World Economy 2009

Over view

 2009 marked the first year in the post-World

War II era that global output - and per capita
income - declined; output contracted 1%
year-over-year, compared with average
increases of about 3.5% per year since 1946.
And global trade plummeted nearly 25% from
2008's level
GDP Losses
 Among major countries, the biggest GDP losses occurred in
Russia (-7.9%),
 Mexico (-6.5%),
 Japan (-5.7%),
 Italy (-5.0%),
 and Germany (-5.0%),
 while China (+8.4%),
 India (+6.1%),
 and Indonesia (+4.4%) recorded the biggest gains. Among all
countries,
 output increased the most in Macau (+13.2%) - top for the
second consecutive year - Azerbaijan (+9.3%), and Qatar
(+9.2%).
Per capita income

 In 2009, global per capita income fell about

2% to US$10,500, as global unemployment
rose from just over 7% in 2008 to nearly 9%
in 2009
 underemployment, especially in the
developing world, remained much higher.
Investment
 Global gross fixed investment fell about 4% year-
over-year, or by roughly $800 billion.
 World trade and financial imbalances unwound: from
2008 to 2009 current account surpluses or deficits
fell for 4 out of every 5 countries as lower commodity
prices, tighter credit, and, to some degree, greater
protectionism reduced demand for traded goods.
Debt

 World external debt dropped more than 6%

from the previous year, as new international
lending disappeared. The global recession
was a result of widespread uncertainties in
the financial markets, bank failures, tighter
credit, falling home prices, collapsing asset
prices, lowered consumer confidence, and
the drop in trade.
Cont…

 In response to these conditions, many, if not

most, countries pursued expansionary
monetary and fiscal policies, and attempted
to avoid protectionist policies. By the second
half of 2009, the global economy appeared to
be making halting, but forward steps.
Cont…
 The world economy now faces a major new
challenge, together with several long-standing ones.
The fiscal stimulus packages put in place in 2009
required most countries to run budget deficits.
 Treasuries issued new public debt - globally, worth
about $4 trillion - to pay for the additional
expenditures. To keep interest rates low, many
central banks monetized that debt, injecting large
sums of money into the economies.
Cont…

 In early 2010, excess capacity existed in

product markets, and inflation was not an
immediate threat. However, when economic
activity picks up, central banks will face the
difficult task of containing inflation without
raising interest rates so high they snuff out
further growth.
Cont…
 Long-standing challenges the world faces are
several.
 The addition of 80 million people each year to an
already overcrowded globe is exacerbating the
problems of underemployment, pollution, waste-
disposal, epidemics, water-shortages, famine, over-
fishing of oceans, deforestation, desertification, and
depletion of non-renewable resources.
Control

 Internally, the central government often finds

its control over resources slipping as
separatist regional movements - typically
based on ethnicity - gain momentum, e.g., in
many of the successor states of the former
Soviet Union, in the former Yugoslavia, in
India, in Iraq, in Indonesia, and in Canada.
Cont…
 Externally, the central government is losing decision
making powers to international bodies, most notably
the EU. The introduction of the euro as the common
currency of much of Western Europe in January
1999, while paving the way for an integrated
economic powerhouse, poses economic risks
because of varying levels and rates of growth of
income - and differing needs for monetary policy -
and because of cultural and political differences
among the participating nations
Cont…
 In Western Europe, governments face the difficult
political problem of channeling resources away from
welfare programs in order to increase investment and
strengthen incentives to seek employment. Because
of their own internal problems and priorities, the
industrialized countries devote insufficient resources
to deal effectively with the poorer areas of the world,
which, at least from an economic point of view, are
becoming further marginalized.
Terrorism

 The terrorist attacks on the US on 11

September 2001 accentuated a growing risk
to global prosperity, illustrated, for example,
by the reallocation of resources away from
investment to anti-terrorist programs. Wars in
Iraq and Afghanistan added new
uncertainties to global economic prospects
Cont…
 Despite these challenges, the world economy also
shows great promise. Technology has made possible
further advances in all fields, from agriculture, to
medicine, alternative energy, metallurgy, and
transportation.
 Improved global communications have greatly reduced
the costs of international trade, helping the world gain
from the international division of labor, raise living
standards, and reduce income disparities among
nations.
Cont…

 Much of the resilience of the world economy

in 2009 resulted from government leaders
around the world working in concert to stem
the financial onslaught, knowing well the
lessons of past economic failures.