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Deepening of the Global Economic Crisis

There is currently a debate amongst economists about whether or not the world economy is in a recession. However, even if it is not already in recession, all indications are that it is headed in that direction.

On a regular basis the world's largest corporations are announcing massive downsizing of their workforces as demand continues to stagnate. In August some of the significant announcements were: Toshiba's decision to layoff 17,000 employees worldwide, Fujistu's announcement that it was cutting 16,000 from its workforce and Hitachi's decision to trim almost 15,000 jobs or 4% of its global workforce.

The Japanese economy is one to the first of the world's major economies to be recognized as in recession.

Japan's GDP grew slightly in the first quarter but some analysts believe that economic figures to be released in mid-September will show that the Japanese GDP fell at an annual rate of as much as 6% in the second quarter and this contraction will continue into the last half of the year as well. The IMF is predicting the Japanese economy will have contracted by 0.2% when the final figures are in for 2001.

North America and Europe also continue to experience economic stagnation. The IMF predicts that the Euro-zone will see growth of only 2%. The U.S. is expected to grow at 1.5% and Canada at 2.3%.

However, even these estimates may be optimistic. It is more and more likely that the second quarter growth for Europe and America was close to zero. This is certainly true for Canada. Figures released at the end of August for Canada document a dramatic downturn in economic production. The Canadian economy expanded at only 0.4% in the April-June period and may not realize even 2% for the year as a whole. That is compared to growth of 5.1% in 1999 and 4.4% in 2000. The Canadian economy lost some 27,000 jobs in June and July while the "official" unemployment rate sits at 7%.

If second quarter growth is at or near zero in the U.S. and the European Union, and the economy of Japan contracting sharply, then the combined GDP's of the world's richest economies (America, the Euro-zone and Japan) will have contracted for the first time since late 1990. Unlike the 1990s the effect is not offset by growth in other economies.

In Latin America, Argentina and Mexico are already in recession and Brazil looks ready to follow as its GDP fell at an annual rate of 4% in the second quarter. The recent IMF loan of $8 billion to Argentina is only a stopgap measure. Argentina may yet default as it faces enormous internal problems - unemployment is estimated at 16%, a third of its people live below the poverty line and the austerity moves demanded by the IMF will only exacerbate the problems.

Figures for Asia are equally alarming. Singapore's economy fell at an annual rate of 11% in the first six months of the year and Taiwan's at a rate of 6%. South Korea's economy continues to slow as it is heavily reliant on export of goods and services (45% of GDP in 2000 was based on export), and thus, is extremely vulnerable to any global economic decline. Thailand and Malaysia are in similar difficulties. Only India and China remain , as yet, untouched by the global downturn.

The stock markets in all the capitalist economies have fallen dramatically. The 28% average fall in share prices since early 2000 have wiped $10 trillion off global wealth. Stock markets have fallen even more in Europe and Asia than in the U.S. On August 28 the Japanese stock market hit a 17-year low.

The most striking feature of the current crisis is that it is more widespread than the previous three recessions of 1975, 1982 and 1991. In those recessions global GDP growth ranged between 1.2% and 1.9% as recession in some parts of the world was offset by growth elsewhere. In the first half of 2001 global industrial production fell at an annual rate of 6%.

In the current situation many are looking at the U.S. economy to spark a turnaround. However, U.S. industrial production has fallen for ten consecutive months in a row - the longest period of decline since 1983. Output is now more than 4% below its peak.