The US economy is going through a severe and protracted recession which is projected to bottom out later this year, as fiscal and monetary support takes hold and the housing cycle bottoms out. In 2010, even after a recovery gets under way, GDP growth is likely to remain weak because of the slowdown in capital accumulation, negative wealth effects and still adverse, albeit improving, financial conditions. In this environment, a considerable degree of economic slack, especially in the labour market, is likely to persist over the projection period, bringing inflation to very low rates.
The global crisis triggered a deep recession that is likely to be the most severe in Japan’s post-war history. The contraction in world trade led to a sharp plunge in exports and business investment, while falling employment and wages have reduced private consumption, leading to a projected output decline of almost 7% in 2009. Fiscal stimulus is expected to lift output growth into positive territory from the second half of 2009, although at a rate that remains below 1% through 2010.
The euro area is in a deep recession, with external demand collapsing and domestic demand being weakened by tight financial conditions, rising unemployment and heightened uncertainty. Activity is expected to contract throughout 2009 and pick up only gradually in 2010, as the tensions in financial markets start to fade and the full effects of policy stimulus are felt. Rapid growth in unemployment and a large negative output gap will continue to dampen inflationary pressures throughout the projection period.
The fall in output accelerated at the beginning of 2009 and activity is expected to continue falling throughout 2009, though at a slowing pace. The annual decline in GDP growth is projected to amount to around 6% this year. Activity will slowly pick up in the course of 2010. Unemployment is projected to rise sharply, and firms have already reduced their labour input significantly by reducing working hours.
Real GDP is projected to fall by about 3% in 2009, with the pace of contraction gradually diminishing through the year. The recovery in 2010 is likely to be slow, with output growing below potential rates throughout the year. Still resilient private consumption and large automatic stabilisers are moderating the contraction in domestic demand, and France is less exposed to the collapse in world trade than some other countries. Both underlying and headline inflation could fall to near zero by end-2010.
The recession is projected to continue into late 2009, with a slow pick-up in 2010. Falling export growth and deteriorating financial conditions have hit investment hard. After declining to quite low levels, investment should lead the recovery. Unemployment will rise significantly while inflation will decline slowly.
The economy is in a severe recession, with output projected to decline by 4.3% in 2009 and recover only mildly in 2010. The financial crisis has severely impaired the supply of credit and house prices have fallen sharply, thus restraining business and household spending. The depreciation of sterling is mitigating the downturn, but cannot overcome falling foreign demand. The unemployment rate is projected to rise towards 10% in 2010, with inflation well below the 2% target for an extended period.
The sharp contraction that began in the last quarter of 2008 intensified in the first quarter of 2009, led by collapsing exports, fixed investment and stockbuilding. The pace of contraction appears to be slowing, but recessionary conditions are expected to linger through the third quarter, with only a slow recovery thereafter. Unemployment is projected to keep rising until early 2010 and inflation pressures to stay muted.
The international crisis has not spared Australia, even if its impact will be less severe there than the OECD average. Weaker foreign demand and its repercussions on the domestic economy are expected to pull down GDP by ½ per cent in 2009, followed by growth of only 1¼ per cent in 2010. In this difficult climate, unemployment could rise to almost 8% by late 2010, while inflation should decelerate.
Owing to the global crisis, Austria has entered the most severe recession in decades. GDP is set to contract in 2009, resulting in an increase in unemployment and low inflation. Activity is expected to pick up gradually in the course of 2010.
The economy is expected to continue to contract in the remainder of 2009, before a relatively slow recovery emerges in 2010 on the back of fiscal stimulus, easier monetary conditions, and a recovery in world trade. Despite rising unemployment, core inflation may persist, owing to automatic wage indexation.
Real GDP is contracting, largely reflecting a specialisation in export-dependent manufacturing. Falling investment and recession in major export markets are contributing to a sharp downturn this year, followed by a weak recovery in 2010, driven by the gradual pick-up of private consumption and export demand. Inflation is set to fall sharply, reflecting both the global recession and slower growth of administered prices.
The Danish economy is currently experiencing its worst recession in over four decades. The downturn, which started with the unwinding of the property boom, has now been compounded by the trade and financial effects of the global economic crisis.
Economic conditions in Finland deteriorated abruptly through the winter. Falling exports explain the major part of the decline in GDP although destocking, household consumption and dwelling investment also contributed. Growth will drop sharply in 2009 and recover only slowly in 2010 as world trade picks up. The unemployment rate has begun to climb sharply, and is expected to rise through the projection period. Inflation has remained above the euro area average on the back of the high wages negotiated through 2007.
Growth weakened in 2008 under the weight of the global economic crisis, despite a sound financial sector and sustained domestic demand. Activity is expected to contract in 2009 on the back of weakening exports, and to recover only slowly in 2010 as the external environment improves. Unemployment is set to reach double digits by 2010 and inflation will be low but persistently above the euro area average.
Real GDP growth fell sharply in the fourth quarter of 2008 as the recession in the euro area curbed exports, adding to already weak domestic demand which reflected fiscal restraint and tight credit conditions. The economy will be in deep recession in 2009 before slowly picking up in 2010. Unemployment is likely to reach double-digit figures during the projection period. After slowing at the beginning of 2009, consumer price inflation is projected to rise during the year due to value-added tax and excise tax increases and the recent currency depreciation.
Domestic demand collapsed following the failure of Iceland’s three main banks in October 2008, plunging the economy into a very deep recession. The economy is projected to shrink until early-2010, when it should be buoyed up somewhat by investment in large energy-related projects. The unemployment rate is likely to soar to 10% next year. Inflation should fall to very low levels and the current account should improve to near balance in 2010.
The economy is experiencing a severe contraction as large domestic imbalances correct, compounded by the global downturn and financial crisis. With the recession already well entrenched and further contraction expected, the peak-to-trough fall in GDP is set to reach 14%. Activity will recover in 2010 but at a slow pace.
Output growth was positive in the first quarter of 2009, following the severe contraction in late 2008. Nevertheless, the unemployment rate has risen significantly, inflation has decelerated and the current account surplus has increased sharply. Output growth is projected to pick up further in line with the recovery in world trade, reaching a rate of 4½ per cent by late 2010.
The international crisis hit the economy towards the end of 2008. Initially, the financial sector was affected, but the collapse in world trade also hurt the export-dependent manufacturing sector, and GDP is set to contract during 2009. Subsequently, a mild recovery will emerge on the back of fiscal stimulus, easier monetary conditions and a pick-up in world trade.
Mexico entered recession in late 2008, and growth had turned highly negative by the first quarter of 2009, as both exports and domestic demand contracted in the wake of the crisis. The outbreak of influenza and continued troubles for auto manufacturers are likely to have contributed further to the downturn. Growth is set to set to pick up during the second half of 2009 and accelerate further through 2010, reaching quarterly growth rates of above 4% in annualised terms. Inflation has remained relatively high, despite the sharp drop in demand, largely due to sticky administered prices. This persistence in inflation has limited the scope for monetary easing.
The economy underwent a strong contraction at the end of 2008 and in early 2009 as exports and private investment collapsed. However, unemployment has only recently started to increase, from a low level. Overall, the economy will shrink notably in 2009, before slowly recovering in 2010 along with the pick-up in world trade.
The global crisis hit New Zealand just as it was undergoing a difficult domestic adjustment. The multiple blows of housing market correction, collapsing world trade, rising risk spreads, tighter credit conditions and unsustainably high private-sector debt suggest a recession of atypical length. However, major policy stimulus should contribute to modest positive growth next year.
Norway has been hit hard by the global economic downturn, even if the decline in output is projected to be less sharp than in other countries. The export sector is severely affected, and domestic demand, mainly investment, is contracting rapidly. Despite this, rising labour costs and higher import prices following depreciation of the krone have kept inflation relatively high. The authorities reacted promptly to problems in financial markets with a number of measures to restore the normal functioning of credit markets and stimulate output.
Growth slowed in the second half of 2008 but was still positive in early 2009. Given the global downturn, activity is projected to contract in 2009, though the recession should be relatively shallow, notably due to relatively modest trade dependence, historically low interest rates, moderate indebtedness of the private sector, income tax cuts and the implementation of many infrastructure projects related to transfers of EU funds and the 2012 football championships. Price pressures have built up recently, notably due to a large fall in the exchange rate but, as economic slack increases, they should recede steadily.
Portugal is in the midst of a deep recession as the collapse of external demand and tight financial conditions have affected all parts of the economy, particularly exports and investment. Activity is expected to contract throughout 2009, before recovering very slowly in 2010 as the global economy and financial conditions gradually improve. The unemployment rate is set to reach double digits. Sharply lower commodity prices and the large negative output gap will leave inflation at very low levels.
After several years of exceptionally high growth, GDP is expected to contract this year. Exports will be the main drag on activity, followed by private investment. Growth is projected to recover slowly during the course of 2010 due to a brighter outlook for world trade. With rising unemployment, wage growth is expected to slow considerably. Consumer price inflation is also expected to continue to ease, though it will stay above the euro area level.
Output is projected to fall by 4¼ per cent in 2009, with the rate of decline slowing as the year progresses, and by 1 per cent in 2010. The unemployment rate will reach about 20% in 2010, and inflation will fall to near zero. The government deficit is projected to reach 9½ per cent of GDP in 2010.
The Swedish economy is facing a deeper contraction than during the domestic banking crisis of the early 1990s. Output is projected to fall sharply in 2009 before recovering gradually in 2010, with the unemployment rate exceeding 11%.
The sharp downturn of economic activity is expected to continue throughout 2009, reflecting the fall in world trade. A slow recovery in the course of 2010 will be led by gradually improving exports, notably to East Asia. Unemployment is projected to exceed 5% in 2010 and prices may decline towards the end of 2010.
The economy contracted beginning in early 2008 as falling domestic demand compounded the effects of the international downturn. GDP is expected to decline by nearly 6% in 2009, before recovering in 2010. The large output gap will push inflation back down to the target range.
Following a further deceleration in the first quarter, activity now appears to be rebounding. Industrial production is expanding, in part due to previous destocking, especially in the sectors that have benefitted from government support, including the motor industry. Retail sales have been particularly resilient. Domestic demand is poised to gather strength in the second half of 2009 on the heels of ongoing policy easing.
The Chinese economy is now rebounding strongly from the slowdown in the autumn of 2008, thanks to sizeable monetary and fiscal stimuli. Real GDP growth is projected at 7¾ per cent this year and 9¼ per cent in 2010, with some rebalancing towards domestic demand. However, with growth still below potential, downward pressures on prices are expected to linger.
There has been a pause in India’s long economic upswing, with GDP growth having fallen well below potential by late 2008. The government introduced some new stimulatory fiscal measures at the beginning of 2009, following a sizeable increase in public outlays in 2008. In 2009, falling exports are projected to result in some slowdown in domestic demand. With the gradual recovery of the global economy and easier financial conditions, growth is projected to gradually regain momentum.
Russia is suffering a severe recession, but the rebound in commodity prices and the expected effects of policy stimulus point to some recovery through 2009 and into 2010. If oil prices remain around recent levels the current account will remain in surplus and net private capital outflows will ease, allowing the exchange rate and foreign exchange reserves to consolidate their recent recovery. Inflation is expected to decline this year and next.
Economic activity is projected to contract in 2009. The world economic crisis has hit Chile mainly through a deterioration in its terms of trade, as copper prices have fallen sharply, and through tighter financial conditions. The investment boom, led by mining and energy, has suddenly come to a halt and plummeting consumer and business confidence have led to sharp adjustments in private consumption and inventories. Inflation is declining rapidly and will undershoot the central bank’s target band at the end of the year. After several years of surpluses, the current account has turned negative.
Real GDP is set to fall by around 14% this year and by a further 1% in 2010. Although a weak recovery will begin next year, the resumption of growth could be threatened if recovery in major export markets is delayed and will depend largely on success in shifting resources from serving domestic demand, which has collapsed, to expanding export activities.
GDP growth slowed in the first quarter of 2009 to 4.4% on year-on-year basis from 5.2% in the previous quarter. A weakening in investment was only partly offset by rising consumption and especially government spending. Imports contracted faster than exports, delivering positive, although small, trade and external current account surpluses. Inflation is retreating rapidly following a large fall in regulated fuel prices. Activity is projected to gather further steam from mid-year.
Recession is now underway, due largely to high exposure to international trade, but it is being tempered by the relatively mild difficulties in domestic financial markets and the absence of a house-price bubble. Growth will only turn modestly positive at the end of this year.
Slovenia is experiencing the worst crisis since independence, as GDP is expected to contract by about 6% in 2009. A weak rebound should occur in 2010 as exports pick up. Inflation will continue to moderate on the back of a rising output gap and higher unemployment.
The global crisis has pushed South Africa into recession. Growth will likely be negative in 2009 before recovering in 2010, when policy stimulus, global recovery and the staging of the soccer World Cup will boost activity. The output gap will help keep inflation moving downward, returning to the target range in 2010. Current account deficits will shrink somewhat on account of lower domestic demand, but will remain sizeable, unless capital inflows weaken again, forcing even greater import compression.
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