Thursday, April 23, 2009

IMF Defines the Global Economy as Being in Recession

IMF basically states that the world is in the worst recession since the Great Depression. In addition they expect it to last well into 2010. This is part of the IMF's World Economic Outlook (click on WEO for a link to the report), which is published twice per year. Maybe someone should send this to the folks at CNBC. Text in bold is my emphasis. From the WSJ:

The global economy is in the grips of a deepening recession that isn't likely to turn around until sometime next year, the International Monetary Fund said. The IMF, which had been slow to apply the word to the current downturn, also released a new definition of global recession.
Overall, the world economy is now expected to contract 1.3% this year -- a sharp reduction from the IMF's January estimate of 0.5% growth for 2009 -- and then grow just 1.9% in 2010, well below the global growth rate before the economic crisis hit.

"By any measure," the IMF's twice-yearly World Economic Outlook concluded Wednesday, "this downturn represents by far the deepest global recession since the Great Depression."

Treasury Secretary Timothy Geithner said that "only 17 of the 182 economies followed by the IMF are expected to grow faster this year than they did last year. Some 71 -- including 30 of the world's 34 advanced economies -- are expected to shrink."

Ahead of a gathering of Group of Seven finance ministers and central bankers this week, as well as the spring meetings of the IMF and the World Bank, the IMF urged global leaders to keep up the momentum that began at the Group of 20 summit this month.

The fund is anticipating that G-20 countries will pursue fiscal-stimulus measures totaling about 2% of gross domestic product this year and 1.5% next year, but said that may not be enough.
"It is now apparent that the effort will need to be at least sustained, if not increased, in 2010, and countries with fiscal room should stand ready to introduce new stimulus measures as needed to support the recovery," the IMF said.

That's likely to be a subject of debate at the G-7 meeting; European leaders thus far are resisting U.S. pressure to pursue additional stimulus measures.

Advanced economies, which are expected to contract 3.8% this year and see no growth in 2010, should also continue to pursue rate cuts and unconventional monetary measures to support demand and counter deflationary pressures, the fund said.

The U.S., which remains the "epicenter" of the crisis, is expected to contract 2.8% this year, with no growth next year. Much of the expectation for a U.S. recovery to begin by the second half of 2010 hinges on the success of the government's plan to partner with private-sector investors to remove bad debts from bank balance sheets, the fund said.

Emerging economies overall are expected to remain in positive territory, growing at a 1.6% pace in 2009 and 4% next year as a group. But an increasing number are sliding into recession.
Informally, IMF chief economists have called global growth of lower than either 3% or 2.5% -- depending on the chief economist -- a recession. It hadn't called the current downturn a global recession yet, partly because it didn't have a good definition. Now, IMF economists have a precise way to measure global recession: a decline in real per-capita world GDP, backed up by a look at indicators such as industrial production, trade, capital flows, oil consumption and unemployment.

Under the new definition, this is the fourth global recession since World War II, and the deepest by a long shot. The earlier recessions were in 1975, 1982 and 1991. All were one-year recessions when measured by purchasing power parity, which takes into account the different cost of goods and services in different countries.

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