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LINK GEO&
United NationsWorld Economic
Situation and Prospects 2009-
2010 Update May 2009
Rob VosUnited Nations
www.un.org/esa/policy
2
Main messages1. Severest crisis since Great Depression:
• World economy will shrink by 2.6% in 2009• Systemic crisis
2. Synchronized downturn• Led by developed countries, but emerging economies
and other developed countries hard hit• Some see “green shoots”, but none signal recovery as
yet• Rising unemployment, setbacks in poverty reduction
3. Recovery in 2010 is possible, but downside risks of a prolonged global recession are still high
4. Policy challenges:• Further decisive and cooperative action is needed to
restore the financial health of banks• Fiscal stimulus measures should be better
coordinated and aligned with global sustainable development objectives
• Deeper reforms of the international financial architecture should urgently be set in motion
• A new framework for global economic governance
3
Credit crunch in the US is easing somewhat…
Spread of interbank lending, %
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-
06
Mar
-06
May
-06
Jul-
06
Sep-
06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-
07
Sep-
07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-
08
Sep-
08
Nov
-08
Jan-
09
Mar
-09
May
-09
4
… but borrowing costs for developing countries remain elevated; private capital flows are reversing
0
2
4
6
8
10
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
Africa
Asia
Latin America
Europe
5
World trade growth is collapsing
10.9
7.7
9.2
6.6
2.4
-11.1
4.1
-12
-8
-4
0
4
8
12
2004 2005 2006 2007 2008 2009 2010
Ann
ual p
erce
ntag
e ch
ange
0.5
6
World economy is in recession, recovery is uncertain
3.9
2.1
-2.6
1.6
3.9
3.5
2.7
4.0
-3
-2
-1
0
1
2
3
4
5
2003 2004 2005 2006 2007 2008 2009 2010
Optimistic
Pessimistic
7
Severe recession in developed economies
1.1
-0.6
0.7
4.0
-3.5
-7.1
-3.7
-1.7
1.01.5
-0.1
1.5
0.00.4
-1.1-0.4
-8
-6
-4
-2
0
2
4
6
USA Japan EU15 NewEU
GD
P g
row
th r
ate,
%
2008 2009 2010 Baseline 2010 Pessimistic scenario
8
Sharp contraction of economic activity in the economies in transition…
4.2
5.4
-1.9
-5.4
1.01.5
-0.3 -0.6
-6
-4
-2
0
2
4
6
8
South-eastern Europe CIS
GD
P g
row
th r
ate,
%
2008 2009 2010 Baseline 2010 Pessimistic scenario
9
Developing countries are being hit hard through trade and finance channels • Spill-over effects through financial markets are hitting
strongest on the middle-income countries• All developing countries are affected through slowing
trade. • Primary exporters are also seeing deterioration in
terms of trade• Low-income, net food and oil-importers are seeing
improving terms of trade, but are suffering mainly through reduced demand for exports.
• Falling remittances are affecting many small developing economies
• Balance of payments constraints are emerging in growing number of countries and vast reserves are quickly evaporating
10
Leading to strong growth deceleration in all developing countries
5.44.9
6.16.8
4.54.0
1.40.9
2.9
4.1
-0.7
-1.9
4.3 4.0
5.75.4
2.9
1.7
-3
-2
-1
0
1
2
3
4
5
6
7
8
Developingcountries
Africa East Asia South Asia WesternAsia
LatinAmerica
GD
P g
row
th r
ate,
%
2008 2009 2010 Baseline
5.44.9
6.16.8
4.54.0
1.40.9
2.9
4.1
-0.7
-1.9
2.01.7
3.9
3.1
-1.1-0.7
-3
-2
-1
0
1
2
3
4
5
6
7
8
Developingcountries
Africa East Asia South Asia Western Asia LatinAmerica
GD
P g
row
th r
ate,
%
2008 2009 2010 Pessimistic scenario
11
60 developing countries will see declining incomes in 2009(number of countries with declining per capita
incomes)
12
33
18
1
14
2
13
60
22
0
10
20
30
40
50
60
70
2008 2009 2010
Developed countries
Economies in transition
Developing countries
12
Setbacks in poverty reduction
Slowdown poverty reduction compared
with pre-crisis growth
Total 73 – 103 million
Africa 12 – 16 million
East and South Asia 56 – 80 million
Latin America and Caribbean
~ 4 million
13
3.Recovery possible in 2010, but downside risks are high
• Quick recovery only if– financial sector problems bottom out soon
– fiscal stimulus gains traction soon
– …but even then, recovery maybe feeble without enhanced, concerted countercyclical responses
• Deeper and prolonged crisis(a) Prolonged credit crunch in major economies and deeper
recession(b) Global imbalances and risk of exchange instability(c) Continued steep capital reversals in emerging markets(d) Less ODA for low-income countries(e) Protectionist tendencies
14
The dollar volatility continues
65
75
85
95
105
115
Jun-
08
Jul-
08
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb
-09
Mar
-09
Apr
-09
May
-09
0.60
0.65
0.70
0.75
0.80
0.85
Yen/$ (LHS) Euro/$ (RHS)
15
…and global imbalances persist, though narrowing in deflationary spiral
-800
-600
-400
-200
0
200
400
600
2004 2005 2006 2007 2008 2009
Bil
lion
US$
United States
Japan
European Union
Developingcountries (exclChina) and EiT
China
16
• We have seen extraordinary responses to deal with the crisis– $18 trillion of public funding (30%
of WGP) allocated to financial sector– $2.7 trillion of fiscal stimulus (4% of
WGP spent over 2009-2011) planned, less than the desired level of 2-3% of WGP annually
– Financial landscape has changed
– Coordinated monetary responses
4. Policy challenges (1)
17
• More and even bolder action is needed:– Decisive and cooperative action is needed to restore
the health of financial sector.
– Stronger, better coordinated fiscal stimulus, greater policy coherence:
• More balanced stimulus (stronger in surplus, weaker in deficit countries; facilitate countercyclical responses developing countries)
• Coherence with development financing policies
• Coherence with trade policies (no protectionism; enhanced access to markets for developing-country exports and Aid for Trade)
• Coherence with climate change and food security, and more broadly with global sustainable development objectives
• Coordination medium-term financing of stimulus and safeguards against major exchange rate misalignments
4. Policy challenges (2)
18
Global gains from improved policy coordination
19
20
• More and even bolder action is needed:
– Outcomes remain uncertain, policies will need to be closely monitored and consulted with business community and society
• Fundamental reforms of the international financial system are needed to overcome the systemic flaws
• A new framework for global economic governance
4. Policy challenges (3)
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