Weekly Economic Analysis by Lloyds TSB

The world economy is currently experiencing its steepest downturn since the 1940s, with global trade expected to contract by 10% this year, see chart a. Global economic output could fall by 2%, with growth in the advanced economies dropping by at least twice this rate, around 4-5%.

The world economy is currently experiencing its steepest downturn since the 1940s, with global trade expected to contract by 10% this year, see chart a. Global economic output could fall by 2%, with growth in the advanced economies dropping by at least twice this rate, around 4-5%. This is the first time that there has been a synchronised downturn amongst the major economies since the 1930s.

It is interesting that the emerging markets are weathering the downturn much better than the advanced economies and better than at any time in their history – but they are not immune, as shown by including data for China in all the main country charts below. Overall, however, the emerging markets as a bloc is likely to escape an outright fall in economic output this year, see chart b, due primarily
to China and India.

Sharp contraction is evident in backward looking quarterly data…
Recent economic data put the severity of the fall off in growth in perspective, see chart c. For the US, economic growth fell by a 6.1% annualised pace in Q1 2009, after a fall of 6.3% in the fourth quarter of last year. This means that the US has seen the biggest cumulative fall in output since the 1950s, and the likelihood is that there will be a further fall in overall economic output in the second quarter as well.

But output is not just collapsing in the US, it is a global event. In
Japan, the second biggest economy in the world, annualised gdp fell by 12.1% in Q4 2008 and the prospect is for a similar decline in Q1 of this year. For the UK, economic growth fell by 1.6% in Q4 2008 and by a further 1.9% in Q1 this year. For Germany, economic growth contracted at an 8.4% annualised rate in Q4 2009 and an even bigger decline in on the cards for Q1 based on indicators for the first quarter.