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Thursday, 10 April 2008

When is a recession not a recession?

The news services are buzzing about the prospects of a "global recession", after a statement that "The IMF now sees a 25 per cent chance that global growth will drop to three per cent or less in 2008 and 2009 - equivalent to a global recession," was released in the latest IMF's World Economic Outlook report. But what does "equivalent to a global recession" actually mean? In this case it means the exact opposite - that the current IMF forecast is that the world is NOT heading into a recession (even using the generous definition of a global recession as being growth below 3%pa - which is roughly the rate required to avoid global per capita output growth that is zero or negative) within the next two years. In fact the IMF's latest forecast is for global growth to moderate to "just" 3.7 per cent this year and 3.8 per cent next year (as measured in terms of purchasing power parity)- still ABOVE the long-term average.

All that the latest IMF report is actually saying is that the worsening US economic conditions now makes a global recession a possibility - increasing the likelihood from essentially being no chance to now being a "a 25 per cent chance that global growth will drop to three per cent or less in 2008 and 2009.". Put another way, there is now a 75% chance that the world will have growth above 3% in 2008 and 2009 - but that wouldn't make a good headline.

Copyright Enough Wealth 2008

2 comments:

mOOm said...

World population growth is only a little above 1% per annum so 3% growth would result in 2% per capita. There may be some level though where unemployment tends to rise even though per capita income is still rising.

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