The world economy has undergone substantial upheaval since September 2008. The crisis which began as a reversal of the real estate market in the United States has taken global proportions today and has spread far and wide now. Many economists believe that the crisis appear in history as the most serious crisis since the Great Depression of the 30s.
Commenting of the issue, the UN Secretary General said "We are facing a financial crisis of unprecedented scale in a world that has never been so interdependent. The consequences are global. The situation is unstable. The current financial crisis is rapidly being transformed into economic crisis and could lead to a social crisis in many countries".
The real economy is rapidly affected, with its social impact related to increased unemployment.
For the up coming year, until recently, the world GDP growth rate for the developing countries was projected around 6.4 percent. After the crisis, the growth rate has been revised. Now the World Bank has forecasted a meager growth rate of 4.5% for the developing countries. The bank, further said that the economies of high-income countries, many of which are already in recession, will shrink by 0.1% during the coming year.
In late October 2008, about $25,000 billion went up in smoke in the global stock market tumble.
According to the IMF, owing to financial crisis, the US economic growth should drop to 0.1% in 2009. The US bank announced the elimination of 52,000 positions.
Despite the aid of $25 billion granted by the Federal Government under the stabilization plan of US financial system, the collapse is continuing. The US economy is sinking deeper into the economic doldrums, and it's likely to stay there for a long time.
While the United States and the EU are heading towards a recession, the forecast is deteriorating rapidly for many emerging countries.
For the first time in several years, Latin America should expect a deficit in the balance of payments.
Moreover, GDP growth for the whole region could also fall in 2009.
In Mexico, remittances of earnings from the expatriates have already decreased and the central bank is being forced to support the Mexican peso. Foreign exchange reserves have shrunken immensely.
The Brazilian stock market index registered a substantial fall and major investment projects were postponed.
China, the locomotive engine of the world economy has begun to tumble. The tremors of financial crisis have felt seriously in China now and the experts have forecast a lower GDP growth rate for coming years. In addition, the exports of China to the United States, which accounts 20% of its total exports, have been projected below 8% for 2009. Likewise, the annual GDP growth in India is expected to slow to about 7% for the same period. Even if these growth rates remain favorable, they can cause serious consequences for both countries and the whole region.
Asian internal trade is likely to deteriorate because of declining demand from China.
Japan is threatened with a return of deflation from mid-2009.The economic out look for Germany is also not very much promising. Germany, the first euro-area economy will experience a recession for the whole of 2009, with GDP declining by 0.8%.
The international financial crisis should also plunged France into recession in 2009. With a GDP decline of 0.4%, significantly widening the public deficit. While the UK will also sink into recession in the full year next year. Taken together, the 30 OECD countries should experience a recession of 0.4% next year, then a recovery of 1.5% in 2010, according to an estimate.
Situation in some countries like Pakistan and emerging countries of Europe is devastating. Pakistan faces a severe economic crisis after a series of internal and external situations have deteriorated. In a context of political and insecurity growing, the economic climate deteriorated when soaring oil prices led to a level of double-digit inflation. Faced with massive outflows of capital leading to rapid decline in foreign exchange reserves and fall of rupee, economic prospect for Pakistan seems very much bleak.
The economic surroundings of Ukraine and Hungry are also horrendous. Belarus has also applied for the financing of the IMF. Turkey is seriously considering further intervention of the international institution.
In these circumstances, it will be harder to bridge the growing deficit in the balance of payments.
The repatriation of income from abroad, grants and private funding, including foreign direct investment, should be exhausted in several African countries.
The grim economic outlook led to an unprecedented drop in raw material prices.
In July 2008, a barrel of crude oil cost $147 and on the Nov. 20, it sold for $58.
The drastic cuts in production (-1.5 million barrels per day) announced by the OPEC countries have failed to reverse the trend.
This is a real challenge for countries like Ecuador, Iran, Venezuela and Russia who base their policies on high oil prices.
The economic crisis is also felt in the Middle East. The stock markets fell; regional banks are facing liquidity withdrawing pressure and the real estate market in Dubai is.
To review the current economic situation, recently a meeting of GCC member countries was held in Muscat. The Ministers of Finance and Foreign Affairs have discussed their state of economies and suggest a common course of action against the disaster. The participants have recognized the gravity of crisis and admitted that the situation in the Gulf is worse than last year, but it is better than that prevailing in other countries hit by the global financial crisis.
On Oct. 12, the International Monetary Fund (IMF) released its report on "Religion Economic Out Look: Middle East and Central Asia'.
The report has rejected any finical panic in the region and it is further said that the Middle East and Central Asia would continue to record strong growth in this year than the world average for the ninth consecutive year.
This growth is underpinned by high prices of raw material, strong domestic demand and the credibility of economic policies implemented by the authorities.
The report has pointed out two major short-term challenges for the region. Inflation and the financial sectors reform are considered the biggest challenges for the policy makers. In addition, policy makers are advised to closely monitor developments in property prices and asses the vulnerability of the financial system.
(The writer is a research fellow at Shanghai University of Finance and Economics)
