World recession to follow…

Last week saw a massive knock for the world economy as the IMF almost estimated a world wide recession. It revised down global growth for 2009 by 1.7% to 0.5%, the slowest rate since pre-war periods.
The news for the UK was even gloomier with 2009 growth estimated to be -2.8% and 2010 barely registering growth at 0.2%. The UK will decline more than any other economically developed country with the likes of the US, Germany and Japan suffering 1.6%, 2.5% and 2.6% falls respectively. This does beg the question why the UK is suffering more than its economic counterparts?
Many theories get put out to answer this but in-between all the political and media spins you can come up with a simple but yet logical solution. When you look at the GDP growth data closely for 2008-2010, economies like Japan and Italy are expected to suffer a bigger slowdown than the UK, suggesting that Britain will purely suffer a sharper recession than other economic powers. This would also make sense when you look at the fundamentals behind the reason for the economic slowdown. UK has been hit hard by being the financial centre of the world with its market structure heavily skewed towards services, in particular the financial sector, meaning any downturn in the main industry would impact heavily. The matter of fact is that this is one of the biggest financial crises of all time and it is causing spill over effects in to other industries, making the bigger issue to the world economy the macro consequences of the past 18 months where financials have purely been a catalyst to what has been simmering for a long time. This is not an excuse as to why the UK is likely be the biggest suffer in the recent epidemic, but the combination of a housing market correction, plunge in lending and borrowing, a record government deficit and a business cycle long over due for its revolution, it can not come as a big surprise the sheer severity of the situation.