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World Economy to further suffer from Economic Epidemic in 2009

Bhuwan Thapaliya - 2/5/2009

How many economists does it take to fight the recession and how long will the downturn last? The world is asking questions such as these every moment but no one has been able to answer these questions with accuracy.

The world is in crisis and more than ever before, our financial activities has crippled, and our dreams of leading a wonderful life are getting gloomier everyday.

World growth is projected to fall to its lowest level since World War II to just ½ percent in 2009, the International Monetary Fund said in its latest World Economic Outlook, released on January 28.

IMF also stated that the Economy will face serious more challenges and massive obstacles all around the globe. The first six months of 2009 will probably be as bad as the last six months of 2008.

The IMF expects real activity to contract by around 1½ percent in the United States , 2 percent in the euro area, and 2 ½ percent in Japan .

The IMF report also stated that emerging and developing economics will also suffer serious setbacks.

According to the IMF report, growth is expected to slow to 6 ¾ percent in China and 5 percent in India . A dramatic slump in these two nations compared to two decades of double- digit growth in China and the average of 8 percent during the last few years in India .

Who would have thought a year ago that the world’s two emerging economic giant’s economic growth would suffer such an alarming setbacks? But unfortunately it happened and the world is on the verge of the worst economic malaise since the depression era of the 30s as two other major economies Brazil and Russia are also suffering the economic malaise due to the falling oil and commodity prices.

The only silver lining in the report is this probable revelation by the IMF.

“Global growth is projected to rebound in 2010 to 3.0 percent, when measured in terms of purchasing power parity,” IMF said in its report.

The financial crisis which began in August 2007 among sub prime mortgages in the United States has spread to other major markets and has resulted in a global recession, which is on the verge of becoming a global depression as the analyst are already worried about the possible deflation.


Financial crisis was fueled by massive decline in trade and global output in the dying months of 2008.Asset values are falling sharply all over the world, chiefly across advanced and emerging economics, and thereby putting downward pressure on consumer demand. Consumers are septic about spending because they don’t yet know the gravity of the crisis – they think the problem will prevail for a longer period than expected. Consumers and investors lack confidence to spend and invest.

The contemporary economic reality of the shrinking demand for goods and services has completely shaken the Global Economy and policy makers do not know whether to laugh or cry.

America, Germany , England , Japan – the world’s economic movers and shakers are stunned by recession and are running out of solution to bring their respective economy in track.

But the speed with which the clouds of economic gloom have gathered over the global economy and especially in India and China , who were supposed to provide the engines that could pull the world out of recession have completely derailed the hopes of these nations.

The land of innovative ideas, as America is known all over the world is not able to find an idea to curb recession and observers say the time for economic playground games has definitely run out. It has a little time left to restructure its economy and reorient its economic activities to avert the worst for its economy and global stability.

It’s not too late to stop recession from turning into depression. But time is passing. Analysts now expect the American government to take determined action against the economic gloom. How is that ever to happen?

As usual the Federal Reserves used its most important tool – Interest Rate Cut. The Federal Open Market Committee (FOMC) cut its target interest rate to a range from zero to 0.25 percent from 1 percent, the lowest on record.

But analysts reckon that it is not possible to curb the financial crisis because with nine rate cuts in the past 14 months, the economy has deteriorated further.

However on the bright side, President Obama won House approval on Wednesday for an $819 billion economic recovery plan. The two years package is among the biggest in history but the bill was passed without a single Republican vote as they differed over new spending instead of tax cuts.

Meanwhile, “Federal Reserve officials warned of a prolonged global economic slowdown that may push the U.S. to the brink of deflation,” according to the Bloomberg report.

The mayhem of the financial crisis is very deep and some analysts fear the very future of Capitalism. They say that Capitalism is bankrupt and it cannot help the world to stand in its feet yet again.

Meanwhile, gloom is deepening among business leaders and economists in this year’s World Economic Forum in Davos , Switzerland .

“The crisis is getting worse. It’s going to take very drastic action to turn that around, if it can be turned around, quickly. I believe it will take quite a long time.” Rupert Murdoch, chief executive officer of News Corp was quoted as saying by the Bloomberg.

If the world is to come out of this crisis, aggressive actions are needed. The government should encourage households and business to prepond expenditures and raise demand for consumer and capital goods.

The worst financial crisis since the Depression is redrawing the boundaries between consumers and the producers. America ’s government made its most dramatic interventions in financial markets since the 1930s but all their efforts are in vain. They are not able to tame the beast.

President Barrack Obama’s economics team, which includes top guns such as Larry Summers and Christina Romer, have to understand that the crisis has its roots in the biggest housing and credit bubble in history led astray by Alan Greenspan and his hyper loose monetary policy.

Hence, much depends on the policies of Barack Obama, Federal Reserve and his economic team to revive the faltering American Economy and boost the confidence of the world as America much more than India and China is still a big player, and its economic health continues to influence the health of the global economy.