ANTICIPATING RECOVERY

According to the latest forecasts by IMF economists, world GDP will shrink by 1.3 per cent in 2009, to record the first global recession since the 1970s. However, in 2010 the global economy will return to growth, and this will be stronger than anticipated a few months ago. Thus, in its July forecast, the IMF predicts an increase of 2.5 per cent in world GDP in 2010, whereas the April forecast expected only 1.9 per cent.

In any case, the overall figure is not significant: there are huge differences in the economic positions of individual states. Some countries are going through the crisis without major upheaval, and are even continuing to grow, while others are on the verge of default and are forced to turn to lenders for emergency economic aid.

The United States is still in a state of recession. According to the consensus forecast of the Economist Intelligence Unit (EIU), the GDP of the United States will decline by 2.7 per cent in 2009. The depth of the crisis in the United States was reduced by the rapid intervention of the economic authorities. The Federal Reserve System lowered interest rates to record low levels, and the administrations of George W. Bush and Barack Obama have spent unprecedented sums to rescue the banking economy and to stimulate demand. In early 2009 in particular, the Obama administration launched a $787 billion programme of fiscal stimulation of the economy.

In other developed countries, the authorities have not resorted to such massive intervention in the economy. In Germany, for example, measures to stimulate the economy amounted to only $70 billion, and in Japan - to $110 billion. Due to the high dependence of their economies on exports (the first and fourth exporters in the world, respectively) these measures proved to be insufficient. As a consequence, these countries will experience a more severe decline than that of the United States in 2009. 

German GDP this year will fall by 6 per cent and the Japanese by 6.1 per cent. The economic situation in Germany will affect the results of the entire Eurozone (where the projected decline in GDP is 4.4 per cent) and those of Eastern European countries, a significant proportion of whose exports went to the German market.

Against this background, the situation in China and India looks very favourable. These countries are maintaining a positive growth dynamic. Thus, according to experts, China's GDP will increase by 7.2 per cent in 2009, and India's by 5.5 per cent. The preservation of growth was made possible thanks to large-scale state investment to stimulate domestic demand and infrastructure projects and to compensate for losses in export markets. The Chinese package of incentives is valued at $586 billion (or 14 per cent of GDP) and the Indian at $44 billion (3.5 per cent). 

"China will be one of the first countries to lead the world's economy out of recession," Hans Timmer, director of the World Bank economic forecasts department, told the authoritative financial publication The Wall Street Journal.

 By the way, thanks largely to China and India, most Asian countries will keep growing, and even those who find themselves in recession this year, South Korea, Taiwan or Thailand, will overcome the crisis faster and with fewer losses.

 As for the other two BRIC countries - Brazil and Russia, they will finish in the red this year, primarily due to unfavourable market conditions for commodities that form the foundation of their exports. The EIU consensus forecast for Russia predicts a decline in GDP by 5 per cent in 2009 and for Brazil, by 1.5 per cent.

 The countries of Eastern Europe will record the worst results of the emerging markets in 2009. Moreover, many will register a decline in GDP much greater than in Western European countries. The reason is their high dependence on exports and foreign capital, which was used to finance growth. In any event, long-term development patterns vary widely in Eastern Europe. For example, Poland, Slovakia and the Czech Republic, which put the emphasis on attracting foreign investment into industry, are experiencing a relatively shallow recession.  Several states, including Latvia, Ukraine, Hungary and Bulgaria, were forced to seek urgent financial help from the IMF. But one of the conditions for lending has been to reduce public spending, which leads to a further decline in GDP. Analysts are still unsure whether Eastern European countries will be able to avoid defaults. A default, even in one country (the greatest fear among economists is for Latvia) may lead to a further deterioration of the situation throughout the region.

 Although economists are still divided as to when the current recession will end and whether, following a resumption of growth, a new wave of recession will begin, the dynamics are generally expected to improve next year. Thus, according to the consensus forecast of the EIU, the United States' GDP could grow by 2 per cent in 2010 and the Eurozone's by 0.6 per cent. Modest growth is expected to be restored in most developed countries. The exceptions may be Spain, Portugal, Ireland and Greece, which are suffering from high unemployment and the collapse of their construction sectors. The decline may last several years in these countries.