Risks of a global recession.

The past few weeks have seen turmoil and turbulence in global financial markets, with 21 January seeing the sharpest one-day share price falls in many Asian and European markets since 2001, ostensibly in response to widespread fears of an imminent recession in the US. A careful examination of the

available real indicators suggests that much of the recent panic in financial markets is not based on fundamentals, although the aggressive response of the Federal Reserve, with the biggest rate move since 1994 (1) at an unscheduled meeting, gave the impression that it was privy to information that had not yet appeared in hard data, such as the imminent collapse of a major US bank. However it is also possible that the Federal Reserve acted precipitately to technical fall out from losses at Societe Generale in France, which seems to have sparked much of the panic trading. The Banque de France informed the Federal Reserve of the matter in advance of their meeting scheduled for the following week. It is possible that if the Federal Reserve had waited for all the information they needed they might not have acted, and indeed they may have damaged their credibility by their precipitate action.

Our central forecast, reported in table 1, is based on information available to 18 January 2008 plus the forward move of anticipated interest rate cuts in the US, and therefore assumes that the subsequent drop in share prices is temporary and short-lived, which it appears to have been. However, fear of recession has spread, leading to a sharp adjustment in risk perceptions in the financial markets, and this fear of recession itself may yet tip the US economy and possibly the global economy into recession. In our last Review we discussed the possible impact of a major banking crisis on the economy (Barrell and Holland, 2007), and we also present a series of alternative scenarios based on this material around our central forecast, allowing a longer downturn in share prices and rise in investment risk premia to spillover into the real economy.

Our central forecast takes into account a number of negative developments in economic prospects over the past few months, most notably coming out of the US. We discuss short-term indicators in the US in more detail later in this chapter, and these include a rise in the unemployment rate in December and nationwide declines in house prices, on top of the global rise in oil prices, to nearly $100 per barrel and a decline in share prices of about 5-15 per cent over the past three months in the major economies, even before the most recent deterioration. These developments followed a sharp rise in certain types of risk premia last summer, primarily related to debt defaults and delinquencies on US mortgage lending to individuals with low or less certain credit ratings. This has tightened global lending conditions, especially in the US and the UK. These negative factors are set against unexpectedly strong outturns for GDP growth in the US and China in the third quarter of 2007, with newly released figures for Chinese GDP in the final quarter of the year pointing to further annual growth in excess of 11 per cent. Export volume growth remained strong in the US and Japan in the final quarter of the year, while US consumer spending growth, especially for durable goods, was significantly stronger than expected in October and November. In light of these unexpectedly strong data we have revised our estimate of US growth in 2007 upward slightly since October, while the outturn for growth in China last year was also stronger than anticipated. Our estimates of world growth reported in table 1 have been revised down significantly both historically and in the forecast figures, although this is largely a reflection of a revision to the weights attached to each country in aggregating the data across countries. This is discussed in more detail in the box below.

Box A. Revision to purchasing power parity estimates and world growth

World GDP is calculated by summing GDP data for individual economies,
after converting the data to a common currency and common base year.
Instead of converting data to a common currency using exchange rates,
we aggregate data at purchasing power parity (PPP) rates, in line with
the approach adopted by the IMF and most other international bodies.
PPPs correct for differences in the price levels, so that one dollar
purchases the same quantity of goods and services in all countries.
This should allow cross-country comparisons of economic aggregates on
the basis of physical levels of output, free of price and exchange rate
distortions. The International Comparison Program, a project covering
146 countries coordinated by the World Bank, the OECD and Eurostat, has
recently released a revised set of PPP rates, which include significant
revisions to estimates for a number of countries, including China and
India. The new estimates are benchmarked to the year 2005, updating
previous estimates for most non-OECD countries that date back to the
early 1990s or 1980s. Figures A I and A2 illustrate the shares of
global output captured by the major economies in 2005 according to the
old PPP estimates and the new PPP estimates. China's estimated share
of global output has fallen from 14 per cent to 10 per cent, while
India's estimated share has fallen from 6 per cent to 4 per cent. This
is offset by a rise in the estimated OECD share of global output from
56 per cent to 62 per cent. Without any adjustment to our historical
estimates of growth in any given country, a higher weight on the
slower growing OECD and lower weights on the rapidly expanding
economies of China and India reduces our estimate of aggregate global
growth by 0.3-0.5 percentage points per annum since 2001.

Figure A1. Share of global GDP in 2005, old PPPs

Rest of world   24%
India            6%
China           14%
Other OECD      26%
Germany          4%
Japan            6%
US              20%

Note: Table made from pie chart.

Figure A2. Share of global GDP in 2005, new PPPs

Rest of world   24%
India            4%
China           10%
Other OECD      27%
Germany          5%
Japan            7%
US              23%

Note: Table made from pie chart.

We expect a deterioration in global growth this year, with growth slowing across most of the OECD. The Euro Area will be held back by a sharp slowdown in export growth, due to weak demand from the US and the UK on top of a recent strengthening of the euro exchange rate. While we project GDP growth of 2.2 per cent in the US this year overall, the annual figure masks a sharp slowdown in growth dynamics, with annualised growth slowing sharply to average 1.5 per cent from 2007q4 to 2008q2, from an annualised rise of 4.9 per cent in the third quarter of 2007. These projections incorporate anticipated and enacted cuts in US interest rates, which add more than 1/2 point to US growth in both 2008 and 2009, as discussed on pp. 15-17 of this Review. While the OECD is set to recover in 2009, growth in China should continue to ease over the forecast horizon as population growth and productivity growth both moderate. Over the medium-term horizon of 201014, growth should revert towards capacity rates in the major economies, governed by expected growth in productivity, labour input and the equilibrium level of the capital stock. We report expected productivity growth and labour input growth in table 2. Productivity growth in Italy has started to recover from the deterioration recorded 2002-4, but is expected to rise only gradually over the forecast horizon. Our projections for GDP growth in Japan are weak relative to the other major economies, but this reflects the declining total population, whereas productivity growth should continue to be high relative to the other G7 economies, reflecting the continued convergence of productivity from a relatively low level.

The oil price rose to a new high in nominal terms in early January, of $98.5 per barrel for Brent crude, due to tensions in the Middle East and weather-related production shortfalls. We discuss the impact of a rise in oil prices of this magnitude in a note on pp. 31-4 of this Review. This has led to a significant upward revision to the outlook for inflation in 2008, with rising inflation already evident in the US and Europe in the final quarter of 2007. We have revised our forecast for OECD inflation up by 0.3 percentage points in 2008, to 2.5 per cent, with the impact of the oil price partially offset by a weaker global economy. The oil price has already come down from the highs reached at the beginning of the year, with a notable drop associated with the financial turbulence of the past weeks.

We expect the oil price to average about $85 per barrel this year, declining to about $75 per barrel in 2009, remaining about $5 per barrel higher than expected three months ago. The decline in the oil price will help bring inflation down next year, although the medium-term outlook for inflation, particularly for the US, is somewhat higher than previously forecast, given the magnitude of expected interest rate cuts.

Table 3 reports the three-month interbank rates and 10-year government bond yields underlying our central forecast. Despite the higher inflationary pressures coming from the oil price, interest rates are expected to come down in the US, UK and Canada this year compared to expectations three months ago. This expectation has been associated with a depreciation of their exchange rates, and we discuss the relationship between the yield curve for interest rates and exchange rate developments in a note on pp. 54-6 of this Review. Interest rates in the Euro Area are not expected to move much over the next two years, perhaps reflecting the more modest exposure to the US subprime market and rapid pass-through of the recent oil price rise to harmonised consumer price inflation. This has been associated with a significant shift in spending behaviour in the Euro Area, and the consumer expenditure deflator has recorded lower inflation than the harmonised basket, suggesting that the ECB has more room for manoeuvre than headline inflation figures indicate. Interest rates in Japan are expected to rise very gradually over the forecast horizon, with the pace of rate rises expected to be slightly more moderate than anticipated three months ago.

World trade growth slowed to an estimated 6.3 per cent in 2007, from a rate of 8.7 per cent in 2006. The slowdown reflects sharp moderation in import demand in both the US and China, as well as the impact of missing trader intra-community fraud (MTIC) in the UK, which added 6.6 per cent to the recorded level of UK exports in 2006. Despite weaker demand in two of the world's biggest importers, export growth was stronger than expected from the US, China and Japan last year. Bilateral trade data suggest that much of this strength reflects strong demand in India, South America and Africa. While US import growth is expected to slow to less than i per cent this year, world trade growth overall should accelerate slightly, as demand from China strengthens and the impact of MTIC drops out of UK trade figures.

The sharp drop in global share prices on 21 January appears to reflect an overreaction of financial markets to both the impact of technical trades initiated by Societe Generale's unwinding of a position induced by fraudulent activity and by the frequent references of analysts to a rising likelihood of a recession in the US. (2) Following the surprise interest rate announcement by the Federal Reserve, markets partially recovered the losses recorded the previous day, but the downward trend in share prices has been underway since last summer. Share price can decline either in response to a reassessment of the expected discounted value of future profits, or in response to a rise in uncertainty surrounding future profits, in which case investors demand a higher expected rate of return for a given level of investment, with a rise in the equity risk premium. The steady downward trend in global share prices since August is probably related to a reassessment of future profit potential. The sharpest drops in share prices have been in financial sector shares, reflecting changed views about the long-term profitability of the sector and perhaps also fears of very large bad debts. There have also been significant losses in the telecoms, consumer services and industrial sectors, with the latter two likely to be related to the high oil price. Other industries appear to have held up relatively well.

Risk perceptions can lead to rapid shifts in behaviour, and if shifts are sustained can have a significant impact on the real economy. Share prices affect the real economy in two ways. They affect the financial holdings of household wealth, which has an impact on consumer spending, and they affect the borrowing capacity of firms through share issue, which affects investment. The magnitude of the impact differs across countries, but the short-term impact on consumption is generally fairly small (see Barrell and Davis, 2007, for recent estimates). The key factors that determine country differences are the size of the stock market relative to the economy, the short-term propensity to consume out of wealth and the share of firm borrowing that is conducted through equity finance as opposed to bank finance. Figure 1 shows the stock market capitalisation of major economies relative to the size of their GDP. The UK and US stand out as having a greater role for share prices than other economies, while Germany and Italy are relatively sheltered from share price volatility. The share of equity finance follows a similar pattern, with the US and UK financing close to 50 per cent of corporate borrowing through equities and Germany and Italy financing just over 20 per cent through share issues.

We have simulated a rise in global equity risk premia that reduces share prices by 6 per cent immediately. The impact on GDP in the major economies is reported in table 6. The short-term impact is greatest in the US, Spain and the Netherlands, although the flexible US economy recovers more quickly from the shock than the others. Germany is relatively insensitive to shifts in equity risk premia. If the recent turbulence seen in share prices reflects a rise in global equity risk premia that is sustained for one year, this would reduce our projections for GDP growth this year by about 0.3 percentage points in the US, Spain and the Netherlands, and by 0.1-0.2 percentage points in most of the other European economies. A temporary shock of this magnitude would not be enough to push the US economy into recession.

[FIGURE 1 OMITTED]

The recent turbulence of financial markets may be an indication that investors expect a major banking crisis to develop in the US. Some of the world's largest banks have announced huge debt write-offs, with profits down by over 95 per cent in the final quarter of 2007 in Bank of America and Wachovia relative to a year earlier. High default rates on loans could result in the value of bank assets falling below their liabilities, making the banks technically bankrupt. If there are worries about the ability of banks to meet their obligations, the borrowing rates they face in the interbank market might rise to levels that make them operate at a loss, and hence cause their capital base to shrink. The spread between interbank rates and central bank base rates rose sharply in the US, the UK and the Euro Area last August. Spreads remained high in December, but have dropped sharply in recent weeks, perhaps signalling expected interest rate cuts.

A decline in their capital base makes banks increase the spread between deposit rates and borrowing rates. In recent months this has largely offset the impact of the decline in interest rates on the user cost of capital and borrowing rates faced by households. The effects of increases in borrowing rates depend on the structure of borrowing by firms and individuals, especially the proportion of consumer debt that is fixed and floating. Ireland and Spain are among the most vulnerable economies to rising spreads, and we forecast sharp slowdowns in both economies this year. The UK is also relatively sensitive, while Germany and France have small proportions of floating rate borrowing as a per cent of personal disposable incomes and hence are likely to be less vulnerable to increases in borrowing rates (see Barrell and Holland, 2007, p. 35). Table 6 reports the impact of a 4 point rise in the consumer borrowing wedge on GDP in the major economies. The biggest short-term impacts are felt in the UK, US and the Netherlands, while a relatively strong impact on Spanish consumption feeds through more gradually. Sweden and Italy are relatively insensitive to consumer borrowing costs. A sharp rise in consumer borrowing costs of this magnitude would reduce our projections of GDP growth in the major economies this year by 0.1 to 0.5 percentage points, with the impact persisting into 2009.

The sensitivity of the business sector to borrowing rates depends on the share of finance secured through debt as opposed to share issue, and so is inversely related to the equity market sensitivity discussed above, with a relatively high exposure in Germany and Italy and relatively low exposure in the US and the UK. However, this assumes that real equity prices remain constant, whereas if borrowing rates rise in conjunction with a decline in share prides the impacts are more evenly spread across national business sectors, depending primarily on the levels of corporate debt. Tighter borrowing conditions can be seen in the spread between risk-free government bonds and corporate securities, which we plot in figure 2. This spread has been on an upward trend since last summer. In the US and the UK, this has been largely offset by falls in government bond yields, with little impact on the user cost of capital, although the Euro Area has seen a rise in the cost of firm borrowing. Table 6 reports the impact of a 4 point rise in the corporate borrowing spread on GDP in the major economies. The impact is highest in Germany, and lowest in Sweden and the US. A sharp rise in investment risk premia of this magnitude would reduce growth in the major economies by 0.2 to 0.9 percentage points this year, and may be enough to push some economies into recession. The damaging effects would persist into 2009.

A severe US banking crisis would entail some combination of shocks. In our last Review (Barrell and Holland, 2007) we considered a banking crisis scenario that involved a 4 point rise in global investment risk premia, a 2 point rise in consumer borrowing spreads, a rise in equity risk premia, a fall in US house prices of 6 per cent and a fall of about 3 per cent in European house prices. A shock of this magnitude would drive the US economy deep into recession, with the level of US output expected to be stagnant this year relative to 2007, and growth recovering to baseline rates only in 2010. Euro Area growth would fall below 1 per cent this year, and the UK economy would expand by less than 1/2 per cent. While we do not anticipate a major banking crisis of this magnitude, if perceptions of risk rise sharply and are sustained, this could push the global economy into a deep recession.

[FIGURE 2 OMITTED]

Table 1 . Forecast summary

Percentage change

                              Real GDP (a)

               World    China    OECD     EU-27    Euro
                                                   Area

2004             4.9     10.1     3.2      2.3      1.8
2005             4.5     10.4     2.6      1.9      1.6
2006             5.0     11.1     3.1      3.1      2.9
2007             4.7     11.3     2.7      2.9      2.7
2008             4.4     10.3     2.3      2.1      1.9
2009             4.3      9.9     2.5      2.3      2.1
1998-2003        3.3      8.5     2.4      2.4      2.2
2010-2014        3.8      8.3     2.3      2.3      2.1

                             Real GDP (a)

                 USA    Japan   Germany   France   Italy

2004             3.6      2.7     0.6      2.3      1.0
2005             3.1      1.9     1.0      1.7      0.2
2006             2.9      2.4     3.1      2.2      1.9
2007             2.2      1.9     2.6      1.9      1.8
2008             2.2      1.7     1.8      1.8      1.4
2009             2.6      1.7     2.1      2.0      1.4
1998-2003        2.9      0.4     1.4      2.5      1.5
2010-2014        2.4      1.3     2.0      1.8      1.7

                  Real GDP (a)

                 UK      Canada     World
                                  trade (b)

2004             3.3      3.1        10.5
2005             1.8      3.1         7.2
2006             2.9      2.8         8.7
2007             3.1      2.5         6.3
2008             2.0      2.1         6.8
2009             2.4      2.6         7.2
1998-2003        2.9      3.6         5.5
2010-2014        2.5      2.5         5.3

                        Private consumption deflator

                OECD    EU-15      Euro       USA    Japan
                                   Area

2004             2.0      1.9       2.0       2.6     -0.7
2005             2.1      2.1       2.0       2.9     -0.8
2006             2.1      2.1       2.1       2.8     -0.3
2007             1.9      1.9       1.9       2.5     -0.5
2008             2.5      2.4       2.2       3.2      0.0
2009             2.0      1.9       1.8       2.2      0.3
1998-2003        1.7      1.8       1.9       1.8     -0.8
2010-2014        2.3      2.0       1.9       2.5      1.9

                        Private consumption deflator

               Germany   France    Italy      UK     Canada

2004             1.6      1.5       2.6       1.7      1.5
2005             1.5      1.4       2.4       2.5      1.7
2006             1.4      1.4       2.7       2.4      1.4
2007             1.9      0.8       2.0       2.5      1.4
2008             1.8      2.2       2.2       3.0      2.3
2009             1.4      1.6       2.0       2.3      1.4
1998-2003        1.0      1.1       2.6       1.9      1.8
2010-2014        1.8      1.6       2.2       2.4      1.5

                     World prices

               Exports       Oil ($ per
               ($) (c)       barrel) (d)

2004             8.5             35.9
2005             3.7             51.8
2006             3.0             63.4
2007             6.8             70.5
2008             7.5             84.6
2009             2.1             75.4
1998-2003       -0.2             22.1
2010-2014        2.0             75.8

Notes: (a) GDP growth at market prices. Regional aggregates are
based on PPP shares. (b) Trade in goods and services. (c) Non-commodity
export prices. (d) Average of Dubai and Brent spot prices.

Table 2. Decomposition of GDP growth in the G7
Average annual percentage change

                      GDP                 Labour productivity (a)

           1993-99   2000-6   2007-13   1993-99   2000-6   2007-13

Canada       3.6      3.0       2.5       1.7      1.3       2.0
France       2.0      2.0       1.8       1.8      1.7       1.2
Germany      1.5      1.3       2.1       2.1      1.6       1.7
Italy        1.4      1.3       1.6       1.7      0.4       1.2
Japan        0.8      1.7       1.5       1.8      2.1       2.2
UK           3.1      2.7       2.5       2.2      2.2       2.0
US           3.7      2.6       2.4       1.7      1.7       1.6

                Labour input (b)

           1993-99   2000-6   2007-13

Canada       1.9      1.7       0.5
France       0.2      0.3       0.6
Germany     -0.6     -0.3       0.4
Italy       -0.2      0.9       0.4
Japan       -1.0     -0.4      -0.6
UK           0.9      0.5       0.5
US           2.0      0.8       0.8

Note: (a) Output per person hour in whole economy (b) Total employment
times average hours worked in the whole economy

Table 3. Interest rates
Per cent per annum

                      Short-term interest rates

                  USA   Canada   Japan   Euro   UK
                                         Area

2005              3.5    2.7      0.0    2.2    4.7
2006              5.2    4.0      0.2    3.1    4.8
2007              5.3    4.2      0.7    4.3    6.0
2008              3.1    3.6      0.9    4.6    5.4
2009              2.8    3.1      1.0    4.3    5.0
2010              3.0    3.1      1.1    4.3    5.0
2011-2014         4.7    3.9      1.8    5.0    5.0

2007         Q1   5.3    4.2      0.5    3.8    5.5
2007         Q2   5.3    4.3      0.6    4.1    5.7
2007         Q3   5.4    4.3      0.7    4.5    6.3
2007         Q4   5.0    3.9      0.8    4.7    6.3
2008         Q1   3.6    3.7      0.8    4.6    5.6
2008         Q2   3.2    3.7      0.9    4.6    5.4
2008         Q3   2.8    3.6      0.9    4.6    5.3
2008         Q4   2.8    3.4      1.0    4.6    5.1
2009         Q1   2.8    3.2      1.0    4.5    5.0
2009         Q2   2.8    3.1      1.0    4.3    5.0
2009         Q3   2.8    3.1      1.0    4.2    5.0
2009         Q4   2.8    3.1      1.0    4.2    5.0

                     Long-term interest rates

                  USA   Canada   Japan   Euro   UK
                                         Area

2005              4.3    4.0      1.3    3.4    4.4
2006              4.8    4.2      1.8    3.9    4.5
2007              4.6    4.3      1.7    4.3    5.0
2008              3.9    3.9      1.5    4.4    4.4
2009              4.3    4.1      1.8    4.6    4.7
2010              4.7    4.3      2.0    4.9    4.9
2011-2014         5.1    4.8      2.3    5.2    5.1

2007              4.7    4.1      1.7    4.0    4.9
2007              4.8    4.6      1.9    4.7    5.2
2007              4.7    4.4      1.7    4.4    5.2
2007              4.3    4.2      1.5    4.3    4.8
2008              3.8    3.8      1.4    4.3    4.3
2008              3.9    3.9      1.5    4.3    4.4
2008              4.0    3.9      1.6    4.4    4.5
2008              4.1    4.0      1.6    4.5    4.5
2009              4.2    4.0      1.7    4.6    4.6
2009              4.3    4.1      1.8    4.6    4.7
2009              4.3    4.1      1.8    4.7    4.7
2009              4.4    4.2      1.9    4.7    4.8

Table 4. Nominal exchange rates

                       Percentage change in effective rate

             USA  Canada  Japan  Euro  Germany  France  Italy   UK
                                 Area

2005        -2.5    8.0   -3.6   -1.0   -0.8     -0.3    -0.6  -1.4
2006        -1.3    5.5   -6.3    0.1    0.0      0.1     0.0   0.7
2007        -4.6    6.2   -3.7    4.0    1.8      2.0     2.0   2.2
2008        -3.8    2.8    5.6    5.2    2.1      2.6     2.5  -8.1
2009         0.5    0.0    0.3   -0.2   -0.1     -0.1    -0.1  -0.7
2010         0.7   -0.1    0.1   -0.2   -0.2     -0.1    -0.1  -1.1

2007   Q1   -0.4   -1.5   -0.9    0.6    0.3      0.3     0.3   0.8
2007   Q2   -2.6    9.4   -5.6    1.3    0.7      0.7     0.6  -0.4
2007   Q3   -1.9    3.3    5.9    0.7    0.2      0.3     0.3   0.1
2007   Q4   -2.7    4.0    0.1    3.1    1.3      1.5     1.5  -2.5
2008   Q1   -0.2   -3.8    4.0    2.1    0.8      1.1     1.0  -6.2
2008   Q2    0.0    0.0    0.0    0.0    0.0      0.0     0.0   0.0
2008   Q3    0.0    0.0    0.0    0.0    0.0      0.0     0.0   0.0
2008   Q4    0.1    0.0    0.2    0.0    0.0      0.0     0.0  -0.2
2009   Q1    0.1    0.0    0.1   -0.1    0.0      0.0     0.0  -0.2
2009   Q2    0.2    0.0    0.1   -0.1   -0.1      0.0     0.0  -0.2
2009   Q3    0.2    0.0    0.0   -0.1    0.0      0.0     0.0  -0.3
2009   Q4    0.2    0.0    0.0    0.0    0.0      0.0     0.0  -0.3

                    Bilateral rate per US dollar

              Canadian     Yen     Euro    Sterling
               dollar

2005            1.20      110.9    0.804      0.550
2006            1.14      116.6    0.797      0.543
2007            1.06      117.0    0.731      0.500
2008            1.02      108.3    0.673      0.513
2009            1.02      108.2    0.681      0.521
2010            1.02      108.4    0.690      0.532

2007            1.17      117.3    0.763      0.512
2007            1.07      122.7    0.742      0.503
2007            1.03      115.0    0.728      0.495
2007            0.98      113.1    0.691      0.489
2008            1.02      108.3    0.673      0.512
2008            1.02      108.3    0.673      0.512
2008            1.02      108.3    0.673      0.512
2008            1.02      108.2    0.675      0.514
2009            1.02      108.1    0.677      0.517
2009            1.02      108.2    0.680      0.519
2009            1.02      108.2    0.682      0.522
2009            1.02      108.2    0.684      0.525

Table 5. Real effective exchange rates
(2005 = 100)

                                            Euro
                   USA     Canada   Japan   Area    Germany

2004               102.5     93.7   108.3   102.3     102.2
2005               100.0    100.0   100.0   100.0     100.0
2006                98.6    104.1    90.4    98.8      98.5
2007                93.9    109.3    83.8   102.2      99.6
2008                90.4    111.5    85.4   106.2     100.6
2009                90.5    110.5    83.4   104.6      99.4
2010                91.0    109.1    82.0   103.1      98.4
2011-2014           91.6    107.6    81.6   100.2      96.8

2006         Q1    100.0    103.2    92.1    96.7      97.8
2006         Q2     98.8    106.2    92.1    99.0      98.6
2006         Q3     98.4    105.3    89.2    99.7      98.8
2006         Q4     97.4    101.7    87.9    99.8      98.8
2007         Q1     97.2    100.1    86.3   100.2      98.9
2007         Q2     94.9    109.0    80.6   101.6      99.2
2007         Q3     92.9    112.2    84.5   101.9      99.3
2007         Q4     90.6    115.8    83.9   105.1     100.8
2008         Q1     90.4    111.5    86.5   106.7     101.1
2008         Q2     90.4    111.6    85.6   106.3     100.7
2008         Q3     90.3    111.5    84.9   106.0     100.4
2008         Q4     90.4    111.2    84.5   105.7     100.1
2009         Q1     90.4    111.0    84.0   105.3      99.9
2009         Q2     90.4    110.6    83.5   104.8      99.5
2009         Q3     90.5    110.3    83.1   104.4      99.3
2009         Q4     90.6    109.9    82.8   104.0      99.0

                  France   Italy    Spain    UK

2004               101.9    101.5    99.6   101.7
2005               100.0    100.0   100.0   100.0
2006                98.5     99.5   100.7   100.2
2007                98.5    100.5   102.5   102.3
2008               100.3    102.1   105.3    94.2
2009                99.4    101.4   105.2    93.4
2010                98.7    100.7   105.0    92.6
2011-2014           97.0    100.0   105.3    91.3

2006                98.1     98.2    99.5    98.0
2006                98.8     99.7   100.7    98.9
2006                98.8    100.3   101.1   101.2
2006                98.2     99.8   101.4   102.7
2007                97.9     99.7   101.5   103.6
2007                98.4    100.1   101.9   102.9
2007                98.1    100.5   102.7   102.7
2007                99.7    101.6   104.1   100.1
2008               100.6    102.4   105.3    94.0
2008               100.5    102.1   105.3    94.3
2008               100.2    101.9   105.3    94.4
2008               100.0    101.8   105.3    94.1
2009                99.8    101.6   105.3    93.7
2009                99.5    101.5   105.2    93.5
2009                99.3    101.3   105.2    93.3
2009                99.2    101.1   105.1    93.1

Table 6. The impact of risk premia on GDP

        France  Germany  Italy  Neths  Sweden  Spain   UK     US

Rise in global equity risk premia by 4 percentage
points for one year

2008     -0.15    -0.13  -0.14  -0.26   -0.15  -0.28  -0.15  -0.27
2009     -0.21    -0.20  -0.33  -0.34   -0.27  -0.65  -0.26  -0.21
2010     -0.08    -0.07  -0.24  -0.08   -0.14  -0.49  -0.14   0.01

Rise in spread between consumer borrowing and
lending rates of 4 percentage points for one year

2008     -0.25    -0.29  -0.12  -0.47   -0.09  -0.14  -0.36  -0.30
2009     -0.17    -0.23  -0.20  -0.40   -0.14  -0.43  -0.36  -0.36
2010     -0.03    -0.05  -0.15  -0.11   -0.09  -0.43  -0.17  -0.12

Rise in global investment risk premia of 4 percentage
points for one year

2008     -0.75    -0.89  -0.38  -0.71   -0.24  -0.45  -0.59  -0.45
2009     -0.91    -1.13  -0.90  -0.81   -0.50  -1.06  -0.89  -0.53
2010     -0.38    -0.50  -0.67  -0.06   -0.26  -0.79  -0.49   0.01

Note: GDP per cent difference in level from baseline.