Deloitte releases The Global Economic Outlook Report for Q2 2009

by Editor 4/28/2009 4:40:00 PM
Not since the 1930s has the policy response to a recession been as transformative as the current trend of government economic intervention around the world, according to a new report by Deloitte Touche Tohmatsu. The Global Economic Outlook Q2 2009 report, released today, shows reason for cautious optimism as government policies have begun to heal credit markets. However, the moderate success of global policy initiatives is overshadowed by the potential impact of demographic threats to global markets. According to the report, demographic threats will create new crisis management challenges in the near future.

The report reveals that some positive indications have begun to emerge. Global shipping rates have stabilized and modestly increased; risk spreads are far below their level of a few months ago; and in the United States, an unprecedented policy response is resetting the playing field.

“Although the crisis is affecting countries worldwide, all eyes are on the United States and whether the various stimulus and bank rescue plans are going to get the U.S. economy going again,” says Dr. Ira Kalish, Director of Global Economics, Deloitte Research, a subsidiary of Deloitte Services LP. “Whether the United States experiences a lost decade like Japan in the 1990s will depend on how quickly it addresses problems in the current banking system. Without private-sector lending, any government stimulus program eventually runs out of cash before the recovery becomes self-reinforcing.”

Despite some positive signs, there are still numerous indications that the crisis will continue, especially in emerging markets. The World Bank in its recent China quarterly update report cut its 2009 forecast for China to 6.5 percent, in large part because of an expected contraction in exports in 2009. On a larger scale, The IMF has forecast 2009 ASEAN-5 growth at 2.7 percent and the member countries are essentially taking the full brunt of the slowdown.

As reported by the Central Statistics Organization, India’s GDP growth in the third quarter of FY09 (Oct-Dec 2008) slowed to 5.3 percent compared to 7.6 in the previous quarter, which can be directly attributed to negative growth in the manufacturing and agriculture sectors, the latter contracting by 2.2 percent. Further, the Indian rupee has lost close to 25 percent of its value in less than a year, and exports have fallen consistently month-to-month since August 2008.

Brazil’s outlook, meanwhile, has been negatively impacted by a drop in domestic demand due to credit problems and their impact on domestic conditions, including capital flight.

“Many emerging markets are seeing fallout from the financial crisis that had not necessarily been anticipated,” explains Dr. Kalish. “Government intervention and cost-cutting will help most companies maintain and emerge from the crisis ready for growth. However, long-term challenges are already at play, and stimulus plans and other policy measures will only prove partly useful in ensuring future growth.”

The report maintains that while more pressing short-term issues dominate boardroom discussions across the globe, demographic challenges will likely make it harder to return to a sustainable growth path in the long term. Steps have to be taken now to be ahead of the game as the recovery unfolds.

“For the developing world, the race is on to achieve the standard of education and innovation needed to turn its young workers into a globally productive force,” writes Dr. Elisabeth Denison, senior economist, Deloitte Germany. “Unfortunately the financial crisis has stripped many of them of the necessary capital to invest in the future. As for the industrial nations, policies need to focus on solving the financing dilemma of demographic change and counteracting the impact of a shrinking labor force.”

To read the full report, including individual country reports, visit

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