The greatest fear about a global economic recession has materialised. First, the German economy, Europe's largest, contracted more than economists expected in the third quarter, confirming it has entered its worst recession in at least 12 years as the global financial crisis curbs exports.
Gross domestic product dropped a seasonally adjusted 0.5 per cent from the second quarter. It raises the risk of a German contraction ofmorethan 1 percent next year. Some economists even predict that Germany will face a long and drawn-out recession. The economy will probably shrink 1.5 per cent next year, the most since the aftermath of World War II.
German companies are scaling back production as slower global growth erodes export demand. Business confidence fell to a five-year low last month and manufacturing orders plunged in September.
Secondly, the US economy fell off a cliff in October, it underwent a huge financial shock that intensified the credit crunch and triggered a sharp downturn. The implosion of credit markets last month will likely cause the economy to shrink at a 3-per-cent annual rate in the fourth quarter and a 1.5-per-cent pace in the first three months of 2009, the slump will probably be the longest since 1974-1975. The U.S. downturn may be the longest in three decades, the drought in consumer spending may be the worst ever.
Declines in household spending will extend into next year as the worst financial crisis in seven decades forces employers to keep cutting payrolls on top of the 1.2 million jobs already lost this year. The pace of contraction this quarter could be the worst since 1990. Some notable economists projecting the current slump will also be the most serious in a quarter century as the lack of credit causes a reinforcing, vicious circle of declines in confidence, spending and hiring.
Falling demand will cause an even bigger increase in unemployment. Economists forecast the jobless rate will rise to 7 per cent in the first quarter of 2009, up from last month's forecast of 6.6 per cent. The rate may climb to 7.7 per cent by the end of 2009, the highest level since 1992. Last month, the total number of unemployed Americans jumped to 10.1 million, the highest level in a quarter century.
Last but most important now is China. China's economy is losing momentum faster than expected. The economy may expand just 5.8 per cent this quarter, the weakest pace in at least 15 years. The economic slowdown is driven by falling export orders, weakness in construction and real estate, and blows to confidence from the global crisis.
China's industrial output grew at a slower pace than any economist forecast in October, prompting concern that the biggest contributor to global growth is running out of steam. China is considered to contribute the most to global growth based on purchasing power parity calculations, which account for differences in the exchange rates of national currencies.
Output of crude steel in China fell 17 per cent from a year earlier. Electricity production declined 4 percent. Iron, steel products and automobiles slipped. Cement and raw-coal output grew at a slower pace than in September. Overall, production growth was the weakest since November 2001.
In summary, I am very pessimistic on the global economy. All of above indicators are working to reinforce the severe global downturn and I do not see any improvement any time soon. The growth prospect for Thailand in this global recession is also very dim. Where should the growth come from?
By: Chodechai Suwanaporn email: [email protected]
Source: Fiscal Policy Office / www.fpo.go.th