■ Wake-up call. Hopes for an economic recovery in the course of the second half of the year disappeared. EMU-wide business climate continues to deteriorate, industrial production is in free fall, the credit crunch is only just starting to have a full impact, and global trade is declining at a rate last seen during the Great Depression.
■ Revision. That hits Europe particularly hard. The EMU-wide recession in the eurozone is, therefore, becoming more pronounced and will also last longer than projected so far. Economic activity will continue to contract until the end of this year. After the miserable start into the year, we now expect real GDP to shrink by 3½% in 2009. Next year, EMU-wide GDP will do little more than stagnate (+0.1%; pages 4-7 & 8-9).
■ Global recession. In conjunction with the latest downward revisions for the UK (to -3.6%), the US (-2.1%) and Japan (-4%), this will now result in global GDP contraction – for the first time since World War II! Based on purchasing power parities, we now expect 2009 global activity to shrink by ½% (cf. chart). Based on market exchange rates, the figure is even worse (-2%). Only China will prevent a more miserable outcome.
■ Economic policy. The pressure to counter the recession with additional billions of fiscal and monetary stimuli will, therefore, increase further – especially on eurozone policymakers. Alongside financial market regulation, the topic of economic stimulus will dominate the G-20 summit early next month. But Quantitative Easing policy á la Fed or BoE bypassing banks and directed at credit markets still faces resistance in Frankfurt.
■ Further topics:
- Weekly Comment: Type I or type II (page 2)?
- Switzerland: Central bank starts FX interventions (p. 10).
- US: Rising unemployment to increase charge-offs (p. 12).
- Data outlook: US leading indicators & industrial production continue to decline; ZEW growth expectations probably to fall again (p. 17).
- Market outlook: EUR to stabilize; bonds in demand (p. 25).
