Showing posts with label global recession. Show all posts
Showing posts with label global recession. Show all posts
Friday, 20 September 2013
The End Of The American Dream - USA
The Middle class is defined as a set of people with these aspirations:
I want to own my own house
I want to live in a safe neighbourhood with good schools
I want to be able to put a bit of money away for taking a modest vacation every year.
I want a health insurance.
I want to be able to save a little for retirement.
I want to be able to send my kids to college.
These make up the "Middle class basket."
Big Question: Are you doing the things that are most important in your life?
Saturday, 18 December 2010
Mr. Yen: A world recession until 2018.
All hands to the pumps, unless you have a yen for recession until 2018
William Pesek
December 18, 2010
In an era where forecasts by perma-bears have gotten ample attention and vindication, few are as disturbing as this: a world recession until 2018.
It comes from Eisuke Sakakibara, Japan's former top currency official. He is known as ''Mr Yen'' for his ability to move markets. Because Tokyo's revolving-door politics tends to send a new face to each G20 meeting, he is one of the few Japanese constants in market circles. Traders may not know the latest finance minister's name, but they know Sakakibara.
Japan is the master of muddling along, decade after decade, with little growth to show for it. And Sakakibara was a key player when it faced everything from the Asian crisis to the onset of deflation and the banking collapse that led to the demise of Yamaichi Securities.
So, when an economist with Sakakibara's background says ''the world is set for a long-term structural slump reminiscent of the 1870s'', when average global growth was about 1 per cent a year, I cannot help but listen. The reason for the slowdown? Governments are putting fiscal austerity ahead of restoring stable growth.
Yes, there's an eye-rolling quality to a former finance ministry mandarin giving economic advice. After all, officials there did Japan's 126 million people a disservice by punting reform far down the road. They just borrowed and borrowed, leaving Japan with the largest public debt among industrialised nations and no exit strategy in sight.
Yet recent data in the US and Japan and turbulence in Europe suggest a fresh global recession is a distinct possibility next year. If that happens, what levers are realistically available to revive demand? Interest rates are already at, or close to, zero. That leaves increased government spending as the only real way to stabilise things.
The trouble is, there's little support for opening the fiscal floodgates.
One reason is there is already loads of public debt. As of June, Japan's $US5 trillion economy had ¥904 trillion ($10.8 trillion) in debt. Too much debt is wreaking havoc in Europe, where Ireland is the latest domino to fall.
The US is starting to rattle bondholders with its borrowing binge. President Barack Obama's stimulus isn't working the magic economists hoped. Neither is the Federal Reserve, as it goes the way of Japan with quantitative easing.
Worse, in the US and other major economies, is the risk that it may be 1937 all over again. It was then that President Franklin Delano Roosevelt got stingy with stimulus, assuming that the Great Depression was over. The next year the economy was in full retreat.
If Sakakibara is right, the global economy is in deep trouble. He envisions a broad slowdown that might drag on for seven to eight years. China can live a couple of years without US and European growth, but eight?
To head it off, governments need to lift spending. And, for the most part, they aren't. Yet the US can, and should, borrow more. To do that, it just needs to become a bit more Japanese, says Richard Duncan, author of the The Corruption of Capitalism.
There is a single reason why Japan's 10-year bond yields are below 1.3 per cent and Asia's No. 2 economy isn't being downgraded. Since about 95 per cent of Japan's debt is held domestically, there's no risk of capital flight. Japan borrows from its companies and people, an arrangement that is roughly the mirror image of the US.
That so many treasuries are held in China and elsewhere makes the US vulnerable. Duncan, the chief economist at Blackhorse Asset Management, says the US needs another FDR-like new deal to restore growth. Funding one means greater borrowing and the way to do it is by tapping private sector cash, Japan-style.
Such suggestions are likely to fall with a thud on Capitol Hill, which is moving in the opposite direction. Lawmakers calling for Ben Bernanke's head forget why the Fed chairman is taking US monetary policy into uncharted territory. It is because Congress failed to pump enough money into the economy in the first place.
Japan is a cautionary tale. On the surface, the 4.5 per cent annualised increase in third-quarter gross domestic product looked promising. The detail, however, showed deflation is worsening no matter how many yen the Bank of Japan churns into the economy. This is anything but a typical recession, and world leaders are too distracted to see it.
In the US, the focus is on China's currency. While a stronger yuan would be in the best interests of the global economy, it is not the answer to all US problems. Japan is even more obsessed with exchange rates. And Europe is linearly focused on convincing investors that the euro zone won't unravel.
In our time of currency fixation, perhaps a guy called Mr Yen is the ideal messenger.
Bloomberg
William Pesek
December 18, 2010
In an era where forecasts by perma-bears have gotten ample attention and vindication, few are as disturbing as this: a world recession until 2018.
It comes from Eisuke Sakakibara, Japan's former top currency official. He is known as ''Mr Yen'' for his ability to move markets. Because Tokyo's revolving-door politics tends to send a new face to each G20 meeting, he is one of the few Japanese constants in market circles. Traders may not know the latest finance minister's name, but they know Sakakibara.
Japan is the master of muddling along, decade after decade, with little growth to show for it. And Sakakibara was a key player when it faced everything from the Asian crisis to the onset of deflation and the banking collapse that led to the demise of Yamaichi Securities.
So, when an economist with Sakakibara's background says ''the world is set for a long-term structural slump reminiscent of the 1870s'', when average global growth was about 1 per cent a year, I cannot help but listen. The reason for the slowdown? Governments are putting fiscal austerity ahead of restoring stable growth.
Yes, there's an eye-rolling quality to a former finance ministry mandarin giving economic advice. After all, officials there did Japan's 126 million people a disservice by punting reform far down the road. They just borrowed and borrowed, leaving Japan with the largest public debt among industrialised nations and no exit strategy in sight.
Yet recent data in the US and Japan and turbulence in Europe suggest a fresh global recession is a distinct possibility next year. If that happens, what levers are realistically available to revive demand? Interest rates are already at, or close to, zero. That leaves increased government spending as the only real way to stabilise things.
The trouble is, there's little support for opening the fiscal floodgates.
One reason is there is already loads of public debt. As of June, Japan's $US5 trillion economy had ¥904 trillion ($10.8 trillion) in debt. Too much debt is wreaking havoc in Europe, where Ireland is the latest domino to fall.
The US is starting to rattle bondholders with its borrowing binge. President Barack Obama's stimulus isn't working the magic economists hoped. Neither is the Federal Reserve, as it goes the way of Japan with quantitative easing.
Worse, in the US and other major economies, is the risk that it may be 1937 all over again. It was then that President Franklin Delano Roosevelt got stingy with stimulus, assuming that the Great Depression was over. The next year the economy was in full retreat.
If Sakakibara is right, the global economy is in deep trouble. He envisions a broad slowdown that might drag on for seven to eight years. China can live a couple of years without US and European growth, but eight?
To head it off, governments need to lift spending. And, for the most part, they aren't. Yet the US can, and should, borrow more. To do that, it just needs to become a bit more Japanese, says Richard Duncan, author of the The Corruption of Capitalism.
There is a single reason why Japan's 10-year bond yields are below 1.3 per cent and Asia's No. 2 economy isn't being downgraded. Since about 95 per cent of Japan's debt is held domestically, there's no risk of capital flight. Japan borrows from its companies and people, an arrangement that is roughly the mirror image of the US.
That so many treasuries are held in China and elsewhere makes the US vulnerable. Duncan, the chief economist at Blackhorse Asset Management, says the US needs another FDR-like new deal to restore growth. Funding one means greater borrowing and the way to do it is by tapping private sector cash, Japan-style.
Such suggestions are likely to fall with a thud on Capitol Hill, which is moving in the opposite direction. Lawmakers calling for Ben Bernanke's head forget why the Fed chairman is taking US monetary policy into uncharted territory. It is because Congress failed to pump enough money into the economy in the first place.
Japan is a cautionary tale. On the surface, the 4.5 per cent annualised increase in third-quarter gross domestic product looked promising. The detail, however, showed deflation is worsening no matter how many yen the Bank of Japan churns into the economy. This is anything but a typical recession, and world leaders are too distracted to see it.
In the US, the focus is on China's currency. While a stronger yuan would be in the best interests of the global economy, it is not the answer to all US problems. Japan is even more obsessed with exchange rates. And Europe is linearly focused on convincing investors that the euro zone won't unravel.
In our time of currency fixation, perhaps a guy called Mr Yen is the ideal messenger.
Bloomberg
Thursday, 10 June 2010
Risks to global economy have 'risen significantly', top IMF official warns
Risks to global economy have 'risen significantly', top IMF official warns
The risks to a robust global recovery have 'risen significantly' as many governments struggle with debt, a leading official from the International Monetary Fund has warned.
Published: 9:24AM BST 09 Jun 2010
10 Comments
The G20 summit in April. 2009, was the high watermark for international co-operation in tackling the financial and economic crisis.
“After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Naoyuki Shinohara, the IMF's deputy managing director, said in Singapore on Wednesday. “The global outlook remains unusually uncertain and downside risks have risen significantly.”
Countries across Europe are under pressure to tackle their deficits that were deepened by the financial crisis and governments own response to it. Some economists fear that moves by countries ranging from Britain to Spain to rein in public spending at the same time will set back a global recovery.
Stock markets have declined in the past couple of months as Europe's debt crisis and the prospect of higher interest rates in the faster-growing Asian economies cast a shadow over the recovery.
“Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,” Mr Shinohara said. “In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus.”
Mr Shinohara, the former top currency official in Japan, added that "a key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.”
http://www.telegraph.co.uk/finance/economics/7812903/Risks-to-global-economy-have-risen-significantly-top-IMF-official-warns.html
The risks to a robust global recovery have 'risen significantly' as many governments struggle with debt, a leading official from the International Monetary Fund has warned.
Published: 9:24AM BST 09 Jun 2010
10 Comments
The G20 summit in April. 2009, was the high watermark for international co-operation in tackling the financial and economic crisis.
“After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,” Naoyuki Shinohara, the IMF's deputy managing director, said in Singapore on Wednesday. “The global outlook remains unusually uncertain and downside risks have risen significantly.”
Countries across Europe are under pressure to tackle their deficits that were deepened by the financial crisis and governments own response to it. Some economists fear that moves by countries ranging from Britain to Spain to rein in public spending at the same time will set back a global recovery.
Stock markets have declined in the past couple of months as Europe's debt crisis and the prospect of higher interest rates in the faster-growing Asian economies cast a shadow over the recovery.
“Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand,” Mr Shinohara said. “In the event of spillovers from Europe, there is ample room in most Asian economies to pause the withdrawal of fiscal stimulus.”
Mr Shinohara, the former top currency official in Japan, added that "a key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.”
http://www.telegraph.co.uk/finance/economics/7812903/Risks-to-global-economy-have-risen-significantly-top-IMF-official-warns.html
Wednesday, 22 April 2009
I.M.F. Puts Bank Losses From Global Financial Crisis at $4.1 Trillion
I.M.F. Puts Bank Losses From Global Financial Crisis at $4.1 Trillion
By MARK LANDLER
Published: April 21, 2009
WASHINGTON — As finance ministers gather here this weekend for meetings of the International Monetary Fund and the World Bank, they will focus on two eye-popping numbers: $4.1 trillion, the fund’s latest projected losses from the global economic crisis, and $1.1 trillion to help fix it.
The huge numbers illustrate the depth of the worldwide economic upheaval and the challenge facing those institutions, which are increasingly at the heart of efforts to contain the damage.
In a report released Tuesday, the I.M.F. estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion in the value of their holdings as a result of the crisis.
Of that amount, $2.7 trillion is from loans and assets originating in the United States, the fund said. That estimate is up from $2.2 trillion in the fund’s interim report in January, and $1.4 trillion last October.
The fund said that it spotted the first glimmers of stabilization in the global financial system, but that “continued decisive and effective action” by governments, banks and institutions like the I.M.F. would be needed to prevent the system from going into a downward spiral.
At a meeting of industrial and developing countries in London this month, President Obama and other leaders pledged $1.1 trillion more for the fund and, to a lesser extent, the World Bank.
Now, the I.M.F. must figure out how to turn those pledges into hard cash — no easy task, insiders and outside experts say — and how to marshal the money to steady teetering economies including those of Iceland and Pakistan.
“We’d be deluding ourselves if we think it is going to solve the crisis,” said Desmond Lachman, an expert on the fund at the American Enterprise Institute in Washington. He was speaking at a conference organized by the institute titled “Can the I.M.F. Really Save the World?”
The answer, most participants agreed, was no, but its vastly increased resources have turned the fund into a crucial player.
“Anytime you raise expectations, it’s important that you deliver,” said Robert B. Zoellick, the president of the World Bank. “Part of this week’s meetings will be about how you deliver.”
Analysts said the $1.1 trillion sum assumed huge contributions by the United States, China and other countries, which may or may not come through. It also counts some contributions more than once, and it counts some in the form of a synthetic I.M.F. currency that is not hard cash.
Using funds on hand, the World Bank said it would triple its investments in social safety-net programs to $12 billion over the next two years. The goal, Mr. Zoellick said, is to protect the most vulnerable people in developing countries from facing poverty, hunger or disease because of the crisis. “It’s vital that we make this more than a discussion of high finance,” he told reporters on Tuesday.
The reality is that the Washington meetings will be dominated by talk about the escalating losses weighing on the world’s leading banks, insurance companies and pension funds. The fund’s report said the recession was magnifying the impact of the credit squeeze on them.
“Shrinking economic activity has put further pressure on banks’ balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending,” the fund said in its report, released twice a year, which has become a barometer of the severity of the crisis.
As banks struggle to cleanse their balance sheets, the fund said, capital flows to emerging-market economies have plummeted, throwing Eastern Europe into crisis. That threatens to spill over to Western Europe, because its banks are major lenders to Hungary, Estonia and other countries.
Among European countries, the fund has already agreed to more than $55 billion in loans to Hungary, Serbia, Romania, Iceland, Ukraine, Belarus and Latvia. More may yet need to be bailed out.
On Tuesday, Colombia became the second Latin American country to seek aid, requesting $10.4 billion. Last Friday, the fund approved a $47 billion line of credit for Mexico, making it the first country to qualify for a loan from a program that extends credit to emerging economies that are considered well managed. Poland also said this week that it would seek a $20.5 billion credit line under that program.
With so many loans flowing out the door, experts said, the fund would run out of money without the infusion.
“They really need to nail down this financing, especially from emerging markets,” said Eswar S. Prasad, a professor of trade policy at Cornell University and a former head of the China division at the I.M.F.
In a twist that leaves some experts shaking their heads, the fund needs money from cash-rich developing countries, like China and India, to help more developed but strapped countries, like those in Eastern Europe.
Western Europe looms as the next front in the crisis, according to the fund’s report. It estimates that financial institutions will have to write down $1.19 trillion in loans and securities originating there. And they have gotten off to a much slower start than their American counterparts.
In the United States banks reported $510 billion in write-downs by the end of 2008, and they face an additional $550 billion in 2009 and 2010, the fund said. In the countries of the euro zone, banks reported just $154 billion in write-downs by the end of last year and still face $750 billion in projected write-downs, the fund said.
David Jolly contributed reporting from Paris.
http://www.nytimes.com/2009/04/22/business/global/22fund.html?em
By MARK LANDLER
Published: April 21, 2009
WASHINGTON — As finance ministers gather here this weekend for meetings of the International Monetary Fund and the World Bank, they will focus on two eye-popping numbers: $4.1 trillion, the fund’s latest projected losses from the global economic crisis, and $1.1 trillion to help fix it.
The huge numbers illustrate the depth of the worldwide economic upheaval and the challenge facing those institutions, which are increasingly at the heart of efforts to contain the damage.
In a report released Tuesday, the I.M.F. estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion in the value of their holdings as a result of the crisis.
Of that amount, $2.7 trillion is from loans and assets originating in the United States, the fund said. That estimate is up from $2.2 trillion in the fund’s interim report in January, and $1.4 trillion last October.
The fund said that it spotted the first glimmers of stabilization in the global financial system, but that “continued decisive and effective action” by governments, banks and institutions like the I.M.F. would be needed to prevent the system from going into a downward spiral.
At a meeting of industrial and developing countries in London this month, President Obama and other leaders pledged $1.1 trillion more for the fund and, to a lesser extent, the World Bank.
Now, the I.M.F. must figure out how to turn those pledges into hard cash — no easy task, insiders and outside experts say — and how to marshal the money to steady teetering economies including those of Iceland and Pakistan.
“We’d be deluding ourselves if we think it is going to solve the crisis,” said Desmond Lachman, an expert on the fund at the American Enterprise Institute in Washington. He was speaking at a conference organized by the institute titled “Can the I.M.F. Really Save the World?”
The answer, most participants agreed, was no, but its vastly increased resources have turned the fund into a crucial player.
“Anytime you raise expectations, it’s important that you deliver,” said Robert B. Zoellick, the president of the World Bank. “Part of this week’s meetings will be about how you deliver.”
Analysts said the $1.1 trillion sum assumed huge contributions by the United States, China and other countries, which may or may not come through. It also counts some contributions more than once, and it counts some in the form of a synthetic I.M.F. currency that is not hard cash.
Using funds on hand, the World Bank said it would triple its investments in social safety-net programs to $12 billion over the next two years. The goal, Mr. Zoellick said, is to protect the most vulnerable people in developing countries from facing poverty, hunger or disease because of the crisis. “It’s vital that we make this more than a discussion of high finance,” he told reporters on Tuesday.
The reality is that the Washington meetings will be dominated by talk about the escalating losses weighing on the world’s leading banks, insurance companies and pension funds. The fund’s report said the recession was magnifying the impact of the credit squeeze on them.
“Shrinking economic activity has put further pressure on banks’ balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending,” the fund said in its report, released twice a year, which has become a barometer of the severity of the crisis.
As banks struggle to cleanse their balance sheets, the fund said, capital flows to emerging-market economies have plummeted, throwing Eastern Europe into crisis. That threatens to spill over to Western Europe, because its banks are major lenders to Hungary, Estonia and other countries.
Among European countries, the fund has already agreed to more than $55 billion in loans to Hungary, Serbia, Romania, Iceland, Ukraine, Belarus and Latvia. More may yet need to be bailed out.
On Tuesday, Colombia became the second Latin American country to seek aid, requesting $10.4 billion. Last Friday, the fund approved a $47 billion line of credit for Mexico, making it the first country to qualify for a loan from a program that extends credit to emerging economies that are considered well managed. Poland also said this week that it would seek a $20.5 billion credit line under that program.
With so many loans flowing out the door, experts said, the fund would run out of money without the infusion.
“They really need to nail down this financing, especially from emerging markets,” said Eswar S. Prasad, a professor of trade policy at Cornell University and a former head of the China division at the I.M.F.
In a twist that leaves some experts shaking their heads, the fund needs money from cash-rich developing countries, like China and India, to help more developed but strapped countries, like those in Eastern Europe.
Western Europe looms as the next front in the crisis, according to the fund’s report. It estimates that financial institutions will have to write down $1.19 trillion in loans and securities originating there. And they have gotten off to a much slower start than their American counterparts.
In the United States banks reported $510 billion in write-downs by the end of 2008, and they face an additional $550 billion in 2009 and 2010, the fund said. In the countries of the euro zone, banks reported just $154 billion in write-downs by the end of last year and still face $750 billion in projected write-downs, the fund said.
David Jolly contributed reporting from Paris.
http://www.nytimes.com/2009/04/22/business/global/22fund.html?em
Global downturn deeper that feared, says IMF
April 22, 2009
Global downturn deeper that feared, says IMF
In a grim assessment of global prospects, the IMF once again drastically cut its forecasts for key economies across the world
The savage slump in the world’s leading economies is set to be even deeper than previously feared, with recovery next year now unlikely to materialise, the International Monetary Fund warned today.
In a grim assessment of global prospects, the IMF once again drastically cut its forecasts for key economies across the world. It blamed the continuing blight from severe financial stresses for a still worsening global outlook.
For Britain, the fund inflicted a double blow on Alistair Darling minutes after the Chancellor unveiled his Budget. It predicted that the UK economy will now shrink by 4.1 per cent this year — markedly worse than Mr Darling’s own new projection for a 3.5 per cent decline, and said that the recession would drag on into 2010, with a further drop of 0.4 per cent in GDP next year. The Chancellor has predicted a recovery with 2010 growth of 1.25 per cent.
The fund’s hard-hitting report warned that, despite a blizzard of far-reaching official efforts to bail-out banks and stem financial turmoil, governments had failed to halt a vicious downward spiral as intense financial strains and deteriorating economic conditions feed off each other.
Calling for still more “forceful action” by governments on both sides of the Atlantic, the IMF said that halting the slump in the global economy and restoring growth now depended critically on governments “stepping up efforts to heal the financial sector”.
But a day after the fund predicted that cumulative losses for banks in the US, Europe and Japan from the credit crisis will hit $4 trillion, it also warned that, even if economic recovery is secured, it is set to be anaemic and “sluggish relative to past recoveries”.
The latest IMF forecasts, in its twice-yearlyWorld Economic Outlook, project that what it says will be by far the worst world recession since the Second World War will mean a worldwide plunge in economic output (GDP) of 1.3 per cent. That compares with its January forecast which foresaw meagre world growth of just 0.5 per cent, still weak enough to be classed as a global recession.
In the leading economies of the West, the IMF now expects GDP to plummet this year by a vicious 3.8 per cent, down from the 2 per cent drop it expected in January.
It also now expects no revival in 2010, with the advanced industrial economies as a whole set to stagnate with zero growth. That contrasts with the recovery to 1.1 per cent growth that the fund was able to envisage only four months ago.
The bleak new assessment saw forecasts cut for every Western economy this year. The US economy, at the epicentre of the global financial firestorm, is forecast to shrink by 2.8 per cent this year and then to stagnate in 2010. The IMF has abandoned its hopes of a resurgence of American growth to 1.6 per cent next year, and cut its US forecast for this year by a further 1.2 percentage points.
In the eurozone, the report said that the plight of Europe’s big economies would also worsen, with the 16-nation bloc as a whole suffering a 4.2 per cent collapse in GDP this year, and set to shrink by another 0.4 per cent in 2010.
Germany is tipped to be worst hit with a GDP plunge of 5.6 per cent this year, and a further 1 per cent next year. Only France is predicted to see some imminent relief from the gloom, with as 3 per cent decline in 2009 forecast to be followed by modest 0.4 per cent growth after the new year.
The IMF said there were dangers that even its grim new assessment could be too rosy a view, if what it repeatedly called the “corrosive” downward spiral of financial and credit stresses aggravating economic woes was not arrested. “A key concern is that policies may be insufficient to arrest the negative feedback,” it said.
The fund attacked failures by governments to tackle the banking and credit crisis effectively enough. “Announcements have too often been short on detail and have failed to convince markets; cross-border coordination of initiatives has been lacking, resulting in undesirable spill-overs; and progress in alleviating uncertainty related to distressed [toxic] assets has been very limited.”
It renewed its warning a day before that an angry public backlash against banks, bankers and the financial industries could prevent governments from taking the decisive and extensive action needed to stem the threat.
Even once growth is eventually restored to the world’s key economies, the IMF added that the long-term damage from the recession and financial turmoil meant that “there will be a difficult transition period, with output growth appreciably below rates seen in the recent past”.
In a rare glimmer of hope, it conceded, however that: “Recent data provide some tentative indications that the rate of contraction [in the main economies] may now be starting to moderate.”
http://business.timesonline.co.uk/tol/business/article6147495.ece
Global downturn deeper that feared, says IMF
In a grim assessment of global prospects, the IMF once again drastically cut its forecasts for key economies across the world
The savage slump in the world’s leading economies is set to be even deeper than previously feared, with recovery next year now unlikely to materialise, the International Monetary Fund warned today.
In a grim assessment of global prospects, the IMF once again drastically cut its forecasts for key economies across the world. It blamed the continuing blight from severe financial stresses for a still worsening global outlook.
For Britain, the fund inflicted a double blow on Alistair Darling minutes after the Chancellor unveiled his Budget. It predicted that the UK economy will now shrink by 4.1 per cent this year — markedly worse than Mr Darling’s own new projection for a 3.5 per cent decline, and said that the recession would drag on into 2010, with a further drop of 0.4 per cent in GDP next year. The Chancellor has predicted a recovery with 2010 growth of 1.25 per cent.
The fund’s hard-hitting report warned that, despite a blizzard of far-reaching official efforts to bail-out banks and stem financial turmoil, governments had failed to halt a vicious downward spiral as intense financial strains and deteriorating economic conditions feed off each other.
Calling for still more “forceful action” by governments on both sides of the Atlantic, the IMF said that halting the slump in the global economy and restoring growth now depended critically on governments “stepping up efforts to heal the financial sector”.
But a day after the fund predicted that cumulative losses for banks in the US, Europe and Japan from the credit crisis will hit $4 trillion, it also warned that, even if economic recovery is secured, it is set to be anaemic and “sluggish relative to past recoveries”.
The latest IMF forecasts, in its twice-yearly
In the leading economies of the West, the IMF now expects GDP to plummet this year by a vicious 3.8 per cent, down from the 2 per cent drop it expected in January.
It also now expects no revival in 2010, with the advanced industrial economies as a whole set to stagnate with zero growth. That contrasts with the recovery to 1.1 per cent growth that the fund was able to envisage only four months ago.
The bleak new assessment saw forecasts cut for every Western economy this year. The US economy, at the epicentre of the global financial firestorm, is forecast to shrink by 2.8 per cent this year and then to stagnate in 2010. The IMF has abandoned its hopes of a resurgence of American growth to 1.6 per cent next year, and cut its US forecast for this year by a further 1.2 percentage points.
In the eurozone, the report said that the plight of Europe’s big economies would also worsen, with the 16-nation bloc as a whole suffering a 4.2 per cent collapse in GDP this year, and set to shrink by another 0.4 per cent in 2010.
Germany is tipped to be worst hit with a GDP plunge of 5.6 per cent this year, and a further 1 per cent next year. Only France is predicted to see some imminent relief from the gloom, with as 3 per cent decline in 2009 forecast to be followed by modest 0.4 per cent growth after the new year.
The IMF said there were dangers that even its grim new assessment could be too rosy a view, if what it repeatedly called the “corrosive” downward spiral of financial and credit stresses aggravating economic woes was not arrested. “A key concern is that policies may be insufficient to arrest the negative feedback,” it said.
The fund attacked failures by governments to tackle the banking and credit crisis effectively enough. “Announcements have too often been short on detail and have failed to convince markets; cross-border coordination of initiatives has been lacking, resulting in undesirable spill-overs; and progress in alleviating uncertainty related to distressed [toxic] assets has been very limited.”
It renewed its warning a day before that an angry public backlash against banks, bankers and the financial industries could prevent governments from taking the decisive and extensive action needed to stem the threat.
Even once growth is eventually restored to the world’s key economies, the IMF added that the long-term damage from the recession and financial turmoil meant that “there will be a difficult transition period, with output growth appreciably below rates seen in the recent past”.
In a rare glimmer of hope, it conceded, however that: “Recent data provide some tentative indications that the rate of contraction [in the main economies] may now be starting to moderate.”
http://business.timesonline.co.uk/tol/business/article6147495.ece
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