Scenario Update: Three questions on the crisis
In November 2008, we were bold enough to present three scenarios for the economic crisis and offer our assessment of how developments would unfold. We argued that the duration and intensity of the crisis depends on getting financial markets working again and on governments making effective interventions. Back in winter, it was not yet clear how hard individual industries would be hit by the downturn and how the BRIC states would react to the crisis. So we have decided to revisit our three scenarios from last year and bring them up to date.
To offer some guidance here, we have again distinguished three possible scenarios:
Scenario 1: THE V-CURVE – Steep downturn followed by rapid recovery
Depth of the crisis
The global economy shrinks through 2009, with a growth rate of around minus 0.5% on the previous year. Particularly hard hit are heavily export-oriented economies like Germany (-3.2%) or Japan (-5.8%). The same goes for countries with structural problems in the finance or real estate sector, particularly the US (-2.8%) and the UK (-3.0%). The wider world economy is stabilized by moderate domestic growth in a number of emerging markets, as well as by strong sustained growth in the BRIC states China (+6.0%) and India (+4.5%).
Length of the crisis
Another twelve months from today. The downturn loses momentum during the second and third quarters of 2009. By the second quarter of 2010, we will see a number of industrial economies returning to positive growth against the previous quarter.
Intensity of the upturn
Very rapid recovery of the economy. A significant recovery of consumer confidence in many countries and depleted stocks in industry trigger a resurgence of demand. Through 2010, growth rates improve around the world (US +1.0%, Germany +0.5%, Japan +0.4%), averaging +2.5%.
Whether or not our "V-curve" scenario occurs will depend above all on two questions: Can the US produce good economic news in summer or early fall? And does China have a realistic chance of achieving at least 6% growth? Only if these questions are answered in the affirmative does a relatively rapid recovery look likely.
Scenario 2: THE U-CURVE – Prolonged phase of recession with slow recovery
If the turnaround in the US and China fails and the early indicators do not pick up as described, we will find ourselves – at best – in scenario two: the U-curve marked by a lengthy recession.
Depth of the crisis
The economy shrinks. In 2009, gross domestic product is negative for the first time in two generations, with growth rates between -1.0% and -1.5%.
Length of the crisis
There are four to six quarters of negative growth before us. Not until the second half of 2010 does growth kick in again.
Intensity of the upturn
The recovery begins slowly. Global growth stands at just 1.5% in 2010. The economies of major industrial nations stagnate, with no palpable revival until 2011.
Scenario 3: THE L-CURVE – Extreme recession, followed by a long phase of stagnation
2009 will show whether we can achieve a turnaround and bring about the rapid recovery described by the V-curve. If this scenario doesn't come to pass, developments over the summer will determine whether we should expect a U-shaped or an L-shaped economic crisis – a medium-term revival or long-term depression.
Depth of the crisis
Within two years, the global economy contracts by 3% overall.
Length of the crisis
At least three years from today. Although growth rates no longer fall from mid-2011, no clear upturn is in sight. The world economy stagnates.
Intensity of the upturn
Minimal, with moderate impetus for growth coming only from the emerging markets.
To offer some guidance here, we have again distinguished three possible scenarios:
Scenario 1: THE V-CURVE – Steep downturn followed by rapid recovery
Depth of the crisis
The global economy shrinks through 2009, with a growth rate of around minus 0.5% on the previous year. Particularly hard hit are heavily export-oriented economies like Germany (-3.2%) or Japan (-5.8%). The same goes for countries with structural problems in the finance or real estate sector, particularly the US (-2.8%) and the UK (-3.0%). The wider world economy is stabilized by moderate domestic growth in a number of emerging markets, as well as by strong sustained growth in the BRIC states China (+6.0%) and India (+4.5%).
Length of the crisis
Another twelve months from today. The downturn loses momentum during the second and third quarters of 2009. By the second quarter of 2010, we will see a number of industrial economies returning to positive growth against the previous quarter.
Intensity of the upturn
Very rapid recovery of the economy. A significant recovery of consumer confidence in many countries and depleted stocks in industry trigger a resurgence of demand. Through 2010, growth rates improve around the world (US +1.0%, Germany +0.5%, Japan +0.4%), averaging +2.5%.
Whether or not our "V-curve" scenario occurs will depend above all on two questions: Can the US produce good economic news in summer or early fall? And does China have a realistic chance of achieving at least 6% growth? Only if these questions are answered in the affirmative does a relatively rapid recovery look likely.
Scenario 2: THE U-CURVE – Prolonged phase of recession with slow recovery
If the turnaround in the US and China fails and the early indicators do not pick up as described, we will find ourselves – at best – in scenario two: the U-curve marked by a lengthy recession.
Depth of the crisis
The economy shrinks. In 2009, gross domestic product is negative for the first time in two generations, with growth rates between -1.0% and -1.5%.
Length of the crisis
There are four to six quarters of negative growth before us. Not until the second half of 2010 does growth kick in again.
Intensity of the upturn
The recovery begins slowly. Global growth stands at just 1.5% in 2010. The economies of major industrial nations stagnate, with no palpable revival until 2011.
Scenario 3: THE L-CURVE – Extreme recession, followed by a long phase of stagnation
2009 will show whether we can achieve a turnaround and bring about the rapid recovery described by the V-curve. If this scenario doesn't come to pass, developments over the summer will determine whether we should expect a U-shaped or an L-shaped economic crisis – a medium-term revival or long-term depression.
Depth of the crisis
Within two years, the global economy contracts by 3% overall.
Length of the crisis
At least three years from today. Although growth rates no longer fall from mid-2011, no clear upturn is in sight. The world economy stagnates.
Intensity of the upturn
Minimal, with moderate impetus for growth coming only from the emerging markets.
