Investment Contrarians

Global Recession 2013

Is a global recession a real possibility in 2013? Absolutely, with some even calling a 2013 global recession a 100% certainty. Even the International Monetary Fund (IMF) is bearish, noting the global economic slowdown is a serious threat and warning U.S. and European policymakers that a failure to fix their economic malaise would prolong the slump.

The IMF said the world economy in 2012 would grow just 3.3%, down from the previous estimate of 3.5%; making 2012 the slowest year of growth since the Great Recession began in 2009. In 2013, the IMF predicts only a modest pickup to 3.6%, below its July 2012 estimate of 3.9%.1

Why pay attention to any IMF forecasts? The IMF accurately projected U.S. growth would be little more than two percent in 2012 and predicts the same for 2013. It also expects modest euro growth in 2013 of just 0.2%.

While Germany has been the economic engine for the eurozone (the 17-nation currency union), its slowing economy could join the rest of the region in recession—or at least, that’s according to the Deutsche Bundesbank, Germany’s central bank. Thanks to the deep recessions in the other eurozone countries and austerity programs, Germany’s ability to carry the region is in serious jeopardy

The Bundesbank is predicting growth of just 0.4% in 2013; down from a June 2012 forecast of 1.6%. Not surprisingly, unemployment is running in step. The Bundesbank also expects the jobless rate to hit 7.2% in 2013, up from 6.8% in 2012.2

The rest of the eurozone is faring much worse. The jobless rate in the eurozone as a whole is at 12%, the highest level since the euro was created in 1999.

Europe’s debt crisis has also had a serious impact on North America. For American companies with operations in Europe, a weaker euro translates into weaker European sales. At the same time, American banks have lent money to Greece—as well as other eurozone countries—and would lose billions if the country went bankrupt. The American economy would face even greater threats if other eurozone countries followed suit.

Sources:

1.         “Recession 2013? IMF Warns That Global Economic Slowdown Is Getting Worse,” Huffington Post Oct. 8, 2012; http://www.huffingtonpost.com/2012/10/08/recession-2013-imf_n_1950004.html)

2.         Thompson, Mark. “Germany may fall into recession in 2013,” CNN Dec. 7, 2012; http://money.cnn.com/2012/12/07/news/economy/germany-recession-warning/index.html.