Bridges Weekly Trade News Digest • Volume 12 • Number 34 • 16th October 2008
IMF: “World Economy Facing Major Downturn”
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“The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the International Monetary Fund (IMF) said in its annual World Economic Outlook, released earlier this month. The report explained that, although the global economy is facing extremely “tough times” ahead, sound macroeconomic and financial policies can help markets weather the financial storm.
“The situation is exceptionally uncertain and subject to considerable downside risks,” the report said. “The immediate policy challenge is to stabilise financial conditions, while nursing economies through a period of slow activity and keeping inflation under control.”
Global growth for 2009 is forecast to be around 3 percent, its slowest since 2002. But there are significant differences in the growth predicted for industrialised countries, on the one hand, and emerging and developing countries on the other. The report projects that while many rich countries will experience zero or negative growth until at least the middle of 2009, emerging and developing countries will drive global economic growth. Yet, with an estimated growth of 6 percent in 2009 compared to 7 percent in 2008, growth in developing-country economies will also fall off.
A loss of confidence in the financial sector has exacerbated the financial crisis, the report found. Despite weathering the oil and commodity price increases surprisingly well, the effects on financial institutions - an overhang of distressed assets, capital shortages and the breakdown of funding markets - are spreading to consumers, with demand sharply slowing. The report suggested that the re-establishment of trust will take time, during which credit will be limited and expensive. Overall, depressed confidence and low credit growth will act as a drag on advanced economies, the IMF concluded.
Emerging countries will also be affected, the report said. In particular, they may be forced to come to terms with reduced exports to advanced economies, more expensive foreign credit, and in some cases even the reversal of capital flows. Those countries with large reserves and strong fiscal positions will fare better than others, the report said.
Yet the WEO report also stressed that while it may be too late for financial and macroeconomic polices to avoid an economic slowdown, smart policies can prevent more dire outcomes. On the financial side this includes programmes to deal with systemic problems, including the provision of liquidity, purchases of troubled assets and recapitalisation with public funds. On the macroeconomic side, monetary and fiscal policies can support growth and break negative feedback loops.
“With the right macro and financial policies-and these policies are available-we can ride the storm, and expect a recovery to start in the course of 2009,” IMF Chief Economist Olivier Blanchard said.
IMF economists predict that with action to limit the crisis recovery, albeit a very gradual one, will start in the course of 2009 and strengthen in 2010. Recovery can also be bolstered by the stabilisation of commodity, oil, and US house prices, and the continued growth of emerging country markets.
But the report is based on the assumption that US and European authorities will take effective actions to stabilise financial conditions. Yet even this baseline projection, the report emphasises, is uncertain.
To access the report, please refer to http://www.imf.org/external/pubs/ft/weo/2008/02/index.htm.
ICTSD reporting.
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With total world debt being well in excess of $100 trillion (personal, corporate, institutional and government) now and the US’s and UK’s total debt hovering towards $53 trillion and 9-times GDP respectfully, there is no wonder that we are at the start of a global recession. With such colossal figures of debt, amassed significantly over the last ¼ century and in total being between two and three years of total global economic output, we have many years to come of austerity and economic downturn to look forward to. Even worst is if we borrow even more like our politicians are doing and where we eventually end up like Zimbabwe, with hunger, lawlessness and socio-economic collapse? For the root problem is debt and common sense dictates that if we continue to borrow and borrow, eventually money becomes worthless. Therefore our politicians would be better using their time, efforts and power to start afresh and accept that the next decade is a period of fundamental change in how the development of the world proceeds. If not, they will definitely oversee the destruction of far more of what we see today than the 10-years of pain required to re-engineering the world order and crucial sustainable change. Indeed, in twenty-five years time if we do not change our development processes (capitalism, super-capitalism, globalization et al), we will look back and see that the financial crisis was just a mere storm in a teacup in comparison to what problems we shall have in 2033. The vision is of nightmarish proportions with substantially dwindling natural resources to sustain human life and climate change meeting head on with 8. 5 billion mouths to feed.
We have definitely to change for our own good to the economics of sustainability-need and to the preservation of the human experience itself
Dr. David Hill
World Innovation Foundation Charity (WIFC)
Bern, Switzerland
Considering that money is perceived above as worthless it would imply the need for an alternative monetary system to maintain the human condtion on this planet. With an international cyberbank and a new monetary unit into which all economies plugged could obviate any need for profit and thereby greed and potentially re stimulate an ailing economic world climate. Say 4 peaches to the pound would set up a unit into which every bank account could adapt. Money being only a measure of wealth and not wealth itself and only as good as the goods and services it can provide, would reset the playing field taking currency speculation and idolatory out of the system eliminating the reservoir of greed(money by its nature) built up and unused in the various bank accounts through out the world. The peach itself would not actually exist (albeit there is the potential here for a whole new fruit hierarchy) except in cybertronic terms as an international banking system. One mans credit being the other mans debit with a balancing and bartering system occurring in cyberspace. Thus what a man earnt, inherited or acquired during his life time would be restored to the greater reservoir of non existent capital available after spending on his lifetimes needs, thus balancing the world eco systems and establishing peace and harmony within an economic and sustainable world order. Idealistic maybe, but what is your alternative. Where one man survives on pennies another requires thousands - the above might just evolve the middle path, monetarily speaking that is .
Peter