World Economy Grinding To A Halt: Researchers

Source : The Business Times, June 26, 2008

Ifo's World Economic Climate indicator hits its lowest in more than six years

(FRANKFURT) The global economy is coming to a halt, the Munich-based Ifo economic research institute said on Tuesday, amid slowdowns in Western Europe, the United States and China.

Ifo's World Economic Climate indicator fell 'to its lowest level in more than six years' in the second quarter of 2008 and the decline 'was particularly marked in North America and Western Europe', a statement said.

'The expansion of the world economy will decelerate perceptibly in the forecast period' of 2008/2009, it added.

'In the wake of the US real estate crisis and the turbulence on the international financial markets, the dynamics of world economic activity have weakened.'

In the United States, growth will remain weak as the US Federal Reserve adopted more restrictive monetary policy measures to fight inflation while growth would flatten out in the 15-nation eurozone, Ifo said.

Eurozone consumption would 'expand at only a restrained pace despite the favourable situation on the labour market', Ifo said.

Investment would lose momentum 'since the apex in the investment cycle seems to have been passed'. Asian growth 'will be dampened by inflationary developments, especially for food and raw materials', Ifo said. Weaker conditions worldwide would take some steam out of the Chinese economic expansion, as would more restrictive monetary policies.

In China, however, increased demand from private households could help offset any downturn.

In India, meanwhile, 'increasing interest rates will negatively affect the investment propensity of firms (and) also growth in private consumption demand'.

For Germany, the biggest European economy, the strong start to 2008 is coming to an end. 'A slight decrease in real GDP (gross domestic product) is expected for the second quarter,' it said.

Cooler world economic activity along with the stronger euro would dampen demand for German exports, while high energy costs would limit company profits and investment.

Ifo forecast 2008 growth in Germany at 2.1 per cent on seasonally adjusted terms and said 'real (inflation-adjusted) GDP will grow by one per cent in 2009'.

German employment was forecast to fall to 7.5 per cent this year, and to 7.1 per cent in 2009, assuming 'that the potentially economically active population will again decline'. -- AFP