The ICC/Ifo index for the fourth quarter fell steeply, dropping 13.4 points to 60.0 from 73.4 the previous quarter. The index is based on a poll of 1,001 economic experts in 91 countries in October, before US elections were concluded.
“On the whole, the survey data point to the danger of a global recession,” said Hans-Werner Sinn, President of Ifo. “A scenario where the index will remain in a recessionary period in the first half of 2009 appears realistic,” he added.
The decline is largely due to economists’ unfavourable assessments of the current economic situation, but also their expectations for the next six months.
In the US, the economic outlook fell to the lowest level since the ICC/Ifo index was created in 1983. Lack of confidence in the US government’s economic policy was cited as the most important problem. The index also dropped sharply in the euro area and Russia, and fell to the lowest level since 2001 in Asia.
ICC is however encouraged by the recent G20 leaders’ rejection of protectionism and their pledge to reach agreement this year on modalities leading to a successful conclusion to the Doha trade negotiations.
“Leaders of the world’s major economies signalled their willingness to bring the Doha round of multilateral trade talks to a rapid and successful conclusion. This is as powerful as any economic stimulus programme ,” said Guy Sebban, ICC Secretary General.
Economists surveyed expect a global inflation of 5.4% for 2008, slightly higher than the rate predicted in the previous quarter of 5.2%.
The experts polled said the US dollar is no longer undervalued but has reached a fair level, and they anticipate a moderate strengthening in the value of the dollar almost worldwide in the next six months.
The economists’ outlook for economic growth for the next three to five years dropped markedly to 2.5% from 3.3% recorded a year ago.
Economists were also asked whether they thought the difficulties in the Doha Round of multilateral trade negotiations would have an impact on concluding inter-governmental agreements on climate change.
A strong majority of economists surveyed said a failure in international trade talks will have negative consequences for striking a global agreement on climate change. They were worried that the lack of a climate agreement would lead to trade sanctions by governments to deal with competitiveness concerns brought on by variances in national climate change policies.