The forecast for a global international contraction by the Institute of International Finance is significant because it is the first to project negative growth for 2009. That may seem unexceptional to some readers. However, the IMF is forecasting growth of 1.5% for 2009, which it actually sees as a serious recessionary level. Why? Emerging economies generally sport higher growth rates than advanced economies. so a 2.0% ish growth rate is seen as tantamount to stagnation. And official bodies often lag rather than lead conventional wisdom. Negative worldwide growth is thus a grim prediction.
From the Telegraph:
The Institute of International Finance, the global organisation of major banks, predicted an almost unprecedented collapse in world economic growth and capital flows.
It became the first major global institution to forecast a full-scale global contraction in 2009, predicting that the economy would shrink by 1.1pc.
IIF chief economist Philip Suttle said: “This is the worst period since the interwar years…”
He also expects rich economies to contract by 2.1pc – the worst peacetime output since the 1930s.
Private flows of capital into the emerging world are set nearly to dry up in the next year, the IIF predicted, dropping from $928.6bn in 2007 down to $465.8bn in 2008 and then to $165.3bn the following year.
As a result the current account deficits in emerging Europe will more than treble in the coming year, from $30bn in 2008 to $117bn next year…Asia is likely to suffer a worse downturn than during the Asian financial crisis, the report indicated.
The IIF was meeting ahead of the World Economic Forum in Davos, and Mr Rhodes warned that the growing concern this year was the rise in protectionism. He said: “There is a tremendous need to keep trade lines open. If you start seeing – with everything else we’re talking about – the reduction of trade lines on top of that, then you really have a problem.”
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The view from the trenches has been grim for some time. As pointed out by Jaimie Galbraith, the current disconnect between the reality of domestic and global economics and policy has an exact starting date, the inauguration of Wrongald Rayguns. The triumph of style over substance layed bare by Galbraith’s dissection of the non sequitur,”economic freedom”. The California model on steroids.
Real business cannot function under the dead weight loss of the non-productive financial sector. The sooner we collectively reach that conclusion, the better off we and future generations will be.
There most certainly is a way. But first must come the will. The ship of fools, commanded by radical iconoclastic neo-conservatives around the world, has run aground.
Courage and honesty in business and government has been in short supply. Unfortunately, as typified by the experiences of the depression and GI era generations, it will require great upheaval, destruction, and suffering for the people to relearn that democratic capitalism works from the ground up, not the top down.
It is interesting that a global contraction is being picked up from that article rather than the worry about protectionism. My back of a cigarette packet calculations suggest that a contraction of 1.5 percent is wishful thinking. The figures from most of Europe are already up on that figure and saw a significant drop in Q4. In the US the drop in Q3 was around 1 percent (after adjustments) and I expect Q4 was probably worse. This leaves us with the argument that emerging economies will not contract but the rate of increase will decline somewhat. So given the current results does that seem reasonable. With Singapore reporting a Q4 GDP of -16.9%, rumbles from India of very poor Q4 GDP results. Suggesting emerging economies will grow seems to be based on the fact that there will be a turn around mid way through the year. Nobody except politicians and those who are out of touch seem to think there will be much of a turn around until late in the year or next year after which house prices in the US have fallen that final 25 percent.
For me the message is as Mr Rhodes warned, that the growing concern this year is the rise in protectionism. This seems something that is ominously present in the background with the change of decision makers in the US.
The rise of protectionsim is here already. While the MSM focuses on tarriffs, the PTB are focusing on subsidies, transfer payments and tax policy. Look around the world…
1. Japan: looking to buy equity in companies that can’t raise money – but they “must” have a technology that is viable?
2. Singapore reduces corproate tax rate from 18% to 17%
3. UK, US, France loan and capital support for auto industry,
4. France providing loan guarantees to the airline leasiing companies
5. Korea – provising loans to small business, green initiaitives (as is Japan)
6. Germany provisding loan support for the meduim to small businesses
Protectionism is not just tarriffs.
Between Roubini ranting and raving and desperately pushing doom and gloom, NBER finally calling a recession after being a year too late and now IMF flopping around like a fish on the beach, I think the reality of a turn around is far more likely, sooner, than later.
These fortune teller gypsies that have been sleeping behind the curve are very late in waking up — and as for Roubini, he’s obviously cashing in on his random dart tossing, which anyone could have made. The current media hype and blatant effort, to push, pump and hype a Great Depression Fairy Tale is as absurd as helping unqualified people qualify for mortgages that they can’t afford!
The unlimited upside bubble has popped, and so now we are apparently going to pump up The Crash Bubble as far as possible and then feed off the latest frenzied bullshit from sales people that are selling the latest news that our world (the way we knew it) has come to end!
To buy into that wild story now, at this point is simply retarded — and I bet you a crap load of Naked Capitalism internet casino chips that Roubini will be very, very late in calling the real bottom in the global economy, and he will be late in calling the turn around and the recovery — and IMF will be sitting in a bar getting drunk on bureaucratic hemlock which has kept that group of idiots in darkness for at least a generation.
Furthermore, I would strongly suggest that people recall how fast oil prices crashed and think in terms of a global economy, where a commodity can go from $140 to $45 in the blink of an eye, i.e, what you see today, could turn around within five months (or less) … and furthermore, chaos is what got us here, into this economic crap storm and the way out will look a hell of a lot like the way in … do yah get that, do yah punk, or do I need to draw a friggn picture?
Ahhh, I feel better…
Damn it, I can’t shake this feeling. I think that the news which will be pumped and hyped by BIG media and tons of blog sites in the coming several months, will be focused on doom and gloom. The coming stories in the pipeline will be a consolidation of crap news and layoffs and poor earnings and God awful crap and places like Fox News, as an example, will harp and play piper tunes:
It is written and heard, “And if you listen very hard …. The tune will come to you at last.”:
Your head is humming and it won’t go, in case you don’t know,
The piper’s calling you to join him,
Dear lady, can you hear the wind blow, and did you know
Your stairway lies on the whispering wind.
Just sure as hell, while the media is talking about the downside and doom and gloom and blood in the streets and pumping and hyping crap — the opportunity to re-invest and re-build will be missed by people that buy this bullshit and the people that ignore this doom and gloom bullshit, will at least have an opportunity to obtain cheap assets that will by the grace of God increase in future value.
I would like to see The SEC ripped apart and the FASB shut down, SIFMA melted into sewer crap and all the lobby groups teats up, all the corrupt members of Congress hung for treason and a long list of changes to renew America, but maybe, just maybe there is hope, but if you buy into the crap and look the wrong way the wrong time, you’ll be screwed again, by the very same people that lied to you 5 years ago, 10 years ago, twenty, and fifty. Wall Street is a den of thieves which has always been corrupt, but apparently, it’s the only game in town!
I don’t trust a single corporation in America or around the globe — but I do hope and pray we enter a new era of accountability and see positive changes for our future — because what is the alternative, that we take this period of chaos and supercharge it into a time of darkness, where we all destroy each other?
Obama, if your out there and if you have a soul and belive in your children, can we please have some honesty, integrity and accountability versus granting The Wall Street pirates amnesty. We need justice immediately and we need to contain the wall street thieves who are war criminals who destroyed our global economy — please give us a sign that you will help us!
Ahhh, what the hell, huh …
doc holidaqy,
We are called white noise and treated as such….not meant as a rascist comment but directed at the fascism that is in control of marginalizing the rest of us.
doc, why do you assume there will be a recovery?
From Ambrose Evan Pritchard’s Blog (at the Davos Summit)
“This is the moment when the “rubber hits the road” the moment when the reckless debt experiment of our economic and political leaders comes back to haunt.
What have our leaders wrought? The reckless conduct of City, the fiscal incontinence of Gordon Brown (3pc deficit at the top of the cycle), and the pitiful regulation of the UK housing boom have all combined to bring the country to the brink of disaster.
England has not defaulted since the Middle Ages. There is a real risk it may do so now.”
!!
Are western countries about to descend into an asset-value destruction vortex?
The second, darker phase of the crisis looms
Juan,
I assume a recovery will occur because, as in the link I provided, hurricanes and various forms of chaos tend to reorganize into new emerging patterns. Katrina can be used as an example of a storm that formed into a Category 1 hurricane, but then gathered strength, intensified, and then became a focal point for an American disaster and disgrace.
The physical impacts of the storm and displacement of people caused chaos in many ways, but the energy of the storm dissipated, and the hurricane season eventually passed.
I seem to recall someone saying that the subprime problem would be like 10 Katrina’s, but I’m not finding that, nonetheless, it is interesting to go back and see what some people said:
“This is a bigger event than Katrina,” said Robert Haines, an insurance analyst at New York-based CreditSights Inc. “This is a much more unprecedented event.” {March 14, 2008 }
Also see example: Subprime Storm Mimics Katrina
We shouldn't give into that false sense of relief, and here's why: Wall Street was warned about the coming hurricane-force fall-out from subprime mortgages, and it ignored the warnings, buying up all the securities backed by subprime mortgages that it could. Subprime Katrina actually did hit hard and wiped out one of Bear Stearns' hedge funds invested in subprimes valued at $6 billion. It left the other hedge fund at only 10% of its original value.
But now that this episode is behind us, Wall Street is having trouble selling more debt. News came this week that the group of Wall Street banks that is raising funds for GM had to postpone a $12 billion debt offering, because investors wanted better terms. It sounds like it may be too late for many Wall Street denizens to get out of town – and their positions – before the floodwaters start rising.
> I guess my point about a recovery, is that, the financial storm is like a hurricane that gathers strength, but then there are physical and political barriers that seem to limit chaos from expanding infinitely, out of control. I don't think we will see a systemic meltdown and fragmented disorganization, but rather rebuilding and re-engineered structures, which are not unlike rebuilding levees for the next storm. I think we have had a massive hit to the system, which has exposed weakness and flaws associated with risk management, regulation, accounting and a system wide failure which is obviously reminiscent of Katrina and the heck of a great job that so many retards did at The Treasury, FDIC, SEC, DOJ, DOL, FASB and the hundreds of taxpayer funded organizations that rely on nepotism and incompetence, including Congress and The Executive Branch.
New Orleans had a lot of foolish people that failed to be aware of risk, and the bureaucracy involved in the mess, failed every step of the way — but in the long-run, over time, things are somewhat back to normal and New Orleans didn't get wiped off the map and the end of the world did not come and there was a recovery there, just as there will be with the financial shitstorm we are going through today. The rain is still falling and there will be plenty of crap ahead, but enough people are aware of what needs to be done; as to what that is, tune in for chapter two at some future date….
@doc,
Know where your coming from but this is global and the monetary, political, social multipliers are just unheard of in human history, bar none. This is not a Katrina, but a global human activity tsunami, we populate the world as never before and effect it and our selves in ever increasing exponential excess.
We (the human race) have leveraged the capacity of the Planet lol, screw the market, its infinitesimal to our activity’s and its repercussions.
The global market problem is just playing havoc with the social glue we have become accustomed too, time to turn the page I think, new mindset for the humand race is in order.
skippy
Contraction of global economic output seems a real risk this year. The sharp decline of the US’s role as consumer of exports from China and other developing nations removes the engine of growth from the world economy. All of that money is going into savings and deleveraging. Particularly worrying is the vulnerability of those developing economies to the slowdown, when export-oriented countries like China already face huge challenges at employing their people. We continue in the US to be surprised by the rapidity of the downturn, which does not instill confidence in the data on which forecasts are being based. Add in the risk of negative surprises from the rest of the world, and we have the risk that the world economy could end up in even worse shape than is feared now. I side with the pessimists on this one.
"We continue in the US to be surprised by the rapidity of the downturn, which does not instill confidence in the data on which forecasts are being based. Add in the risk of negative surprises from the rest of the world, and we have the risk that the world economy could end up in even worse shape than is feared now>"
David..Agree.
Long gone are the days of the "Vibrant BRICs" (said with a CNBC-style infomercial tone).
Seems rather quaint now.
In Economics 101 we learn about "the multiplier effect" of liquidity pumped into the economy.
Debt deflation acts as a great amortizer or shock-absorber for all fiscal stimulus.
Worse, there is what I call a "reverse-multiplier effect" which states that when liquidity is pumped in reverse, it will suck the living marrow out of the economy.
Such is the situation with China: we no longer can act as a mega-consumer of exports (a shock-absorber for China's deflationary production). China will therefore deflate in a "reverse-multiplier" maelstrom.
thanks doc,
my recollection from prigogine would be that far from equilibrium systems can bifurcate and cascade to new states — or, yes, recovery, but not on the earlier basis, rather a different set of social relations.
from a different angle – in order to maintain the conditions in which the accumulation of capital, i.e. growth, can continue, existing capital must devalorize. But to keep the world economy going, this devalorization must be prevented, the bubble of fictitious capital must be further inflated. This has been the case for quite a period and it appears we may have reached global limits. As an old guy in the 19th c put it, the ultimate limit to capital is capital itself. Logically and socially it is not an infinite system though most take it to be so.