Global Recession Deepens Financial Crisis Unleashes Global Economic Downturn

The financial crisis, which has intensified since fall 2008, has led to deteriorated funding conditions, a decline in the confidence of economic players and a dramatic slump in world trade, thereby unleashing a global recession. Governments worldwide launched measures to stabilize the financial systems and stimulate economic activity, which helped prevent a further escalation of the financial crisis. Since economic stimulus measures require some time to take full effect, a deep recession must be anticipated for 2009. In the U.S.A., an end to the recession is not in sight, despite comprehensive measures taken to support the economy. The Federal Reserve System (Fed) cut key interest rates to their lowest level historically and is now pursuing unconventional policies in a bid to revive lending. In the euro area, recession also deepened in the fourth quarter of 2008, especially due to weakening export demand and investment; unemployment rose substantially. According to leading indicators and forecasts, the economic situation will continue to deteriorate in the first half of 2009. A glimmer of hope may be seen in the fact that a number of confidence indicators seem to have hit bottom at a low level in recent weeks, implying that the downturn may level out from the second half of 2009 and then come to an end. Driven particularly by falling energy, commodity and food prices, HICP inflation decelerated markedly in recent months and in both 2009 and 2010 is expected to remain significantly below the level of price stability as defined by the Eurosystem. The past few months have also shown that the previously fast-growing emerging economies cannot escape the crisis. In particular, a number of Central, Eastern and Southeastern European countries have been hit severely. Other countries in the region, by contrast, are facing a worse, albeit still more upbeat outlook than the euro area average. The global economic crisis also hit Austria in fall 2008, resulting in a steep slump in goods exports and industrial production in October 2008. The OeNB economic indicator currently predicts real GDP to contract by 1.5% in the first quarter of 2009 (seasonally and working-day adjusted, on a quarterly basis). The Austrian economy is expected to continue to shrink by 0.7% in the second quarter of 2009.