The world economy
Â¥ The global economy will contract this year by 0.5 per cent, its first annual decline since 1946. Â¥ World trade will fall by 8.2 per cent in 2009. Â¥ Among the G7, Japan and Italy will be the worst affected, with a 15 and 40 per cent chance, respectively, of the recession lasting 9 quarters or more. Â¥ Fiscal and monetary easing since 2008 offset 1Ã1.6 percentage points of the potential declines in the G7 economies this year, except in Italy where fiscal stimulus has been minimal. Â¥ Government bond spreads in the Euro Area have widened sharply since 2007, partly due to the sudden rise in government debt. The global economy will suffer its worst reverse for more than 60 years as a plunge in world trade intensifies the contractionary impact of the financial crisis. The recession is expected to last for six or seven quarters in the United States, Euro Area and Japan, with a significant risk of a more prolonged recession lasting eight or nine quarters. Without monetary and fiscal easing introduced since 2008, output would have been expected to decline by an additional 1.5 percentage points in the US this year, and by 1Ã1.2 percentage points in Japan and the Euro Area. Global recovery will start later this year, but the world economy will grow by only 2.1 per cent in 2010 and growth for most major economies will be feeble in 2011. Global trade in goods and services fell by 6.7 per cent in the final three months of 2008, the steepest decline on record for data starting in 1965. Available data suggest that it fell at a similar rate in the first quarter of 2009. The relapse in world trade has engulfed Asia in the global downturn. Many Asian economies were vulnerable because their growth has for several years been export-led and the goods they export are cyclically sensitive and particularly price-elastic. This helps to explain why Japan will be the hardest hit of the G7 countries this year. The severity of the recession owes much to a huge decline in exports, which will plummet by 21.6 per cent in 2009. With imports falling much less, net trade will contribute 2.6 percentage points of the total 6.2 per cent fall in GDP in 2009. The Japanese economy will also be dragged down by a 1.9 per cent decline in private consumption and a 14 per cent fall in business investment. Deflation is back, with private consumption prices expected to fall by 1.5 per cent in 2009. The US economy will decline by 2.8 per cent this year and by 0.2 per cent in 2010; indeed, incorporating official estimates for the first quarter (published after the forecast was completed) GDP will contract by around 3.5 per cent in 2009. This year's setback is being driven by big falls in housing and business investment together with a 1.6 per cent decline in consumer spending. The economy will experience mild deflation, with private consumption prices dropping by 0.6 per cent in 2009 and 0.4 per cent in 2010, but medium-term inflation expectations are only slightly below trend. The prospects for the Euro Area are bleak as its four biggest economies à Germany, France, Italy and Spain à experience sharp falls in GDP in 2009, ranging from 2.9 per cent in France to 5.1 per cent in Germany. Of the four countries, Italy will suffer the most prolonged reverse, with output declining by 1, 3.3, and 1.2 per cent in 2008Ã10. Across the Euro Area, GDP will fall by 3.5 per cent this year as private fixed investment declines by 12.4 per cent and consumer spending drops by 1.3 per cent. Deteriorating fiscal positions have been associated with a sharp rise in government bond spreads relative to Germany, notably in Ireland, Greece, Belgium and Spain.
Year of publication: |
2009-05
|
---|---|
Authors: | Fic, Dr Tatiana ; Liadze, Iana ; Holland, Dawn ; Barrell, Ray ; Hurst, Dr Ian |
Institutions: | National Institute of Economic and Social Research |
Saved in:
Saved in favorites
Similar items by person
-
Fic, Dr Tatiana, (2009)
-
Global prospects and sources of economic growth
Fic, Dr Tatiana, (2010)
-
Summary of key forecast assumptions
Fic, Dr Tatiana, (2010)
- More ...