Meet the Author

Owen F. Humpage |

Senior Economic Advisor

Owen F. Humpage

Owen F. Humpage is a senior economic advisor specializing in international economics in the Research Department of the Federal Reserve Bank of Cleveland. His research focuses on the international aspects of central-bank policies and has appeared in the International Journal of Central Banking, the International Journal of Finance and Economics, and the Journal of Money, Credit, and Banking. Recently, Dr. Humpage co-authored a history of U.S. foreign-exchange operations.

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Meet the Author

Michael Shenk |

Research Assistant

Michael Shenk

Michael Shenk was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. His work focused on international topics and housing-market indicators.

02.11.09

Economic Trends

Weaker Still

Owen F. Humpage and Michael Shenk

With world trade and industrial production falling precipitously, the International Monetary Fund has again pared its forecast for global economic growth. The agency now expects world economic activity to expand by only 0.5 percent in 2009, the slowest growth rate since World War II. The agency believes that economic activity will pick up in 2010, but only to a paltry 3.0 percent. The outlook is highly uncertain with risks clearly to the downside.

Output among the advanced economies is likely to contract by 2 percent in 2009, another post–World War II first. All of the large developed countries are likely to experience a contraction this year but return to growth in 2010. The IMF now estimates that the cumulative output shortfalls from potential between 2008 and 2010 will be on par with those sustained in the 1974–75 and 1980–83 recessions.

World GDP Growth

 
Projections
 
2007
2008
2009
2010
World  
5.2
3.4
0.5
3.0
  Advanced economies
2.7
1.0
−2.0
1.1
    United States
2.0
1.1
−1.6
1.6
    Euro area
2.6
1.0
−2.0
0.2
    Japan
2.4
−0.3
−2.6
0.6
    United Kingdom
3.0
0.7
−2.8
0.2
    Canada
2.7
0.6
−1.2
1.6
  Emerging and developing economies
8.3
6.3
3.3
5.0
    China
13.0
9.0
6.7
8.0
    India
9.3
7.3
5.1
6.5
    ASEAN-5
6.3
5.4
2.7
4.1
    Western Hemisphere
5.7
4.6
1.1
3.0

Note: GDP growth is measured as year-over-year percent change.
Source: International Monetary Fund, World Economic Outlook Update, January 29, 2009.

With worldwide export demand falling, with lower commodity prices, and with financial conditions substantially tighter, emerging and developing countries are feeling the pinch. These countries came into the current economic malaise in a substantially stronger position than in the past. Consequently, their growth rates are likely to remain above levels reached during previous worldwide recessions. The IMF expects economic growth among the emerging and developing countries to slow to 3.3 percent in 2009 and 5.0 percent in 2010.

The IMF sees the deteriorating economic situation as a continuing problem in credit markets. The adverse feedback from slower economic growth continues to overwhelm financial institutions’ attempts to improve their balance sheets. As long as this problem continues, the credit flows necessary to support domestic and international economic activity will remain scarce. The IMF recommends that policy focus on the provision of liquidity, bank recapitalization, and efforts to address problem assets.