From United Nations
World Economic Situation
and Prospects 2009
Development Policy and Analysis Division
World
Economic Situation and Prospects, 2005–2009: on the Global Financial and
Economic Crisis
The report is a joint product of the United Nations Department of Economic and Social Affairs (DESA), the
United
Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions
(Economic Commission for Africa (ECA),
Economic Commission for Europe (ECE),
Economic Commission for
Latin America and the Caribbean (ECLAC), Economic and Social Commission for Asia and the Pacific (ESCAP) and
Economic and Social Commission for Western Asia (ESCWA).
Cover
Executive Summary
The world economy is mired in the worst financial crisis since the Great Depression. What
first appeared as a sub-prime mortgage crack in the United States housing market during
the summer of 2007 began widening during 2008 into deeper fissures across the global
financial landscape and ended with the collapse of major banking institutions, precipitous
falls on stock markets across the world and a credit freeze. These financial shockwaves
have now triggered a full-fledged economic crisis, with most advanced countries already
in recession and the outlook for emerging and other developing economies deteriorating
rapidly, including those with a recent history of strong economic performance.
Contents Explanatory Notes
Chapter I - Global
outlook
It was never meant to happen again, but the world economy is now mired in the most
severe financial crisis since the Great Depression. In little over a year, the mid-2007 subprime
mortgage debacle in the United States of America has developed into a global financial
crisis and started to move the global economy into a recession. Aggressive monetary
policy action in the United States and massive liquidity injections by the central banks
of the major developed countries were unable to avert this crisis. Several major financial
institutions in the United States and Europe have failed, and stock market and commodity
prices have collapsed and become highly volatile. Interbank lending in most developed
countries has come to a virtual standstill, and the spread between the interest rate on interbank
loans and treasury bills has surged to the highest level in decades. Retail businesses
and industrial firms, both large and small, are finding it increasingly difficult to obtain
credit as banks have become reluctant to lend, even to long-time customers. In October
2008, the financial crisis escalated further with sharp falls on stock markets in both developed
and emerging economies. Many countries experienced their worst ever weekly sell
off in equity markets.
The financial crisis and the prospects for the world economy
The story of a crisis foretold
The deteriorating international economic environment for
developing countries
Tightening and more costly external financing
Increased exchange-rate volatility and the risk of a dollar
collapse
Weakening world trade and commodity prices
A synchronized global downturn
Developed economies
Economies in transition
Developing countries
Macroeconomic policies to stimulate the global economy
The need for reform of the international financial system
Systemic failures
The way forward
Chapter II -
International trade
World trade has started to decelerate sharply, weakening its role as a major engine of global
economic growth in recent years. Growth in the volume of trade is estimated to have
slowed to 4.4 per cent in 2008, nearly half of the average annual growth of 8.6 per cent
during the period 2004-2007. This trend is expected to continue in 2009, with the volume
of world exports anticipated to slow further to about 2 per cent on the heels of the global
economic recession. In a more pessimistic scenario of a deeper and prolonged financial crisis,
however, the recession will be more profound, causing world trade activity actually to
decline by 3 per cent (see the pessimistic scenario outlined in chapter I), something which
has not happened since the Second World War.
Trade flows
Merchandise trade: growth deceleration and potential revenue
falls
Trade in services: growth to slow with global downturn
World primary commodities and prices
Non-oil commodities: dramatic price swings
Crude oil: the turnaround that was to be expected in a global
slowdown
Terms of trade for developing countries and economies in
transition
Trade policy developments: dealing with multilateral
negotiations in the midst of financial and food crises
Chapter III
- Financing for development
Amidst the unfolding global financial crisis, developing countries continued to make increasing
substantial net outward transfers of financial resources to developed countries, reaching
an all-time high of $933 billion in 2008 (see figure III.1 and table III.1). After a moderation
in the rate of increase in 2007, outward transfers increased more rapidly again in 2008. Net
financial transfers are defined as net financial inflows less net factor and investment income
payments to abroad which have become increasingly negative, implying resource flow out of
developing economies. This trend has been continuing for over a decade.
Net resource flows from poor to rich countries
Private capital flows to developing countries
Foreign direct investment
International financial cooperation
Rehabilitating the global financial system
Governance reform at the Bretton Woods institutions
Chapter IV -
Regional developments and outlook
Developed market economies
North America: How severe will the recession in the United
States be?
Western Europe: Sharp deceleration with many countries now in
recession
The new European Union member States: A divergent
growth pattern in 2008, a slowdown in 2009
Developed Asia and the Pacific : Japan’s economy
enters recession and will contract further in 2009
Economies in transition
South-eastern Europe: Another year of good
performance, though with activity likely to weaken
The Commonwealth of Independent States:
Despite some deceleration, growth remains impressive
Developing economies
Africa: The end of the commodity boom
East Asia: A continuation of deceleration
South Asia: Expectations of a slowdown in robust growth
Western Asia: Resilience amidst deteriorating external
conditions
Latin America and the Caribbean: Significant slowdown in 2009
Statistical annex
- Annex tables
Boxes
I. 1 Key assumptions for the baseline forecast and the
pessimistic and optimistic scenarios
I. 2 Prospects for least developed countries
I. 3 Don’t forget the food crisis
II. 1 The making of the food crisis
IV. 1 The impact of the global financial turmoil on the banking
sector of the Commonwealth of Independent States
IV. 2 Africa’s response to the food crisis
IV. 3 The creation of a Gulf Cooperation Council monetary union
Figures
I. 1 World economic growth, 2003-2009
I. 2 Real per capita GDP growth in developed and developing
countries, 2003-2009
I. 3 Divergence in economic performance across developing
countries in 2008
I. 4 Daily spread between three-month LIBOR and three-month
United States Treasury bill interest rate, January 2006-November 2008
I. 5 Daily yield spreads on emerging market bonds, January
2007-November 2008
I. 6 Foreign reserves of selected countries, January
2007-October 2008
I. 7 Exchange-rate indices for the United States, 2002-2008
I. 8 Current-account balances, 2003-2009
I. 9 Growth of world trade volume, January 2005-September 2008
I. 10 Inflation versus growth in selected developed and
developing countries, 2008 and 2009
I. 11 Policy interest rates of major economies, January
2004-November 2008
II. 1 Growth of global trade, 2002-2009
II. 2 Monthly averages of free-market price indices of non-oil
commodities, January 1997-September 2008
II. 3 Surplus or deficit of global production over usage for
lead and zinc, 1996-2007
II. 4 Inventories and prices of lead and zinc, fourth quarter of
2003-second quarter of 2008
II. 5 Nominal and real Brent crude oil prices, 1980-2008
II. 6 Terms of trade by trade structure, 2000-2008
II. 7 Terms of trade by region, 2000-2008
III. 1 Net financial transfers to developing countries and
economies in transition, 1997-2008
III. 2 Portfolio investment inflows to selected countries,
2007-2008
III. 3 Inflows of foreign direct investment, global and by
groups of economies, 1980-2008
III. 4 DAC members’ net ODA, 1990-2007, and DAC secretariat
simulations to 2010
III. 5 Debt-service payments as a proportion of export revenues,
1990-2006
IV. 1 Quarterly growth of personal consumption expenditure in
the United States, 1991-2008
IV. 2 Economic activity in the euro zone, 1990-2008
IV. 3 Pattern of economic growth in the new EU member States,
2004-2009
IV. 4 General government gross financial liabilities, 1991-2007
IV. 5 Growth of domestic credit in South-eastern Europe,
2005-2008
IV. 6 Consumer price index inflation in selected CIS economies,
2007 and 2008
IV. 7 Growth in Africa, oil versus non-oil economies, 2006-2008
IV. 8 Year-on-year headline consumer price index inflation
rates, 2007-September 2008
IV. 9 Oil prices and combined current-account surplus in
Western Asian oil-exporting countries, 2003-2009
IV. 10 Real currency depreciations in Latin America, December 2006-October
2008
Tables
I. 1 Growth of world output, 2003-2009
I. 2 Frequency of high and low growth of per capita output,
2006-2009
II. 1 Value growth of exports and imports, 2002-2009
II. 2 Volume change of exports and imports, 2002-2009
II. 3 Exports of services: share in total trade in goods and
services, 2003-2007
II. 4 Exports of services among developing economies, 1990, 2000
and 2007
II. 5 Commodity price indices in nominal terms, 2008
II. 6 Commodity price indices in real dollar terms, 1974-2008
III. 1 Net transfer of financial resources to developing
economies and economies in transition, 1996-2008
III. 2 Net financial flows to developing countries and economies
in transition, 1995-2009
III. 3 Credit default swap spreads and annual probabilities of
default in
selected emerging market countries, 31 December 2007 and 23
October 2008
III. 4 Inflows of foreign direct investment and cross-border
mergers and acquisitions,
by region and major economy, 2007-2008
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