Keeping It Upbeat
Morning Call
According to Bloomberg, the world may be heading for its worst recession in a quarter of a century – if it’s lucky.
A steep slump looks likely as the credit squeeze crunches economies from the U.S. to Singapore and panic engulfs global financial markets.
“It’s certainly going to be the worst since the 1980s,” says Bradford DeLong, an economics professor at the University of California at Berkeley who worked at the U.S. Treasury Department from 1993 to 1995. “The hope is that it won’t become the worst unemployment business cycle since the Great Depression.”
Of special concern: The two big bulwarks of the global economy in recent years — U.S. consumer spending and the rapid growth of emerging markets — may be finally giving way in the face of the 14-month-old financial turmoil.
That raises the odds that the coming economic decline will be long and deep, despite U.S. Treasury Secretary Henry Paulson’s $700 billion financial rescue plan, similar efforts by European leaders and the coordinated interest-rate cuts engineered by Federal Reserve Chairman Ben S. Bernanke and other central bankers last week.
“This is the worst crisis I’ve seen in my 50-year career,” William Rhodes, senior vice chairman of Citigroup Inc. in New York, told fellow bankers in Washington yesterday. “We still have to deal with the effects on the real economy here and elsewhere.”
The International Monetary Fund’s World Economic Outlook last week forecast that global growth will slow to 3 percent in 2009, from 3.9 percent this year and 5 percent in 2007. That would mean a world recession under the fund’s informal definition — growth of 3 percent or less — although current IMF chief economist Olivier Blanchard declined to describe it as such.
One of his predecessors wasn’t so shy. “It’s hard to imagine it not being the worst recession in at least 25 years,” says Kenneth Rogoff, who is now a professor at Harvard University in Cambridge, Massachusetts.
