Global Recession?

Posted by: Michael Mandel on April 09

The International Monetary Fund has come out with its latest set of forecasts of the world economy. The report says at one point:

The IMF staff now sees a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009—equivalent to a global recession.

Why is 3% growth equivalent to a ‘global recession’? In the U.S., a recession means, basically, that economic activity is shrinking. There’s something puzzling about calling 3% world economic growth a recession.

I think it means that it would be so politically disastrous for China to drop below 5% or so growth for a full year that the economists at the IMF don’t want to even think about it.

By this definition, the world economy has been in recession 1980-83, 1990-93, 1998, and 2001-2002. In other words, 11 out of the last 28 years. There are no negative years of world growth.

Here are the IMF’s latest world growth numbers, and forecasts out to 2013.

weocountrygrowth

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Reader Comments

Kartik

April 9, 2008 03:27 PM

The fact that the worst-case scenario for world GDP is still GROWTH of 3%, is a reason to be very optimistic about the long-term.

Economic growth is exponential and accelerating. By the 2020s, average people will have vast wealth that greatly exceeds what they have today.

Read this about long-term World GDP trends :
http://futurist.typepad.com/my_weblog/2007/07/economic-growth.html

Lord

April 9, 2008 04:04 PM

Recession in the developed world and low growth in emerging markets. Falling gdp per capita.

Joe K

April 9, 2008 06:03 PM

Of course, on a per capita basis, I imagine that 3% real growth would be more or less flat growth on a per capita basis, assuming roughly 3% world pop growth.

By this measure, per capita growth in the US (pop growth a tad over 1% annualized), was actually negative in the 4th qtr.

Kartik

April 9, 2008 06:13 PM

Lord,

Wrong. World Population growth is 1.3% a year, so unless GDP growth is less than that, per capita is still growing.

Per capita may be falling in Africa, etc., but not on the world average.

Joe K

April 9, 2008 06:32 PM

BTW, Mr Mandel,

I forgot to add in my previous comment, that your posts on the growth of Household debt were excellent.

I calculated that if Hhld debt in this decade had grown only as fast as GDP (in current dollars) than the excess of actual Hhld debt growth versus the proforma would have approximately equaled the total current dollar increase of GDP!!

Of course that debt is also spent on imports and other things not affecting GDP, but nevertheless, this looks serious.

Joe K

April 9, 2008 09:30 PM

Kartik,

Good point on pop. growth. I was way off.

Joe Cushing

April 10, 2008 12:24 AM

I don't understand the importance of real economic growth. For millennia we had a basically flat economy. Now if we are not growing we are suffering. How did this happen? Why can't we be flat and still be ok? Why can't we fall back to 2005 levels of production and just live like we did in 2005? Why do we have to continuously produce stuff faster to keep from losing money? Am I the only one asking this question?

Brandon W

April 10, 2008 09:48 AM

Joe,
Because wealth growth for the *wealthy* is dependent upon the stock market game. And the stock market only goes up when they believe they'll get profit growth exceeding the inflation rate (thanks to the advent of fiat currencies - but that's another discussion). GDP has to grow to offset inflation due to fiat currencies, and basically to support this Ponzi scheme that makes the rich ever richer.

Kartik

April 10, 2008 03:38 PM

Joe Cushing,

" Why can't we fall back to 2005 levels of production and just live like we did in 2005? "

Simple : Because expectations rise at a rate that exceeds real growth rate.

The losses in a recession are very unevenly distributed. Some people are unemployed for a whole year. Others don't lose their jobs, and skate through without much trouble.

Some are invested in the wrong things, some are invested in the right things.

That is the problem with recessions. 2% suffer terribly, 18% suffer somewhat, 80% don't suffer much.

Mike Reardon

April 10, 2008 06:06 PM

The true cost of international reinvestment that has been going on in the world over the last ten years is probably covered somewhere above that 3 percent. A long period without that greater return on investment going to all the international markets would force national growth by domestic reinvestment of international funds. Its taking a real return above that 3 percent that draws both sides into an agreement in the first place. Not gaining that would not allow for further exchange of wealth that now materially relives social stress in underdeveloped nations and also supports western nations now transitioning to all service economies.

cm

April 11, 2008 01:52 AM

Joe Cushing: Over the millenia with their supposedly "flat" economies (not quite true BTW), a good number of people suffered quite a bit, consider most of geographic Europe. Life expectancy was generally low (in the sense not that everybody died younger but many died young or were merely crippled or languished from then-uncurable illness), the lower classes in the cities lived rather miserably, and rural areas were infested with warlords and roaming gangs.

Brandon W

April 11, 2008 09:40 AM

I would argue that there's nothing wrong with a relatively "flat" economy, particularly since we need to come to a sustainable state. An economy should grow as fast as the population, for sure, or demand will outstrip supply.

When a company is young it can grow at rapid rates. A year of 20% growth (or even much more) isn't unreasonable. But by the time a company is the size of GE, it's virtually impossible to grow at any significant rate. In fact, it can only really grow by acquisition. Compare this to a nation. The U.S. - and most industrialized economies - are the "GE's" of the world. It really isn't reasonable to assume they can grow that quickly. Except by acquisition... and the last time a major economy tried that we had WWII.

It isn't to say technology can't make us more productive, but even that is minutely incremental. Despite the fact that computers are enormously faster and more capable than they were in 1995, I still can't type any faster or read any faster. (In fact, I'd argue that the overload of data has reduced human productivity).

Exponential growth doesn't make sense for a major economy; and what's more, it's unsustainable. The only reason we have the push for exponential "growth" is that the major Wall St. players need the Ponzi scheme to keep ramping up their wealth, and bankers need the "growth" to compensate for - and justify - their fiat currency.

I think we're going to learn one day that all this theoretical growth is just that. Theoretical. It's all numbers. Smoke and mirror illusion. We started to see the man behind the curtain with the current credit crisis, but the Fed has quickly pulled the curtain closed and is telling us all "there was nothing there for you to see, look back at the girl in the sparkly costume."

Yes, our standards of living have improved. But they've improved because of the advancement of knowledge, not because of the artificial numbers on which we attempt to base our idea of "growth".

cm

April 12, 2008 03:13 AM

Brandon W: Back in my "communist" school faux-economics it was presented as a contrast between "extensification" vs. "intestification" -- growing production output by applying more resource input vs. by applying smarts. The resource input angle was mostly focused on natural resources, something in which my country of origin was poor (particularly but not limited to high-grade energy resources). "Communist" or not, they got the theoretical insight right, but couldn't pull it off because of a dysfunctional social model, and because saving one type of resource will not necessarily compensate for shortages of another.

marlene

October 2, 2008 03:05 PM

I am completely ignorant when it comes to economic's...is it too late to go back to a North America...where we keep manufacturing here? Yes, we'll pay a higher price....but....is it plausible? The rest of the world scares me. I would like to protect our interest. If we stopped foreign aid and let China and Pakistan take over....to name a few...could we not drop our deficit??? How about Canada's tar sands....do we need the middle east....stop foreign aid and invest that towards greener energies??? Please answer...stumped!

Dirk

October 24, 2008 02:38 PM

Why would we want to return to 2005 standards? This financial crisis was created- as were the past three- by the Fed trying to slow down a "hot" economy- why? Were we out of capacity? No. Were we running out of demand? No.

There are 2 billion people still living in relative poverty, we have the promise of nearly unlimited energy from solar power, the internet is screaming to be monetized, and we aren't going to run out of land, water (ever hear of reservoires and desalinization?), energy, or desire to live better any time soon.

Let's hope the Fed doesn't kill this next expansion like they have the past three.

RAHUL

January 4, 2009 10:43 AM

What would be the impact of this "recession" on India ?

ravishyam

January 7, 2009 01:03 AM

India have witnessed year(2008)as worst hit year in terms of monetary crisis.There has been an increase in inflation rate mounting upto 10% and sometimes more than that.There are some instances where the employees have been rusticated from there jobs without the prior notice which is to be given by the companies,some banks have shutdown and somr are in tiltillating situation all in all it has to be said that year 2008 is a different ball game which india has faced. This problem can be resolved only when both technology and knowledge go hand by hand.As it is a known fact that india has developed a lot when one retrospects it's past.This is the right time where the officials of government act wiser and do smartworking.the technology is has developed a lot for instance why doesn't one individual take the generations of computers in mind(one to five) now laptops have been introduced this shows the technology is advanced.Secondly, knowledge why doesn't one take the likes of p.chidambaram(financial minister)and abdul kalam.There are many more great personalities.with this one can say india is in the safe hands.What's important is to play safe more clearer way take theory of charles darwin theory that is survival for the fittest.
this is to be kept in mind for a while and play safe when once this stage is complete india will be in drivers seat let us forget the figures for a while.

Ankit Kumar

January 22, 2009 07:17 AM

A very forthcoming world power is building day by day, because they are taking lessons day by day, and that country is india.

james anderson

February 14, 2009 02:21 PM

i admire your ambition.
but im ambitiously against what your saying. i think china is the obvious super power

soji

March 31, 2009 02:06 PM

Well taking a look on how things are going presently we need God intervention in this...All this are happening cos of our huge level of sin so please let us pray to God Almighty for forgiveness of sins..Our Kids are affraid of the future likewise us.we need to call on God.

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About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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