Thousands of jobs axed across Europe

Alister Bull

Thursday, July 26, 2001 at 09:30 JST

FRANKFURT — Thousands more European jobs were on the line Wednesday as companies wrestled with a global slowdown that has already crushed business confidence and is now threatening to undermine consumer spending.

Corporate restructuring has unleashed a wave of job cuts and could push euro zone unemployment half a million higher next year. This would sap household spending, which economists have been counting on to prop up regional growth.

Growth has slowed sharply in the United States, Japan and the euro zone as firms scale back output.

"If the bad news from European companies is confirmed it will definitely be a dampening factor for consumer confidence and could cancel out tax cuts we had expected to shelter GDP," said Stefan Bielmeier at Deutsche Bank Research in Frankfurt.

Big business is scrambling to cope with plunging demand. Over 30,000 job cuts were unveiled on Tuesday alone as managers on both sides of the Atlantic confessed they saw no light at the end of the tunnel. And the bad mews just kept piling up.

German technology powerhouse Siemens AG said on Wednesday that it saw no early improvement in the world business climate, adding it would step up a restructuring and did not rule out job cuts on top of 10,000 announced earlier this year.

Akzo Nobel NV announced 2,000 job cuts worldwide and the Wall Street Journal reported that 5,000 jobs at Infineon, in which Siemens has a 51% stake, might go.

Infineon declined to comment on the report but said that redundancies were on everyone's agenda at the moment.

"We cannot rule out reductions in our workforce in general. Given a continuously difficult market environment, that is something everybody is contemplating," said Katja Schlendorf.

Up to 20,000 jobs were earmarked for the ax by Lucent Technologies Inc on Tuesday with ABB, Europe's largest electrical engineer, announcing cuts of 12,000.

Growth has slowed sharply in the United States, Japan and the euro zone as firms scale back output that had been aimed at targets that now look dramatically optimistic.

Official assurances from the Group of Seven summit last weekend in Genoa, whose "cautious optimism" was echoed again by Bundesbank President Ernst Welteke on Wednesday, are not being backed up by hard economic evidence.

But Federal Reserve Chairman Alan Greenspan said on Tuesday that the U.S. economy was still not out of the woods.

And his assessment is confirmed by shaky business confidence. Consumer spending, which Greenspan said had held up so far, will find itself in the firing line on both sides of the Atlantic as unemployment rises.

Consumer spending, net trade and investments are the three planks of economic output. High euro zone inflation this year, particularly in Germany, had already blunted some of the tax-cut benefits designed to lift household incomes.

Prices have finally started heading down in the euro zone. But worry over jobs could curb currently high levels of consumer confidence and, with business confidence already on the ropes, spells double-trouble for the flagging economy.

"The situation is clear, signalled by the strong drop in the Ifo business climate index, and I think that in the European job market, we can expect to see serious skid marks," said BNP Paribas strategist Hans Redeker.

Germany's closely watched Ifo business climate barometer fell again in June to 89.5 from 90.8 the previous month, breaching a threshold linked in the past with some of the country's worst post-Second World War recessions.

U.S. jobless claims hit a nine-year high of 445,000 for the week ending July 7. Unemployment in the euro zone is still roughly twice levels in the U.S.

It has fallen from almost 15 million in 1996 to 11.7 million last year and although the pace of job-creation has slowed, it remains positive and stands as one of the best achievements of the monetary union.

But the slowdown in Germany has already seen its jobless levels rise for six straight months and the region's overall unemployment is being placed on the line.

Economists at CSFB in London estimate that slowing growth will add half a million more jobless to the unemployment numbers in the euro zone next year as the unemployment rate heads back to an average of 8.8% from 8.5% in 2001.

"There has been no recovery in world trade and the negative signals are accumulating. We would have expected a trough in indicators like Ifo and its failure to do so is very bad news," said CSFB economist Christophe Duval-Keiffer. (Reuters News)

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-- Martin Thompson (mthom1927@aol.com), July 25, 2001