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Published on Oct 31, 2008
Friday 31 October 2008 - Be afraid. Be very afraid
Presented by Paul Donovan
+ UBS has revised down its global growth outlook for 2009, and sees a very limited recovery in 2010. We expect NEGATIVE growth in 2009 for the US, UK, Euro area and Canada. Japan is the fastest growing G7 economy at 0.1% growth. Global growth in 2009 forecast at 1.3%.
+ This has come about because the global financial crisis is deeper, and the need for deleverage greater than previously thought. Arguably we have had some policy errors (short selling bans in the OECD contributing to emerging market weakness etc).
+ We now need to see rate cuts (lots of them) to give money back to borrowers. Ironically, the Bank of Japan's contested rate cut today was the one that is not needed as Japan has delevered already. Fiscal stimulus (spending increases and rate cuts) can mitigate the economic damage.
+ The world is facing its worst economic environment since the early 1980s. Disinflation seems inevitable. A lower long term trend rate of growth is likely. However, the risks surrounding these forecasts are no longer skewed to the downside, but balanced.