PROSPECTS FOR THE GLOBAL ECONOMY 2009
ARTICLE BY ROSALIENE BACCHUS
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More than a year after the 2007 US subprime mortgage crisis, the cardiac arrest of global financial giants hit
world markets like a rogue wave. Stock markets were engulfed; credit markets froze; the global financial
system faced submersion; risk aversion flooded markets; capital flows to developing countries clogged up;
and currencies sunk across developing economies. Nations worldwide are struggling to keep afloat in the
wake of this crisis.

The US Bureau of Labor Statistics announced on December 5, 2008, that 2.7 million Americans have lost
their jobs since December 2007. In China, the world’s fastest-growing economy, urban unemployment grew
12 percent in 2008 and may rise to 14 percent in 2009 according to a prominent Chinese researcher (
see
Footnote 1
).

Unemployment also grows in the Caribbean where declining tourist bookings have forced hotel-resort
companies to trim their payroll. Falling prices and shrinking global demand for alumina contribute to lay-offs  
in the aluminum-producing countries of Jamaica and Guyana. The energy-based economy of Trinidad and
Tobago faces a shortfall in projected revenue for 2009 due to plummeting oil prices on the world market.

The World Bank presents a “sober outlook” for the world economy in their publication,
Global Economic
Prospects 2009
,  published on December 9, 2008 (see Footnote 2). Considering that Europe, Japan, and the
United States are already in recession, the World Bank considers the possibility of a serious global recession
in 2009. They project an average negative GDP yield of 0.1 percent for high-income countries and expect
developing countries to slip from an average 6.3 percent growth in 2008 to 4.5 percent in 2009.

Slower growth in high-income countries has resulted in reduced demand for imports. Moreover, between
2007 and 2008, remittances to developing countries have dropped from 2 to 1.8 percent of the recipient-
country’s GDP. Low-income countries that rely on overseas remittances remain vulnerable to continued
declines.

The principal factors expected to trigger deceleration in developing countries include tighter credit conditions;
reduced capital inflows to middle-income countries; decreasing import-demand in high-income countries; drop
in net private debt and equity flows from high-income countries; and withdrawal of foreign investment funds.

Difficulties in obtaining export financing and the increasing cost of export insurance further hamper exports
of developing nations. The World Bank predicts a 2.1 percent slump in global exports in 2009 – the first
decline in international trade since 1982. With a global recession, they envisage oil prices at an average of
$75.00 a barrel and continued drops in commodity prices and inflation levels. They estimate 23 and 26
percent reductions in food and metal prices, respectively, over average levels in 2008. While lower food and
fuel prices are good for consumers, they represent shortfall in revenue for low- and middle-income
commodity-exporting countries.

According to The World Bank, “the global recession is likely to be protracted.” Although signs of recovery
are evident, they warn that “the situation remains unstable.” Failure to restructure the banking sector, restore
housing and stock market prices, and thaw credit markets can result in “an even sharper recession” – a
catastrophe for developing economies.


Footnotes
  1. In an article published in the official China Economic Times on December 4, 2008, Zhou Tianyong, a researcher at the
    Central Party School in Beijing, dismissed the current official urban unemployment rate of 4 percent.
  2. See full publication on The World Bank website at www.worldbank.org (Data and Research link).

Article published in the Guyana Journal, Guyana Journal Publication, Inc., New York, USA, January 2009, p.11.
Reprinted with permission.
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