Selected G-7 Economic Growth Forecasts

November 25, 2008

In the third quarter, real GDP contracted 0.5% in Germany not annualized and by 0.1% each on a similar basis in the United States and Japan. The composition of those negative growth rates was dissimilar and is expressed in percentage points (ppts) in the table  below. A prior spike in commodity costs weighed on all three of the economies. In addition, a recession in U.S. domestic demand was transmitted fairly instantaneously to Japan and Germany via trade.

ppts Pvt. Domestic Demand Public Demand Net Exports Inventories
U.S. -0.9 +0.3 +0.3 +0.2
Japan +0.1 0.0 -0.2 0.0
Germany +0.2 +0.1 -1.7 +0.9


The OECD  and IMF projections for 2009 average growth, shown below, are similar. The OECD is slightly more bearish about Euroland and the United States than the IMF but somewhat less bearish about Japan and Britain.

2009 Gdp-f U.S. Euroland Japan Britain
IMF -0.7% -0.5% -0.2% -1.3%
OECD -0.9% -0.6% -0.1% -1.1%


The OECD released quarterly forecasts today for the United States, Euroland, and Japan. These depict a deeper drop of activity this quarter and next in the United States but stronger growth in the U.S. than Japan or Europe by the second half of 2009. Like most other publicized forecasts, the recession is constrained in length so as not to exceed the largest postwar recessions. That limitation is in conflict with the continuing assertions by officials everywhere that the global economy is in the worst financial market mess since the 1930’s and no expressed opinion that the crisis has begun to subside.  Optimism that recovery will commence by next summer rests on the stimulus of lower commodity costs and policy actions taken so far. But most of all, forecasters are counting on the lapse of time to work off economic imbalances sufficiently to ignite a modest revival of positive growth. Implicit in such analysis are the presumptions that 1) money markets and the U.S. housing market normalize and 2) rapid erosion of wealth held in real estate and financial market securities ends fairly soon.  Each of these assumptions is suspect. They may be correct, but being in uncharted waters, forecasters have no way of really knowing how the economy will respond to fiscal and monetary support.

%, saar 4Q08 1Q09 2Q09 3Q09 4Q09
U.S. -2.8% -2.0% -0.8% +0.6% +1.2%
Euroland -1.0% -0.8% -0.4% +0.1% +0.7%
Japan -1.0% +0.8% +0.6% -0.3% +0.2%



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