There’s been an interesting exchange between the FT’s Martin Wolf and Morgan Stanley’s Stephen Roach on the subject of depression. After the civil niceties, the blogosphere tit-for-tat goes something like this (our emphasis):
Stephen Roach:
After I laid out my bearish prognosis in the opening session - an unprecedentedly anaemic growth rate in world GDP of just 2.5% for the next three years - there were those who actually called me an optimist. The indomitable Martin Wolf, whose platform I share temporarily in penning these missives, argued that I was far too sanguine for a world that was already in a “proto-Depression” - whatever that means.
Martin Wolf:
What did I mean by this? I meant that if current rates of decline of gross domestic product in some major economies continued, it is at least possible to imagine peak to trough falls in gross domestic product of 5-10 per cent, even in some advanced countries. That would be a depression, by any reasonable standard, though no precise definition of that term, of course, exists.
Ah, not at all says Stephen Roach. It’s probably more of a ‘global malaise’, or as he puts it:
Anything is possible, of course. But I think it is important to resist the bait of oneupmanship and put this prognosis in perspective. First of all, a 2.5% world GDP growth rate is a multi-year recession-like outcome for the global economy. That’s right, by IMF metrics, whenever the world slips through this growth threshold, it is widely judged to be in recession. If I am right on my three-year call of a 2.5% recession-like outcome, it would be a global malaise without precedent in the modern post-World War II era.
He goes on:
Finally, it is important to note that the current situation bears little resemblance to the circumstances prevailing during the Great Depression of the 1930s.
My 2.5% three year global growth call allows for about a 1% decline in world GDP this year, followed by a 3.5% to 3.75% fiscal policy-induced rebound in 2010 - infrastructure spending is GDP, after all - and then a relapse back into the 2% to 2.5% recession-like range in 2011. In the US, the unemployment rate would peak out at around 10% in such a scenario. This is a terrible outcome by any stretch of the imagination but it pales in comparison to the carnage phase of the 1930s - annualized output declines of 14% in the US and a peak unemployment rate of around 25%. Proto-Depression? Not even close, Martin.
We’re surprised Martin Wolf was brave enough to take Stephen “whatever in love depression means” Roach on.
Related links:
Depression *alert* - FT Alphaville
Whatever love means: A royal love story - IMDB
