Wednesday, April 9, 2008

The U.S. economy will tip into a mild recession in 2008

The world economy will slow sharply this year, according to an International Monetary Fund forecast, with the United States sliding into a recession amid housing, credit and financial slumps.

The IMF, in a World Economic Outlook released Wednesday, slashed growth projections for the United States — the epicenter of the woes — and the global economy as a whole.

Economic growth in the United States is expected to slow to a crawl of just 0.5% this year. The United States won't fare much better next year; the IMF projected the U.S. economy will grow by a feeble 0.6% in 2009.

"The U.S. economy will tip into a mild recession in 2008 as the result of mutually reinforcing cycles in the housing and financial markets," the IMF said.

Many private economists and members of the U.S. public believe the country has already fallen into its first recession since 2001. For the first time, Federal Reserve Chairman Ben Bernanke acknowledged last week that a recession was possible.

An increasing number of analysts think the U.S. economy, which grew 2.2% in 2007, started shrinking in the first three months of this year and is still contracting. Under one rough rule, if the economy contracts for six months it is considered to be in a recession. A panel of experts at the National Bureau of Economic Research that determines when U.S. recessions begin and end, however, uses a broader definition, taking into account income, employment and other barometers.

To limit the damage, the Federal Reserve has been slashing interest rates since last September and has taken a number of extraordinary measures to avert a financial meltdown, which would have dire consequences for the U.S. economy.

"The financial market crisis that erupted in August 2007 has developed into the largest financial shock since the Great Depression," the IMF declared.

Problems started in the United States with risky "subprime" mortgages made to people with blemished credit and quickly spread into other areas, hitting more creditworthy borrowers. Foreclosures in the USA hit record highs and financial companies racked up multibillion-dollar losses as mortgage-backed investments soured with the collapse of the U.S. housing market.

The fallout gripped investors on Wall Street and in other countries, creating a panicky atmosphere that threatened to paralyze financial markets in the United States and beyond.

Against that backdrop, the IMF expects the world economy, which grew a hardy 4.9% last year, to lose considerable momentum. The fund is projecting the global economy to grow 3.7% this year and 3.8% next year.

"The global expansion is losing speed in the face of a major financial crisis," the IMF said.

There's a risk that things could turn worse, it cautioned.

"The IMF now sees a 25% chance that global growth will drop to 3% or less in 2008 and 2009 — equivalent to a global recession," the fund said. "The greatest risk comes from the still-unfolding events in financial markets, particularly the potential for deep losses" on complex investments linked to the U.S. subprime mortgage market, the IMF said.

Looking at other countries, the IMF trimmed its projection for Germany, with economic growth slowing to 1.4% this year and 1% in 2009. In Britain, growth will slow to 1.6% this year and next. France also will see growth decelerate to 1.4% this year and 1.2% next year.

Japan's economy will expand 1.4% this year and 1.5% next year. Canada's growth will slow to 1.3% this year and pick up slightly to 1.9% next year.

Global powerhouse China, which barreled ahead at an 11.4% pace last year, will see growth moderate to 9.3% this year and then strengthen a bit to 9.5% next year. India, which grew a blistering 9.2% last year, is expected to grow 7.9% this year and 8% next year. Russia, which logged growth of 8.1% last year, will see growth moderate to 6.8% this year and then 6.3% next year.

While the IMF is worried about the dangers of weakening global economic growth, it also expressed concern about the potential for inflation to heat up around the world, given sharp increases in energy and other commodity prices. "Risks related to inflationary pressures have risen," the fund said.

1 comment:

Denise said...

I can confirm this, I work along side of Major Bloomberg trying to develop new housing alternatives, we are currently also working on what is called the 80/20 Law passed by Major Bloomberg in the commence of his term in office. For low income/fix income, most of these units are sold by lottery drawing only which seems to suck at times, WE ARE IN A RESSION PEOPLE! Unknowingly but we are! We need to conserve what we have at the moment which is for those who are to stubborn to care: Water, Oil, Supplies!

This is the Question: Is the economic downturn striking fear into the hearts of entrepreneurs, or are small business owners laughing in the face of recession?

Here is the answer:
Despite the fact that myriad organizations and corporations regularly poll small business owners, it's not easy to tell.
According to some first-quarter studies, normally optimistic entrepreneurs have exchanged their sunny outlooks for the depths of despair. Other surveys, however, paint a portrait of enterprising entrepreneurs already finding ways to capitalize on the recession (BusinessWeek.com, 4/4/08).
As with any polling, the reality probably lies somewhere between the extremes. Much of the discrepancy comes down to how the questions are asked and to whom, says Rhonda Abrams, president of The Planning Shop, a Palo Alto (Calif.) publisher of small business books and guides. She consulted with Intuit (INTU) on its March Get Back to Business survey, which showed 91% of small business owners see opportunities for their businesses in the current recession and 77% expect to grow as the economy stumbles. The online survey sampled more than 750 business owners with fewer than 100 employees.
Opportunities in the Worst of Times
"Some of the surveys are asking how small businesses are going to survive through this terrible time. There's always a natural bias as you're asking these questions, like 'Just how fearful are you?' or 'How will you tighten your belt?' What I've heard from small business owners is that they are realistic, they understand the broader context of the economic situation, but they're also looking around and seeing opportunities even in the worst times," Abrams says.

Although I must say that I was part of one of the biggest shut downs in the new millennium, Rolet food Product for which I worked for (as step in VP) for almost three years after returning from FL, which produced all of Wise Potato Chips as well as the Beef sticks, Cotton Candy etc., I had to lay off 323 employees, three different shifts before having to testify against the company itself on more than one charge. Due to the circumstances I am order under a court order to keep my mouth shut. Having said that:
That attitude is borne out by the Intuit survey, in which 86% of respondents said they remain passionate about their companies and are not getting discouraged or giving up on entrepreneurship. Indeed, almost 20% of the survey respondents said they are thinking about expanding their businesses in 2008.
A different survey, done by PNC Financial Services Group (PNC), turned up a very different result. Despite lower interest rates and adoption of the federal fiscal stimulus plan, PNC's semiannual Economic Outlook showed small and midsize business owners at their lowest point since the survey began in April, 2003. PNC's survey results come from the responses of 500 U.S. business owners and senior executives of businesses with revenues ranging from $100,000 to $250 million annually.
Economic Confidence Down
Only 6% of business owners responding to the Economic Outlook survey said they are optimistic about the U.S. economy over the next six months, a record low, according to Robert Dye, senior economist for PNC Financial Services Group. An unprecedented 19% of respondents said they expect their profits to decrease in the near term. Their top concerns were the possibility of recession (36%) and higher energy prices (30%). The majority of respondents (63%) doubted the federal fiscal stimulus plan will boost their businesses.
Those findings are similar to a March survey commissioned by the Discover Business Card (DFS). Called the Discover Small Business Watch, the survey yields a monthly index measuring the relative economic confidence of U.S. small business owners. It is based on a national random sampling of 1,000 micro-business owners (those with fewer than five employees). In March, the index hit 77.8, the lowest point since its inception in August, 2006. That was a 13.1-point decrease from February and nearly 40 points lower than in March, 2007.
Key findings of the Discover survey show 77% of small business owners feel economic conditions in the U.S. are getting worse, an increase of 10 points over February; 53% rate the U.S. economy "poor," compared to 36% who said the same in February; and only 16% rate the U.S. economy "excellent" or "good."
Nearly half of the Discover respondents (47%) said they had experienced cash-flow issues during the previous 90 days, a finding that might be related to PNC's survey finding that 18% of respondents said it was more difficult to get credit now compared to the previous three months. Only 10% of PNC survey respondents reported a credit crunch the last time the survey was conducted in the fall of 2007.
Silver Lining Mentality
Although entrepreneurs clearly are aware of larger economic stumbles, they tend to remain optimistic about their own chances to stay in businesses. This may be due to their "silver lining" mentality. "Most entrepreneurs come out of situations where they've already faced tough times. Maybe they've been laid off or quit their jobs because they were dissatisfied. By their very nature, they are survivors," Abrams says.
Making opportunities for themselves—rather than waiting for them to happen—is another entrepreneurial characteristic. "I was talking to a friend of mine who owns a 35-person landscaping business," Abrams says. "She's about to acquire a competitor who is selling his company. I hear stories like that all the time."
Finding merger-and-acquisition possibilities, snapping up laid-off corporate executives, and luring away customers fed up with reductions in customer service/and quality of product at larger companies are all positive possibilities for entrepreneurs as the economy declines, says Rick Jensen, senior vice-president and general manager of Intuit's small business group. (for those who don’t QUICKBOOKS) "Small business owners read the same headlines we do, but most of them have survived recessions and downturns before. They know how to take a risk, they believe in themselves, and when headwinds come up, they know they need to stand on their toes."