Peter Hall of Export Development Canada writes,
Back in January, the seers were optimistic that prospects in the big economies would improve, collectively predicting growth would accelerate to 2.3%. Since then, revisions have been fast and furious. The 2009 forecast has been reduced by as much as the 2008 forecast was, but in just one-third of the time. At present, large-economy growth is pegged at just 1.3%, now a shade lower than the call for 2008.
Changed prospects for the US economy have played a big role in the overall revisions. Following a weak first quarter, the average projection was chopped by 1.2% to a meagre 1.5%. But the US is not alone; UK growth was halved to just 1%, Spain’s outlook fell from 2.4% to just 1.1%, and Ireland suffered a larger-than-average reduction. All of the large Western economies participated in the downward revision, and most are facing slower prospects in 2009 than at present.
Canada is a rare exception to the rule. On average, forecasters believe that, after a sluggish 2008, growth will nearly double next year. ...
... A slim minority just a year ago, those who believe that the slowdown is truly global have become a large majority in the forecasting community. And most have also swung over to the view that the recovery isn’t imminent.
This view is consistent with my own analysis posted last Thursday. But my perspective was longer, I hope, in that I expressed concern about how policy makers will react to this imminent downturn (in growth rates, if not output levels -- but see this for recently revised numbers).
If they try to offset the decline with expansionary monetary or fiscal policy, policy makers could very easily make matters worse. To avoid more serious problems down the line, policy makers must allow the aggregate supply portion of this short-term slowth to play itself out.
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