Fed Warns of Global Deflation

Image via Wikipedia southfloridabusinesswatch.blogspot.com]

“The Fed statement yesterday said its prediction of a “gradual recovery” in the U.S. economy later this year has “significant” risks of failing to materialize. At their meeting, central bank officials gave updated forecasts for gross domestic product, inflation and unemployment that will be released with meeting minutes on Feb. 18.

It sounds like the worry is not so much recession as it is depression,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We can only hope that the famous long and variable lags of monetary policy will eventually kick in.”

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The Darkest Hour

Image by artemuestra via FlickrFrom economy.com, Marc Zandi gives his upbeat look ahead to the national economy in 2008. Among the highlights:

• The coming year will be the worst in decades for the U.S. economy as millions of jobs are lost across nearly all industries, occupations and regions.

• Although the crisis began with excesses in the financial system, it was exacerbated by policy missteps that led to financial panic.

• Despite their past errors, only concerted action by policymakers can end the panic and prevent the forecast from turning darker.

• Even if the recession ends this year, recovery will be slow, with GDP not reaching its pre-recession peak until late 2010.

• The current episode, while painful, could lead to needed reform of the financial and regulatory system.

This will likely be the worst year for the U.S. economy since the end of the 1930s. The recession that began 13 months ago will plague much of 2009, particularly during the first half of the year.

Real GDP is expected to fall 3% peak to trough, and close to 5 million jobs will be lost. The unemployment rate will surge to 9%. The drop in manufacturing will be especially severe, but the hallmark of this downturn will be its breadth across industries, occupations and regions. More than 300 of the nation's 381 metropolitan areas will be in recession; unlike in past recessions, which were regionally concentrated, there is no obvious place to move for better prospects in this downturn.

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Is China Heart of Slowdown?

Image by House prices in Shanghai, Shenzhen and Guangzhou are plunging, and the global economy may grind almost to a halt next year because of it."

Full article on CBS News at: China Is `Heart of Global Slowdown' as Property Slump Stalls Driver of GDP

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Europe Cannot Escape

Image via WikipediaContagion could fracture the eurozone: "The week's events have challenged the smug notion that the credit crunch is a purely Anglo-Saxon affair. A glance around Europe shows this is far from the truth: from Iceland to Greece, there are signs of acute stress accentuated by the same marked slowdown as in the UK.

France's quarterly growth rate slowed from 0.7% in the third quarter of last year to 0.4% in each of the next two quarters, then went negative by 0.3% in quarter two of this year. Christine Lagarde, finance minister, expects GDP to contract again in the third quarter. This is technically a recession: two consecutive quarters of falling output.

Italy has performed even less well. GDP fell in both the fourth quarter of 2007 and the second quarter of this year, dragging the already anaemic annual growth rate down to zero. In France it is 1.1% and in Britain 1.4%. Germany has been the best performing of Europe's big four economies, but it too is slowing as demand for its exports is affected by the global slowdown. Germany's output fell by 0.5% in the second quarter, pulling its annual growth rate down to 1.7%.

By comparison, annual growth in the US is 2.2%, although the strong performance in the second quarter was due to a one-off $150bn (£85bn) tax cut, and the economy now appears to be slowing fast."

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