World economy weakens further during third quarter of 2008

20/10/2008
World economy weakens further during third quarter of 2008, as one year smouldering financial crisis came to a head. Prospects for 2008 are revised slightly downward. 2009 forecast is difficult, but worldwide recession is still unlikely.
In September 2008, major well respected US banks were threatened with a severe credit crunch when securities and outstanding accounts from mortgage loans could not be sold on the market any longer. It is still unsure what the value of these securities is after the bubble on the US real estate market burst.

Thus the US finance system, a vital vein of the world’s biggest economy, was pushed on the edge of collapse. The implications for the US as well as for the world economy would have been disastrous. Therefore, the US treasury department and the Federal Reserve intervened.

Though peak and actuator of the financial crisis were in the US, other economies are concerned as well. Several national and international rescue plans were resolved and there could still be several to come in the future.

This is only one reason, why consequences of the financial crisis can not be foreseen completely yet. What is certain is that the already noticeable slowdown of worldwide economic growth is going to be amplified. However, experts assume that neither the US nor the world economy are going to fall into lengthy recession. Nevertheless, a persistent weak economic dynamic should be reckoned with.

Due to the surprisingly robust dynamic during the first months of this year, GDP-growth in the US is going to reach 1.8% in 2008. Canada and Mexico are carried away by the weak development of their most important trade partner and should add by 1.0% and 2.2%, respectively.

Some economies of the Euro zone are going to fulfil the technical conditions of a recession (two consecutive quarters with declining GDP) in 2008, but thanks to well employed industrial capacities growth should remain
tolerably robust at 1.3%.

Emerging countries like Brazil, Argentina, China or Russia are supported by their domestic demand and can partly defy worldwide economic downturn, although a considerable slowdown here in the second half of 2008 is likely as well.

Beside the troubles and uncertainties it brings, a weaker world economy even has its positive impact: price pressure on raw material markets is declining. Price for crude oil is under USD 70 by now.