The Specter Of Recession
Earlier today, Fed Chair Ben Bernanke put a stake through the hearts of Pollyannas with his comments about the U.S. economy. The Wall Street Journal’s Sudeep Reddy wrote:
Federal Reserve Chairman Ben Bernanke has uttered the “R” word. Responding to a question at today’s Joint Economic Committee hearing, Mr. Bernanke said publicly for the first time that “recession is possible” for the economy this year…
Mr. Bernanke said in his prepared remarks: “It now appears likely that real gross domestic product [GDP] will not grow much, if at all, over the first half of 2008 and could even contract slightly. We expect economic activity to strengthen in the second half of the year, in part as the result of stimulative monetary and fiscal policies.” But, he added, “the uncertainty attending this forecast is quite high and the risks remain to the downside.”
Bernanke’s testimony before Congress took place on the same day the International Monetary Fund cut its forecast for global growth in 2008 and said there is a 25% chance for a world recession. Bloomberg’s Shamim Adam reported that the IMF was predicting the global economy will expand only 3.7% this year, the slowest pace since 2002, citing a document obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and central bankers in Da Nang, Vietnam. Adam wrote:
“The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,” the statement said. “The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression.”
The Bloomberg reporter noted that when asked in a Bloomberg Television interview about the IMF’s analysis, U.S. Treasury Secretary Henry Paulson responded “that sounds overblown to me.”
Adam added that the U.S economy is forecast to grow a paltry 0.5% this year and “expand” 0.6% in 2009. However, the Agence France-Presse wrote yesterday:
The International Monetary Fund will next week forecast that the US economy will go into recession this year, a German newspaper reported Tuesday, citing a report to be released next week.
The US economy will experience at least two successive quarters of negative growth… and will grow only half a percent over the whole of 2008, weekly Die Zeit reported.
It is believed that the report will be released at the IMF’s spring meeting with the World Bank next week.
Sources:
“Bernanke: Recession Is Possible”
Sudeep Reddy
Wall Street Journal (Real Time Economics), April 2, 2008
“IMF Cuts Global Forecast on Worst Crisis Since 1930s (Update 3)”
Shamim Adam
Bloomberg, April 2, 2008
“IMF predicts US recession: report”
Agence France-Presse, April 1, 2008
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