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America is ALREADY in recession, say top economic global experts – and that spells trouble for the UK
Daily Mail
March 21, 2008
Experts have accused the International Monetary Fund of “driving the car using the rear view mirror” after the global body warned the U.S. was on the verge of a recession.
The world’s biggest economy is already in a recession, they claim, as a draft version of the IMF’s World Economic Outlook declared the U.S. economy is “very weak”. Nigel Gault, chief US economist at Global Insight, a worldwide economic forecasting and consultancy firm, said he believed the US was in recession already – and that spelt problems for other countries, including the UK.
He said: “The US has, for years, been the primary motor for growth in the global economy. However, now consumer spending in the US has seen a downturn, the tables are turned, and the US is looking to the rest of the world for support, through strong export growth, and cutting imports.
“This is happening, US exports are doing extremely well, but it’s not enough to keep the economy out of recession.
“We do not expect to see the problems in the housing market in the US bottoming out before 2009, and while spending will be helped by tax rebates to be given this summer, that may give only temporary relief, and in the first quarter next year growth may dip back close to zero.
“The longer either the recession or period of weak growth goes on, the longer the US market is going to be weak, and very difficult for anybody trying to sell goods to it.”
Jeremy Batstone, head of research at stockbrokers Charles Stanley, said the IMF “has a history of driving the car using the rear view mirror”.
He added: “For the whole of 2007, it was not looking through the windscreen, it was merely reporting what the prevailing economic data releases were telling it.
“This report suggests nothing has changed, the IMF using backward-looking data is taking the view that the US economy might be in recession.
“Recent economic releases make it entirely clear that the US economy is already in recession, it’s confirmed by diverse economic statistics, including retail sales, sharply falling house prices, rising unemployment, deteriorating industrial production and manufacturing output.
“The 64,000-dollar question, indeed the 64-trillion dollar question, is not what happened in the first quarter, but what might happen in the second quarter, and beyond that.
“The hope among economists is that radical action by the US Federal Reserve might be enough to nip this crisis in the bud, and maybe there can be gradual recovery in the second quarter of the year, but at the moment we just don’t know.
“I do find myself becoming a little more hopeful, as the hour is darkest before the dawn. Just maybe radical action will prove that in the second quarter – or the third quarter if we are unlucky – that the storm abates.”
The draft version of the International Monetary Fund’s World Economic Outlook concluded the US economy “remains very weak, certainly close to a possible recession”.
The report is due to be published ahead of a meeting next month, and was leaked to Italian news agency Ansa.
The verdict comes after the cash crisis and cut-price rescue of troubled US investment bank Bear Stearns sent markets plummeting at the beginning of the week.
The Federal Reserve, the US central bank, dropped its main interest rate by three quarter-points on Wednesday – the latest in a series of cuts which have seen the rate trimmed by 2 per cent in the first three months of this year – and 3 per cent since the credit crunch first erupted in global markets last August.
The moves come as the Fed attempts to rescue the world’s biggest economy from the brink of recession and ease the pressure on the banking system.
IMF: Think The Unthinkable
CNBC
March 19, 2008
The International Monetary Fund (IMF) today warned authorities worldwide to “think the unthinkable” in planning to cope with a mounting crisis in the global financial system.
John Lipsky, IMF first deputy managing director, called for “decisive policy action” amid a credit crunch that stems from the US real estate meltdown and is spreading throughout the financial markets.
The coordinated actions by the US Federal Reserve and other global central banks on Tuesday to further pump billions of dollars of liquidity into financial markets were “helpful” but stronger measures may be necessary.
Policy actions worldwide to date “may not prove to be adequate” to deal with the “low-probability but high-impact events” that may materialize and undermine global financial stability, Lipsky said in an address at the Peterson Institute for International Economics, a Washington think tank.
“Policy makers as a matter of course need to ’think the unthinkable,’ and to consider how they would plan to react if contingencies arise. The need to prepare more systematically for potential risks has been demonstrated amply during the past few months,” he said.
“By now, there is little doubt that risks of further escalation of this crisis are rising and decisive policy action will be required to put the global financial system and economy on a firmer footing.” He said the first priority was to reverse the spreading strains in global financial markets and to restore the normal functioning of the financial system in advanced economies.
If contingent risks materialize, the central banks together with financial supervisors and regulators will be the first line of defence. The second line of defence lies with fiscal authorities. Finally, public intervention will be considered as a third line of defence, Lipsky said. The IMF “stands ready to use its record liquidity if needed to help cushion the global economy,” Lipsky said, adding, “we must keep all options on the table.”
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