A 3.8 per cent annualized decline in US GDP in the fourth quarter of 2008 is just the first validation of what is likely to be a series of sharp output declines reported in the major industrial economies. Moreover, to the extent that the decline in US GDP was tempered by an unintended pile-up of business inventories, there is good reason to look for further sharp cutbacks in production in the current quarter. Elsewhere around the developed world, the results are likely to be comparable—unusually steep declines in both the fourth quarter of 2008 and the first quarter of 2009.
It had to happen. Every crisis invariably gives rise to finger pointing. This one is no exception. Sooner or later, the scapegoating had to break out in the open. It didn’t take long. At a dinner I attended on the first night of the World Economic Forum, the blame game erupted with full force.
Often the measure of a meeting is what is not said or spoken. And there is one very significant issue lurking in the current economic crisis that I doubt will be addressed at the World Economic Forum in Davos.
That issue is whether the public policy response to the crisis will take into account the need to bring about a fundamental change in the behaviour of the American consumer, most notably the problem of excessive consumption (or insufficient savings).
My good friend, Stephen Roach, Asia chairman of Morgan Stanley, disappointed me at the economic outlook session this morning. I expected him to be even more bearish than usual.It says something about the change in global mood that his forecast – a global recession this year followed by 2.5 per cent annual growth over the subsequent three years – looks almost bullish. The reality might be even worse, alas.
I chided him and his fellow panellists for their apparent complacency about what I called a “proto-depression”. What did I mean by this?