'Majority of economies in deep recession'

MOST OF the world’s major and minor economies are now in a deep recession and world trade has been registering “astonishing declines”, according to the Economic and Social Research Institute’s (ESRI) Quarterly Economic Commentary.

The Organisation for Economic Co-operation and Development (OECD) expects some degree of global economic recovery in 2010, but the pace would be slow, the commentary said.

However, one of the authors, Dr Alan Barrett said, at a briefing to journalists yesterday, that the Great Depression in the 1930s had seen a number of “green shoot” moments, only for the shoots to dry up. He noted the observation by some commentators that “the Great Depression only ended with the second World War”.

The OECD expects the euro area economy to contract by 4.1 per cent this year and by 0.3 per cent next year.

“Germany is suffering more than most from the downturn. Like Japan, the importance of export-orientated industrial production means that it is experiencing a disproportionate impact from the dramatic downturn in world trade,” the commentary said.

German exports are expected to fall by 16.5 per cent this year, contributing to an overall fall in German gross domestic product (GDP) of 5.3 per cent. German GDP in 2010 is expected to grow by just 0.2 per cent. Unemployment is expected to rise this year in Germany to 8.9 per cent.

France is expected to see its GDP fall by 3.3 per cent this year, and unemployment rise to 9.9 per cent. Some recovery may occur in 2010.

The commentary said the OECD expects Italian GDP to fall by 4.3 per cent this year and 0.4 next year. Exports are expected to decline by 16 per cent this year.

Despite having had a house price boom and a heavy reliance on the financial sector, the UK economy is only expected to contract by 3.7 per cent this year.

The expected fall in exports (9.8 per cent) is less than Germany’s, perhaps due to the nature of its exports and to the fall in the value of sterling, the commentary said.

Also, the Bank of England has aggressively cut interest rates and put money into the economy. The British government’s general deficit is expected to be 10.5 per cent next year.

The OECD expects US output to fall by 4 per cent this year. Based in part on an expectation the policies being pursued by the US government will be “somewhat successful”, the OECD expects a gradual recovery next year in the US, “although zero growth is expected for 2010”.

Unemployment is expected to average 10.3 per cent by then.

The Japanese economy is expected to contract by 6.6 per cent this year, due largely to a fall in exports of 26.4 per cent. Its government has announced a stimulus package equal to 2 per cent of its GDP. Its public debt is expected to approach 200 per cent by the end of next year.

The Chinese economy is expected to grow by 6.3 per cent this year, well down on the recent trend of double-digit growth, according to the commentary. India’s economy is expected to grow by 4.3 per cent and by 5.8 per cent next year.