There will be no turnaround this year, or next if the latest International Monetary Fund report is anything to go by. The IMF says global GDP has fallen by an unprecedented 5% in the fourth quarter and that we are headed for a global recession with activity now projected to contract by ½ to 1% in 2009 on an annual average basis. The report says there might be a modest recovery next year, but that's only on the basis that there will be lots of fiscal support, that credit conditions will improve, that the US housing market will bottom out and that there will be 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.'' the report says.
And so far, there are few signs of the co-ordination required to deliver these comprehensive policies. As The Scotsman reports, Europe's leaders have rejected US pressure for another fiscal stimulus but they can't agree on whether there should be more rigorous controls on banks. The Europeans are going for welfare spending to kick start their economies. As Dutch Prime Minister Jan Peter Balkenende told the International Herald Tribune: ""You cannot compare the EU to the US. We have very sound security networks where people who lose their jobs are looked after. The US has enormous debts."
The haggling over where the money should be spent is not a good sign. Until that's sorted out, we can expect this crisis to continue for some time.
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