More Pain Ahead, Especially for Europe

by Bryan Rich 04-25-09

The IMF released its Global Financial Stability Report this week. And it’s projecting total losses from the global financial crisis to reach $4.1 TRILLION. That’s four times the amount projected in last year’s report.

Meanwhile, the only indicator improving across the globe seems to be tied to confidence. Stock values have climbed, and with it, so has confidence. But the hard data, the real underpinnings of global economies, are going the opposite direction. And the IMF agrees:

“The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries. Shrinking economic activity has put further pressure on banks’ balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending. Thus, credit growth is slowing, and even turning negative, adding even more downward pressure on economic activity.”

—IMF, April 2009

Remember … the official record on identifying the magnitude of problems, the reach of those problems and projecting recovery has been littered with underestimations, miss-steps, flawed theories, and empty optimism.

And now, the IMF is taking a hard line on the severity of the damage — the most aggressive public projection. Four times more aggressive to be exact.

If the IMF is right, we are nowhere near the bottom of this economic downturn. And there will be significantly more pain to be felt in the financial sector. FULL STORY.