World economy to shrink in 2009; first time since 1945

[Lenny]

The global economy will shrink this year for the first time since World War II, the World Bank has said. Trade may record the biggest decline since 1929, it said. http://news.bbc.co.uk/2/hi/business/7931899.stm

{Graph of world GWP growth (http://img244.imageshack.us/img244/3561/gwp.gif) - past recessions have all simply briefly levelled off GWP growth, never declined}.


"Gross World Product" growth in past millennium, by period
AD 1000- 1500: 0.15%/year
1500 - 1820: 0.32%/year
1820 - 1870: 0.93%/year
1870 - 1913: 2.11%/year
1913 - 1950: 1.85%/year*
1950 - 1973: 4.91%/year**
1973 - 1998: 3.01%/year***
[2009: Negative -0.5%?]



* - Growth in this period almost totally driven by the USA; Europe had terrible negative net-growth during this period; USA accounted for an astonishing 50% of GWP in 1949 [today it's about 18%].
** - The recovery of Europe, the emergence of the Asian Tigers and the teeth-cutting of other formerly-weak economies...
*** - The end of this period is when China really started taking off. [source (http://www.portfolio.com/views/blogs/market-movers/2008/11/04/can-gross-world-product-shrink)]

[Lenny]

[2009: Negative -0.5%?]

It's worse than expected already:eek: --


Global GDP is now forecast to shrink 1.4 percent in 2009 and the world economy won't start to markedly recover until 2010 at the earliest.

http://bloomberg.com/apps/news?pid=20601087&sid=a2oaDrBSipy0

That figure will probably still be revised downward. I mean, the E.U. itself is now predicting a yearly (negative)2.5% growth - which may yet go even further into the red - and who knows how Russia could fall. (http://www.theapricity.com/forum/showthread.php?t=4450) The USA, it is said, will decline by at least 3% on the year (link (http://www.fundstrategy.co.uk/cgi-bin/item.cgi?id=185565&d=560&h=527&f=518)), and even that presupposes a recovery by year's end (if current losses continue it will be more like -6%).

Europe+USA account for 43% of the world economy, and between them they might very well lose 5% on the year.


This is absolutely incredible - there has not been anything like this in living memory. Even today's elderly would've been children the last time this happened in peacetime.

[SwordoftheVistula]

It's going to continue the downwards spiral. For the past decade or so, people in the US have had a negative savings rate (consuming more than producing) and much of the economic 'growth' has come from the real estate bubble. People are consuming more and working less, more and more people out of the workforce (early retirements, welfare, 'disability', etc). It will be harder for the economy to bounce back because it has become so regulated that it is hard for new companies to pop up and replace the ones that are dying, and our government is doing its best to keep the bad companies operating (wasteful banks

Much of the rest of the world has manipulated their economy to be reliant on exports to the US in order to maintain domestic tranquility, 'full employment' in east Asia and large welfare systems in continental Europe. What are they going to do when they can't find anyone to sell cars and stereo systems to? East Asia especially doesn't have a large enough domestic middle class for a self sustaining economy.

Another article from the same site:

http://news.bbc.co.uk/2/hi/business/8049574.stm

Spanish economy shrinks rapidly

Spain's economy suffered its largest contraction in 50 years in the first three months of 2009, preliminary estimates have shown.

GDP fell 1.8% from the previous quarter and was down 2.9% year-on-year, the National Statistics Institute said. It will release final data next week.

Economists said the falls were the steepest seen since 1959.

Spain had enjoyed 14 years of consecutive growth before entering recession in the last quarter of 2008.

The near-collapse of its key construction industry has hit the economy hard.

The Spanish government has predicted GDP will shrink by 1.6% in 2009, while the European Commission has said it expects Spain to be the last European Union country to exit recession, probably in 2011.

"Although Q1 could mark the trough in the recession, any improvement in Q2 and beyond may be fairly modest," Ben May, European economist at Capital Economics said.

"Indeed, Spain's economic imbalances will ensure that it experiences one of the most prolonged downturns in the eurozone."

No shit, Spain doesn't actually produce much of anything, it's economy has relied on Brits vacationing and retiring there. Now that the British finance industry has crashed, not as many of them can vacation or retire there anymore. Basically, Spain is another Iceland only one step removed, thus the delay in effect.

[Lenny]

For the past decade or so, people in the US have had a negative savings rate (consuming more than producing) and much of the economic 'growth' has come from the real estate bubble. People are consuming more and working less, more and more people out of the workforce (early retirements, welfare, 'disability', etc).

This is quite true and has bugged me for some time, too.
It seems simple enough that a child could understand it. Yet there was a collective delusion for 20 years - at least - that pushing around paper was somehow "wealth creation".:crazy:



It's going to continue the downwards spiral.For some reason, everyone is predicting imminent recovery.

This chart was made a few months ago, before it was announced that USA Q1-2009 in fact had another (negative)6% growth rate. (As you can see it guessed GDP losses would start to level off in Q1)--

http://img196.imageshack.us/img196/7236/usgdpgrowth2000s.jpg
http://forecasts.org/gdp.htm

[SwordoftheVistula]

For some reason, everyone is predicting imminent recovery.

Yeah-the same morons whose policies caused this mess are trying to cure it with more of the same

[Skandi]

None of the big players seem to see that the issue cannot be permanently solved by doing the same things that they have always done. Continued economic growth cannot be sustainable and all of our policies rely on this growth to service the debt that is being incured. Even when we come out of this recession, there will be another, and another and another until the system really does crash. I hope in many ways that I am not around for that, but maybe I will be.

[SwordoftheVistula]

Continued economic growth cannot be sustainable

It can be, but it can only be sustained by increases in productivity. The problem comes from politicians that seem to think that creating money creates wealth, or that increasing the number of people employed without regard to what exactly they are doing while employed creates economic growth. If a house that was worth 200k goes up in price to 300k, that is not 'economic growth'. For example, the internet did create 'economic growth' because it cut down on the amount of people in 'merchant' type jobs.

[Lenny]

At this point all I can do is post this:

http://img517.imageshack.us/img517/280/growthideologywp7.jpg

That about sums it up, IMO.

[SwordoftheVistula]

At this point all I can do is post this:

http://img517.imageshack.us/img517/280/growthideologywp7.jpg

That about sums it up, IMO.

Yes, that's another problem, that the politicians have focused on the overall GDP (not really relevant) instead of the per capita GDP (a rough measure of quality of life), thus leading them to attempt to grow the population with immigration.

[Psychonaut]

Yes, that's another problem, that the politicians have focused on the overall GDP (not really relevant) instead of the per capita GDP (a rough measure of quality of life), thus leading them to attempt to grow the population with immigration.

Right. I'm also constantly confused by the fact that the government cotemporally advocates the expansion of the American population (mainly through immigration) and the development of types of technology that make manual laborers redundant.

[Skandi]

It can be, but it can only be sustained by increases in productivity.

Only up to a point, the world has finite resources, when you hit the limit that is it, all growth is finite, whether it is today, tomorrow or next millenium there will be a limit.

[SwordoftheVistula]

Right. I'm also constantly confused by the fact that the government cotemporally advocates the expansion of the American population (mainly through immigration) and the development of types of technology that make manual laborers redundant.

Yeah, it builds up a large unemployed underclass dependent on the government for support.


Only up to a point, the world has finite resources, when you hit the limit that is it, all growth is finite, whether it is today, tomorrow or next millenium there will be a limit.

True, and there could be diminishing returns on some things, but I think we're a long way from that point. 70 years ago the thought that atomic energy could replace coal and other sources was solidly in the realm of science fiction, and nobody could have imagined the internet 40 years ago.

[Lenny]

[2009: Negative -0.5%?] It's worse than expected already:eek: --

Global GDP is now forecast to shrink 1.4 percent in 2009 and the world economy won't start to markedly recover until 2010 at the earliest. link (http://bloomberg.com/apps/news?pid=20601087&sid=a2oaDrBSipy0)
Ahem...

...and now:


UN predicts 2009 economic decline of 2.6 percent
UNITED NATIONS – The United Nations predicted Wednesday that the global economy will shrink 2.6 percent this year as a result of the world financial crisis — a considerably deeper downturn than the 0.5 percent contraction forecast in January.
http://news.yahoo.com/s/ap/20090527/ap_on_re_us/un_un_economic_forecast

How low can it go?

:mmmm:

[SwordoftheVistula]

How low can it go?


It's going to keep dropping so long as you have people out of the labor force or employed in inefficient enterprises (GM, etc)

[Lenny]

It's going to keep dropping so long as you have people out of the labor force or employed in inefficient enterprises (GM, etc)
For the sake of historical comparison-

1. The world's major economies contracted by around 30% 1929-1933. This major contraction wiped out all GDP gains since 1920.
2. GDPs didn't recover to '29 levels until 1940 with the war boom. (See here (http://books.google.com/books?id=HgESwPKSonkC&pg=PA80&lpg=PA80&d&source=bl&ots=NsVhyCf9OZ&sig=Bm1r8zpuXyM91LJrO_mKyFRxZpM&hl=en&ei=VCciSv3PN5GctgO9i82ZBA&sa=X&oi=book_result&ct=result&resnum=5#PPA86,M1) for both stats).

So, even if this now-projected 2.5%-loss keeps sliding downward to (negative)5% or so, that's still not too bad, in perspective.:eek:

[Lenny]

The Great Depression annualized losses for the USA
http://img38.imageshack.us/img38/7228/depressionx.jpg

The chart above displays annual real GDP growth from 1928-1945 [in the USA] (data here), showing the -29.3% cumulative drop in real GDP between 1930 and 1933 during the Great Depression. That would be like today's real GDP going from the current level of $14.5 trillion back to the level of real output in 1996. And that seems highly unlikely. http://mjperry.blogspot.com/2008/11/real-gdp-fell-by-293-from-1930-to-1933.html

[Lenny]

So, even if this now-projected 2.5%-loss keeps sliding downward to (negative)5% or so, that's still not too bad, in perspective.:eek:
The USSR [and its successor states] lost ~50% of its GDP in the 1985-1995 period. Source (http://books.google.com/books?id=HgESwPKSonkC&pg=PA80&lpg=PA80&d&source=bl&ots=NsVhyCf9OZ&sig=Bm1r8zpuXyM91LJrO_mKyFRxZpM&hl=en&ei=VCciSv3PN5GctgO9i82ZBA&sa=X&oi=book_result&ct=result&resnum=5#PPA112,M1).

[Revenant]

The up to date figures regarding this (https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html) would be most relevant. The uptrend will eventually come back, when it does the dead weight will make a tangible difference.

[SwordoftheVistula]

The USSR [and its successor states] lost ~50% of its GDP in the 1985-1995 period. Source (http://books.google.com/books?id=HgESwPKSonkC&pg=PA80&lpg=PA80&d&source=bl&ots=NsVhyCf9OZ&sig=Bm1r8zpuXyM91LJrO_mKyFRxZpM&hl=en&ei=VCciSv3PN5GctgO9i82ZBA&sa=X&oi=book_result&ct=result&resnum=5#PPA112,M1).

That seems a rather steep drop, especially since the living standard doesn't seem too different. My guess would be that the numbers were fudged in 1985 so as to seem higher than they actually were.

[Lenny]

That seems a rather steep drop, especially since the living standard doesn't seem too different. My guess would be that the numbers were fudged in 1985 so as to seem higher than they actually were.

No one knows the real 1980s numbers.

We do know - with reasonable accuracy - the early 1970s numbers. [Starting in the early 70s, though, the post-1945 economic boom enjoyed the USSR started levelling off. (Said boom had been made possible by the plundering of the nations it conquered 1940-1945 and largely by slave labor through the end of the '50s certainly)].

Former USSR GDP, 1973: $1.513 trillion
Former USSR GDP, 1985: $2.200 trillion [* - estimated - see below]
Former USSR GDP, 1990: $1.988 trillion (the first year honest outside observors could make true appraisals)
Former USSR GDP, 1996: $1.125 trillion
Former USSR GDP, 2002: $1.406 trillion
Former USSR GDP, 2009: $2.200 trillion [estimated]

(all figures in constant 1990-dollars adjusted for inflation - see earlier link for documentation).


* - What we know for sure: the mid-late 1980s saw a years-long, communist-bloc-wide general-recession, starting in earnest in 1985. Assuming 3.0% growth per year 1973-1985 (way down from the post-1945 plunder- and slave-labor-fuelled boom), the USSR 1985 GDP peak would've been around $2.3 trillion.

Whatever the true 1985 figure is, we know it has to be over 2.0 as that was the 1990 figure (an honest figure confirmed by international observors), and we know that 1996 was 1.125, so it is definitely nearly a ~50% loss in GDP.

Your point about living standards is valid, (though 1990s-Russia was by far the lowest-living-standards "Europid"-peopled country in the world), because a large part of any economic base has nothing to do with consumer goods. Especially the USSR with its heavy-industry-mania.

[Lenny]

Former USSR GDP, 1973: $1.513 trillion
Former USSR GDP, 1985: $2.200 trillion [* - estimated - see below]
Former USSR GDP, 1990: $1.988 trillion (the first year honest outside observors could make true appraisals)
Former USSR GDP, 1996: $1.125 trillion
Former USSR GDP, 2002: $1.406 trillion
Former USSR GDP, 2009: $2.200 trillion [estimated]

(all figures in constant 1990-dollars adjusted for inflation - see earlier link for documentation).
I made the calculation for 2009 assuming an exUSSR general growth rate of 7% per year 2002-present, as Russia itself has had during that timeframe. Interestingly, it comes out to right around 2.2 trillion - i.e., the precise peak-figure we postulated for 1985...

It took them nearly 25 years to recover in raw GDP terms.:eek:

Our much-vaunted "Great Depression"... was a pittance in comparison.

[SwordoftheVistula]

Whatever the true 1985 figure is, we know it has to be over 2.0 as that was the 1990 figure (an honest figure confirmed by international observors), and we know that 1996 was 1.125, so it is definitely nearly a ~50% loss in GDP.

Your point about living standards is valid, (though 1990s-Russia was by far the lowest-living-standards "Europid"-peopled country in the world), because a large part of any economic base has nothing to do with consumer goods. Especially the USSR with its heavy-industry-mania.

Perhaps the large amount of resources directed towards the military prior to 1991 would explain that.

Would oil price fluctuation also cause that? Oil took a big dive in the 1990s as a result of the Gulf War.

[Lenny]

Perhaps the large amount of resources directed towards the military prior to 1991 would explain that.
The military and other non-vital industry certainly declined sharply. Though when it comes to domestic military production (not for export), it's a GDP-sponge anyway; not something that can drive growth or decline, but something that simply eats away at what GDP you derive from everywhere else.


Would oil price fluctuation also cause that? Oil took a big dive in the 1990s as a result of the Gulf War.
It's possible that it contributed a bit. The historical crude-oil-price record doesn't show oil nosediving in correlation with Russia's late-80s to mid-90s decline, though. (The five-year-long oil spike notwithstanding).

http://img41.imageshack.us/img41/1005/inflationadjoilpricesch.jpg

The real culprit was clearly the unsustainability of the ineffective communist model and the laughably-poor "Communist-Work-Ethic".





the laughably-poor "Communist-Work-Ethic"

Speaking of which, I think it's time to lighten up this thread-- :D


Three workers find themselves locked up, and they ask each other what they’re in for. The first man says: “I was always ten minutes late to work, so I was accused of sabotage.” The second man says: “I was always ten minutes early to work, so I was accused of espionage.” The third man says: “I always got to work on time, so I was accused of having a Western watch.”
Q. “Why do the KGB operate in groups of three?” A. “One can read, one can write and one to keep an eye on the two intellectuals.”
A man saves up his ruples and is finally able to buy a car in Soviet Russia. After he pays his money the he is told he will have his car in three years.
“Three years!” he asks “What month?”
“August”
“August? What day in August?” He asks
“The Second of August” is the reply
“Morning or Afternoon?”
“Afternoon. Why do you need to know?”
“The plumber is coming in the morning.”
Three men are talking at night in their barracks in a Siberian forced labor camp. By way of introduction, one man says, “I got 20 years for publishing samizdat, that’s why I’m here.” The second man says, “I got caught listening to BBC, that’s why I got 15 years. How about you ?”
– he asks the third man. The third man replies, “I got 10 years, for absolutely nothing !”. The first man then hits him in the face. “Liar ! For nothing, they only give you 5 years !”.
An American, a Czech, and a Soviet agreed to meet. The Czech was late.
"Sorry for being so late," the Czech said, "I was waiting in the queue to buy some meat."
"What is a queue?" the American asked.
"What is meat?" the Soviet asked.