The forecast for a global international contraction by the Institute of International Finance is significant because it is the first to project negative growth for 2009. That may seem unexceptional to some readers. However, the IMF is forecasting growth of 1.5% for 2009, which it actually sees as a serious recessionary level. Why? Emerging economies generally sport higher growth rates than advanced economies. so a 2.0% ish growth rate is seen as tantamount to stagnation. And official bodies often lag rather than lead conventional wisdom. Negative worldwide growth is thus a grim prediction.
From the Telegraph:
The Institute of International Finance, the global organisation of major banks, predicted an almost unprecedented collapse in world economic growth and capital flows.
It became the first major global institution to forecast a full-scale global contraction in 2009, predicting that the economy would shrink by 1.1pc.
IIF chief economist Philip Suttle said: “This is the worst period since the interwar years…”
He also expects rich economies to contract by 2.1pc – the worst peacetime output since the 1930s.
Private flows of capital into the emerging world are set nearly to dry up in the next year, the IIF predicted, dropping from $928.6bn in 2007 down to $465.8bn in 2008 and then to $165.3bn the following year.
As a result the current account deficits in emerging Europe will more than treble in the coming year, from $30bn in 2008 to $117bn next year…Asia is likely to suffer a worse downturn than during the Asian financial crisis, the report indicated.
The IIF was meeting ahead of the World Economic Forum in Davos, and Mr Rhodes warned that the growing concern this year was the rise in protectionism. He said: “There is a tremendous need to keep trade lines open. If you start seeing – with everything else we’re talking about – the reduction of trade lines on top of that, then you really have a problem.”