Major economies facing recession
pharmafile | November 6, 2008 | News story | Sales and Marketing |Â Â hcÂ
The UK, US and Japan must brace themselves for a full year of recession in 2009, according to economists.
The OECD and other leading commentators have warned that all the world's leading economies face recession or very low growth next year.
Robin Bew, editorial director and chief economist of the Economist Intelligence Unit, has added his voice to the predictions.
Bew says: "This is the first time for a very long time you've seen all the major bits of the world turn down together.
"It's probably going to be the worst for the developed world since at least the early 1980s," he added.
In an interview for business website Cantos he added: " We see obviously America is now contracting, UK in recession, Japan in the same kind of predicament and we think that's going to run right through 2009."
At least one emerging market with a large external deficit and strong reliance on foreign funding – probably in central or eastern Europe – will also experience a major economic crisis, Bew believes.
"Hungary, Romania, Ukraine are all seen as very vulnerable, while Russia, Pakistan and Vietnam are among other countries which could find themselves in trouble.
Despite this stark prediction, emerging markets will continue to grow but at a much lower rate than previously forecast.
Another potential knock-on – in the UK and elsewhere – from the global financial meltdown will be the need for higher general tax rates to cover a sudden gap in revenues.
"A very significant chunk of the tax take here came from the financial sector, both direct payments from the banks but also income tax payments from people who worked in the financial sector," points out Bew.
The pressure on that sector means the rest of the economy will need to pay higher marginal tax rates to offset the difference.
He does not expect interest rate cuts such as the ones instituted by the US Federal Reserve to work.
Instead governments in the UK, US and continental Europe may have to use their own money to underpin private sector industries – not just in the financial sector, as has already happened.
"You're going to see the government's balance sheet put to work to support other bits of the economy as well," Bew says.
Shoring up private companies with government money will be the only way to achieve stability, he believes.
"Because this crisis is centred on the financial sector, it then leaches into all the other balance sheets of the rest of the economy and if you want to stabilise things, you may well need to substitute weak private sector balance sheets for a much stronger government one," Bew concludes.
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