Prospects for the Global Economy 2009

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

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.
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.