Grim data from Europe sends ripples worldwide; Toyota announces production cuts on falling demand

A grim picture painted by economic data revealed the severity of the recession in Europe.

The Markit Eurozone Purchasing Managers' Index of around 2,000 key services companies, comprising banks to retail stores dropped to 42.1 in December 2008, from 42.5 in November last year. It marks a new low in the survey's 10-year long history, and has economists calling for further interest rate cuts from the European Central Bank (ECB).

Economists were reported as saying that the Euro Zone faces a very difficult start to 2009, with new orders drying up, backlogs of work and employment. Reports cited a services sector survey in the UK as revealing an eighth month of contraction, with employment dropping to record lows as firms had little option but to resort to downsizing, redundancies, and layoffs.

Inflation in the Euro Zone also fell more than expected, to 1.6 per cent that marks a 26-month low as of December 2008.

With the dispute over gas pricing between Russia and Ukraine having no end in sight, gas supplies via Ukraine to southeast Europe and Turkey came to a grinding halt on Tuesday pushing US oil prices up by 80 cents to almost $50 per barrel. Prices also climbed by around 10 per cent in the British gas market.

Gas flows to Bulgaria, Turkey, Macedonia, Greece and Croatia were reported to have been cut, while Austria and the Czech Republic reported sharp falls.

Other economic indicators remain poor, with Britain's Nationwide Building Society reported as saying that house prices fell another 2.5 per cent in December, making 2008 the worst year on record. Consumer confidence dropped in December in both Britain and France as households worried about rising unemployment.

Against this backdrop, Toyota Motor Corp announced a halting of output in Japan, responding to falling demand; it said it would shut all its factories in Japan for 11 days in February and March.

Automakers globally have been among the hardest-hit. US Auto sales dropped 36 per cent in December. Toyota witnessed its worst US monthly sales decline since around 1980, prompting the plant closures in Japan, which are over and above a a three-day suspension at domestic plants this month, which were on account of its warnings of posting its first-ever annual operating loss.