Wednesday
Apr222009
IMF: Recession Will Not End In 2009
Jonathan Bronstein, Talk Radio News Service
The dreary, Washington, D.C. weather was matched only by the International Monetary Fund’s, IMF, Spring 2009 edition of the World Economic Outlook. This report was rife with sobering news regarding the future of the economy.
Echoing many statements made by various IMF economists over the past few days during the IMF’s annual Spring meetings, the report expects 2009 to be a year of negative growth, and a year in which many nations willingness to continue to maintain low interest rates and stimulate the economy will be tested.
The report predicted that the global economy will decline by 1.3 percent, as a whole during 2009, which is the greatest rate of decrease since World War II. This also marks a dramatic revision from the IMF’s last WEO report in January 2009.
Economists have recognized that the world is in the midsts of a economic slowdown, but the extent of the recession was worse than expected.
“Global GDP went down by an unprecedented 6 percent at an annual rate in the last quarter of 2008,” said Olivier Blanchard, an economic counselor and director of research at the IMF, “and as far as we can tell, will most likely decline almost as fast in the first half of 2009.”
The six percent contraction of the world economy in 2008 followed four percent growth the previous year.
However, “Growth is expected to reemerge in 2010, but at just 1.9 percent would be sluggish relative to past recoveries,” according to the report.
The WEO attributes this slow growth to financial market stabilization taking longer than to occur then perviously believed, despite the strong and effective efforts by policy makers. The reason for such a long and protracted stabilization of the financial sector is because the amount of “toxic assets” globally will reach $4 trillion, according to the Spring 2009 Global Financial Stability report, which greatly exceeds the previous estimate of $2.7 trillion made in January 2009.
Another piece of sobering news was in regard to the unemployment rate.
“As long as growth is below its normal rate, then unemployment will continue to increase, and therefore our forecast implies that unemployment will crest only at the end of 2010,” said Blanchard.
But all was not entirely negative in the report, as it did stress how the world’s governments have taken the proper steps needed to stem the damage of the recession. The main policy that was universally applauded was the employment of stimulus, which reached 2 percent of global GDP, a level that the IMF encouraged governments to strive for.
Such bold policies are key because they convince the markets that the economic crisis is being dealt with in an effective manner, which leads to “a revival in business and consumer confidence,” according to the WEO report.
Another issue the WEO has become concerned about is in regards to deflation, or a consistent decrease in the prices of all goods with the exception of food and energy.
The reason deflation becomes so dangerous is that it drives down the prices of goods as people perpetually hold off on buying any goods until they deem that they have reached their lowest level. Thus, commodity prices fall, which ripples throughout the economy.
Economists point to deflation, as the root cause of exacerbating already destructive economic crisis, like in Japan in the 1990s and throughout the world during the Great Depression in the 1930s.
“An indicator of global deflation risk has now risen to well above levels observed in 2002-03, when deflation was also a concern,” according to the WEO.
But, as frightening as this deflation crisis sounds, the IMF believes that it remains but a problem on the distant horizon, which must be overlooked when dealing with problems that are more pertinent in the present, like stimulation of the economy.
Regardless of the morose news, Blanchard remained upbeat, when he said “The need for strong policies on both the macroeconomic and financial is as acute as ever, but with such policies in place there is light at the end of the tunnel. World growth can turn positive by the end of this year and unemployment by the end of next year.”
The dreary, Washington, D.C. weather was matched only by the International Monetary Fund’s, IMF, Spring 2009 edition of the World Economic Outlook. This report was rife with sobering news regarding the future of the economy.
Echoing many statements made by various IMF economists over the past few days during the IMF’s annual Spring meetings, the report expects 2009 to be a year of negative growth, and a year in which many nations willingness to continue to maintain low interest rates and stimulate the economy will be tested.
The report predicted that the global economy will decline by 1.3 percent, as a whole during 2009, which is the greatest rate of decrease since World War II. This also marks a dramatic revision from the IMF’s last WEO report in January 2009.
Economists have recognized that the world is in the midsts of a economic slowdown, but the extent of the recession was worse than expected.
“Global GDP went down by an unprecedented 6 percent at an annual rate in the last quarter of 2008,” said Olivier Blanchard, an economic counselor and director of research at the IMF, “and as far as we can tell, will most likely decline almost as fast in the first half of 2009.”
The six percent contraction of the world economy in 2008 followed four percent growth the previous year.
However, “Growth is expected to reemerge in 2010, but at just 1.9 percent would be sluggish relative to past recoveries,” according to the report.
The WEO attributes this slow growth to financial market stabilization taking longer than to occur then perviously believed, despite the strong and effective efforts by policy makers. The reason for such a long and protracted stabilization of the financial sector is because the amount of “toxic assets” globally will reach $4 trillion, according to the Spring 2009 Global Financial Stability report, which greatly exceeds the previous estimate of $2.7 trillion made in January 2009.
Another piece of sobering news was in regard to the unemployment rate.
“As long as growth is below its normal rate, then unemployment will continue to increase, and therefore our forecast implies that unemployment will crest only at the end of 2010,” said Blanchard.
But all was not entirely negative in the report, as it did stress how the world’s governments have taken the proper steps needed to stem the damage of the recession. The main policy that was universally applauded was the employment of stimulus, which reached 2 percent of global GDP, a level that the IMF encouraged governments to strive for.
Such bold policies are key because they convince the markets that the economic crisis is being dealt with in an effective manner, which leads to “a revival in business and consumer confidence,” according to the WEO report.
Another issue the WEO has become concerned about is in regards to deflation, or a consistent decrease in the prices of all goods with the exception of food and energy.
The reason deflation becomes so dangerous is that it drives down the prices of goods as people perpetually hold off on buying any goods until they deem that they have reached their lowest level. Thus, commodity prices fall, which ripples throughout the economy.
Economists point to deflation, as the root cause of exacerbating already destructive economic crisis, like in Japan in the 1990s and throughout the world during the Great Depression in the 1930s.
“An indicator of global deflation risk has now risen to well above levels observed in 2002-03, when deflation was also a concern,” according to the WEO.
But, as frightening as this deflation crisis sounds, the IMF believes that it remains but a problem on the distant horizon, which must be overlooked when dealing with problems that are more pertinent in the present, like stimulation of the economy.
Regardless of the morose news, Blanchard remained upbeat, when he said “The need for strong policies on both the macroeconomic and financial is as acute as ever, but with such policies in place there is light at the end of the tunnel. World growth can turn positive by the end of this year and unemployment by the end of next year.”
tagged 
Deflation, IMF, WEO, depression, recession in News/Commentary
Deflation, IMF, WEO, depression, recession in News/Commentary
IMF Chair: Bank Balance Sheets Must Be Cleansed
Out of the International Monetary Fund’s, Spring 2009 meeting came a simple, but poignant message: the world is still in a recession. But the key to any recovery, according to the IMF, relied upon the restoration of the health of the banking system.
"You never recover before you completed the cleaning up of the balance sheet of the financial sector," said Dominique Strauss-Kahn, Chairman of the IMF.
Strauss-Kahn believes that any nation can postpone cleaning the banks balance sheet, but this will only postpone a full-fledged recovery.
"I don't underestimate the difficulties of the task, but the fact that it is difficult does not make it less necessary," said Strauss-Kahn.
Additionally, Strauss-Kahn applauded the efforts of governments to recognize and quickly deal with this recession through the implementation of successful economic stimulus's. He believed that the stimulus had a 1/3 greater affect because it occurred in a coordinated fashion.
Strauss-Kahn bluntly predicted. “Our [the IMF] belief is that the crisis is far from over, and there are long months of economic distress in front of us.”