Recession of 2009

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Signs of an impending recession in the United States and elsewhere were already apparent by the middle of 2008, and the subsequent development of the financial crash of 2008 has led investors to fear that it would be worse than previously expected. The resulting loss of confidence by investors and consumers is forecast to contribute further to the severity of the expected downturn in world economic growth that is here tentatively referred to as the Recession of 2008.

Background

There has been a downturn in world economic growth. In the nine months to the middle of 2008, the advanced economies have grown at an annual rate of only one per cent (compared with two and a half per cent in the previous nine months) and the growth rate of the developing economies has eased from eight per cent to seven and a half per cent. The downturn is generally attributed to a malfunctioning of the financial, housing, and commodity markets that had resulted in imbalances between supply and demand that are now in the course of correction. The sharpness of the corrections - particularly that of the financial markets, - has created shocks that have damaged the confidence of consumers and investors, and has prompted responses on their parts that seem likely to increase the severity of the downturn to the point that it is almost certain to develop into a recession.

Forecasts

IMF October 2008

In October 2008, the International Monetary Fund forecast that world growth would begin a slow recovery at the end of 2009, after falling from its 2007 growth rate of 5.0 per cent to 3.9 per cent in 2008 and 3.0 per cent in 2009 (the lowesr rate since 2002). [1].

The forecast was based on three main assumptions:

  • that commodity and oil prices would stabilize, relieving pressure on inflation and giving more room for expansionary policies;
  • that U.S. housing prices and activity would hit bottom next year, leading to a recovery of residential investment; and
  • that the measures then being taken would prevent further deterioration of conditions in the financial system.

The "emerging and developing countries" were expected to be the main source of world growth, with a 2009 growth rate of 6.1 per cent compared with 0.1 per cent for the United States and 0.2 per cent for Europe.

The authors added that the uncertainties were unusually great and that there were considerable downside risks.

Outturns

References

  1. World Economic Outlook, International Monetary Fund, October 2008. [1]