Overview of financial and stock-market activity at world level on

The month of October 2002 seems characterized by swelling budget deficits, as well as by insurers and banks appearing among the most battered shares, largely because their portfolios of holdings are heavily dependent on the health of the stock market. This month, Asian, American and European stock exchanges all plunged downwards in the track of Wall Street.

Wall Street came to the end of its worst quarter since the crash of 1987 on 30 September 2002. It was still unclear which way it would go next, as the economy remained fragile and the geopolitical situation was giving cause for concern. Moreover, the economy was being held back by a lack of investment and by consumer reticence.

The Tokyo stock exchange ended the month at its lowest level for 19 years, owing to fears of a major "clearing up" in the near future of the Japanese banking sector, weighed down by numerous doubtful loans. In Japan, deflation seemed to have set in, with:

causing the economy to stagnate with no sign of picking up fresh speed.

In Europe, it is unfortunate that ever since the creation of the euro nearly four years back monetary policy has not been supported by an appropriate economic policy for the 12 European countries that adopted the common currency. It is crises in national budgets that:

Without some such new political power, Europe faces a long time in the shade of the United States.

People seem still to have in mind the size of the rise in share prices over the 1990s in Europe, and to feel reassured by the apparent solidity of banks and the financial system in general, but how long will this continue to be true? This is all the more so because bank failures had a major rôle in the last great deflation, that is, the depression of the 1930s.

For some months now, German banks have been in trouble, and this is even more worrying because unemployment (with more than 4 million out of work) and the weakness of internal demand are more strongly present in Germany than elsewhere in Europe. The part played by German banks in financing big businesses was profitable for a long while, but they are facing the downside at the moment.

Furthermore, a number of European insurance companies have seen their share prices drop by between 50% and 80% over the course of 2002!

Hence, the European economy is slowing down and no regaining of speed can be foreseen for the immediate future because of:

The crucial handicap for Europe is the lack of confidence on the part of its industrialists, the first to suffer from the uncertainties arising from the financial crisis and the possibility of war in Iraq. (1) Moreover, still in Europe, industrialists are worried about future production levels, as they are holding large stocks of unsold products, when there is weak internal demand in a number of countries, growing unemployment, and only feeble growth. What would happen if there were to be a jump in crude oil prices to more than US$40 per barrel?

The International Monetary Fund (IMF) described the economic performance of the Eurozone as "disappointing", and revised downwards its forecasts for economic growth for this zone, comprising 12 out of the 15 countries in the European Union, to 0.7% for 2002 as opposed to 0.9% in its previous estimates issued in September 2002.

In respect of the United States, it can be said that industry was lack-lustre although not facing a double recession, since the index of industrial activity for the month of September 2002 showed contraction from January 2002. (2) American airline companies continued to get deeper into trouble, more than a year on from the 11 September 2001 attacks in New-York. Among computer firms, the heavyweights were holding up well enough but the smaller fry were suffering.

The United States budget had its first deficit since1997 for the financial year 2002: American public finances are likely to be in the red for several years.

The confidence level of American households dropped to its lowest for nine years in October 2002, owing to the worries caused by poor employment prospects, the possibility of war in Iraq, and the fact that there is no sign yet of an economic upturn.

The index of American consumer confidence published by the University of Michigan fell to 80.6 in October 2002 as against 86.1 in September 2002.

Retail sales were rather sluggish for the end-of-year period of 2002 and unless there were to be an upswing in household expenditure any economic recovery would be likely to run out of steam. On this point, the index of American consumer confidence published by the "Conference Board" showed a severe fall to 79.4 in October 2002 from 93.7 in September 2002, and thus hit its lowest level since November 1993 when it stood at 71.9. (3)

Orders for durable goods fell by 5.9% in September 2002 in the United States (after a drop of 0.6% in August 2002), but orders for telecommunications equipment saw a fall of 52.0%, a percentage without precedents in the history of such statistics!

Another significant factor in North America, was a wave of disenchantment hitting American companies, which did not even seem to be sparing the Canadian workplace. In fact, studies showed a generalized lack of confidence on the part of staff towards the entreprises for which they work and the serious reservations they put forward about the ability of their managements to run businesses with integrity and diligence.(4)

Just so long as confidence has not been restored, with respect to the economy and to other matters, the world will be stumbling around seeking its way and will not move on to a new phase.

31 October 2002


  1. From an economic point of view, this is inevitable, and its consequences uncertain: details were given in the "News" for March 2002.
  2. It was activity in transformational industries, a sector representing around one-sixth of the American economy, that fell.
  3. Indices of confidence from the "Conference Board", calculated on the basis of monthly surveys affecting approximately 5,000 households.
  4. "Restoring confidence, gaining competitiveness" by Watson-Wyatt, October 2002.