Global Economy Reviews

05.07.2009 19:01 World Economy Review - June 2009 The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed. The world economy will contract 2.9 percent, compared with a previous forecast of a 1.7 percent decline, the Washington - based lender said in a report. Growth will be 2 percent next year, down from a 2.3 percent prediction, the bank said. The bank is more pessimistic than its sister organization, the International Monetary Fund. The IMF, which is forecasting a global contraction of only 1.3 percent this year and growth of 2.4 percent in 2010, said June 19 that it plans to revise estimates "modestly upward." The World Bank cut its forecast for the U. S. this year, calling for a 3 percent drop in the world`s biggest economy, after predicting a 2.4 percent contraction in March. Japan`s gross domestic product will shrink 6.8 percent, more than the previous prediction of a 5.3 percent decline, the lender said. The euro area`s economy may shrink 4.5 percent, compared with the previous estimate of a 2.7 percent contraction. Global trade may drop by 9.7 percent, compared with a March forecast of a 6.1 percent decline. Economic growth in the developing world will be 1.2 percent, the World Bank said, scaling its outlook back from 2.1 percent.

Developing nations in eastern Europe and Central Asia will be some of the hardest hit, the revised forecasts show. The region`s economy is likely to shrink 4.7 percent this year, down from the 2 percent decline projected in March. Meanwhile, the Organization for Economic Cooperation and Development (OECD) raised its forecast for the economy of its 30 member nations for the first time in two years as the U. S. slump shows signs of easing. The combined economy of the world`s most-industrialized countries will shrink 4.1 percent this year and grow 0.7 percent in 2010, the Paris-based group, which was founded in 1961 to coordinate international economic policies, said today. The new projections compare with March forecasts for contractions of 4.3 percent and 0.1 percent. The U. S. economy was largely responsible for the OECD`s prediction that the global recession will reach its bottom in the second half of this year. The world`s largest economy will contract 2.8 percent this year and grow 0.9 percent next year, the organization said in revising its forecast from declines of 4 percent in 2009 and zero growth in 2010. Even as Japan`s slump shows signs of nearing its end, a slow rebound and excess capacity are “likely to further entrench” deflation.

The organization said the Bank of Japan should better communicate its intention to keep its main interest rate low and hold it at 0.1 percent beyond next year. In the 16-nation euro-area, signs of a recovery are not as clear, the OECD said, as it cut its 2009 forecast to show a contraction of 4.8 percent compared with 4.1 percent in March. Even though it no longer anticipates a 0.3 percent decline next year, it still predicts stagnation as rising unemployment makes consumers reluctant to spend. The organization said evidence of a recovery in China, which is not a member of the OECD, was already apparent, with the economy expected to grow 7.7 percent this year and 9.3 percent in 2010.

The OECD previously projected expansions of 6.3 percent and 8.5 percent respectively. The government still has room to spend on social programs, the OECD said. The Brazilian economy will shrink 0.8 percent this year, more than the 0.3 percent forecast in March, before growing 4 percent next year, up from a 3.8 percent estimate, the OECD said. The organization also raised growth predictions for India to 5.9 percent and 7.2 percent this year and next. Such emerging market recoveries mean trade will soon stabilize and begin to pick up by the end of the year, the OECD said. It predicted global trade will expand 2.1 percent next year after plunging 16 percent this year. 05.06.2009 21:04 World Economy Review - May 2009 Europe should take bolder steps to fix its banks, starting with stress tests of vulnerability, and better coordinate national policies to improve chances of the region shaking off recession during the course of 2010, the International Monetary Fund said.

A report from the Washington-based agency, which has provided economic rescue funds for emerging market European countries hit hardest by the global financial crisis, stressed the need for Europe to adopt policies that helped west and east. "Europe is facing the economic storm of a lifetime and it urgently needs to weatherproof its institutions," Marek Belka, who is head of the IMF`s European department, and presented the publication in Paris, said. ECB interest rates cuts had probably gone about as far as was useful, or near in any case, said Belka, whose main point was to stress the IMF`s call for measures to restore confidence in the banking system, starting with stress tests. "We are coming quite close to the point where the efficiency of interest rate actions is exploited," said Belka. The IMF report repeats the macroeconomic forecasts contained in the IMF`s April 22 World Economic Outlook.

It foresees deep recession in 2009 and flat to sub-zero growth for 2010 as a whole despite a pickup that should take place as long as government measures are effective. It sees both advanced and emerging economies in deep contractions in 2009 but the emerging market region returning to growth for 2010 as a whole while advanced economies still struggle, if much less so than this year. The IMF said fiscal stimulus should continue in 2010 and focus on infrastructure and direct transfers rather than tax breaks and subsidies for companies and consumers. "Crisis measures, regulatory, and supervisory actions have been unhelpfully diverse especially in Europe`s well-integrated financial sector," the IMF said. Meanwhile, the United Nations (UN) has downgraded its world economic forecast for 2009 with a shrinkage of 2.6 per cent from an already pessimistic estimate made five months ago. It also warned that the developing countries would be hit the hardest.

"The world economy is expected to shrink by 2.6 per cent in 2009, down from a de cline by 0.5 per cent, according to the pessimistic scenario of the forecast presented in January,`` the UN mid-year report stated. The report however predicted that "with a coordinated, development-oriented policy scenario, the world economy would recover to an annual growth of 4-5 per cent in 2010-2015, led by a robust growth of 7 per cent per year in developing countries. 04.05.2009 19:58 World Economy Review - April 2009 The latest forecast by the IMF in its World Economic Outlook shows the global economy contracting in 2009 by 1.3%. While the rate of contraction should moderate from the second quarter of 2009 onward, output per capita is projected to decline in countries representing three-quarters of the global economy. Growth is projected to reemerge in 2010, but at 1.9% it would be sluggish relative to past recoveries.

IMF Chief Economist Olivier Blanchard told reporters that the world economy was being battered by competing crosscurrents, with the collapse in confidence and demand continuing to pull the economy down and government stimulus measures and natural stabilization mechanisms pulling the economy up. “This is not the time for complacency, and the need for strong policies, both on the macro and especially on the financial fronts, is as acute as ever. But, with such policies in place, there is light at the end of this long tunnel. World growth can turn positive by the end of this year, and unemployment can start decreasing by the end of next year.” The IMF experts revised their January forecasts down significantly, particularly for the export nations Germany and Japan, namely, by over three percentage points.

The IMF is predicting that growth in Germany will decline by 5.6% in 2009, whereas the six German economic research institutes, which have also published their forecasts, are expecting a drop of –6%. The forecasts are thus getting closer to our prediction of –7%. Eurozone GDP is expected to shrink by 4% this year, and to contract further by 1% in 2010. In comparison, the figures for the US appear almost upbeat: there, the IMF is expecting GDP contraction of “only” 2.8% in 2009, and stagnation next year. The United Kingdom`s economy was forecast to shrink by 4% in 2009 and the United States by 2.8%. The International Monetary Fund says Russia`s GDP will drop as much as 6 percent this year. The forecast is the most pessimistic analyst outlook on Russia so far. The IMF said Russia`s economy would gain 0.5 percent in 2010. The IMF has changed its forecast for the fall in Ukraine`s GDP in 2009 from 3% to 8%, but it expects the country`s economy to resume growth next year. In 2010, Ukraine`s GDP will grow by 1%, according to the revised forecast contained in the IMF`s World Economic Outlook. According to the forecast, Ukraine`s average annual inflation will slow from last year`s 25.23% to 16.8% this year and 10% next year. At the same time, the current account surplus will reach 0.6% of GDP this year and 1.4% of GDP next year compared, to a deficit of 3.7% of GDP in 2007 and 7.2% of GDP in 2008. IMF experts say that among all the regions of the global economy, the CIS countries are forecast to experience the largest reversal of economic fortune over the near term.

The reason is that their economies are being badly hit by three major shocks: the financial turbulence, which has greatly curtailed access to external funding; slumping demand from advanced economies; and the related fall in commodity prices, notably for energy. 03.04.2009 19:31 World Economy Review - March 2009 The International Monetary Fund forecasts the global economy will contract by between 0.5 and 1.5 percent this year, Italian news agency ANSA reported, citing an IMF document. The grim projections, dated March 18, are the latest in a series of downward revisions by the IMF as the global recession deepens. IMF official Teresa Ter-Minassian told reporters the Fund saw world growth contracting by 0.6 percent this year - figures which a spokesman for the Washington-based body said were "unofficial and already out of date". The fund`s most recent official forecasts, in January, pointed to growth of 0.5 percent. The latest document, which ANSA said had been presented to officials from the Group of 20 rich and emerging nations, forecasts a gradual recovery next year with global gross domestic product growing by between 1 percent and 2 percent. The IMF forecasts GDP will fall by 2.6 percent this year in the United States and contract by 3.2 percent in the euro zone. But the document cited by ANSA forecasts 5.8 and 0.2 percent contractions respectively this year and next in Japan, the world`s second largest economy, compared with Ter-Minassian`s forecasts for a 5.0 percent shrinkage and zero growth.

Both said growth in 2010 would be 0.2 percent in the United States and 0.1 percent in the euro zone. The document cited by ANSA forecast that GDP in relatively dynamic emerging economies would grow by between 2.0 percent and 2.5 percent this year and by 3.5 percent and 4.5 percent in 2010. At that time, the World Bank more than halved its forecast for growth in developing nations, from 4.4 percent to 2.1 percent. The revision reflects the speed and ferocity with which the financial crisis has restricted economic activity since the World Bank issued its last forecast in November. With the developing world cooling off, the World Bank had previously said it expected the global economy to contract but had not provided an estimate. Earlier, it said it expected world output to decline by 1.7 percent. And while the bank said growth should resume next year, it might not be robust. In a separate report released on March 31, the Organization for Economic Cooperation and Development, which includes the United States and other industrialized powers, said it estimated that the economies of its 30 member countries would shrink by an average of 4.3 percent this year. The OECD predicted that global trade would shrink by more than 13 percent this year.

28.02.2009 15:09 World Economy Review - February 2009 According to the United Nations baseline forecast, world gross product (WGP) is expected to slow to about 1.0 per cent in 2009, a sharp deceleration from the 2.5% growth estimated for 2008 and well below the more robust growth in previous years. The baseline forecast assumes that it will take six to nine months for financial markets in developed countries to return to normalcy, assuming central banks in the United States, Europe and Japan provide further monetary stimulus from the end of 2008 and on into 2009. Uncertainties surrounding this forecast are high, as shown by the confidence interval around the baseline forecast. In a more pessimistic scenario, both the fire sale of financial assets and the credit crunch would last longer, while monetary stimulus would prove ineffective in the short run and fiscal stimulus would turn out to be too little, too late. This would then lead to worldwide recession in 2009, with global output falling by 0.4%, and postpone recovery to, at best, the following year. In a more optimistic scenario, a large-scale fiscal stimulus coordinated among major economies would stave off the worst of the crisis, yet - for the reasons indicated - it would not prevent a significant slowdown of the global economy in 2009. Meanwhile, gross domestic product (GDP) in the OECD area fell by 1.5% in the fourth quarter of 2008 - the largest fall since OECD records began in 1960, according to preliminary estimates. In the US, GDP fell 1% in the fourth quarter of 2008, following a 0.1% decrease in the previous quarter.

Japan`s GDP declined by 3.3%, following a 0.6% decrease in the previous quarter. GDP in the Euro area was down 1.5%, following a 0.2% fall in the previous quarter. The US contributed 0.1% to the total OECD fall of 1.1% between the fourth quarter of 2007 and the fourth quarter of 2008. Japan contributed 0.5%, the Euro area (12 countries) 0.3%, and the remaining countries 0.2%.