Global economy: 'From boom to bust in one year'

Posted Dec 19th 2008 12:40PM by Joseph Lazzaro
Filed under: International Markets, Forecasts, Recession, Financial Crisis

Those investors and business executives expecting a return to 'giddy' global growth after the U.S. and global economies start to recover need to pay careful attention to one of the world's leading economists.

"Those expecting the world to return to 5% growth will be in for quite a surprise," Stephen Roach, chairman of Morgan Stanley Asia Ltd. (NYSE: MS) told Bloomberg News Friday. "We're maybe going back to 3% [global] growth but we're not going back to 5% growth for some time. So it's a wake up call. We've gone from boom to bust in one year."

Further, the International Monetary Fund agrees, by and large. The IMF now sees global GDP growth of 2.2% in 2009, which is down from solid 5.0% growth in 2007 and 5.1% in 2006. In 2008, the IMF expects the global economy to grow 3.7%, but only 2.5% on a Q4 2007 to Q4 2008, year-over-year basis.

A major unknown: China's 2009 economy

Economist David H. Wang told BloggingStocks Friday, economist Roach "is wise to both lower expectations and to sound the alarm" because economic fundamentals in all major economic regions of the world have deteriorated in 2008, and will continue to do so in 2009.

"The focus in 2009 has to be on identifying and, if need be, creating growth engines, and a big part of that will be fiscal stimulus. But capital investment tax credits and related corporate investment incentives have to play a role as well, given the amount of demand taken out of the system this year," Wang said. "As Stephen Roach said, we are not going to glide into a great growth rate. It's going to be a long, slow, gradual climb back to higher ground."

Further, the credit crunch and related demand destruction headwinds means that all major economies - - U.S., E.U., Asia - - will have to be pulling, which underscores the importance of China's economy, Wang said. If China, which Wang currently expects to record 5.5-7% GDP growth in 2009, down from about 8.5% in 2008, experiences a growth output below 5%, "there's big trouble ahead, globally."

"Most 2009 low-growth global GDP models assume at least 6% GDP growth in China, which is why all international macroeconomic decisions have to consider the implications for China's economy," Wang said. "To get the global economy growing at an adequate rate again, we need every region to be a growth engine, including China's huge emerging market economy."

Economic Analysis: Candid and incisive observations from economists Roach and Wang. This global downturn is sudden, strong, and serious: every possible growth engine, public and private, east and west, developed and developing market, will be needed to increase global GDP growth to adequate levels.

Tags: Asia, China, E.U., emerging markets, featured, gdp, global economy, IMF, Stephen Roach, U.S.

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Reader Comments (Page 1 of 1)

12-19-2008 @ 2:52PM

BHarrison said...

All of this "propaganda" and "double-speak" by government and some economists, and business people about a fast recovery is merely attempts to slow the rapid "free fall" to the bottom . . . they are trying to "buy time' to better their personal positions.

It took many years for the economy develop into an "overly prosperous" level . . . nothing in the economy occurs rapidly other than an "overnight 'bust'", which we have experienced. It will require MANY YEARS to rebuild industrries, develop old or especialy NEW companies, to hire and train new masses of employees AFTER everything has fallen apart, fell into disarray; and is being picked apart by attorneys and bankruptcy forensic auditors, who will pick the bones of what is left of many corporations, leaving the stockholders virtually nothing.

The USA has about 1/10th of the world's population, yet we have a FULL 90% of the attorneys in the world. They are like used car salesmen; they have to have a "vehicle" (litigation) to earn their fees and commissions. One aspect of it all is that having observed what happened my my wife's ex-employer of 25+ years, who went bankrupt almost two years ago due to a lawsuit, the bankruptcy system has become "engineered" to allow the attorneys and the forensic auditors to literally drag out the processes until they have consumed the assets of the corporation to the point that there is nothing left for stockholders or creditors of the corporations.

This process has truly become a CRIMINAL process of "milking every last dollar of value out of the assests of the corporation; and is fully sanctioned by the bankruptcy courts.

I dread to imagine what is going to happen throughout the USA. If you are a stockholder of any corporation that goes into bankruptcy, you will be fortunate to get ANYTHING. The attorneys and accontants will drag the process out until they have drained the companies totally dry.

The USA desperately needs dramatic reform of our legal/judicial systems. Frivalous lawsuits and these other practices have been milking our economy and suppressing business for several decades or longer. Accountants (esp. financial auditors) acceptance and use of "creative accounting practices" have substantially contributed to the orchestration of pyramid and Ponzi fraud schemes (Madoff's Ponzi, the "derivatives", etc.).

The CORRUPTION of our government bodies (by speical interests), our business managment of corporations, our judicial system, and our financial industry (including CFOs, accountants, and auditors) is what has created these cancers that are killing our economy and society.

Our economy has crashed, and our nation's standard of living are threatened by sheer PERVASIVE CORRUPTION. The only solution is to restore INTEGRITY to our government and business . . . and judical systems.

If we cannot achieve that, then the USA will probably NEVER RECOVER FULLY from all of this.