Global Economy Grinding to a Halt

The International Monetary Fund (IMF) is now forecasting the global economy to grow at one half of one percent (.5%) in 2009. This is stunning news. Just two months ago the same group was forecasting annual growth at 2.2 percent. Olivier Blanchard, the IMF's chief economist offered these sobering words:

"We expect the global economy to come to a virtual standstill in 2009."

The situation in China continues to deteriorate as growth is forecast an annual rate of 6.7% about half the growth rate they reported in 2007. The forecast of 6.7 percent is suspect due to the way the numbers are calculated in China. One can only wonder if their is a "silent" backlash toward China brewing in the U.S. Helping foster the growing negative attitude in China yesterday Vice President Joe Biden said:

the U.S. would be “blunter with the Chinese” and that China must “play by the rules.”

The U. S. long term bond market reacted by dropping a whopping three points.

In a seperate report the IMF forecast that

financial institutions face much larger losses on U.S. securities than foreseen just weeks ago. Losses now are expected to reach $2.2 trillion, up from the $1.4 trillion estimated last fall.

This can only be regarded as more bad news in the financial sector.

The IMF is predicting that in order to prevent further deterioration in their ability to lend, major U.S. and European banks require an additional $500 billion in new capital, the report said. One can only wonder how these enormous capital needs are going to be met.

This news does not bode well for equities world wide. It is not likely that these continued dire forecasts have been digested into the equity market. And worse, most forecast continue to become more dire with each new release.

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