Global Economy Reviews

01.02.2009 17:50 World Economy Review - January 2009

With overall global economic growth slowing to a near standstill this year, 2009 will be the most challenging year for economies across the globe since World War II, according to an International Monetary Fund report released Jan 28.
The IMF, a global economic organization of 185 countries, said economic growth across the world will fall to just 0.5% in 2009 from 3.4% in 2008. Financial markets are expected to remain under stress - despite a cornucopia of credit-easing actions - until investors and consumers gain confidence that policy actions can help improve market conditions.
In advanced countries, including the United States, the euro-zone nations, Japan, Canada and the United Kingdom, gross domestic product is expected to shrink by 2%. IMF said a vicious cycle of plummeting asset values, decreasing household wealth and sinking consumer demand will result in the first contraction of total advanced economies` GDP in the post-World War II era.
Even booming emerging and developing economies are feeling the pains of the global recession. China, India, the Middle East and Brazil will grow a combined 3.25% in 2009, down considerably from 6.25% growth last year. Falling export demand, lower commodity prices and financial constraints will lead to the slowdown.
IMF said the global downturn won`t last too much longer, as 2010 should be much better. An anticipated recovery of the U.S. housing market in late 2009 should help support a recovery in the United States, and coordinated, sweeping financial market stimulus actions will help advanced economies grow 1.1% next year, according to IMF predictions.
For emerging economies, a stronger economic framework developed in recent years will help them avoid the shock of serious, painful declines of past recessions. Developing economies, too, are better prepared to deal with the current recession than in than in years past, though high poverty levels and reliance on commodity exports will still sting throughout the downturn, said the report. To help reverse the economy`s course, several nations around the world with advanced economies have enacted fiscal stimulus plans, which could cost as much as 1.5% of advanced economies` GDP in 2009. The United States is currently considering a plan that would equal roughly 6% of its total economic output. The actions of those countries are expected to increase their debt levels to 7% of their GDP, up from 3.75% in 2008.
But the IMF said stimulus packages may not be enough. Countries around the globe should consider strong and complementary policy actions that help to fix the financial sector meltdown. IMF recommended a massive coordinated effort to buy up troubled assets, a policy that has received much attention in advanced economies but wavering support in recent months.

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02.01.2009 12:24 World Economy Review - December 2008

In Washington, the Institute of International Finance, an association of world financial institutions, has issued a grim economic forecast, saying that all of the major economies are weak or in recession. The institute says global growth in 2009 will be negative for the first time since reliable statistics became available in 1960. Growth is projected to be minus four-tenths of one percent, compared to 2008 growth of nearly two percent.
Steep declines in real gross domestic product are likely in the current quarter and in the next quarter in the United States, the Euro-zone countries and in Japan. Overall, 2009 will see falls in output in these countries and rising unemployment, but a revival of growth may start in the late summer of next year, forecast the economists at the Institute of International Finance. World GDP is expected to decline for the first time in recent history in 2009 with a projected fall of 0.4 percent, after a 2 percent gain this year, report says.
The IIF forecast that the U.S. economy will decline by 1.3 percent next year after an advance of 1.2 percent this year, while the Euro Area economies fall by 1.5 percent in 2009 after a 0.9 percent drop in 2008, and Japan`s economy falls by 1.2 percent next year after zero growth this year. The IIF predicted further slowing in the leading emerging market economies, although their average growth rate in 2009 at 3.1 percent, after 5.9 percent in 2008, will exceed that of the mature economies by some 5 percentage points. Particularly weak growth is seen in central, eastern and southern Europe with growth of just 0.3 percent likely for 2009 after 4.5 percent in 2008.
Stronger growth is seen in Asia/Pacific, yet here too there is a significant slowing with growth in the region as a whole seen at 5.7 percent after 7.4 percent in 2008 the forecasts include growth for China in 2009 of 6.5 percent after 9.3 percent this year, and a slowing of India`s growth to 5 percent from 6.2 percent last year.
Meanwhile, according to a report released by the World Bank, world GDP growth will be 2.5 percent in 2008 and 0.9 percent for 2009. HSBC is even gloomier about the global economy, expecting it to contract by 0.1% next year.

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01.12.2008 21:50 World Economy Review - November 2008

Many advanced economies are in or nearing recessions of a magnitude not experienced since the early 1980s, the Organization for Economic Cooperation and Development warned November 25th as it called for aggressive economic stimulus measures. The developed economies face a protracted recession and a sharp increase in unemployment, the OECD said in its twice-yearly Economic Outlook.
The organization projected that member economies would decline in 2009 by 0.4 percent over all, after growth of 1.4 percent this year. It forecast that growth would return in 2010, with advanced economies growing a combined 1.5 percent. The OECD also called on governments to take aggressive fiscal policy measures, as "current conditions of extreme financial stress have weakened the monetary transmission mechanism." But it warned that once a recovery starts to take hold, governments must "begin promptly to unwind the macroeconomic stimulus in place to prevent inflationary pressures from gaining a foothold."
The OECD said that the U.S. economy would shrink 0.9 percent next year, after posting growth of 1.8 percent this year. The economy will grow 1.6 percent in 2010, the organization said. The euro zone economy will contract next year by 0.6 percent, after a 3.4 percent increase in 2008, the organization said, with 1.3 percent growth in 2010. The organization warned that the housing market decline in European markets appeared to have further to go.
Growth in Japan will remain just positive, rising 0.3 percent next year, after 1.4 percent growth this year, the OECD said, but the economy will shrink 0.1 percent in 2010. It warned that "with persistent economic slack and anemic wage growth," deflation could return to Japan by mid-2009. The organization said the economic downturn would also be severe in Britain, Hungary, Iceland, Ireland, Luxembourg, Spain and Turkey.
The organization said its forecasts were based on the assumption that "the extreme financial stress since mid-September will be short-lived, but will be followed by an extended period of financial headwinds through late 2009, with a gradual normalization thereafter," and that exchange rates and the oil price remain at their recent levels. It said the main downside risks included the possibility that financial markets would remain under pressure, that more financial institutions might fail and a chance that emerging market economies would be hit harder.

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03.11.2008 17:24 World Economy Review - October 2008

The world economy will slow sharply this year and next, with the United States likely sliding into recession reflecting mounting damage from the most dangerous financial jolt in more than a half-century. The International Monetary Fund, in a World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted the United States - the epicenter of the financial meltdown - will continue to lose traction.
The IMF now projects that the global economy, which grew by a hardy 5 percent last year, will lose considerable speed, slowing to 3.9 percent this year. It is forecast to weaken even more - to just 3 percent - next year, marking the worst showing since 2002. In the past, the IMF has called global growth of 3 percent or less the equivalent to a global recession. In the United States, the economy, which grew by 2 percent last year, is projected to slow to 1.6 percent this year. Growth would screech to a virtual halt in 2009, barely budging at just 0.1 percent. That would mark the worst showing since 1991, when the country was pulling out of a recession.
Looking at other countries, Germany`s growth will slow to 1.8 percent this year, down from 2.5 percent last year. France`s growth will weaken to just 0.8 percent, compared with 2.2 percent in 2007. Britain`s economy will see growth taper to 1 percent, down from 3 percent last year. Canada`s growth will tail off to 0.7 percent this year, from 2.7 percent last year. In Japan, growth will cool to just 0.7 percent, from 2.1 percent last year. Global powerhouses China and India will see growth clock in this year at a robust 9.7 percent and 7.9 percent, respectively. Even if those projections prove correct, they would still mark downgrades from their blistering performances last year. Russia`s economy should grow by a brisk 7 percent this year, down from 8.1 percent last year. Inflation around the world remains high, driven up by surging energy and food prices through much of this year.

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02.10.2008 21:09 World Economy Review - September 2008

The global economy faces its most difficult test in many years with growth slowing sharply as high commodity prices put pressure on inflation, a senior International Monetary Fund official said. IMF first deputy managing director John Lipsky said global growth was set to slow further in the second half of 2008, and continued financial sector strains were a major risk to the chances of recovery in 2009, on top of high oil prices. Commodity prices remained high and volatile, bringing risks of knock-on inflation effects, but recent sharp falls in oil prices should lessen short-term inflation pressures in the developed world, he told a conference. Central banks in advanced economies could afford to keep interest rates on hold. In regions with high real rates, they could look out for easing price pressures which would allow them to loosen policy later, he said. "Against the backdrop of protracted financial strains and dramatic surges in commodity prices, the global economy is confronted with its most difficult set of circumstances in many years," he said. "The good news is, we are only three to six months from the bottom, when the upturn begins."
Lipsky said the IMF was still reviewing its forecasts, which are due to be updated in its World Economic Outlook next month. But the fund saw global growth slowing from 5 percent in 2007 to about 3 percent late in 2008, reaccelerating towards 4 percent in 2009. The IMF`s last forecasts in mid-July were for global growth of 4.1 percent in 2008 and 3.9 percent in 2009. A G20 source told Reuters last month that these would be downgraded to 3.9 percent this year and 3.7 percent in 2009. Lipsky said the 2009 pickup would be driven by an unwinding of the effects of the past 50 percent increase in oil prices and a bottoming in the U.S. housing sector. Oil traded at a five-month low below $105 per barrel on Tuesday. In the United States, the IMF expected growth of about 1 percent in 2008 on a fourth-quarter-on-fourth-quarter basis, recovering gradually to about 1.5 percent in 2009, Lipsky said. This calculation was different from the annual growth rates forecast in its headline projections, he stressed. In mid-July, the IMF forecast U.S. growth of 0.3 percent in 2008 and 1.9 percent in 2009 on a Q4/Q4 basis, with full-year growth seen at 1.3 percent in 2008 and 0.7 percent in 2009. In the euro area, the IMF projected growth on a Q4/Q4 basis at about 0.75 percent in 2008 and about 1.5 percent in 2009, from 1.3 percent and 1.7 percent respectively in mid-July.
Lipsky said that although the IMF expected commodity prices to remain high in real terms, slower growth and cheaper oil should help to contain inflation pressure in advanced economies. "Thus, policymakers can afford to keep rates on hold in the face of elevated headline inflation, while watching closely for signs of easing price pressure that would permit a more accommodative stance in economies with relatively high real interest rates," he said. The European Central Bank held rates at 4.25 percent last week but is expected to cut them in mid-2009 and the Bank of England`s next move is also likely to be a cut. The U.S. Federal Reserve is expected to stay on hold for now, after cutting rates in the past year. Lipsky said that in emerging markets inflation pressures were growing while real interest rates remained low and some central banks may be "behind the curve" with their monetary policy. "Policies in these instances need to be tightened, lest central banks run the risk that hard-won policy credibility could be eroded. In some cases, allowing greater exchange rate flexibility would provide room for operating a more independent monetary policy." The IMF saw growth in emerging and developing economies of just over 6 percent in 2008 on a Q4/Q4 basis, broadly in line with the IMF`s mid-July outlook.

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