Developed nations appear headed for recession, while emerging countries are hitting a speed bump, economists say.
Developed nations appear headed for recession, while emerging countries are hitting a speed bump, economists say. Tight global credit markets and slower spending by U.S. consumers, which drive the domestic economy and fuel exports worldwide, are key reasons.
“The global economy is in distress and the prognosis is gloomy at best,” says Moody’s Economy.com analyst Virendra Singh.
Central banks are slashing interest rates to encourage banks to lend more freely. The Bank of England recently cut the target for its key lending rate 1.5 percentage points to 3 percent, the lowest level in more than 50 years.
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The European Central Bank cut its rate a half-point to 3.25 percent while the Federal Reserve cut its rate to 1 percent. India, China and Brazil also cut their rates and China announced a $586 billion stimulus package that includes spending on infrastructure, tax breaks for exports and aid to farmers and the poor.
The IMF recently cut its 2009 outlook for gross domestic product growth in developed nations, predicting the first contraction since World War II. It doesn’t see a recovery until late next year.
Emerging countries are expected to slow on lower export demand and falling prices for commodities, which are key to some of these economies. Still, the countries, which have expanded rapidly in recent years, will see some growth in 2009, the IMF predicts.