The world economy
The global recession will be the deepest in post war history as world GDP grows in 2009 by just 0.5 per cent and global trade shrinks by 4 per cent. Further fiscal easing through measures being proposed but not yet formally passed by the time of our forecast, mainly in the US and Japan, is vital to temper the global setback. Even with President Obama's budgetary stimulus, the US economy will contract by 1.5 per cent in 2009. Without the extra fiscal support, Japanese GDP would shrink by 2.8 per cent this year, the most in the G7 economies; with the stimulus it will fall by 1.7 per cent. Chinese growth will slow to less than 6 per cent this year. The economic outlook has darkened still further. On the basis of fiscal packages already enacted since the Autumn, world GDP will grow by only 0.5 per cent in 2009 and 1.7 per cent next year. Incorporating the big boost planned by President Obama in the US and new measures in Japan, Canada and the Netherlands, global output will rise by 0.9 per cent this year and 1.9 per cent in 2010. Global prospects have deteriorated over the past three months for two main reasons. First, although governments may have staved off a collapse in financial systems through emergency bank recapitalisations and bank-funding guarantees last October, banks remain sick and are clamping down on credit as they seek to shrink swollen balance-sheets. Second, there has been a collapse in world trade focused on capital goods and cars. Whereas the US and Europe have been most affected by credit rationing and jammed-up corporate bond markets, Asian economies like Japan have been hit hardest by the fall in trade volumes. Extra fiscal stimulus will help to cushion the downturn, mainly for those countries where they are introduced but also through spillover effects around the world. In the United States, GDP would decline by 2.5 per cent in 2009 and rise by just 0.4 per cent in 2010 in the absence of President Obama's planned measures. With the boost à using a conservative estimate of $525 billion for the amount of the total package injected into the economy in 2009 and 2010 à GDP will fall by 1.5 per cent this year and recover by 1 per cent next year. Similarly, in Japan, the fiscal measures agreed in late January will soften the blow from falling external demand for Japan's investment-goods industries. Without the budgetary boost, which will be buttressed by the US stimulus, GDP would decline by 2.8 per cent this year and by 1.1 per cent in 2010; with the stimulus it is forecast to fall by 1.7 per cent in 2009 and 0.6 per cent next year. In the Euro Area, where fiscal-stimulus measures have already been largely approved, GDP will decline by 2 per cent in 2009. Among the big euro economies, Italy, hampered in its ability to support the economy fiscally because of high public debt, will fare the worst, with GDP falling by 2.4 per cent this year and 1 per cent in 2010. Despite a now substantial budgetary boost, Germany's economy will shrink by 2.3 per cent this year as its capital-goods exporting industries suffer from the slump in global business investment. These forecast declines will be slightly less as a result of spillover effects if the planned fiscal measures predominantly outside the Euro Area go ahead. China has stumbled, too. After double-digit growth in 2005Ã7, the economy grew by 9.1 per cent in 2008 and is forecast to expand by 5.6 per cent this year and 6.1 per cent in 2010.
Year of publication: |
2009-02
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Authors: | Fic, Dr Tatiana ; Liadze, Iana ; Holland, Dawn ; Barrell, Ray ; Hurst, Dr Ian |
Institutions: | National Institute of Economic and Social Research |
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