The global economy will contract this year by 0.5 percent due largely to a plunge in world trade, and Japan and Italy will likely be worst hit among the G7 economies, a think tank said yesterday.
The National Institute of Economic and Social Research (NIESR) said in its latest forecast that the global economy “will suffer its worst reverse for more than 60 years” as world trade falls by 8.2 percent this year.
“The recession is expected to last for six or seven quarters in the US, Euro Area and Japan, with a significant risk of a more prolonged recession lasting eight or nine quarters,” it said.
However, its prediction is less alarming than the IMF’s forecast that the global economy would contract 1.3 percent this year.
NIESR said the downturn would have been worse had governments worldwide not take action to stem the financial crisis, except in Italy “where fiscal stimulus has been minimal.”
“Without monetary and fiscal easing introduced since 2008, output would have been expected to decline by an additional 1.5 percentage points in the US this year, and by 1 to 1.2 percentage points in Japan and the Euro Area,” it said.
Japan, which has suffered from a huge decline in exports, is likely to see a 6.2 percent fall in GDP this year, while Italy will suffer the most prolonged reverse of the big eurozone economies, with output declining by 1 percent, 3.3 percent and 1.2 percent between last year and next year, NIESR said.
The report predicted global recovery to start later this year, but forecast the world economy would only grow by 2.1 percent next year and growth for most major economies “will be feeble” in 2011.
Its predictions for the UK were bleak, saying GDP was on track to fall by 4.3 percent this year.
“There is a real possibility that GDP will fall more this year than in 1931. The pace of decline to date shows a remarkable resemblance to that of the depression of the early 1930s, though that similarity should be broken as a feeble recovery gets under way in the final quarter of this year,” it said.
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