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United Way-Current Economic Conditions

According to the International Monetary Fund (IMF), the world economy is under recovery and is pulling itself out of recession though it is expected that the recovery is still sluggish and stabilization is uneven. Financial conditions though vary in different regions, have improved mainly due to public intervention and financial policy support. Cuts in policy interest rates, continued provision of ample liquidity, credit easing, public guarantees, and bank recapitalization have appreciably lowered concerns about systemic failure and have supported intermediation.

It is also said that the financial stress indexes as shown on Figure 3 for advanced and emerging economies have receded since the beginning of 2009. But, the recovery remains slow as financial systems remain impaired and bank balance sheets still need to be cleaned and the need to restructure institutions. Moreover, bank lending conditions are expected to remain tight and external financing conditions constrained for a considerable time. (www. imf. org) Gross Domestic Product (GDP) in the advanced economies like the United States, Japan, and in the EURO area is projected to decline by 3. 8 percent in 2009 before a forecasted growth of 0.

6 percent increase in 2010. This growth in 2010 still falls short until late in the year due to continuing increase in unemployment. In the United States, business and consumer confidence have improved, industrial production is expected to rebound, and that the inventory cycle is on a turn around. This is reflected by a smaller decrease in real GDP in the first quarter than in the fourth quarter. A 5. 5 percent decrease in GDP was recorded in the first quarter of 2009 against a 6. 3 percent decrease in the fourth quarter of 2008 (www. bea. gov). There are also signs that output is stabilizing by some other Asian economies headed by Japan.

In the euro area, consumer and business survey indicators have been recovering but data on real activity show few signs of stabilization and thus activity is projected to strengthen more slowly than elsewhere. Macroeconomic policies are providing support but much of the adjustment in the labor market still lies ahead. Rising unemployment will weigh on consumption and activity, as will the economy’s heavy dependence on a still-ailing banking sector. Notwithstanding regional differences, emerging and developing economies are projected to regain growth momentum during the second half of 2009.

Low-income countries are facing important challenges of their own because official aid has fallen and these economies are particularly vulnerable to swings in commodity prices. In emerging Asia, its growth projections have been revised upward to 5. 5 percent in 2009 and 7. 0 percent in 2010 due to improved prospects in China and India. This has been reflected by a substantial macroeconomic stimulus and a faster-than-expected turnaround in capital flows. But, if there is no substantial recovery in advanced countries, the recent acceleration in growth is likely to fade.

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