World Trade - February 2009 - (Page 47)

REGION: EUROZONE OECD Global Economic Outlook for 2009 The world’s richest markets rest on a razor’s edge. BY KLAUS SCHMIDT-HEBBEL T he Organization for Economic Co-operation and Development, 30 high-income economies (including the United States), is an authoritative source for analysis and policy recommendations pertaining to the world’s free market democracies. This forecast, delivered in late November, is by the OECD’s Chief Economist. By year’s end, predictions were for a loss of 8-10 million jobs in the OECD area and as many as 25 million worldwide. Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s. As a result, the number of unemployed in the OECD area could rise by 8 million over the next two years. At the same time, inﬂation will abate in all OECD countries and some even face a risk, albeit small, of deﬂation. The financial turmoil that erupted in the United States around mid-2007 has broadened to include non-bank ﬁnancial institutions and rapidly spread to the rest of the world. Prompt and massive policy action to restore conﬁdence and provide liquidity appears to have successfully limited the period of panic, but the need for ﬁnancial institutions to operate with less leverage and to repair their balance sheets remains. This process of adjustment will take time and impair the ﬂow of credit, and is the key factor weighing on activity going forward. We assume that the extreme ﬁnancial stress will be short-lived, but will be followed by an extended period of ﬁnancial headwinds through late 2009, with a gradual normalization thereafter. The main features of the economic outlook are the following: • U.S. output declines through the ﬁrst half of next year, then gradually picks up as the effects of the credit squeeze abate, the housing downturn bottoms out and monetary policy stimulus takes hold. The recovery, however, is likely to be languid, as consumption is held back by the large losses in households’ wealth. Inﬂation eases signiﬁcantly, as the recent declines in commodity prices ﬁlter through the economy and as economic slack exerts downward pressure on prices. • Euro area activity also falls over the next six months, as tighter ﬁnancial conditions, subdued income growth and negative wealth effects from lower equity and house prices damp consumption and investment. Economic activity then gradually recovers as monetary easing gains traction. • Japan, after a brief growth spurt in early 2009 due to fiscal stimulus, will experience stagnant output over the second half of 2009, as the global economic downturn and the recent appreciation of the yen curtails external demand. • Other OECD countries where the economic downturn will be severe include Hungary, Iceland, Ireland, Luxembourg, Spain, Turkey and the United Kingdom. • The major non-OECD countries are in many cases also slowing due to the combined effect of more difﬁcult international credit conditions, earlier policy tightening, income losses due to lower commodity prices, and weaker demand from OECD countries. The ﬁnancial crisis is not the only development shaping the projections. Other important drivers include ongoing adjustments in housing markets, which in many European economies still have a long way to go. Moreover, they come on top of negative wealth effects from the steep fall in equity prices. Partially offsetting these contractionary forces is the sizeable monetary stimulus. Against the backdrop of a deep economic downturn, additional macroeconomic stimulus is WWW.WORLDTRADEMAG.COM 47 http://WWW.WORLDTRADEMAG.COM

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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