World heading into deep recession
The world's economies face the prospect of a major downturn with a deep and long-lasting recession set to last until the end of 2009 at the earliest.
That’s the warning from the International Monetary Fund (IMF) in a hard-hitting report that paints a grim picture of the year ahead.
The world is facing the most dangerous financial shock since the 1930s, according to the report, with no growth expected in even the advanced economies until at least mid-2009. Even then, recovery will be “gradual”.
The IMF says many of the world’s advanced economies are now close or moving into a recession following the financial shock that has rocked the banking sector and stockmarkets plus still-high energy and commodity prices.
Olivier Blanchard, chief economist at IMF, estimates that world growth will slow to 3% in 2009 - 0.9% down from July’s forecast.
"In advanced countries, the crisis is now being driven by a downward spiral of loss of confidence and trust," says Blanchard.
High inflation is likely to be a continuing issue over the next 12 months. In the UK, the Consumer Price Index – the official measure of inflation – hit 4.7% in August and is expected to rise to 5% in the coming months.
The Bank of England has said that, following a 5% peak, inflation will start to fall back down towards its 2% target. This will, however, take some time to feed through into the prices consumers pay for goods and services, especially food and fuel.
For British households this means coping with the “economic slack” of a recession as well as the rising cost of living.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).