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World economy heading for 'double-dip' recession
THE WORLD economy grew by only 2.8% in 2008 and shrank, for the first time for over 65 years, by 0.6% in 2009, while the economies of the advanced capitalist countries shrank by 3.2% on average.
Per-Åke Westerlund, Rättvisepartiet Socialisterna (CWI in Sweden)
Only the biggest ever rescue packages prevented the crisis from becoming as serious as the Great Depression of the 1930s. The International Monetary Fund (IMF) has instead named it the "Great Recession", underlining its difference to other recessions.
Capitalism has come back from a near-death experience. In the US the longest recession since 1929 did not end until June of this year. However, what is now clear is that the stimulus package was too limited to be sustainable and governments, now conducting massive austerity programmes, are deepening the crisis.
Before the recent IMF and World Bank summit in Washington, with finance ministers and central bank bosses from 187 countries, the IMF presented an updated World Economic Outlook (WEO) saying "downside risks remain elevated". The recovery in the advanced capitalist countries is at "a low rate considering that they are emerging from the deepest recessions since World War Two". Global output is still below the level of 2008.
Growth during 2010 has been dependent on stimulus measures and on capitalists restocking industry. But overcapacity is still widespread, investments low and unemployment very high. The IMF estimates global unemployment at 210 million, 30 million higher than three years ago.
The WEO prognosis is that global growth will slow down next year. For the advanced economies (the US, Western Europe, Japan and a few more) from 2.7% this year to 2.2% next year. For the emerging countries, with China in the lead, from 7.1% to 6.4%. The latter countries have considerably higher growth but the IMF warns of their high dependence on exports.
Growth in the US fell in the second quarter to 1.6%, and will most likely be 1% or lower in the second half of this year. State subsidies - 'cash for clunkers', investment support, environment bonuses, etc - have ceased. The housing sector in the US is already in a 'double-dip' recession, with house sales close to all-time low.
Most economists are predicting long-term weak economic growth in the US and a growing number say a new downturn is most likely.
Most of the western governments' 'savings packages' since 2008 have aimed to save the banks. They are now the world's leading 'state aid addicts', a description neoliberals use for pensioners or the unemployed. Bonuses and profits on Wall Street, and in the City of London etc, have been financed by state deficits.
The European Central Bank (ECB) has a 24/7 emergency offer of liquidity for banks and has bought state bonds to a value of €63.5 billion. In Ireland, the government is guaranteeing the capital of all "savers" and "investors", including foreign and domestic speculators while cutting public sector wages by 15%.
The IMF calculates that loans worth $4,000 billion are to be renewed in the coming two years and points to European banks as particularly in danger. The banks, according to the IMF, need to write off loans worth $2,200 billion.
Who should pay?
Governments in Greece, Portugal, Spain and Ireland have been pressurised to adopt brutal crisis programmes by those international capitalists who speculated in these countries in order to make enormous profits. Wages, pensions, child benefits, public expenditure and jobs have been slaughtered. But the capitalists have tasted blood; they aggressively see the crisis as a golden opportunity to attack the conditions of the working class.
The IMF concludes the advanced economies "need to strengthen household balance sheets, stabilise and subsequently reduce high public debt, and repair and reform their financial sectors". But to cut both the debts and stimulate growth is an impossible task, like driving forward and reversing at the same time.
In practice, the line of the capitalists and their IMF means stimulus for banks and big business, but cuts and neoliberal 'reforms' for the rest.
However, even the IMF has to admit that austerity hits the economy. This is the main reason the economies of Spain, Ireland, Portugal and the Baltic states are shrinking. And if more states cut their budgets, it increases the depressing effect on the world economy.
What should governments do, when interest rates are already zero and stimulus packages are ending but demand, as well as growth, remains weak? The IMF is now expecting the US central bank, the Federal Reserve, to start a second round of 'unconventional measures', or 'quantitative easing'. This means the Fed will grant itself billions of dollars to buy state bonds (IOUs).
This is hocus pocus on a high scale. "No one is sure whether or how quantitative easing and other unorthodox monetary policies work", the Financial Times concluded on 6 October. The IMF has a similar position: "Relatively little is known about the effectiveness of unconventional monetary easing measures and fiscal tightening". The most likely result is that both interest rates and the dollar will drop, benefitting US exports. Whether it will increase demand in the US is more doubtful, since crisis measures tend to make both households and companies more careful.
Most economists link their hopes for a real recovery in the world economy to a changed balance between the states. Countries with high savings - firstly China, Germany and Japan - should consume more. China's big surplus against the rest of the world is pointed to, as a culprit for global imbalances.
There are, however, two driving forces behind the imbalance - China's investments, production and exports as well as the credit-driven deficits of the US. The fact that big business in the US and Europe has moved production to China and that imported consumer products in the West have become cheaper, are important parts in this symbiosis.
But changing this imbalance is not easy. The IMF admits: "Over the medium term, however, domestic demand [in emerging economies] is unlikely to be strong enough to offset weaker demand in advanced economies, and global rebalancing is therefore projected to stall".
To change the balance in the world economy would, in other words, require slow growth in China, India and other countries with the strongest growth in 2010.
Capitalist economists seemingly agree that this crisis lacks parallels; that the recovery is very vulnerable, and it's the working class who should pay the bill. For socialists, the task is to explain that there is no capitalist way out - the system has to be replaced through a conscious and organised workers' movement. The crisis and exploitation of capitalism has to be replaced with democratic socialism.
In The Socialist 20 October 2010:
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