National financial institutions are collapsing, the federal trade deficit is approaching an all-time high of $1 trillion, the Detroit automakers are on life support, jobless claims recently surged to a 26-year high, consumer confidence has plunged to a historic low and the Federal Reserve has dropped interest rates close to zero — it's no exaggeration that the overall picture for 2008 has been one of gloom as the worst economic crisis since the 1930s.

In the near-term, things aren't looking much brighter.

Bleaker Than Usual
The World Bank last month painted a grim outlook for the global economy in 2009, with growth weakening to a crawl and trade volume falling for the first time in 26 years. In its Global Economic Prospects report, the multilateral institution forecast the global economy would expand a mere 0.9 percent next year and world trade volume would fall 2.1 percent.

"Markets all over the world are engulfed in a global economic crisis, with stock markets sharply down and volatile, almost all currencies having depreciated substantially against the dollar, and risk premiums on a wide range of debt having increased by 600 or more basis points," according to the World Bank report Global Economic Prospects: Commodities at the Crossroads 2009. "Commodity markets too have turned a corner. Following several years of increase, prices have plummeted, and although well above their 1990s levels, they have given up most of the increases of the past 24 months."

The latest World Bank report was notably more pessimistic than the institution's prior 2009 forecasts of global growth of 3 percent and 6.4 percent for developing countries, issued in June.

They were also bleaker than those of its sister institution, the International Monetary Fund, which forecast the world economy would expand by 2.2 percent and developing economies by 5.1 percent in early November.

The United States alone is approaching the longest period of economic decline since the Great Depression. The National Bureau of Economic Research, the panel of academic economists charged with the official designation of business cycles, last month announced that the U.S. economy has been in recession since December 2007. Meanwhile, on average, the 54 economists who participated in the Wall Street Journal's latest economic-forecasting survey expect the current downturn to last at least until June 2009, or for 18 months.

"The recessions of 1973-75 and 1981-82 both lasted 16 months," the Wall Street Journal notes.

Strapped Buyers Cut Back
The current recession was in large part sparked by the collapse of the U.S. housing market — which had its roots in overconsumption. Now consumers and businesses are reining in their purchases.

According to the U.S. Department of Commerce's latest findings, U.S. exports slid to a seven-month low in October, signaling the economy is shrinking even faster than previously estimated. American exports dropped 2.2 percent to $151.7 billion as foreign purchases of U.S. aircraft, automobiles, chemicals and food waned. The October export slump, caused by recessions spreading through U.S. trading partners, spurred an unexpected widening in the trade deficit to $57.2 billion, a Commerce Department report showed in mid-December.

At the same time, imports declined 1.3 percent, to $208.9 billion, the lowest level since March. Decreases in demand for foreign-produced automobiles, computers, televisions and fuel reflected the worsening slump in U.S. consumer and business spending.

For the third quarter of 2008, the Commerce Department's final estimates show a 0.5 percent decline in quarterly gross domestic product (GDP). This follows a 2.8 increase of real GDP in the previous quarter.

"Since U.S. imports exceed exports by almost 5.0 percent of gross domestic product, the trade deficit creates an enormous drag on demand for U.S.-made goods and services," Forbes pointed out recently.

In the Manufacturers Alliance/MAPI Quarterly Industrial Outlook last month, the U.S. manufacturing recession was shown to have intensified in Q3 2008. Manufacturing industrial production, measured on a quarter-to-quarter basis, declined at a 7.8 percent annual rate in Q3 2008 after falling at a 4 percent annual rate in the second quarter, the industry group determined. Production in non-high-tech manufacturing was found to have declined at a severe 8.2 percent annual rate in third quarter 2008 and is forecast to decline 2.9 percent for the year. Production is expected to fall further, by 6.3 percent, in 2009.

According to MAPI:

There was a significant downturn in the 2008 third quarter figures for manufacturing. Nine of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, two fewer than reported in the second quarter. Seventeen industries had production below the level of one year ago, and one remained flat.

"Business investment, a major driver in the U.S. economy, is expected to decline as both [manufacturing and non-manufacturing] sectors expect a combined 7.6 percent decline in capital spending," the Institute for Supply Management's December 2008 Semiannual Economic Forecast reports.

The World Bank has projected that world trade volume will contract 2.1 percent in 2009, the first decline since 1982. The expected decline in trade volume "is driven first and foremost by a sharp drop in demand, as the global financial crisis imposes a rare simultaneous recession in high-income countries and a sharp slowdown across the developing world," according to the report.

"With world trade volumes projected to contract 2.1 percent in 2009, developing countries will see a big drop in their exports," the World Bank continues. "Tighter credit conditions and increased uncertainty are expected to see investment growth in both developing and high-income countries slow in 2009 — actually falling 1.3 percent in developed countries and rising by only 3.5 percent in developing countries versus 13 percent in 2007."

Manufacturers' Concerns and Reactions
Overall, ISM's December 2008 Semiannual Economic Forecast "lacks the sense of optimism that purchasing and supply managers have typically expressed about the U.S. economy in their annual forecast." The manufacturing sector overall is pessimistic about prospects in 2009 with revenues expected to decline in 12 of 18 industries, while the non-manufacturing sector appears more positive about the year ahead with eight of 18 industries expecting higher-than-average revenues.

Topping ISM respondents' biggest concerns: recession; credit crisis; consumer spending; automotive industry and housing.

Other major manufacturing worries are represented in TBM Consulting Group's sixth annual Multinational Manufacturing Pulse, conducted in Q3 2008 with IndustryWeek and released last month. Of the 1,406 midsize and large firms polled, the majority (53 percent) ranked "cost pressures" as the biggest hurdle to success in the year ahead. Nevertheless, 33 percent identified "rising energy costs" as a source of angst, a dramatic increase from last year's responses at 11 percent. "Quality issues" and "people issues" continued to be challenges for manufacturers in the nations surveyed (U.S., U.K., Germany, France, Mexico and Brazil). (Source: Businesswire/CNBC)

Key findings regarding manufacturers' actions, gleaned from the ISM forecast, include these:

• In the manufacturing sector, respondents report operating at 75.2 percent of their normal capacity, down from 78.6 percent reported in April 2008;

• Purchasing and supply executives predict that capital expenditures will decrease by 6.7 percent in 2009, compared to a 5.9 percent increase reported for 2008;

• ISM respondents also forecast that they will reduce inventories in an effort to decrease their purchased inventory-to-sales ratio in 2009;

• Manufacturers have an expectation that employment in the sector will decline by 2.7 percent, while labor and benefits costs are expected to increase an average of 1.9 percent in 2009;

• Manufacturing purchasers are predicting strength in exports but weakness in imports, in addition to the U.S. dollar strengthening on average against the currencies of major trading partners; and

• The panel also predicts the prices they pay will decrease 2.3 percent during the first four months of 2009, and will decrease an additional 0.3 percent during the balance of 2009, with an overall decrease of 2.6 percent for 2009.

The Manufacturers Alliance/MAPI report has forecast a decline in the U.S. industrial sector in 2008 and 2009 before showing some marginal improvement in 2010.

2008 is Dead; Long Live the Future
Amongst all the doom and gloom, however, is some semblance of good news.

For one, manufacturers can expect to see limited hike rates from their transportation providers, in 2009, "at least when it comes to trucking companies," IndustryWeek reports. Although "the volume of freight being shipped by rail will remain flat," IndustryWeek says, "rate increases from both truckload and less-than-truckload (LTL) providers are predicted to be less than 1 percent, based on equity research firm Morgan Stanley's latest Freight Pulse survey of preferred transportation modes by manufacturers."

Moreover, while MAPI expects seven industries to experience negative change in both 2009 and 2010 — with private, non-residential construction showing the most weakness — aerospace products and parts is predicted to grow by 3 percent this year while communications equipment and public construction should each grow by 1 percent. A turnaround is anticipated in 2010, with 16 of 24 industries expected to expand. Aerospace products/parts is predicted to grow by double digits, but any growth in the remaining industries would be a relief from the economic recession that began in December 2007.

For 2010, the World Bank ventured that the global economy would rebound to growth of 3 percent and a 6 percent rise in trade volume.

Looking farther ahead, a new Capgemini study, titled Manufacturing in 2020, examined how manufacturers expect to do business in 2020. Based on responses from over 150 manufacturing companies in eight countries, the study identifies a number of key findings about possible changes in the coming years:

• Manufacturing will become increasingly global by 2020, with around 80 percent of manufacturers expected to have multi-country operations, compared with little more than half today;

• Supply chains will also increase in complexity and consolidate; half the companies surveyed said they will be using fewer suppliers by 2020, but 40 percent said they will be using more distributors as increased competition drives them to reach new markets;

• Manufacturers appear uncertain what actions to take about green issues, but as political and social pressures increase around reducing emissions, urgent action will be required to reach 2020 targets; and

• Differences between the manufacturing industries in developed and emerging markets will also continue to evolve.

"When times get tough, the tough go back-to-basics," notes The Nielsen Company's Consumer Insights Magazine. "Expect a no-frills philosophy to kick into high gear in 2009, reflecting not just a consumer mindset, but one that is paramount to retailers and manufacturers alike, who are looking for growth in a downturn economy.

"From sustainable manufacturing techniques to innovative national brand offerings, the products and services likely to succeed in 2009 will be those that appeal to the sensible consumer looking for a rational benefit," Consumer Insights continues.

Now is the time to cut wasteful spending, engage valued employees and innovate.

To see the state of the economy for 80 countries, see The Economist.com's The World in Figures feature.

Resources

Global Economic Prospects 2009: Commodities at the Crossroads
The World Bank, December 9, 2008

Global Economic Prospects: Commodities at the Crossroads 2009 (summary)
The World Bank, Dec. 11, 2008

World Economic Outlook Update
International Monetary Fund, Nov. 6, 2008

Determination of the December 2007 Peak in Economic Activity
National Bureau of Economic Research, Dec. 11, 2008

Outlook Darkens as Recession Deepens
by Phil Izzo
The Wall Street Journal, Dec. 11, 2008

U.S. International Trade in Goods and Services - October 2008
U.S. Department of Commerce, Dec. 11, 2008

Gross Domestic Product: Third Quarter 2008 (Final)
U.S. Department of Commerce, Dec. 23, 2008

U.S. Import Demand Pales
by Maurna Desmond
Forbes, Dec. 17, 2008

MAPI U.S. Industrial Outlook and Forecast
by Daniel J. Meckstroth
Manufacturers Alliance/MAPI, December 2008

MAPI Quarterly Industrial Outlook: Recession Worsens
Manufacturers Alliance/MAPI, Dec. 8, 2008

December 2008 Semiannual Economic Forecast: Economic Slowdown to Continue in 2009
Institute for Supply Management, Dec. 9, 2008

Global Slump Hits Developing Countries As Credit Squeeze Impedes Growth and Trade; Tensions in Commodity Markets Ease
The World Bank, Dec. 9, 2008

Multinational Manufacturing Pulse
TBM Consulting Group / IndustryWeek (via Businesswire / CNBC), Dec. 15, 2008

Manufacturers are Bearish on the Economy
by David Blanchard
IndustryWeek, Jan. 1, 2009

Manufacturing in 2020
Capgemini / IDG Global Solutions, December 2008

Manufacturing in 2020: New Study Reveals Future Vision of the Global Manufacturing Industry
Capgemini / IDG Global Solutions, Dec. 11, 2008

2009 Industry Outlook: When Times Get Tough, the Tough Go Back to Basics
by Tom Pirovano
Consumer Insight Magazine (The Nielsen Company), December 2008

The World in Figures: Countries
The Economist, Nov. 19, 2008