International Macroeconomics
Highlights
As global recession becomes a reality, stimulus efforts to redouble
The steep further drop in asset prices over recent weeks, which has engulfed previously robust asset classes such as emerging market debt as well as stocks and corporate bonds, appears to have dealt a hammer blow to global growth prospects. We now forecast GDP to contract in the US, Eurozone, the UK and Japan in 2009 and the growth outlook for emerging markets has also deteriorated markedly. Overall world growth (at PPP rates) will be just 2.1% in 2009, meaning that the long-feared world recession has arrived. In reaction to this, interest rates are rapidly heading back to the lows of the last recession and fiscal stimulus efforts are also being ramped up.
14 November 2008
Credit Crunch Watch:
The financial stress indicator was unchanged this week, with a further easing of liquidity conditions in money markets offset by higher equity volatility and wider high-yield bond spreads. Developments in mortgage spreads were mixed – 30-year spreads declined again, while 1-year ARM spreads widened further. Mortgage rates overall remain only moderately below the levels prevailing just before the credit crunch hit – despite the Fed Funds rate having been cut to 1%. Meanwhile, monetary conditions loosened slightly. The yield curve is now almost as steep as the peak levels of 1992 and 2003, but the loosening effect on monetary conditions continues to be partially offset by the strength of the dollar.
14 November 2008
The implications of the financial crisis for global growth
Recent weeks have seen the most serious wave of financial turmoil since the credit crunch began. The extent of the distress in financial markets prompted policymakers to propose dramatic action to shore up the global banking system including direct recapitalisation of banks and state guarantees for interbank lending. The fluidity of the situation has also significantly increased the risks around forecasts. Our current forecast suggests growth will be around zero in the US, UK and Eurozone next year, with a recovery in 2010. In an alternative downside scenario where the financial sector takes longer to recover and asset prices fall more steeply, the major economies could face the deepest recession since the early 1980s. We consider this alternative only slightly less likely than our central forecast.
23 October 2008
New Country Briefings
We are publishing new on-line briefings every day covering economic and political developments and prospects in over 175 countries, linked to our forecast databank. View example briefs: