The "Great Recession" will clamp leading global economies in a vicious grip well into 2010 and push unemployment to multi-year records, Reuters polls show. Double digit losses on equity markets in the past month and turmoil across the banking system have persuaded most economists in the polls that this recession is going to get worse, and a recovery will be even slower.
IMF chief Dominique Strauss-Kahn has already declared the world economy as being in a Great Recession. The polls of around 250 economists from Toronto to Tokyo showed the first quarter of the year shaping up to be nearly as bad for most leading economies as an already ugly end to 2008. They also see only faint signs of a recovery even in 2010.
By that time unemployment is expected to have soared to a 10-year high in the euro zone, while 13 million people will be jobless in the United States and 10 percent of the UK workforce will be looking for employment.
An even bleaker environment is possible too if the worlds leading 20 economies, whose finance ministers and central bankers meet this weekend in England before a summit next month, fail to come up with co-ordinated action to stimulate growth. "Despite increasingly forceful policy responses a floor has yet to be put under economies or markets," said Mark Wall at Deutsche Bank. "As far as the economy is concerned Q1 could easily be as bad as Q4 and potentially could be worse."
With interest rates already close to zero in most of the worlds leading economies, only the European Central Bank has room left to cut further. Many central banks are already using unconventional measures to spur demand, or are set to do so. But after a widely-anticipated ECB move to cut rates to an all-time low in the second quarter, rates could feasibly be on hold close to zero at most major central banks until well into 2010, the economists forecast.
Only next year will any decent signs of a recovery be seen. Forecasts showed the US economy contracting 1.4 percent this year, deeper than the 1.0 percent predicted just a month ago, with growth of 2.6 percent on the horizon in 2010. The picture looks even worse on the other side of the Atlantic. UK economists shrugged off the Bank of Englands move to bolster the British economy through quantitative easing, or buying assets such as government bonds. They see GDP contracting 3.0 percent this year, worse than the 2.9 percent they predicted in last months poll. The euro zone is not far behind with its economy expected to shrink 2.6 percent, while export-driven Japanese GDP was forecast to fall 2.5 percent in the first quarter alone.
The poll showed unemployment soaring to a 10-year high in the euro zone next year at 10.0 percent. That figure was similar to the US at 9.6 percent, which long held a large advantage over the euro zone where jobless rates had tended to spiral way past those in the US
"The growth outlook has not improved over the past month. Indeed, the outlook for jobs and the unemployment rate peak has darkened further," said Scott Anderson at Wells Fargo & Co Unemployment is also seen peaking at 10 percent in the UK.
But deflation and not job fears appear the main concern in Japan. The country is seen sliding back into a protracted period of nearly two years of falling prices. In other leading economies falling inflation has not yet led to serious forecasts of deflation.
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