The most severe, globally synchronized recession in modern economic history.”

It’s nice to see some old records being broken.

Much needed structural reform?  Who’d have thunk?  Maybe Kevin will put his hand up and shoulder the blame for this mess.

Global economy to contract in ‘severe’ 2009 recession: IIF

The global economy likely will contract next year for the first time in decades in a “severe” recession as the credit crunch bites, an international banking group said.

The Institute of International Finance (IIF), the Washington-based association representing more than 375 of the world’s major banks and financial institutions, projected the world economy would shrink 0.4 percent in 2009, after 2.0 percent growth this year.

Charles Dallara, the managing director of the IIF, called it “the most severe, globally synchronized recession in modern economic history.”

The global crisis requires a global coordinated response, he said at a news conference.

Dallara said the economy was mired in a negative feedback loop of weakening economic activity and intense financial market strains.

“You’ll see much more bang for the buck” with a coordinated response, he said, hailing US government monetary and fiscal efforts to unblock credit and stimulate growth.

“It will be important that these measures be complemented in Europe and in Japan,” he said.

In a grim assessment, the IIF said in its monthly Global Economic Monitor report: “It should be emphasized that an overall contraction in the global economy is a truly weak outcome, and the first time this has happened in the post-1960 period.”

Philip Suttle, the IIF macroeconomic analysis director, said that data as far back as the early 1950s do not show a contraction in the world economy .

Mature economies — the United States, the 15-nation eurozone and Japan — that are now in recession were forecast to contract a hefty 1.4 percent amid the worst financial crisis since the Great Depression.

Growth in those economies was seen at a mere 0.9 percent this year as the global credit crunch that began in mid-2007 exploded in September with the collapse of Wall Street investment bank Lehman Brothers.

The US economy, the world’s largest and the epicenter of the financial tsunami, would shrink 1.3 percent in 2009 after growth of 1.2 percent this year, according to the IIF projections.

The eurozone would contract more sharply, by 1.5 percent from 0.9 percent growth, and Japan would shrink 1.2 percent after zero growth.

The sharpest markdown was for the emerging economies, including powerhouses China, India, Brazil and Russia.

Those engines of global growth had resisted the impact of the credit crunch gripping the advanced economies until the mid-September financial firestorm, the IIF said.

The IIF forecasted economic growth in emerging markets would brake to 3.1 percent in 2009 after a 5.9 percent gain this year.

“Emerging Asian growth has slowed sharply, but should hold up better than in other regions,” it said.

China’s growth would drop to 6.5 percent in 2009 from 9.3 percent this year and 11.9 percent in 2007, while India’s deceleration would be less steep, to 5.0 percent from 6.2 percent.

The IIF said “particularly weak growth” was forecast for central, eastern and southern Europe, with economic output of just 0.3 percent likely for 2009 after 4.5 percent in 2008.

Since the start of 2007, the reported losses at financial institutions has topped one trillion US dollars, the IIF said. Institutions have raised about 930 billion US dollars since mid-2007, with more than one third coming from the public sector.

Hung Tran, head of the IIF’s capital markets and emerging market policy department, warned that those losses would increase amid the economic slowdown.

“The weakening economy will increase credit losses, continuing to put pressure on bank capital. This underscores the point that capital injection alone will not be sufficient to strengthen the banking system until the economy and financial markets stabilize,” Tran said.

Dallara recommended measures including the purchase of troubled assets and relief of credit bottlenecks, and said an increasing number of financial institutions were making progress in reforming operations.

“Serious mistakes were made,” he acknowledged, calling for “sorely needed structural reform.”

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22 Responses

  1. John

    I just did some tidying up of the post for clarity… hope that is OK.

  2. No problems Joni…Hope it’s okay if we let Kevin take the rap for this global recession though (wink)

  3. Oh – I am sure that car workers in Detroit at the moment are cursing when they think of him.

  4. …and The Robber Barons just party on…

    …this has gone on for twelve months now and I see NOTHING from any government that vaguely resembles reform, revised regulation, or thumping the CEO’s and Directors who are still getting away with shonky deals and stitchups (eg CBA/ML, Eddies Missus suing him for $44 million {how/why}, ANZ Directors on $3 million voting an extra 1/2 a mill pay rise, Silly Sol slowly stuffing Telstra because of his ego and I hear Pixie Skase is back in town!)…business as usual…

    …governments throwing taxpayer money at banks and businesses that make huge profits every year…

    …eg a car industry that still insists that petrol power is the way to go…

    …nothing will change because banks and big business still own the politicians we were silly enough to vote in…either that or our governments and oppositions need to get some balls (apologies to our feminine readers/posters)!

  5. Ho Hum………..Another Economic prediction…………..

    I wonder what the Astrological Star Sign is for Planet Earth………………….That should give us an even greater insight into what will happen next year…………eh !

  6. 5. I Am The Walrus

    You knew all along dintcha, IATW, I suggest Biorhythms for personal accuracy – 😉

  7. “Dallara recommended measures including the purchase of troubled assets ….. and said an increasing number of financial institutions were making progress in reforming operations.”

    Well…Well….Well…..What a surprise that that particular policy is the recommended one…………….Considering the IFF is run by the bloody Banks themselves.

    Of course they would recommend Governments purchase their crap loans……………………and of course he”d talk in the Third Person when he said “financial institutions were making progress in reforming operations”.

    Nah……………….Sorry……………..I’ll stick to the current fundamentals which point to the USA running housing stock negative from Q3 in 2009.

  8. 7. I Am The Walrus

    😆 I luv bean counters 😆 Such a pragmatic lot 😆 Yesterday i couldn’t spell accuntaint now I are one! 😆

  9. Walrus, I thought it amusing as well that the predication comes from a bank. They’re actually trying to be cheery about it all. I was more interested in the reform aspect of it. Bankers hate regulations and changes of any sort that might hinder their ‘free-wheeling- free market spirits. I’m still looking for the joke.

  10. I think we’ve really got to start embracing free market principles again LOL

    You’ve got to feel sorry for bankers really, imagine having to disclose market sensitive information, it’s a real turnoff to the old free -wheeling free market spirit. The objection isn’t bizarre when you think about it.

    Continuous disclosure rules the bosses’ beef
    http://www.theaustralian.news.com.au/business/story/0,28124,24820881-5013408,00.html
    IN the wake of CBA’s $2 billion capital-raising debacle, a Treasury Department survey of big company directors has cited continuous disclosure laws as arguably the biggest block to free decision-making.

    The survey of over 100 top-200 company directors found 65.3 per cent said the risk of personal liability had on occasions led to overly cautious decisions. That in itself is a damning statistic but it gets better with the next question, which was: “what laws in particular cause you the most problems from a personal liability perspective in making decisions?”.

    The top two were continuous disclosure laws and the duty to prevent insolvent trading. The latter is readily explicable, but the high degree of concern expressed about continuous disclosure rules is bizarre.

    CBA has until this morning to explain what happened with its ill-fated placement after the market closed on Tuesday night.

    The bank clearly has a problem. The mere fact the issue was pulled after investors learned of the higher bad-debt charges kills the “not material” defence.

    Even if the decision were reached after the market closed, the bank should have released a statement to the market immediately.

    The “blame Merrill” defence doesn’t work because it is CBA’s responsibility to make material disclosures. “

  11. 10. John McPhilbin

    …and the response from the ASX (also a private company, BTW – wha-at?) will simply impose a token fine (’cause no-one else can get involved and we need our banks yer know!)…

    Jeese! You’d be better off doing business with Cash Converters!

  12. Just watching “Wall Street Warriors” on SBS right now (started 7:30pm Sydney time)

    No wonder the World is so Forked Up !

    What a bunch of wankers !

  13. TB, Who’s ASIC ?LOL

    THE Commonwealth Bank will now formally face ASIC censure after the ASX was less than impressed with its response to a request for an explanation of its failure to disclose details of higher bad-debt charges before a planned $1.7 billion capital raising.

  14. It’s amazing when the record profits are rolling in , these people pat themselves on the back, get huge bonuses, but the moment they screw up they play dumb.

    You watch, their strategy will be to utlise the ‘plausibly deniability’ defence. “we didn’t know nor were we advised of the requirements to disclose., it was not our intent to mislead anybody’.

  15. TB, remember back in April Nelson’s encouragement of banks to make profits? A still get a chuckle out of that humdinger.

    It’s a bit like a father trying to encourage his teenage son to go out and enjoy a healthy sex life. Banks don’t need any encouragement.

    Nelson wants you to encourage banks to make a profit
    http://www.news.com.au/dailytelegraph/story/0,22049,23475450-5001021,00.html
    BRENDAN Nelson has a message for families being evicted from their houses and having their homes repossessed: Spare a thought for the people who are evicting you.

    While many Australians are in shock about the prospect of rising interest rates costing them their home, the Liberal leader said it was just as tough for the banks.

    Addressing a corporate luncheon of bankers in Sydney yesterday, Dr Nelson said people should stop criticising banks and they should be encouraged to make profits.

    He said that while it was tough for families to lose their homes, it was also hard on the people evicting them.

    “Anyone who doesn’t think it’s equally a significant experience to those who are the lenders misunderstands the nature of what you do and how you do it,” he told the Financial Services Institute of Australasia.

  16. 1) I wanna know when someone will downgrade Standard & Poor or Moody’s debts to subprime ?

    Another 2 hatfulls of A-holes in those 2 firms.

    2) Oh and Qantas calls off BA merger………………………!

    F….K Me who was the Einstein that agreed to even talk about it……….?

    Or did he/she just want a free company paid trip to see the folks at Christmas in the Old Dart masking it by a talk to BA at the same time ?

    Which airline had the greater long term growth potential ? BA in Europe/Nth America or Qantas in ASIA/Nth America………………………Jesus Christ where do they find these CEOs ?

    Australia might not be close to the “Rest of the World”. But it is closest to “Most of the World” !

    3) Oz Minerals directors throw up hands in despair in latest ASX release inviting “suitors” to make a bid/rescue.

    Pluck Me……….What type of idiot communicates his desperation to a depressed market ?

    (Walrus is $3K down on them but thats ok as he is still in the black on ASX. But can barely contain rage at what novices drive our ASX companies)

    Off to run a warm bath with a set of razor blades……………………..!

    Because pluck me I give up !

    Bugger…………….cant end it all yet…………….Company Christmas Party tomorrow ! ======= Free Booze !

    There is a reason to stick it out for one more day !

  17. Walrus: I think you’ve gone ‘Beyond Blue’ sound very nasty.

  18. Market Rallies as US Govenment bails out car industry:

    US stocks headed higher in opening trade on Friday after the US government offered automobile makers a $US13.4 billion ($19.63 billion) rescue to avert a collapse of a major sector of the economy.

    The Dow Jones Industrial Average rose 65.55 points (0.76 per cent) to 8670.54 and the tech-rich Nasdaq leapt 22.74 points (1.46 per cent) to 1575.11.

    The Standard & Poor’s 500 broad-market index advanced 5.25 points (0.59 per cent) to 890.53

    http://www.news.com.au/business/story/0,27753,24826880-31037,00.html

  19. 18reb. When everything else is collapsing it makes one wonder just how much faith and the Fed printing press can take. When the auto-industry goes to the wall on top of everything else you know that a major, major crisis is playing out.

    Wait until major foreign investors like the Chinese government and M/E oil rich countries start pulling their investments and accepting major losses. It’s going to get even nastier.

  20. 17. John McPhilbin | December 20, 2008 at 7:13 am
    Walrus: I think you’ve gone ‘Beyond Blue’ sound very nasty.

    Nah Johnny……..Beyond Red…………..With Rage at the CEOs of the World

  21. Just think, John….soon we’ll have another species at the Zoo, to go with the defunct bull and the bear at the shopping maul exhibits: the stag, in the stag-deflationary ZIRP-zone. And how long until someone casts, into legal form, the charge that half the stuff everyone has been doing and nearly everything everyone wants to do violates the tenets of the WTO’s anti-subsidies provisions, and there’s a fun round of tit-for-tat tariff wars looming, in the absence of some fancy diplomacy and global restructuring? No wonder all those mission critical meetings the G8 (G7 when we kick Russia out, not that we really can, but myeh, with gas and oil prices through the floor, they won’t be attacking any missile-defense-shield-NATO-insurgency-extraordinary rendition-sovereign-territory-like-diplomatic-embassies-or-Gitmo-could-have-or -be-doing-anything-there-thingies any time soon) plus supernumeraries (what’s the G20?) had were settled with an agreement to agree sometime next year on something, maybe, given the Doha Round was stalled for how long on basics like…thinly disguised subsidies? Admittedly, the short and sharp V-recession is gone…question is…is it a 2-3 year U-recession, or a lost decade L-recession? (the pundits seem to be thinking an L-recession with an overall contraction of 5% by end of 2009 and flat-lined at that new benchmark for sometime after…looking at steel and cement (the unimportant stuff civilization is built with), both down 30%, and allowing for inventories run-down, that still makes things closer to 10% down right now, only disguised by throwing money around like confetti, so how they’re figuring 5% I don’t know…and all the fun of not earnings reports to look forward to all year to rattle the bear cage of equities some more.) These things are important to know, for setting up our zoo exhibit…especially now that, beyond the safety of the ZIRP-line, lies an ever-burgeoning miasma of unorthodox interventions, each more exotic and experimental than the last, and some likely to escape the bars and bite the bankers, and everyone else, on the azz. This is getting exciting…it’s like Jurassic Park when the storm strikes and lightning brings down the electric fences, and some ex-lawyer-turned-banker gets eaten first….oops, no, everyone else gets eaten, first, while the banker-impressarios shuffle from one freshly minted god-job to the next, talking about restructuring the Zoo. Anyways, have a merry Xmas y’all and make sure you’re wearing your bathers for the full dividends on the Minsky moment, which are yet to arrive.

  22. Nice Job…

    thx man 🙂

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