Dominique Strauss-Kahn, the head of the International Monetary Fund, said today that the financial crisis is turning into 'the Great Recession', suggesting that world economic growth is likely to drop below zero this year. After previously suggesting that we’d see some marginal growth or possibly stagnation, this is the first time the IMF has predicted a full-blown global recession – which hasn’t happened since 1945, after the Second World War. You can always rely on the IMF to cheer you up on a Tuesday morning...
Speaking at a conference in Tanzania, Strauss-Kahn said that de-leveraging by financial institutions and collapsing confidence was ‘depressing domestic demand across the globe’, which in turn was hammering world trade. The IMF was already predicting that rich countries would suffer a contraction this year, but it now believes that this trade slump will also drag developing countries into recession, leading to ‘the worst performance in most of our lifetimes’ – hence ‘the Great Recession’.
There certainly seems to be no end of bad news coming out of the UK at the moment. Today it emerged that manufacturing output fell for the 11th consecutive month in January, and is now 12.8% down on this time last year – the steepest drop since 1981. Even more worryingly, the rate of decline in the last three months is the fastest since records began in 1968, suggesting that manufacturers are still seeing no benefit whatsoever from the weaker pound. The British Chambers of Commerce described the figures as ‘much worse than expected’ and called for ‘urgent measures’ to prop up the sector.
Indeed, with figures out this morning suggesting that house sales are still at their lowest level for 30 years, everyone seems to be trying to outdo each other in the doom-mongering stakes: Tullet Prebon boss Terry Smith even told the Standard today that the crisis could be 'as bad as the Long Depression of the 1870s'. Not even the 1930s Depression is gloomy enough any more...
In fact, just about the only ray of hope comes from investment sage Warren Buffett. OK, so he said the US economy had ‘fallen off a cliff’, and that the world was facing an ‘economic Pearl Harbour’ (a slightly unfortunate phrase). But he also suggested yesterday that the toxic assets owned by our big banks (Barclays is the latest to mull a Government guarantee) are starting to look like good investments, because the current accounting rules force institutions to understate their true value. Resolving this thorny problem would go a long way to getting us out of this mess.
Unfortunately, this might come too late for many in Africa. Strauss-Kahn pointed out today that the continent was badly exposed to waning demand for commodities, saying that the IMF has slashed its growth forecast from 6.7% to just 3%. This is bad news for the poorest countries, who will be hit disproportionately hard – and the worry is that rich countries will be too preoccupied by their own problems to help out...
In today's bulletin:
IMF: Brace yourself for 'The Great Recession'
Greggs looks forward to baking weather
YouTube kills the music video star
The rise and rise of social media
Is this the perfect time to do an MBA?