Ending of Global Recession in 2010

INTERNATIONAL ECONOMIC OUTLOOK I. GLOBAL ASSESSMENT AND OUTLOOK Following moderate declines in the third quarter of 2008, preliminary data on the fourth quarter of last year from quarterly national accounts suggest that the global economy has entered a steep contractionary phase of its business cycle. The combined output of the member countries of the Organization for Economic Cooperation and Development (OECD) - the 30 richest economies in the world - is estimated to have fallen at an annual rate of 6 percent from the previous quarter, the largest decline since OECD quarterly national income records began in 1960. In the fourth quarter of 2008, real output shrank by 6.2 percent in the United States and by 6 percent in the 27-country European Union. Likewise, the Japanese economy contracted by 13.7 percent in the fourth quarter of 2008, which was the third consecutive drop in the country's real GDP and at a pace twice as fast as the declines in Europe and the United States. Looking at high-frequency indicators, e-forecasting's global leading economic index suggests that a worldwide recession lies ahead in 2009. The forward-looking indicator - a composite index of 34 countrywide leading indicators tracking economic conditions seven to nine months in advance - fell in December for the eighth consecutive month. More important, the indicator's six-month annual growth rate - designed to provide early signals of changing directions in global economic activity between expansions and slowdowns - hit a negative reading of 10.2 percent in December of 2008, which is second only to the record decline of 11.2 percent in the global recession of 1974-75. Signals from e-forecasting's country leading indicators for a global recession were uniform around the globe from North America to Europe, Brazil, Russia, India, China, Japan, Australia, Singapore, Thailand, Taiwan, Indonesia, and South Africa. There is now evidence that the global slowdown, which began in early 2008, has sharply deteriorated in the rest of 2008, as the first fiscal and monetary stimuli either underestimated the extent of the downswing or were purely designed to effectively meet the targets. As a result, the global economy will experience a severe downturn in 2009 that we forecast to qualify as a full-fledged global recession. In the case of individual countries, a national recession is defined either by the conventional rule of thumb of two straight quarters of negative GDP growth, or by a sophisticated analysis of key monthly indicators that decline significantly more than a few months - a methodology followed by the National Bureau of Economic Research (NBER) in the United States. Unfortunately, these recession-dating rules do not apply well to a global context as quarterly or monthly worldwide aggregates are very weak or unavailable. On an annual basis, global output has not declined since the end of World War II, although countries, regions and economic blocs have experienced several recessions. A simple benchmark for identifying worldwide-synchronized slowdowns that could be labeled as global recessions is to adjust world output growth for growth in world population - an annual recession dating measure also proposed in the past by the International Monetary Fund (IMF). According to this business cycle dating technique, we could declare that a sufficient, although not necessary, condition for a global recession is any year in which world per capita growth is not positive. The expected 2009 decline in global economic activity is forecast to meet the hurdle of negative per capita annual GDP growth. Global per capita GDP growth - a measure of the impact of a downturn on global welfare - will fall below zero in 2009. The 2009 recession will be analogous to the contractions that the global economy experienced in the last three major worldwide recessions, 1975, 1982, and 1991 (See Figure 1). Actually, according to our forecast, global GDP is expected to decline in 2009 for the first time since World War II so that the 2009 recession will meet both definitional hurdles of a global economic contraction - level and per capita decline in real GDP The global economy is expected to enter a recovery phase in 2010 when economic growth returns to positive rates. …

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