SINGAPORE (Reuters) - Investors said good riddance on Wednesday to one of the worst years on record and prayed that massive government rescue plans will pull the global economy out of its fierce tailspin later in the new year.
But more pain is expected in the near-term as bleak economic reports roll in, signaling more bankruptcies, bad debts and layoffs through at least early 2009, and more sleepless nights for everyone from central bankers to consumers struggling to pay off mortgages and credit card bills.
“It has been a shocking year, hardly anything was spared in the market carnage,” said Michael Heffernan, senior client adviser and strategist at Austock Group in Australia.
Australia’s key stock index has plunged more than 40 percent this year, roughly in line with other major markets around the world, as recession stalked the world economy.
The worst financial crisis in over 80 years, sparked by the meltdown of the risky U.S. subprime mortgage market, made this year one of the worst ever for investors, wiping some $10 trillion off major stock markets. It also radically changed the landscape of global finance, bringing down big U.S. investment banks Bear Stearns and Lehman Brothers and crippling the credit system that keeps the world economy humming.
The U.S. S&P 500 benchmark has lost about 40 percent with just one trading day left in 2008. Its biggest yearly drop was in 1931 during the Great Depression, when it fell 47.1 percent.
No sector has been spared from global banks to autos to resources, and even corner stores.
Victims of the crisis are still piling up, with announcements almost daily of fresh company losses, more layoffs, and slumping prices for assets from cars to homes.
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Tuesday brought more dismal economic news in the United States, with single-family home prices down 18 percent in October from a year earlier and consumer confidence plunging to a record low due to severe job cuts.
“We are not going to be seeing anything fundamentally positive from the U.S. for the time being,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.
But with central banks cutting interest rates to spur growth, declining oil prices and governments pumping money into the system, Heffernan said there were some positive signs for 2009.
“The blood has been drained and we are now getting a transfusion.”
World governments have pumped more than $1 trillion into their economies to keep business afloat and save jobs, and more aid is expected in 2009 in the form of fresh bailouts, rate cuts and other measures to stave off an even deeper recession.
Global credit markets are also showing some signs of improvement, but banks remain reluctant to lend to businesses and consumers, fearing a rash of bad loans as economies worsen.
Government stimulus plans, corporate bailouts and rate cuts also take time to be felt, and their full benefits are still being hotly debated by analysts and economists. Global growth, if any, could be very weak in 2009 as a whole even if consumers are coaxed to start spending again.
The Indonesian government may announce more fiscal plans on Wednesday to help Southeast Asia’s biggest economy withstand the global economic slump.
Indonesia’s economy is still expanding, but growth may drop below the 6 percent pace analysts say the country needs to prevent unemployment from rising among its 226 million people.
Mounting job losses are raising fears of growing social unrest in some countries, and piling pressure on governments to act quickly, even if it means huge deficits and debts that will have to be paid off in the future.
Investors are now looking to January, which will bring a new U.S. administration when Barack Obama is sworn in as president on January 20. He is expected to unveil a new government spending program which sources say could range from $675 billion to $775 billion over two years.
The new year will also mark attempts by policymakers to overhaul outdated regulatory systems to head off future crises and give them more power to oversee increasingly complex financial products such as derivatives which have complicated efforts to fix the latest financial mess.
Outgoing U.S. Treasury Secretary Hank Paulson said the U.S. government had to battle the financial crisis without the tools needed to do the job effectively, the Financial Times newspaper reported on Wednesday.
In one of his last interviews before leaving office, Paulson said, “We’ve done all this without all of the authorities that a major nation like the U.S. needs.”
He said even after Congress in October approved the $700 billion troubled asset relief program, Washington still lacked tools such as an adequate special bankruptcy regime for non-bank financial firms.
“We’re dealing with something that is really historic and we haven’t had a playbook,” he said.
(Reporting by Reuters bureaux worldwide; Editing by Tomasz Janowski)
