Global recession called worst since Depression

IMF calls for more
government stimulus spending.
The Associated Press
WASHINGTON – The global economy is expected to lurch into reverse this year for the first time since World War II with appalling consequences for nations large and small – trillions of dollars in lost business, millions of people thrust into hunger and homelessness and crime on the rise.
And the pain won’t stop this year, the International Monetary Fund declared Wednesday, for what it said was “by far the deepest global recession since the Great Depression.” To cushion the blow and head off further damage next year, the IMF is calling for more stimulus projects from the word’s governments, including major spending for public works projects.
Even with many countries taking bold steps to turn things around, the global economy will shrink 1.3 percent this year, the IMF predicted in its dour forecast.
“We can be fairly confident that in 2010 or even 2011, economies will not be back to normal,” said IMF chief economist Olivier Blanchard. “Which means that governments should today basically think at least about contingent plans for infrastructure spending. … Next year will be too late.”
In the U.S., President Barack Obama’s $787 billion stimulus includes money for fixing roads and bridges and other infrastructure projects. IMF officials said there’s room for Germany and other countries to do more in terms of fiscal stimulus, and the United States, too, has prodded the Europeans to ramp up efforts.
Without the help of countries’ stimulative fiscal policies – such as tax reductions or increased government spending – the blow to the global economy would be even worse, Blanchard said: “We would be in the middle of something very close to a depression.”
Even the projected 1.3 percent drop could leave at least 10 million more people around the world jobless, some private analysts said.
Allen Sinai, chief global economist at Decision Economics, thinks the global decline will be worse – closer to 2 percent, which would mean 15 million to 25 million more people out of work.
“The global downturn guarantees that countries all over the world will be hit with extraordinarily high unemployment rates,” Sinai said. “And, with the tremendous number of unemployed people comes the possibility of political unrest.”
Also rising crime as millions more are forced into poverty and out of their homes, he and others said.
“By any measure,” the downturn is the deepest since the Great Depression of the 1930s, the IMF said in its latest World Economic Outlook. “All corners of the globe are being affected.”
All told, lost output worldwide could reach as high as $4 trillion this year alone, U.S. Treasury Secretary Timothy Geithner estimated in a speech Wednesday.
“The world economy is going through the most severe crisis in generations,” he said. “We each face somewhat different challenges and thus are not all in the same boat. But we are all in the same storm.”
Geithner did not mention any further commitments the U.S. might seek on Friday at meetings with other economic powers or during weekend meetings of the IMF and the World Bank in Washington. Analysts say those discussions are unlikely to produce any further major proposals.


Dennis Seid

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