2009 Outlook: Continuing Global Downturn Or Major Recovery ?
With a very troubled 2008 soon behind us and many private as well as institutional investors breathing a short sigh of relief, the big question facing the world is of course: will 2009 be a year of recovery or will the crisis worsen and prolong the Recession or even, as some fear, slide further into a full blown Recession ?
This post looks into what some of the analysts have to say about 2009 and whether to world economies and all its dependants are in for a recovery or if indeed we shall have another very tough year to face up to.
MarketWatchpoints out that whilst the downturn is gathering pace in Europe and The US, the same crisis has now also spread in full to The Far East and Asia with the pace of the economic downturn in China being the most surprising factor to economists and experts.
Quoting experts on the development of the economic downturn in Asia, the article says:
Experts painted a grim picture for the Asian region in 2009.“Asia is not doing well at all,” said Son Won Sohn, an economist at the Martin Smith School of Business at California State University, Channel Islands.“Decoupling, which looked for a while like it was going to work — turned out to be a myth.”Japan is mired in a recession, South Korea will be lucky to reach 2% growth this year and Chinese growth could fall below 6%.The downturn in global trade has just begun to have a negative impact on China’s economy, but it is pressure that will last for most of 2009, according to Brad Setser, an expert on China at the Council of Foreign Relations in New York.“The latest data for November was off-the-charts bad,” Setser said.In addition, China’s own domestic cycle looks to have turned, he said.“The pace of the downturn has been a little bit of a surprise,” he said.
Oil prices fell despite a record drop in the US dollar on Wednesday, a day after the US Federal Reserve slashed its base lending rate to 0-0.25 percent. A weak greenback tends to lift the price of dollar-priced oil for buyers using cheaper currencies.
“If a plunging dollar and a zero interest rate can’t save oil, don’t think that OPEC can. The market is bigger than the cartel and the demand destruction is something that will not be cured by trying to raise prices,” said Phil Flynn, an analyst at Alaron Trading.
“The last thing the world’s consumers need is another advance in oil prices,” oil analysts Cameron Hanover said.
“Any artificial or engineered rise in prices will exacerbate and extend the economic slowdown.”
MarketWatch quotes more doom and gloom from observers of the Euro economies in 2009 :
“I think that’s going to make itself evident in business investment in the euro zone as well, so that’s going to do a lot of damage through the rest of next year,” Brian Hilliard, head of economic research at Societe Generale said.
The downturn hasn’t only hammered countries, such as Ireland and Spain that have echoed U.S. housing woes. It’s also hit more robust economies, even sending European powerhouse Germany into a recession of its own, noted Jonathan Loynes, chief European economist at Capital Economics in London. The firm predicts euro-zone GDP will contract by 1% in 2009.Deutsche Bank predicts that a steep near-term fall will make for a 2.5% contraction in GDP in 2009, marking the 15-nation region’s worst recession since World War II. Growth will rebound in 2010, but the recovery will be more tepid than in normal recoveries, said economist Mark Wall, in part due to a lack of a coordinated policy response across the region.Despite qualms, the European Central Bank will likely have little choice but to drop its key interest rate below 2% for the first time in its decade-long history, economists predict. The central bank has slashed its key rate from 4.25% to 2.5% in a series of rate cuts that began in October.
Li Yizhong, Minister of Industry and Information Technology, also warned on Friday that more measures needed to be taken to revive industry, which is a major employer.
Beijing will need to ensure that industrial output expands by 12 percent next year to hit its GDP target, Li said, while cautioning that growth has not yet bottomed out.
“Industrial growth is slowing significantly and downside pressures are increasing,” Li told a work conference, which was webcast on the ministry’s website (www.miit.gov.cn).
But the economy still expanded by 9 percent year-on-year in the third quarter, compared with 11.9 percent in all of 2007.
“It is not a recession, but it will feel like one to the average citizen and will feel like a depression to the 100 million or so migrant workers, many of whom are out of a job and stranded far from home,” economists Ben Simpfendorfer and John Richards said in a note to clients.
“Social tensions are likely to be on the rise.”
The government has launched a series of measures to counter the slowdown, including a massive stimulus package, repeated interest rate cuts and measures to support the property market.
MarketWatch paints a picture of different views by leading experts, some of which are quite optimistic about the recovery of the US Economy :
Bailey, the former top economist for Clinton, sees a 20% chance of an upside surprise in growth in the second half of the year if things start to bottom.Nothing Obama will do will stop the two negative quarters. But he may instill some confidence to lead to a turnaround.However, there is a 30% to 40% chance that the economy stays in recession through the entire year, with the unemployment rate rising above 10%, Bailey said.But some economists are optimistic about a rebound.Joel Naroff, president of Naroff Economic Advisors, said that U.S. businesses are reacting quickly to the downturn and will be in better shape for a rebound after the first quarter.“Businesses are reacting so quickly they are not going to need to keep cutting back, which is what typically keeps recessions going longer,” Naroff said.For Ricchiuto of Mizuho Securities, the biggest test will come quickly next year when the market will expect the Fed to follow up on its promise to keep printing money.“Are they (the Fed) ready to walk the walk after they’ve talked the talk,” he asked.
Economists remain very worried about protectionism.Despite pledges by the G-20 last month to cooperate and avoid protectionism, trade analysts see signs that the opposite may be occurring.If China moves to protect its export sector, it will likely set off a hostile reaction in the U.S. Congress.
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