Wednesday, October 8, 2008

IMF outlook is pretty dismal

The coordinated rate cut is the right thing to do, given the international stress in financial markets and the sharp deterioration of many macro-economic statistics. Here is the IMF's outlook through 2010 - pretty dismal:
"For the remainder of 2008 and early 2009, the U.S. economy faces flat to negative growth as support from the fiscal stimulus ebbs, export momentum moderates, and tight financial conditions take an increasing toll. An emerging turnaround in the housing sector and more stable oil prices should help lay the basis for incipient recovery in the second half of 2009, but the revival is expected to be much more gradual than in previous business cycles, as tight credit conditions continue to weigh heavily on domestic demand.

Most other advanced economies are also expected to go through a period of extremely sluggish growth or contraction in 2008 and the first half of 2009, and experience only a modest upturn in the latter part of the year.

Growth in emerging and developing economies is also projected to continue to decelerate, falling somewhat below trend during the second half of 2008 and early 2009, before picking up in the course of the year. During this period, overall growth in these countries is projected to remain well above rates experienced in the 2001-02 global downturn.

Export growth will continue to slow and domestic demand will also moderate, although demand will continue to be supported by the strong productivity gains made in recent years. Commodity-exporting countries—particularly oil exporters—are expected to maintain their momentum, but growth in countries dependent on food and fuel imports or external financing will slow quite sharply. Net external capital inflows are projected to fall by half in the aggregate, and some countries could face substantial pressure on reserve positions."
Here is the IMF's global forecast from the newest World Economic Outlook, which is down sharply from the previous outlook:

Overall, the outlook is not pretty. The recovery will be gradual, but still, there will be a recovery - there always is.

Rebecca Wilder

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