The latest data from around the world has been “somewhere between awful and even worse”, as Alan Abelson put it in Barron’s. The latest decline in US payrolls means that 50% more jobs have been lost over the past five months alone than in an entire typical postwar US recession, said David Rosenberg of Merrill Lynch. GDP shrank by an annualised 6.2% in the fourth quarter and this quarter will be even worse, according to Jan Hatzius of Goldman Sachs. In China, inflation has turned negative and the export collapse has gathered pace. German exports fell by an annual 20.7% in January, the worst fall in 16 years. Norbert Walter of Deutsche Bank reckons German GDP could shrink by up to 9% in 2009.
The developing world will suffer
What’s more, “virtually all of the low-income countries are in very serious trouble”, said former International Monetary Fund (IMF) official Eswar Prasad. Private capital flows to emerging states are dwindling, with the Institute of International Finance forecasting inflows of $165bn in 2009, down from $466bn last year and $928bn in 2007. The World Bank expects emerging markets’ external financing needs to exceed the money available by between $268 and $700bn. Part of the trouble is that rich countries are tapping markets to fund their stimulus programmes, crowding out poorer ones. So it’s no wonder the World Bank is forecasting negative global growth this year – the first worldwide contraction since the war. The head of the IMF is calling this downturn the ‘Great Recession’.
Will there be another Depression?
The Great Recession could well turn into something worse. Protectionism is on the rise and global trade volume tumbled by an annualised 22% in the fourth quarter, according to the CPB Netherlands Bureau for Economic Policy Analysis. The global banking system remains broken, despite policymakers’ best efforts, and there is far more household debt to work off than after the credit bubble of the 1920s. A slump akin to the 1930s, or Japan in the 1990s, looks highly plausible. In short, those who say “this is nothing like the Great Depression”, said Ambrose Evans-Pritchard in The Daily Telegraph, “are complacent”.