World trade had declined by more than 11 per cent in 2009 (figure II.1). The 3.6 per cent rebound of global output in 2010 was accompanied by a 10.5 per cent expansion of the worldwide volume of imports of goods and services. Monthly data for world trade in goods, produced by the CPB Netherlands Bureau for Economic Policy Analysis, indicate that the turnaround in trade took place in mid-2009 (see chap. I, figure I.6). The recovery was particularly strong between mid-2009 and mid-2010 when the trade volume increased at an annualized rate of nearly 20 per cent. Since then, however, world trade growth has lost steam along with the slowdown in the recovery of the world economy.
Compared with the average growth rates attained between 2004 and 2007, cumulative losses of world gross product (WGP) and world trade volume of about 8 and 26 percentage points were seen during 2008 and 2009, respectively, as a result of the global financial crisis. In the outlook, growth of world income is expected to average 3.3 per cent between 2011 and 2012 and that of world trade to be about 6.7 per cent. As the rates of recovery between 2011 and 2012 do not make up for the cumulative losses of income and trade experienced during the crisis, such losses can be said to be permanent. This state of affairs also corroborates the hypothesis that economic recoveries following financial crises tend to be protracted and also keep import demand depressed for several years.

Developing countries as a group are expected to have continued to provide a net transfer of financial resources, of approximately $557 billion, to developed countries in 2010 (see figures III.1a-b and table III.1). The volume of net financial resource transfers was up slightly from 2009, but remained well below the peak of $881 billion in 2007. The decline in net transfers since 2007 reflected narrowing global trade imbalances as a result of the dampening effect of the global recession on imports of major deficit countries. As discussed in chapter I, this change was transitory, and net transfers from developing to developed countries increased again during 2010.
The aggregate trade surplus of developing countries also increased again as exports recovered, while private portfolio capital inflows surged. This situation allowed for additional reserve accumulation by these countries. Western Asia and Africa experienced the strongest increase in net outward resource transfers in 2010, reflecting much higher export revenues of net fuel exporters in both regions, owing to the rebound in oil prices. Low-income countries in sub-Saharan Africa are expected to remain recipients, however, and to continue to receive positive net transfers, as are the group of low-income countries as a whole (figure III.1b). The crisis hurt export revenues, while more compensatory financing was made available to them. The net inflow of resource transfers to low-income countries is expected to increase slightly in 2010, but may taper off in the outlook if official development assistance (ODA) suffers from the fiscal retrenchment in many donor countries.

Developed market economies recovered from recession during 2010, posting generally strong growth in the first half of the year. The recovery has slowed since, however, as global trade has decelerated, fiscal stimuli are replaced by austerity-based fiscal consolidation, and inventory restocking is coming to an end. Trade and industrial production have rebounded, but levels of both remain below their previous cyclical peaks and will take some time to reach them, given the deceleration in activity under way. Tentative signs of a recovery maturing to where consumption and investment spending take the leading roles has been seen in some instances.
But domestic demand growth generally remains sluggish and is expected be slow in recovery: balance sheets of firms and consumers are still not repaired, bank lending conditions remain tight, capacity utilization—while improved— remains low, and unemployment is still very high (see figure IV.1). A new push for fiscal stimuli is unlikely and, in fact, many developed countries have already taken steps towards drastic budgetary retrenchment.
Monetary policy remains highly accommodative, but may not provide much of a boost to output and employment growth, and may exacerbate tensions in foreign-exchange markets, as discussed in chapter I. The value of the United States dollar has seen wide swings against other major currencies during 2010.

The dire outlook of the global economy in the second half of 2008 propagated unprecedented fiscal expansions of most OECDs and EMs countries. The fiscal stimulus and the coordinated monetary expansion stabilized the global economy in the aftermath of the financial meltdown in the U.S., preventing an employment collapse of the type experienced during the great depression. The sense of urgency and the will to move policies in tandem during the peak of the crisis has been replaced with extensive debates among countries regarding the future course of macro policies, and growing ‘fiscal fatigue.’ Fiscal skeptics are concerned that a further increase in public debt may lead to a higher interest rate down the road, thereby increasing the burden of serving the future debt - the cost channel. Other observers point out that a proper fiscal stimulus may lead to a faster resumption of growth, mitigating the future cost concern, and minimizing the costs of employment slack and the underutilization of human capital.
A constructive way of studying the cost channel is to evaluate the flow cost of serving the public debt as a percentage of the GDP, equals to (the real interest rate – real GDP growth rate) times the public debt/GDP. Applying this perspective, we point out that the past record of the OECD suggests that the fiscal space needed for a countercyclical policy in the U.S. and in several big Western European countries has not been exhausted. In so far as the future growth may depend on short term stabilization during or in the aftermath of a financial crash and a deep recession, the additional debt incurred for such stabilization may not translate into excessively high future flow costs of public debt. However, we also emphasize that the uncertainty of a future debt burden is likely to increase with the size of the future debt/GDP ratios. Prudent fiscal policy therefore may involve both short term stabilization and forward looking fiscal reforms.

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This paper is the third installment in a series (the first and second editions were in 2001 and 2005) that traces a long-term growth failure in most of the world’s countries. For the vast majority of the world’s lowand middle-income countries, there was a sharp slowdown in economic growth for the two decades during 1980-2000, as compared to 1960-1980. By 2005, the story had still not changed very much.
As would be expected, this long-term decline in growth also brought a decline in progress on social indicators, including life expectancy, infant and child mortality, and education. This was not the result of “diminishing returns”, either in economic growth or in the achievable progress in social indicators, as we showed previously. More likely, it was a result of policy failures. But this widespread, historic long-term slowdown in economic growth and social progress received very little attention or investigation.

This paper critically reviews the impact of globalization on sub-Saharan Africa (SSA) since the early 1980s. The large gains expected from opening up to international economic forces have, to date, been limited, and there have been significant adverse consequences. Foreign direct investment in SSA has been largely confined to resource—especially mineral—extraction, even as continuing capital flight has reduced financial resources available for productive investments. Premature trade liberalization has further undermined prospects for the economic development of SSA as productive capacities in many sectors are not sufficiently competitive to take advantage of any improvements in market access.