Okay, it is time for a quick look around the world.
We know things are grim in the UK and US, but what about the rest?
Here is a brief summary of the latest state of play in Japan, Germany, France, Russia, India, Iceland, and Iraq.
In Japan, this morning it was a case of “anything you can do I can do better”. The Fed may have cut US rates to between zero and 0.25 per cent, but in Japan there’s no messing about. This morning, the Bank of Japan cut rates from 0.3 to just 0.1 per cent.
The Japanese government has also changed its economic forecasts. It now reckons the economy will see a 0.8 per cent contraction in the current financial year. It had previously forecast 1.3 per cent growth. For the next fiscal year, ending in March 2010, Japanese authorities are now predicting zero growth.
So that’s a worry. The world needs to see the likes of Japan, Germany and China import more goods. It doesn’t seem likely we are going to see that kind of stimulus from the land where the sun rises first.
So what about Germany? Yesterday saw the release of the latest Ifo index. This index is supposed to give a good snapshot of the German business climate. It’s not good. The composite index is now at its lowest level since 1991. If the historical relationship between this index and Germany’s GDP is any guide, it would seem that German GDP will contract by 1 per cent next year. But the Ifo Institute reckons the economy could contract by a rather worrying 2 per cent.
So what about France? Latest data from INSEE, the French equivalent of the ONS, now expects a 0.8 per cent contraction in Q4, and reckons the economy will contract by 0.4 per cent in the first quarter of next year.
In India, the problem is credit. Over the last five years or so the Indian economy expanded by between 7.5 and 8 per cent a year. But the boom was to a large extent funded by overseas money. According to Capital Economics: “Roughly 40 per cent of funds raised by Indian industry in the 2007/08 fiscal year comprised borrowing from overseas and new equity issuance.” The economics consultancy reckons growth will half next year, falling to around 4 per cent, but says the risks to this forecast are on the downside.
As for Russia, it now seems a recession is unavoidable. The Russian economy remains a two trick pony – the oil trick and the gas trick.
Capital Economics reckons the economy will stagnate next year, with zero growth – and anticipates the first Russian recession since 1998 for at least part of the year.
But at least there is good news from Iceland and Iraq.
The IMF has been busy in the two countries. IMF deputy managing director Takatoshi Kato said yesterday that he believed economic development in Iraq is “encouraging”. He said: “Further efforts are required to strengthen governance and fight corruption, in particular in the hydrocarbon sector.”
But whichever way you look at it, Iraq has the third largest provable oil reserves in the world. The economy is in such a mess that even with the falling price of oil, any revenue will go a long way. When finally the price of oil recovers, Iraq may well find itself in a pretty strong position. If you believe terrorism thrives where there is poverty, then it will be in everyone’s interests to see Iraq finally take advantage of its enormous oil resource.
Finally, the IMF’s Paul Thomsen, top man for the wealthy organization’s Iceland programme, has said: “This is obviously a very, very serious crisis… But the impact on Iceland is going to be very limited because you were hit with full force upfront.”
He added: “A framework has been put in place to engage creditors of the old banks, an asset recovery strategy has been put in place and the groundwork has been laid for a valuation of new and old bank assets.”
© Investment & Business News 2013