Thursday, May 21, 2009

Update on the Global Economic Situation

In part due to the concern over swine flu (and in the U.S., optimism about the housing sector which strikes me as rather exaggerated), the global economic outlook remains pretty lousy, most of the major players logging scary drops in GDP during the first quarter of the year. Forbes recently presented us with a round-up of developments worldwide, but here's

* The Washington Post on Japan, where the 14.4 percent "annualized" decline in GDP over October to December was followed by a 15.2 percent drop in the first three months of this year, though the observers quoted believe the situation is bottoming out.

* RTTNews and Xinhuanet on trouble in the Eurozone, where all the major economies are still contracting, not as badly as is the case in export-driven Japan, but apparently harder hit than the U.S., their GDPs ending up about 4.6 percent smaller in the first quarter of 2009 than they were in the same quarter in 2008. And there is also some prognostication about the prospects for Europe as a whole from the New Europe newsweekly, positing more shrinkage this year and contraction all the way through 2010 before recovery begins, and also

* Fistful of Euros' briefing on Russia, where the first quarter had the country's GDP 23 percent smaller than a year before, not only because of fallen oil prices, but a very sharp drop in industrial output, and while some are claiming mixed signals, the Russian government is speculating about the possibility of an 8 percent contraction over the year as a whole.

Are we through the worst, with things likely to go back on track (such as it was) later this year, or the next, or at worst the year after that? Perhaps, but then again perhaps not, and this piece from FinFacts on the state of the Irish economy (booming, and until recently, widely held up as a model for others) caught my eye. According to the accounting firm of Ernst & Young, Ireland is looking at a full-blown depression (by virtue of a shrinkage of its GDP by 10 percent), with an employment picture that may not quite return to pre-crisis levels until 2021. (Read the Executive Summary of the report here.)

Interestingly, much of what Ireland supposedly did right (here termed "the one-dimensional economy") seems to be part of what is going so wrong (a point the report's summary notes on page 22), and it is worth noting that a few years ago Finfacts reported on a a study by the International Integration Institute at Dublin's Trinity College in 2006 which discussed the country's vulnerability in the event of a downturn in the high-tech or financial services sectors.

These disproportionate impacts, the questions they raise, and the bleaker possibilities they point to ought not to be overlooked.

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