1/30/2009

Rescue efforts: Big government fights back

Public debt soars as governments battle financial crisis and recession. Will fiscal firepower work?

FEW now doubt that the world economy is in its most parlous state since the 1930s. Demand is slumping across the globe as firms and consumers are battered by a pernicious, self-reinforcing bombardment of dysfunctional financial markets, falling wealth, higher unemployment and rampant fear. The IMF’s latest forecasts, published on Wednesday January 28th, suggest 2009 will bring the deepest global recession in the post-war era.

To stem the slump, governments are fighting back with an activism rarely seen outside wartime (see interactive graphic). In some countries, notably China, official estimates overstate the likely fiscal stimulus. But even adjusted for bureaucratic hyperbole the government response is hefty. Weighted by their economies’ size, the plans of 11 big advanced and emerging economies are worth an average of 3.6% of GDP—though spread over several years. The IMF expects tax cuts and spending worth 1.5% of global GDP to kick in this year. ...



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