Don’t bank on any rebound in the global economy in 2010.
And don’t bank on it emerging until well into the second half of the year, and not with any great force.
The IMF overnight confirmed its forecasts of shrinking global growth this year, and has started casting doubt on the strength of any recovery in 2010, if one happens.
In fact the Fund’s suggesting conditions around the world are going to worsen this year and won’t improve next year because of a number of factors that are emerging as stumbling blocks.
The IMF report was very gloomy: they followed those in the US Fed’s post meeting statement the night before.
The IMF said growth will fall by between 0.50% and 1% this, as Crikey reported earlier in the week.
In making the forecast, the IMF called for a co-ordinated global effort to resuscitate the world economy using large stimulus packages, while working to prevent deficits from running loose. It warned, however, that hopes of a recovery before the middle of next year are receding and that further recovery delays could cause the downturn to intensify.
“Turning around global growth will depend critically on more concerted policy actions to stabilise financial conditions as well as sustained strong policy support to bolster demand,” the IMF said
The IMF did say that “Global growth is still projected to stage a modest recovery next year” — note the word “projected”. But it listed some important qualifiers, which some might argue are almost impossible to achieve in the current political climate in some major economies like the US and Japan.
The Fund said that its forecast for next year were “conditional on comprehensive policy steps to stabilize financial conditions, sizeable fiscal support, a gradual improvement in credit conditions, a bottoming of the U.S. housing market, and the cushioning effect from sharply lower oil and other major commodity prices.”
“However, in the event of further delays in implementing comprehensive policies to stabilize financial conditions, the recession will be deeper and more prolonged, notwithstanding macroeconomic policies aimed at bolstering demand.”
That’s why the US Fed went to quantitative easing this week to try and free up credit markets and stabilise the US housing sector, while injecting more cash into banks to give them confidence to lend.
The Bank of England, Swiss National Bank and the Bank of Japan have all started, or about to start, quantitative easing to inject cash into the credit system of their economies to convince banks to start lending.
The IMF pointed out that the global economy shrank at an annual rate of 5% in the December quarter last year and in many economies, such as the US, Germany, France, other parts of Europe, Australia, Japan, China, Asia, a similar fall will be recorded this quarter as demand and output falls deeper into negative territory.
The IMF said that advanced economies would suffer “deep recessions” in 2009, with some experiencing their sharpest contractions since the Second World War.
GDP in advanced economies contracted by 7% annualised, with the US GDP falling 6.2% annualised and Japan’s dropping a huge 13%-plus on an annual basis. Many emerging economies also contracted sharply due to falling external demand, tight financial conditions and tumbling commodity prices.
Growth in China slowed sharply and continued to be less than robust. The World Bank cut China’s growth rate for 2009 this week to 6.5% from 7.5% late last year. The Chinese Government is sticking to its 8% growth target.