Friday, February 13, 2009

Global Recession

  • Evidence suggested that the Eurozone has plummeted into a deep recession with Eurozone output expected to fall 3% this year. (link)
  • One of the big factors was the deterioration in the German economy. The German economy is suffering from the decline in export demand, especially in manufactures. In the last quarter the German economy fell 2.1%.
  • The relative strength of the Euro is also hindering the German and other Eurozone economies.
  • Pressure will be put on the ECB to cut interest rates. So far, the ECB have been the most conservative Central Bank in responding to the downturn. Interest rates are at 2%, but, could fall as the recession deepens. But, I wonder whether the ECB will be able to shake off their anti-inflationary conservatism and pursue radical policies?
  • This prospect of lower interest rates should keep the Euro weaker.
  • This week China reported falling export sales, this will be a big blow to the world's fastest growing economy.
Many predict the downturn to his the UK the hardest. This is primarily because:
  1. The effect of housing boom and bust was very powerful in the UK
  2. UK depend on financial sector to provide a significant aspect of GDP. (only 8% of GDP, but 25% of corporate tax revenue)
However, it appears even countries without Housing boom and busts, are suffering from the weight of falling global demand.
Next week I will be looking at:
  • Impact of having 0% interest rate policy
  • Prospects for recovery in UK
  • The UK Housing Market
  • other topics that spring to mind.

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