MACROECONOMIC REVIEW

USA
The effect of the global downturn in the USA has not yet been as significant as expected. US GDP grew by 2.2% during the second quarter compared to 2.5% during first quarter driven by strong exports due to a weak dollar. According to an economist survey conducted by Bloomberg, the US economy grew by an estimated 1.2% during the third quarter as policy measures have been efficient enough to tackle the worst recession scenarios. Although weak growth throughout 2009 is expected, declining commodity prices are stimulating both exports and domestic spending and therefore growth forecasts for 2008 and 2009 have been revised upwards in September.

EUROPE
At the moment it seems that the recession in Europe might become even deeper than in the United States. The annual growth rate in the eurozone fell to 1.4% in the second quarter from 2.4% in first quarter. The United Kingdom is experiencing a particularly severe downswing with growth expected to be negative in 2009 and house prices depreciating at a very fast pace. The macroeconomic indicators around Europe are showing threatening signs: the business climate index fell to a three-year low in Germany, to a five-year-low in France, and to a seven-year low Italy. Mainly because of declining commodity prices, inflation has eased from a peak of 4.0% in July to 3.6% in September supporting domestic consumption. The support is needed as for example in Spain car registrations fell by 32% in September compared to the previous year. EIU‟s growth forecast for 2008 and 2009 are 1.3% and 0.9%, respectively.

ASIA

The global crisis has reached Japan as well. Japanese manufacturers‟ prospects turned pessimistic for the first time in five years and three largest carmakers cut domestic production after exports to the USA had declined 30%. Total exports to the USA fell by 22%. Industrial output dropped by 6.9% compared to last year and 3.5% month-on-month. Although inflation expectations have eased, they are not likely to have an effect on consumption as the unemployment rate has risen to 4.2%. The Asian Development Bank revised its estimate for Asia-wide economic growth in 2009 to 7.2% from an earlier forecast of 7.8%. “You're going to have much more of a slowdown than people previously thought. Because of that slowdown, Asia is not helping compensate for weaknesses in other parts of the world", said Duncan Wooldridge, Chief Asia Economist for UBS.

Forecast data: EIU

Many experts expect the upcoming 12 months to be the worst with some countries falling into recession. According to the IMF, the world economy is entering a major downturn amidst the worst financial crisis since the 1930‟s and expects world growth to slow to 3.0% in 2009 which is 0.9 percentage points lower than forecast in the July.
Following sluggish growth through the remainder of 2008 and early 2009, the anticipated recovery later in 2009 is expected to be gradual as financial conditions are expected to remain difficult. “A pretty sharp adjustment during the course of the next year and then you will see growth resume, but it won‟t be growth at anything like the pace that we experienced over the last five years or so”, said Robin Bew, Chief Economist at the Economist Intelligence Unit. “When we come out of the other side of that I think we need to remember that you will still see a lot of balance sheet impairment in the financial sector particularly, but also in the private sector, particularly in the personal sector. But that doesn‟t mean that people won‟t be able to consume. You will still see consumption rising.” “America, for example, we think 2% growth, maybe 2.25%, far below the sorts of rates of growth that we used to see and that‟s because this balance sheet adjustment is not going to be over in 2010. So yes, a bit of a recovery in 2010, but nothing really to start dancing about. It‟s not going to be like 2005.” The IMF expects a number of factors to contribute to stabilization during 2009:
Commodity prices will stabilize
Housing markets will reach bottom
Emerging markets will provide a source of resilience

These factors would facilitate a return to growth in 2010, but there is still a downside risk in the possible persistence of both the credit crunch and inflation, both limiting the central banks‟ room to maneuver.