Global Economy Forecasted to Shrink 2.9% in 2009

The global economy is expected to contract by 2.9% in 2009, according to a forecast from the World Bank. This grim assessment has sent stock markets tumbling, with major indexes declining by over 2% and the Dow Jones industrial average plummeting 201 points. The downbeat economic prediction has also weighed on commodity prices, leading to a decline in the prices of oil, metals, and other commodities. This has, in turn, sent energy and metal producers' shares falling.

Key Takeaways:

• The World Bank has forecasted a 2.9% contraction in the global economy in 2009, a significant increase from its previous estimate of a 1.7% contraction.
• Major stock indexes, including the Dow Jones industrial average, have declined by over 2% in response to the forecast, with the Dow falling 200.72 points to 8,339.01.
• The decline in stock prices has been driven by uncertainty about the economic outlook, with investors awaiting further data on new and existing home sales, durable goods orders, gross domestic product, and personal incomes and spending.
• The Federal Reserve is expected to hold its key interest rate near zero, but investors are eager to know whether policymakers believe the economy is recovering or still in need of aid.
• Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, believes that the forecast by the World Bank has confirmed fears that have been building in the market for two weeks, and that the market may have overstated expectations for economic recovery.
• David Kotok, chairman and chief investment officer of Cumberland Advisors, notes that the picture is not clear and that the market is acting with uncertainty about what lies ahead.

Statistics:

• Global economy forecasted to contract by 2.9% in 2009, according to the World Bank.
• Dow Jones industrial average plummeted 201 points to 8,339.01.
• Major stock indexes declined by over 2% in response to the forecast.
• Commodity prices declined in response to the forecast, with prices of oil, metals, and other commodities falling.
• Energy and metal producers' shares fell in response to the decline in commodity prices.

Sources:

• The Associated Press
• World Bank
• Johnson Illington Advisors
• Cumberland Advisors