Yet the news is not all bad: inflationary pressures are abating fast. Even so, this hides more bad news. The broken financial system will weaken the transmission from monetary easing to the economy. This will make the coming slowdown last a long time. Even though decisive action has saved the financial system from its recent heart attack, the patient remains enfeebled.
In 2007, the world economy (measured at market exchange rates) grew by 3.7 per cent in real terms. This year, according to the latest World Economic Outlook from the International Monetary Fund, growth is forecast to be 2.7 per cent. Next year it is expected to be a mere 1.9 per cent. The economies of high-income countries are forecast to stagnate next year. Meanwhile, emerging economies are forecast to grow at 6.1 per cent. This seems fast. But it is 0.6 percentage points slower than was forecast in July and is well below the 8 per cent achieved in 2007 and 6.9 per cent still forecast for 2008.
The pleasant surprise is the forecast growth of 6 per cent in Africa next year. Developing Asia is forecast to remain the world's leader, with growth of 7.7 per cent: China is on 9.3 per cent, while India is down to 6.9 per cent. Meanwhile, central and eastern Europe is forecast to grow only 3.4 per cent next year and the western hemisphere to grow even more slowly, at 3.2 per cent.