Grim Times Ahead
Economists are warning Britain will be harder hit than any other industrial nation in the worst global recession for more than 60 years. How wrong Gordon Brown was when he stated last year that Britain is best placed to deal with the oncoming global recession.
The IMF report that was published yesterday forecasts that the UK economy will shrink 2.8% this year, twice as much as previously thought and far more than the 2% average drop forecast for developed nations in 2009. It suggests that the UK recession will be deeper than that in the US, Italy and France amongst others.
Alistair Darling predicted in November that growth in Britain would rebound to at least 1.5% in 2010, but the IMF forecasts only 0.2% recovery.
World growth is expected to rise on 0.5% this year, the weakest annual growth since WWII. The international labour organisation predicts that a staggering 50 million jobs will be lost round the world this year, taking global unemployment to 7.1%.
IMF Chief Economist Olivier Blanchard emphasised in yesterday's breifing the two types of measure needed to turn things around:
1. Stronger policy actions to restore financial sector health. Short term measures have been taken but more aggressive and concerted actions are now needed through a unified approach involving liquidity provision, capital injections, and disposal of problem assets.
2. Monetary and Fiscal Stimulus. The IMF still things there is room for lower interest rates, as inflation pressures are subsiding, but the room is rapidly declining and has in some countries (a liquidity trap). Deflation is now a real risk and concern. Interest rates will be constrained as a policy option until there is more liquidity in the financial system.
Countries have announced and implemented fiscal packages but it is vital according to Blanchard that these packages provide the maximum boost to demand.
Blanchard also stressed that there is “no one size fits all policy" mix. Some countries have more fiscal and monetary space than others.
This report and briefing is full of great recession economics, it is well worth digging deeper.
See how this latest recession compares with the 10 worst of all time in the UK.
Watch the briefing from the IMF on the their latest economic forecast.