Microsoft cut 1,400 jobs in January Computer software giant Microsoft has announced plans to open its own stores, at a time when many other retailers are struggling in the economic downturn. The company plans to sell computers installed with Microsoft software and other products, Microsoft chief operating officer Kevin Turner said. The stores will also promote new operating system Windows 7 and updates of Windows Live and Windows Mobile. Ex-Wal-Mart executive David Porter will head the new retail division. The company’s rival Apple already has high-profile stores located around the world. ‘Tremendous opportunities’ “This is an exciting time with our strong line-up of upcoming product releases,” Mr Turner said in a statement. “There are tremendous opportunities ahead to create a world-class shopping experience for our customers.” Mr Porter, corporate vice-president of retail stores, will devise a strategy outlining when the stores would be launched and where they would be located. The decision comes after Microsoft launched a $300 million (£207m) advertising campaign last autumn in a bid to revive its Windows Vista operating system, which was widely criticized for being too slow. In January the company cut 1,400 jobs and said it would axe 3,600 more workers over the next 18 months.

Obama hails bail-out ‘milestone’

US President Barack Obama has welcomed Congress’s approval of his $787bn (£548bn) economic stimulus package.

He described it as a “historic step” and “major milestone on our road to recovery”, and is expected to sign the bill into law early next week.

The Senate approved the measure with just three Republican votes, hours after the House of Representatives backed it without Republican support.

Mr Obama has said the plan will “save or create more than 3.5 million jobs”.

Republicans argue the tax cuts are insufficient, and that the economy will be saddled with debt for years to come.

Members of both houses of Congress reached a deal over the content of the stimulus package on Wednesday.

This historic step won’t be the end of what we do  President Obama Battle exposes partisan rifts Send us your comments

The BBC’s Kevin Connolly in Washington says the first set-piece drama of the Obama era ended in a comfortable but not entirely unqualified victory for the president, who had hoped for more bipartisan support.

All 176 Republicans and seven Democrats voted against the revised package in the House. It was backed by 246 House Democrats.

The three rebel votes in the Senate were enough under Congress rules to stop the Republican Party using blocking tactics to delay the stimulus plan, and it passed 60-38.

‘Immediate investments’

In his weekly address, President Obama described his economy recovery package as “an ambitious plan at a time we badly need it”.

“This is a major milestone on our road to recovery, and I want to thank the members of Congress who came together in common purpose to make it happen,” he said.

“I will sign this legislation into law shortly, and we’ll begin making the immediate investments necessary to put people back to work doing the work America needs done.

“This historic step won’t be the end of what we do to turn our economy around, but the beginning.”

The approved version of the plan is split into 36% for tax cuts and 64% percent in spending and money for social programmes.

STIMULUS PACKAGE $240bn in tax breaks for individuals and businesses $140bn for health care $100bn for education $48bn for transportation projects Source: Associated Press

Running to more than 1,000 pages, it includes new road building, cash to pay police in hard-up cities, and tax breaks for consumers buying houses and cars.

The package also imposes new limits on cash bonuses and other incentive compensation for executives on Wall Street, which are much tougher than those proposed by the Obama administration last week.

The provision, inserted by Senate Democrats, targets senior executives at financial institutions receiving government bail-out funds.

The colossal package is all to be funded with borrowed money.

Republicans had insisted on larger tax cuts instead of big spending programmes.

Republican Senate minority leader Mitch McConnell said: “This isn’t Monopoly money. It’s real. It adds up, and it has to be paid back, by our children and by their children.”

The Democratic leader of the Senate, Harry Reid, praised the three Republicans who had voted for the bill and said it was the most important piece of legislation he had worked on.

“The country is in trouble and we’re so fortunate we were able to get it passed,” he said.

“It’s going to give this country a shot in the arm.”

Earlier, Mr Obama had said that in the longer term the government needed to rein in spending, and that “we are going to have to once again live within our means”.

The president told members of the Business Council in Washington that the package was “only the beginning of what I think all of you understand is going to be a long and difficult process of turning our economy around.”

Presidential pressure

“We have a once-in-a-generation chance to act boldly, and turn adversity into opportunity, and to use this crisis as a chance to transform our economy for the twenty-first century,” Mr Obama said.

Among the measures in the approved package is a “Buy American” clause that had caused alarm among US trading partners.

The EU and Canada said that provisions favouring American-produced materials for government projects risked provoking retaliatory protectionist measures.

In the face of this reaction, the clause was softened to a version requiring the government not to violate trade agreements.

Last week, the House had approved an earlier $825bn version of the package without any Republican support.

The Senate voted to approve a different $838bn version on Tuesday, with few Republicans opting to back it.

The two versions had to be reconciled in a joint House-Senate committee before facing final votes in the two chambers.