Doctor Doom A Global Breakdown Of The Recession In 2009 Nouriel Roubini, 01.15.09, 12:01 AM ET
With the industrial world already in outright recession and the emerging world navigating toward a hard landing (growth well below potential), I expect global growth to be flat (around -0.5%) in 2009. This will be the worst global recession in decades as the fallout of the most severe financial crisis since the Great Depression took a toll first on the U.S. and then--via a variety of channels--on the rest of the global economy. Here is a global breakdown of my forecast. The United States economy is only halfway through a recession that started in December 2007 and will be the longest and most severe in the post-war period. U.S. gross domestic product will continue to contract throughout all of 2009 for a cumulative output loss of 5%. One last look at 2008 will reveal a very weak fourth quarter with GDP growth contracting about 6% in the wake of a sharp fall in personal consumption and private domestic investment. I see the real GDP growth contraction playing out through the year as follows: first quarter 2009: -5%; second quarter 2009: -4%; third quarter 2009: -2.5%; fourth quarter 2009: -1% -- adding up to a yearly real GDP growth of -3.4% for the U.S. in 2009. This forecast is much worse than the current consensus forecast seeing a growth recovery in the second half of 2009; I also predict significantly weak growth recovery -- well below potential -- in 2010. Canada entered recession at the end of 2008, and the outlook for 2009 is likely to be worse, with the economy contracting by an estimated 1.5% to 2% for the year. In 2009, Latin American countries will face a significant slowdown in economic growth. A combination of negative external shocks will slow down regional GDP growth to 0.8% in 2009. Under my scenario, all countries in the region will experience significant deceleration of economic activity in 2009. I expect Argentina and Mexico to shift into negative growth territory on a year-over-year basis. For the region as a whole, recovery will likely begin between the first and second quarters of 2010. The latest cyclical upswing in the Eurozone was largely driven by a temporary but powerful boost to domestic investment from disappearing risk premia in the aftermath of the adoption of the single currency and by external demand from a buoyant world economy. Both demand sources fizzled out by the second half of 2008, leaving the Eurozone as a whole and its largest members exposed to diverging deleveraging patterns in the face of suboptimal EMU-wide automatic fiscal stabilizer mechanisms. The latest record-low readings of leading and sentiment indicators point to a severe recession ahead in 2009 that shapes up to be worse than the 1992-93 crisis. For the Eurozone, I expect a below-consensus contraction in real GDP of around 2.5%, with negative growth in each of the four quarters of the year. The United Kingdom economy is poised to shrink in 2009. Our forecast of a -2.3% growth in real GDP is below consensus as we do not expect a recovery in the second half of the year. Despite the relative resilience of consumer spending, investment should continue to collapse and the housing sector has yet to reach a bottom. The Nordics, whose growth has outpaced other developed economies in recent years, are poised for much slower growth in 2009 and most likely an outright recession in most of the countries in this region. After growing faster than the world for the past decade as convergence occurs, Eastern Europe is set to slow abruptly in 2009. Countries with the largest current-account deficits--notably Estonia, Latvia, Lithuania, Romania, Bulgaria--are the most exposed to sharp corrections. Estonia and Latvia are already in the midst of sharp recessions, and Latvia turned to the IMF for help in December to avert crisis. The risk of an outright financial crisis is high in a number of countries in this region. The combination of global credit headwinds and lower oil prices have dampened growth prospects in the Commonwealth of Independent States (CIS) (ex-Russia) with growth expected to slow to about 2% in 2009, with Ukraine and Kazakhstan being hardest hit by the crisis. With oil prices remaining well below half of the 2008 level, we expect Russian output to contract by 2.5% to 3% in 2009 as manufacturing contracts and Russia's inflow-fueled consumption slows sharply. Given its reliance on exports and capital flows to fuel growth, Asia faces a gloomy 2009 amid a G-7 recession. We expect Asia's, excluding Japan, growth to slow down sharply to 3.8% in 2009. Hong Kong, Singapore and Taiwan will remain in recession through the first half of 2009, which might extend into third quarter 2009 while the ASEAN economies will slow significantly from the 2004-07 growth trends. We believe China will experience a hard landing in 2009, with growth unlikely to exceed 5%, a sharp slowdown from the 10% average of the last five years. The reversal of capital flows and high credit cost will pull down India's growth significantly, to around 5% in 2009 from an estimated 6% in 2008. Japan's domestic demand continues to be an unreliable growth driver, and its export machine--the growth engine of recent years--is stalling, given the global contraction and a stronger yen. Consequently, we foresee real GDP growth contracting 2.5% in 2009 after almost flat growth for 2008 as a whole. Australia's recession will likely end in 2009 after starting in fourth quarter 2008. Average annual GDP growth in 2009 will be flat to sluggish (0% to 1%) after registering an estimated 1.6% in 2008. New Zealand may have a tougher time than Australia during the global recession, with GDP expected to contract 1% in 2009 after growing around 1% in 2008. Given that the global recession will reduce demand for Middle East and North Africa's resource and non-resource exports, and the global liquidity crunch will reduce capital inflows, growth is expected to slow to an average of 3% in 2009 from almost 6% in 2008. Gulf Cooperation Council (GCC) countries will witness a significant dip in their hydrocarbon receipts, terms of trade and current account surplus positions in 2009. Average real GDP growth in the GCC may slow to 2.5% in 2009. Israel's growth is expected to slow significantly in 2009 to around 1% and we would not rule out a contraction. Sub-Saharan Africa's growth will slow to around 3.5% in 2009 from an average pace of 5% over the last decade as the reduction in global demand will reduce exports and capital inflows, including development assistance. Growth in South Africa in 2009 is set to slow to around 1% with several quarters of negative growth as mining output contracts. Commodity prices, which already fell sharply in the second half of 2008, will face further price pressure in 2009. I estimate an average West Texas Intermediate (WTI) oil price of $30 to $40 a barrel in 2009, as the fall in demand continues to outstrip supply cuts and production delays. Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com. A number of analysts at Roubini Global Economics assisted in the writing of this week's column. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
