Monday, February 9, 2009

The Global Economy

OK, things are looking worse than I had expected. I read the Economist every week and have done so for more than 22 years now. There are few media sources out there that are as even handed and fair as they are. They cover the world every week and cover stories long before the mainstream western world media pays attention. I say all this because they are also the source of the best global snapshot economic statistics going out there. They are never alarmist.

This week they have their data from economist predictions for major countries around the world. This comes out once a month and the February numbers are bad. The predictions for GDP in 2009 are all uniformly down. Every country is down, the best only down by 0.4% points, the worst is Japan at down by 1.8% points.

The only country not predicted to have their economy shrink in 2009 is Australia.

When you look at the longer set of statistics, it looks bad all over. Only about half a dozen countries out of 55 will have a decent GDP growth. Hong Kong is predicted to have GDP shrink by 3%, Taiwan by 3.5%, Singapore by 2.9% and South Korea by 2.8%. These are the crucial developed Asian economies. They are all headed into severe recessions.

Clearly this recession is headed to be a bad one, a very bad one. I am normally a moderate person and take doom and gloom with a grain of salt. I am depressed now.

My concern now is that we are headed towards economic nationalism. This will increase unemployment and poverty in Canada, but not as dramatically as the impact will be on developing countries.

The quickest route to an end to the recession will be to reduce trade barriers and reduce barriers to businesses operating around the world. Clearly we are all suffering because in the US there has been a lack of regulation and oversight over business. In Canada we have good regulation and did not have the problems the US has had, but their downturn is pulling us under. The bad governance of the Bush era is harming us in Canada. Removing trade barriers and getting rid of red tape does not mean getting rid of regulation and oversight.

I am 99% certain that national governments will play to the yelling of the crowds to adopt economic nationalist policies. I am already depressed enough that borrowing a lot of money has been the response of governments everywhere. Governments should be using the time now to drop as many wasteful programs and sell as much as they can. Certainly the governments in Canada have the room to meet all the new program demands if they cut the non core programs.
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