Economic aspects and projections

Economic aspects and projections
[edit] Global aspects

A number of commentators have suggested that if the liquidity crisis continues, there could be an extended recession or worse.[24] The continuing development of the crisis prompted fears of a global economic collapse.[25] The financial crisis is likely to yield the biggest banking shakeout since the savings-and-loan meltdown.[26] Investment bank UBS stated on October 6 that 2008 would see a clear global recession, with recovery unlikely for at least two years.[27] Three days later UBS economists announced that the "beginning of the end" of the crisis had begun, with the world starting to make the necessary actions to fix the crisis: capital injection by governments; injection made systemically; interest rate cuts to help borrowers. The United Kingdom had started systemic injection, and the world's central banks were now cutting interest rates. UBS emphasized the United States needed to implement systemic injection. UBS further emphasized that this fixes only the financial crisis, but that in economic terms "the worst is still to come".[28] UBS quantified their expected recession durations on October 16: the Eurozone's would last two quarters, the United States' would last three quarters, and the United Kingdom's would last four quarters.[29]

At the end of October UBS revised its outlook downwards: the forthcoming recession would be the worst since the Reagan recession of 1981 and 1982 with negative 2009 growth for the US, Eurozone, UK and Canada; very limited recovery in 2010; but not as bad as the Great Depression.[30]

[edit] US aspects

Real gross domestic product—the output of goods and services produced by labor and property located in the United States—decreased at an annual rate of 0.3 percent in the third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.8 percent. Real disposable personal income decreased 8.7 percent.[31]

Nouriel Roubini, professor of economics at New York University and chairman of RGE Monitor, predicted a recession of up to 2 years, unemployment of up to 9 percent, and another 15 percent drop in home prices.[32] Moody's Investors Service continued in October, 2008 to project increased foreclosures for residential mortgages originating in 2006 and 2007. These increases may result in downgrades of the credit rating of bond insurers Ambac, MBIA, Financial Guaranty Insurance Company, and CIFG.[33] The bond insurers, meantime, together with their insurance regulators, are negotiating with the Treasury regarding possible capital infusions or other relief under the $700 billion bailout plan. In addition to mortgage backed bonds, the bond insurers back hundreds of billions of dollars of municipal and other bonds. Thus a ripple effect could spread beyond the mortgage sector should there be a major downgrade in credit ratings or failure of the companies. [34]

[edit] Official prospects

On November 3, 2008, the EU-commission at Brussels predicted for 2009 an extremely weak growth of the BIP, by 0.1% only, for the countries of the Euro zone (France, Germany, Italy, etc.) and even negative number for the UK (-1.0%), Ireland and Spain. On November 6, the IMF at Washington, D.C., launched numbers predicting a worldwide recession by -0.3% for 2009, averaged over the developed economies. On the same day, the Bank of England and the Central Bank for the Euro zone, respectively, reduced their interest rates from 4.5% down to 3%, and from 3.75% down to 3.25%. Economically, mainly the car industry seems to be involved. As a consequence, starting from November 2008, several countries launched large "help packages" for their economies.