2009 is forecast to be the worst year for the world economy in nearly a century. Some sharpest declines in growth are already reported for the first two months in USA, Europe and Japan. Emerging economies, dragged down with speed and ferocity, are facing a downturn that has made them too vulnerable to global winds unless they re-set their growth pattern, more domestic-led and equitable. China leads the most affected emerging economies in terms of its global share.

The fears are mirrored in the world stock markets day to day as investors turn nervous and waves of sell-offs on Wall Street drag down other mature and emerging markets in Europe, Asia and Latin America.. Banking and automobile stocks have mostly led the plunge on Wall Street while energy slides as oil prices tumble.

19 February saw Dow Jones hitting its lowest point (7465.95), down 47 per cent since its peak on 9 October, 2007 as concerns mounted about new estimates of prolonged recession beyond 2009, rising jobless claims, sharp fall in bank stocks like Bank of America and Citigroup, the bailed-out icons and the unfathomable pile of toxic assets in financial system. Disappointing earnings from leading IT companies added to make it one of the biggest falls in the century-old index.

Corporate profitability declined in 2008, especially for the US big companies. Key sectors struggling to cope up with the tough times include automobiles, steel, aviation, technology, IT in particular, and retail services. With consumer spending not picking up, the retail majors including Macy's took big hits and responded with downsizing and worker layoffs. Walmart stood one of the bright exceptions.

'Buy American'

Economic protectionism is creating new frictions among nations despite the urgent need for a collective response to the global slowdown. WTO is monitoring actions taken by countries to shield their markets against cheaper imports. State-aided global banks are urged to lend to local borrowers, called financial protection. But the 'Buy American' provision in the US Economic Stimulus legislation tops the concerns for most of USA's trading partners. The Congress had sought to restrict purchase of goods (like iron and steel) from US manufacturers. At President Obama's intervention, there was some softening to ensure that the provision was applied "in a manner consistent with US obligations under international trade agreements." The trade row is alive.

Automobile - no longer the engine of growth

The financial crisis and recession delivered a severe blow to global car manufacturers, especially in USA, Europe and Japan, as well as to car makers in emerging economies including Russia, China, Brazil and India. Falling demand worldwide, tight credit market and volatile exchange rates were cited for the plight of this industry which was once the driving force US economy.

The three Detroit-based majors, GM, Ford and Chrysler, had used up their investment capital and failed to restructure themselves to face severe competition with Japanese and other manufacturers at home and abroad. Working losses with higher wages, in relation to the competitors and weak sales forced them to seek Federal aid to avoid filing for bankruptcy. After desperate appeals to Congress, Washington provided GM and Chrysler 17.4 billion dollars in loans returnable by March 2009 if they failed to provide a viable restructuring plan. Ford decided to draw from its lines of credit while the other two car makers sought more aid with a plan under which GM would cut 47,000 jobs worldwide and effect pay and other cost reductions in agreement with the autoworkers, union and close five more plants in North America. Both firms have sought an additional 14 billion dollars. The Obama Administration's Task Force will decide by end of March whether their plans would keep them viable over the long term.

Car sales in USA in 2008 declined to 13 million from 16 million in 2007 and will go down to about 11 million in 2009. Al US manufacturers are stuck with excess capacity. Japan's No.1 car-maker Toyota, which overtook GM as the largest seller, incurred its first loss in 70 years. Nissan, Mazda and Mitsubishi joined in reporting losses and taking the route of production cuts and some layoffs. Similar losses have been reported in Germany, France and UK with governments bailing out firms in France (Renault and Peugeot) and UK (Jaguar Land Rover - now owned by Tatas).

In January. China sold 790,000 cars, local and foreign, more than in USA, and its auto industry is going through consolidation. The 2008 sales totalled over 5.6 million, over 60 per cent of foreign brands, and China has reduced vehicle tax for low-emission engines. India has also reported some pick up in auto sales in January.

Steel - boom years end

Steel demand, production and prices have plummeted coupled with fall in demand for key raw materials like iron ore. Depressed construction activity and falling demand for automobiles affected steel demand, particularly in North America, Europe and the Middle East. China is also cutting consumption though it has accounted for 35 per cent of world output. The steel boom since 2002 has now petered out and the outlook for 2009 remains weak as at present.. India's greenfield projects stand deferred with some reining in of capacity additions. Tata Steel is keeping up its expansion project and SAIL also is committed to its investments hoping for demand revival.

The world's largest steelmaker, Arcelor Mittal, suffered a loss of 2.6 billion dollars in the fourth quarter (2008) and it has further cut workforce by 9000. Steelmakers slash production with low orders for autos, appliances and construction. European inventories are high unlike USA where it has fallen to the lowest level in 15 years. Chinese stocks have also fallen enough to cause domestic steel prices to rise.

Arcelor Mittal and other European exporters are looking for some demand recovery in USA and emerging markets with the stimulus packages kicking in. US steel makers meanwhile are pressuring for tariffs against cheaper imports, mainly from China, and it could escalate trade tensions.

Aviation - one of the toughest years…

Asia-Pacific carriers saw the sharpest decline in international traffic in December. Airlines worldwide are reducing routes and postponing orders for fleet additions because of the sharp drop in passenger traffic, especially in first and business classes. Fuel costs during 2008 also contributed to losses while air cargo traffic fell by 22.6 per cent, according to IATA.

Airbus has cut its monthly production but plans to maintain a level of 480 planes in 2010 but Boeing expects to deliver as many planes this year. 2009 is shaping up to be one of the toughest years in international aviation and with contracting revenues, major structural changes are needed for the industry to cope with the new situation, says IATA.

Technology - bleak outlook

Global recession has begun to catch up lately with technology sectors including IT in the Silicon Valley. Employment dropped 1.3 per cent in December from a year ago as tech companies were effecting cost reductions with job layoffs. But the broad data cover the region's entire economic and social services network including commercial real estate. According to a Silicon Valley Network report, venture capital investment in companies fell 7.7 per cent, but less than the 11.4 per cent nationwide average. Bulk of new technology jobs will be in clean technology on which 1.9 billion dollars was invested in 2008.

President Obama's economic recovery package includes investments in renewable sources of energy and creating 'green jobs.' Silicon Valley is expected to play a unique role in addressing climate change and evolving clean technology. But overall technology spending was projected to grow at a lower rate in 2009. Till the third quarter (2008), bigger companies like HP, Dell and Intel had protected revenues with cost-cutting measures, price reductions and acquisitions and sizeable layoffs in their worldwide operations. But the fourth quarter results show IT giants are no longer immune to recession.

HP, the world's largest PC maker, has reduced its 2009 revenue forecast after a 13 per cent decline in quarterly profit with fall in sales in its computer and printing divisions. It plans to reduce employee compensation and benefits and do further cost-cutting to be able to maintain profitability in the year. Intel, the big chip-maker, also reported a 23 per cent drop in fourth-quarter revenue but with cash reserves, it plans to keep spending heavily for development of cutting edge chip-making facilities. While displacing a few thousand workers in its older factories, Intel says it would preserve high-wage jobs in newer factories in three states and called on other companies to follow its investments (7 billion dollars) in new production processes during the downturn.

Apple's sales of computers through US retail channels fell six per cent in January, the first monthly decline in three years. Taiwan-based Acer expects to get into top with the process of consolidation going on during the current slump. IBM, no less affected by the downturn, is confident of reaching its 2009 earning goals and has held up better than its peers in the technology sector, according to IT reports.

Technology companies, both in Silicon Valley and outside, have begun to feel the pain and had shed about 40,000 jobs of all categories till December. Tighter credit and slump in sales have made the outlook for 2009 somewhat bleak but overall slowdown may be less severe than the fall in the aftermath of the dot-com bubble burst in 2000.