5,300 full time employees are being axed and more than 700 consultants will go as the group struggles to cope with a slump in demand for its cars.

The job cuts represent almost 7% of the group's total workforce.

Almost half of the jobs will be lost in Sweden. Volvo's workforce will also be slashed across Europe, the US and the rest of the world.

The car industry has been dogged by overcapacity, with the financial crisis in Asia leading to a slump in demand.

Merger hopes dashed

Volvo's hopes of merging with a big European rival have also been dashed.

Chief executive Leif Johansson said: "The group's earnings capacity is insufficient and we must now take actions to ensure Volvo's long-term competitiveness."

Volvo said implementing the measures would save it up to $368m.

Volvo's nine-month results, announced in October, were worse than expected and the car market has not improved since then.

The Swedish car manufacturer has 73,000 employees world-wide, 44,000 of which in Sweden.