Policy Priorities in the face of the Global Economic Crisis IDEAs conference on Re-regulating Global Finance in the light of the Global Crisis Tsinghua University Beijing 9 April 2009
Contagion: crisis spreads Financial sector contagion (incl. vicious circles): Sub-prime crisis financial crisis asset price deflation liquidity/credit crunch Financial crisis Economic recession (including feedback loops) Real economy contagion (incl. vicious circles): Less investment, especially abroad (FDI) Less consumption Reduced demand for imports, i. e. for exports of others Prices, output declines globally Growth, employment declines globally 2
Deflationary spiral • Asset (stock, property) markets deflating negative wealth effect more bank insolvency generalized credit squeeze • Lower external demand, world trade excess capacity investment slowdown • Depressed domestic demand lower prices, output lower employment, incomes
Disorderly unwinding of global imbalances 4
Globalization: Parallel fates 5
Recession in most developed economies 6
Slowing growth in all developing countries 7
World trade collapsing 15
Trade impacts summary • Exports decline all developing countries • Terms of trade primary exporters • Trade surpluses, reserves may run down quickly • But lower energy, food prices help net food and oil-importers 16
Export Implosion in E. Asia Dec. 2008 exports y-o-y (%) % Japan China S Korea Thailand Singapore Taiwan Malaysia -35. 0 -2. 8 -17. 4 -15. 7 -20. 0 -41. 9 -4. 9 (Nov. )
China: Exports, Imports Drop Sharply
China: Accumulation of Forex Reserves
China: Industrial Output Slows Down Rapidly
China: Inflation declines in 2008, after 2007
Financial impacts on developing countries • Despite non-involvement in sub-prime debacle: Emerging stock markets collapse greater Reversal of capital flows, FDI also down Spreads rise, much higher borrowing costs • But financial positions stronger than during Asian + LA crises (more foreign reserves, better fiscal balances) But reserves rapidly evaporating with export collapse; fiscal space also disappearing 22
Social, political impacts • >200 m. more working poor • ILO: Unemployment to rise by 51 m • Government social spending at risk • Rising social unrest • US intelligence report: crisis -- greatest security risk
Responses to crisis • UN, BIS forecasts more accurate than others; IMF, WB upbeat till late 2008 • But IMF, WB also marginalized by G 7, etc • IMF discouraging strong fiscal stimulus by developing countries without surplus • G 7 G 20: more inclusive? legitimate? crisis-, but not developmental or equitable • PGA (Stiglitz) Commission of Experts • Doha Declaration: June 09 summit on impact of crisis on developing countries
Thank you Please visit UN-DESA www. un. org , G 24 www. g 24. org and PGA www. un. org/ga/president/63/ websites • Research papers • Policy briefs • Other documents 31
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