Paris: If you thought 2008 was bad for the world economy, just wait for 2009. After a year when leading economies slid into recession, the forecasts paint an even grimmer picture for the 12 months ahead.
The slowdown in global demand will mean more job cuts, factory closures and bankruptcies, as well as budget-stretching rescue plans and government bailouts running into hundreds of billions of dollars, economists said.
Shrinking economies: Dominique Strauss-Kahn (left) says IMF sees 2009 as a bad year, with recession for most advanced economies. Andrea Comas / Reuters
“We see 2009 as really being a bad year, with recession for most advanced economies and growth decreasing for emerging economies,” the head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said earlier this month.
The IMF’s chief economist, Olivier Blanchard, urged world governments to spend more in order to boost domestic demand “if we want to prevent this recession developing into a Great Depression” like the downturn of the 1930s.
In the past 12 months, oil cartel Organization of the Petroleum Exporting Countries has implemented record cuts in production amid plummeting demand, stock markets have plunged and the world financial and auto sectors have been reshaped by state intervention.
The Institute of International Finance (IIF), a Washington-based association of 375 leading world banks and financial institutions, has predicted a contraction for the world economy in 2009 for the first time since at least the 1950s.
IIF said the global economy will shrink 0.4% in 2009 after a 2% growth this year, with IIF managing director Charles Dallara calling it “the most severe, globally synchronized recession in modern economic history”.
A report on Friday by the Centre for Economic and Business Research in London forecast contraction of 2.9% for the British economy over 2009—the worst full-year growth figure for Britain since the end of World War II.
It was just the latest in a relentless round of depressing 2009 forecasts.
The world’s biggest economy, the US, will shrink by 0.9%, the Organisation for Economic Cooperation and Development said this month, despite hopes that US President-elect Barack Obama will help stimulate growth.
Obama has promised a “bold” stimulus plan of vast public works to pull the US economy out of recession after he takes office on 20 January, drawing parallels to the 1930s New Deal that helped end the Great Depression.
Germany’s Ifo Institute for Economic Research said Europe’s largest economy will contract by 2.2% and the Japanese government has forecast zero growth for 2009 as Japan’s export-oriented economy takes a hard hit from the slump in demand. “We need to take unprecedented measures when in an extraordinary economic situation,” Japanese Prime Minister Taro Aso said last week soon after his cabinet approved a record-high budget aimed at stimulating the ailing economy.
While all the growth forecasts remain positive for the world’s leading developing economies—Brazil, Russia, India and China—these recently booming giants have also been hit hard by the decline in global demand.
The Russian government is forecasting a budget deficit for 2009 for the first time since the chaotic 1998 financial crisis and wage arrears, and layoffs have prompted Russian officials to warn about the prospect of popular unrest.
In a rare admission of trouble ahead, China’s top economic planner, Zhang Ping, said this month: “We are confronted with great challenges resulting from a dramatic change in the world economic and financial situation.”
In Iceland and Ukraine, the two European countries worst hit by the economic and financial crisis, 2008 has seen street protests and bank closures.
Both countries are predicting their economies will shrink massively in 2009 despite getting IMF loans, with Iceland forecasting a contraction of 10%.
“We are protesting against the arbitrariness of the government,” said Irina Kulich, 46, in a crowd in Ukrainian capital Kiev this month as protesters held placards reading: “No to the Impoverishment of the People!” and “Patience is not Unlimited!”