The world's richest economies look set to remain in the worst recession in several decades throughout most of 2009, sending unemployment soaring as the global financial crisis rages. Reuters polls of around 300 economists from across the Group of Seven industrialised nations make for sombre reading the day after Barack Obama was sworn in as the 44th US President and declared the "badly weakened" US economy will be a top priority.
Governments have announced bank rescue and stimulus packages worth hundreds of billions of dollars and G7 central banks have cut benchmark interest rates ever closer to zero but that has still not been enough to stop the rot.
The surveys showed large downgrades to the outlook for economic growth compared with just a few months ago, and predicted that only in the second half of this year will a feeble recovery, led by the US, start to take place. They also forecast a dismal performance in the final three months of last year after the collapse of venerable US investment bank Lehman Brothers and a punishing global stock market crash that has not yet ended.
Economies across the G7 likely shrank by one percent or more on a quarterly basis, with the consensus for US economic decline at an annualised 5.3 percent pace in the fourth quarter of 2008, the deepest since early 1980s. "The US economy is in a severe recession," said Michael Feroli, economist at J.P. Morgan in New York.
US unemployment is set to soar to 8.8 percent by the middle of next year from the current 7.2 percent, according to median forecasts in the poll, but several say it will hit 10 percent before then. Unemployment was forecast to rise over 8.0 percent across the G7 by the fourth quarter of the year, with Japan the only exception.
Financial markets are braced for the first taste of how bad the stock market crash and ensuing turmoil late last year walloped the developed world on Friday, with an expected 1.2 percent contraction in UK GDP in the fourth quarter of 2008. The outlook for this year already looks bleak for Britain, where the currency has collapsed and remains in free-fall, the government is spending billions on bank bailouts and the authorities are clearing a pathway way to print money.
The poll found the UK economy is expected to contract 2.2 percent this year and mark five consecutive quarters of shrinking GDP, one of the longest declines in the G7. Itd future purchases of assets by the Bank of England to dampen the blow.
"The downturn we are forecasting is almost set in stone now and very difficult to reverse," said Trevor Williams at Lloyds. Germany, Europe's largest economy, looks set to recover later this year but not before clocking a huge 1.6 percent contraction in the fourth quarter of 2008 as a strong euro and sinking global demand pummels exports.
Japan, which only a few years ago looked finally to be emerging from a lost decade of deflation and stagnating economic activity, is paying a huge price for slumping world demand and a soaring currency and is set to contract 1.3 percent in Q4 2008.
The world's second largest economy is set to mark six successive quarters without growth and will only grow modestly in the fourth quarter of this year, meaning interest rates are set to remain near zero. "Cuts in jobs and capital spending have only just begun in Japan, with the worst yet to come," said Yasuo Yamamoto, senior economist at the Mizuho Research Institute.