Global
Economic Prospects 2010: Crisis,Finance, and Growth
The acute phase of the financial crisis has
passed and a global economic recovery is under way.
Moreover, the
recovery is
fragile
and
expected to
slow in the
second half of
2010
as the growth
impact of
fiscal and
monetary
measures
wane and the
current
inventory
cycle
runs its
course.
Indeed,
industrial
production
growth is
already
slowing
(albeit
from
very high
rates). As a
result,
employment growth
will remain
weak and
unemployment
is
expected to
remain high
for many
years. The
overall
strength of
the recovery
and its
durability
will depend on
the extent to
which household-
and
business-sector
demand strengthens
over the next
few quarters.
While the
baseline
scenario
projects that
global growth
will firm to
2.7 percent in
2010 and
3.2
percent in
2011 after a
2.2 percent
decline
in
2009, neither
a double-dip
scenario,
where
growth slows
appreciably in
2011, or a
strengthening
recovery can
be ruled out.
Published
January
21, 2010
Overviews (multilingual)
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The world economy is emerging from the
throes of a historically deep and synchronized
recession provoked by the bursting of a
global financial bubble. The consequences of the
initial bubble and the crisis have been felt in virtually
every economy, whether or not it participated
directly in the risky behaviors that precipitated
the boom-and-bust cycle. And while growth rates
have picked up, the depth of the recession means
that it will take years before unemployment and
spare capacity are reabsorbed.
This year’s Global Economic Prospects examines
the consequences of the crisis for both
the short- and medium-term growth prospects of
developing countries. It concludes that the crisis
and the regulatory reaction to the financial excesses
of the preceding several years may have
lasting impacts on financial markets, raising borrowing
costs and lowering levels of credit and
international capital flows. As a result, the rate
of growth of potential output in developing
countries may be reduced by between 0.2 and
0.7 percentage points annually over the next five
to seven years as economies adjust to tighter financial
conditions. Overall, the level of potential
output in developing countries could be reduced
by between 3.4 and 8 percent over the long run,
compared with its pre-crisis path.
Complete
report
as one
file
Front
Matter
Chapter 1
Prospects for the Developing Economies
The
acute phase of the financial crisis has
passed and a global economic recovery
is under way. Moreover, the recovery is fragile
and expected to slow in the second half of
2010 as the growth impact of fiscal and monetary
measures wane and the current inventory
cycle runs its course. Indeed, industrial
production growth is already slowing (albeit
from very high rates). As a result, employment
growth will remain weak and unemployment
is expected to remain high for many years.
The overall strength of the recovery and its
durability will depend on the extent to which
household- and business-sector demand
strengthens over the next few quarters. While
the baseline scenario projects that global
growth will firm to 2.7 percent in 2010 and
3.2 percent in 2011 after a 2.2 percent decline
in 2009, neither a double-dip scenario,
where growth slows appreciably in 2011, or a
strengthening recovery can be ruled out.
Chapter 2
The Impact of the Boom in Global Finance on Developing Countries
The first seven years of the 21st century
were very good for developing countries.
GDP growth continued to accelerate as it had
done in the 1990s but at an even faster pace,
while economic volatility was far lower than
in previous periods of rapid growth (IMF
2007). And while large countries with very fast
growth rates, such as China and India, tended
to attract the most attention, most of the acceleration
in developing-country growth during
this period occurred among smaller countries
that in the past had been growing much less
quickly.
Somewhat surprisingly and in contrast to
popular perceptions, this growth spurt occurred
during a period in which external demand
conditions for developing countries
were not that strong. Growth in high-income
countries was actually slower during the boom
years 2003–07 than during the preceding
13 years. Moreover, import demand from
high-income countries was growing only 5.6
percent a year, marginally slower than during
the preceding 13 years. More than all of
the acceleration in developing-country exports
came from an expansion in their share in
high-income
country imports and very rapid
growth in South-South trade.
Chapter 3
Medium-Term Impacts of the Crisis on Finance and Growth in Developing Countries
The lessons of the financial crisis are likely
to shape financial policies and market
reactions for some time to come. Beyond the
immediate and unprecedented global recession
that it has provoked the crisis can be expected
to alter the global financial landscape significantly
over the next 5 to 15 years in at least
three important ways.
First, authorities in high-income countries
will almost certainly strengthen financial
regulation to reduce excessive risk-taking by
financial intermediaries, which will involve
broadening the coverage of regulation and the
imposition of higher capital requirements and
other limits on excessive and risky lending.
Second, authorities in developing countries
are likely to introduce rules and policies that
insulate them from excessive financial volatility,
by placing greater emphasis on domestically
managed risk management strategies such
as capital controls and reserve accumulation.
Third, market participants will likely be
more risk averse than they have been over the
past decade, and the extent to which today’s
risk management instruments are used to increase
leverage and global liquidity is likely to
shrink.
Appendix: Regional Economic Prospects
- East
Asia and
the
Pacific
- Europe
and
Central
Asia
- Latin
America
and the
Caribbean
- Middle
East and
North
Africa
- South
Asia
- Sub-Saharan
Africa
- Notes
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Prospects for the global economy:
This edition of Global Economic Prospects, published on June 10, 2010, is the
first of a new series of web-based forecast-oriented publications by the World
Bank. It replaces the flagship of the same name, which has been discontinued and
in which these forecasts used to be published as Chapter 1 (the forecasts that
used to be published in Global Development Finance have also been discontinued
in that publication and will appear here instead). All forecasts and databases
were frozen on June 8, 2010.
This new edition of Global Economy Prospects will be published biannually -
in December/ January and May/June of each year. This website encompasses all
information found in the pdf files that represent the hard-copy form of these
publications. In addition, the web-site includes information not available in
the PDF versions, such as full databases, analytical tools and statistical
briefs among others.
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