Let me change that a little: I still think the world won’t see negative GWP growth in any given quarter. But I no longer think that it can’t. Fitch now sees GWP growing by just 1% in 2009, dragged down by a -0.8% contraction in the developed economies of the US, UK, Euro area and Japan. And so it’s maybe not surprising that Mish, who’s more bearish than most, thinks that we will see "an outright contraction" in the next few quarters.
This, more than anything else, brings home to me the severity of the current crisis.
A negative print for gross world product would be all but unprecedented: this is a number which has been growing slowly but steadily for millenia. According to The World Economy, a truly invaluable reference work, GWP grew by 0.15% a year between 1000 and 1500; by 0.32% a year between 1500 and 1820; by 0.93% a year between 1820 and 1870; by 2.11% a year between 1870 and 1913; by 1.85% a year between 1913 and 1950; by 4.91% a year between 1950 and 1973; and by 3.01% a year between 1973 and 1998, just when China really started taking off.
At this point, the IMF defines a global recession to be any year with less than 3% GWP growth, so a drop to 1% is brutal indeed. A fall into negative territory would be shocking in the extreme — the kind of thing one would expect to see only in the event of a major global upheaval such as world war or climatic catastrophe. This is really nothing to do with subprime mortgages any more: it’s a worldwide deleveraging the likes of which we’ve never seen before. And where it will lead, nobody knows.