term paper on global economy

Here's what you need to know about the global economy in 10 articles from the Forum

How will today's economic shifts shape your life? The economy explained in 10 stories from the World Economic Forum. Image:  Unsplash/Jay Clark

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• This round-up explores 10 articles from the World Economic Forum on key economic terms and theories.
• As the effects of inflation are felt around the world, these articles will help you understand the driving forces behind the global economy and the impacts on your finances.

1. How to prepare for a new economic reality and protect the most vulnerable - experts explain

The Forum's latest Chief Economists Outlook Report suggests a global recession is "somewhat likely". The OECD in its recent report similarly warned that recent indicators have "taken a turn for the worse".

Saadia Zahidi, Managing Director at the Forum, highlights “growing inequality between and within countries” as the “ongoing legacy of COVID-19, war and uncoordinated policy action”.

Find out what four chief economists think needs to be done to shield the most vulnerable.

2. Here’s how rising global interest rates could impact your life

With inflation on the rise globally, central banks are using interest rates — the amount you are charged for borrowing money — to try and slow rising prices. As mortgage and credit card repayments increase, rising levels of inflation are forcing central banks to take urgent action.

Learn more about interest rates and their impact on your finances.

3. Explainer: What is a recession?

The National Bureau of Economic Research defines the event as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”

Read more about recessions and their warning signs.

4. What are foreign currency reserves and can they help combat the global economic crisis?

Foreign currency or exchange reserves, otherwise known as forex reserves, are made up of cash and other assets such as gold that are held by central banks or other financial institutions such as the International Monetary Fund (IMF).

From maintaining liquidity in economic crises to diversifying a country's financial portfolio, discover why these reserves are so important.

5. What are central bank digital currencies?

Digital currency is electronic, rather than physical money. Central bank digital currency is “a risk-free form of money that is guaranteed by the state”, according to the European Central Bank.

More than 100 countries are now exploring central bank digital currencies, find out why .

The World Economic Forum’s Centre for the Fourth Industrial Revolution Network has built a global community of central banks, international organizations and leading blockchain experts to identify and leverage innovations in distributed ledger technologies (DLT) that could help usher in a new age for the global banking system.

We are now helping central banks build, pilot and scale innovative policy frameworks for guiding the implementation of DLT, with a focus on central bank digital currencies (CBDCs) . DLT has widespread implications for the financial and monetary systems of tomorrow, but decisions about its use require input from multiple sectors in order to realize the technology’s full potential.

“Over the next four years, we should expect to see many central banks decide whether they will use blockchain and distributed ledger technologies to improve their processes and economic welfare. Given the systemic importance of central bank processes, and the relative freshness of blockchain technology, banks must carefully consider all known and unknown risks to implementation.”

Our Central Banks in the Age of Blockchain community is an initiative of the Platform for Shaping the Future of Technology Governance: Blockchain and Digital Assets.

Read more about our impact , and learn how you can join this first-of-its-kind initiative.

6. What is the gig economy and what's the deal for gig workers?

The “gig economy involves the exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment-by-task basis,” according to the UK government.

Despite the benefit of freedom that the gig economy provides to workers, “issues such as benefits, income-security measures, and training and credentials offer room for policy-makers to provide solutions", according to a McKinsey Global Institute report.

Read more on the gig economy and the challenges its workers face.

7. GDP is no longer an accurate measure of growth. So what can take its place?

Many economists feel GDP is an outdated measure of economic wellbeing, with even its inventor, US economist Simon Kuznets , advocating for a new measure. Therefore, in the Forum's 2021 report on post-COVID recovery it has proposed a scorecard made up of four dimensions that need to be brought into balance: prosperity, the planet, people and the role of institutions.

Explore how the Forum envisions a post-COVID economic recovery.

8. What happens if a country defaults on its debts?

A default happens when governments are not able to – or don’t want to – meet some or all of their debt payments to creditors. This situation isn't uncommon, with 147 governments having defaulted on debts since 1960 . Credit rating agencies rate a debtor's ability to repay debt, so when countries have a poor credit rating, it’s hard for them to raise debt.

Learn more about government debt.

9. Explainer: What is a yield curve and why does it matter right now?

A yield curve refers to the representation on a graph of the yield – or the return investors can expect – on bonds that mature at different times. “A yield curve can be used to help gauge the direction of the economy,” according to Fidelity Investments. Therefore, yield curves are often used as a visual representation of bond investors’ feelings about risk .

Read more about yield curves and why they are so relevant right now.

10. What is a bear market?

A bear market occurs when a market experiences prolonged price declines. Bear markets are often associated with declines in an overall market or index – such as the S&P 500 – but they can also be associated with recessions. The causes of bear markets can range from pandemics to wars.

Discover more about bear markets.

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License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

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Penn State University Libraries

Pl sc 412: international political economy (world campus).

• Getting Started
• Exploring Topics
• Search Strategies Exercise
• Journal Articles
• Data Sources
• Specialized Sources

Term Paper Overview

• You will write a term paper on a relevant topic of interest to you.  The basic idea is for you to apply a theory or small set of theories to an issue in international political economy to drive predictions regarding the likely course of events over the next 5-10 or 10- 20 years. You will work on the paper in stages and be graded on your work over the course of the semester.  After submitting a rough draft, you will review another student’s paper and get peer feedback on your draft.

Term Paper Stages

1.  Research Paper Topic : You will write a short paragraph outlining the general topic of your research paper. General topics include, but are not limited to, trade relations, hegemony, the exchange rate, development and globalization. You will then describe the specific subtopic you are interested in. If, for example, your general topic is globalization, some subtopics might be sweatshops or the effect of globalization on the environment.

2.  Research Question: You will write one short paragraph that first presents your initial research question. Make sure that your research question asks what factors, variables, or conditions affect some aspect of your subtopic and focuses on cause-and-effect relationships.

• You should avoid descriptive and prescriptive questions.  The former leads to research papers that simply describe a process or an event, while the latter results in research papers that tell us what we can or should do to change, fix, or prevent some undesirable situation.
• For example, if your subtopic is the effect of globalization on the environment under the general topic of the globalization, an appropriate research question might be “under what conditions will countries cooperate to reduce pollution?” Inappropriate research questions might be “which states are the biggest polluters?” and “what should be done to reduce pollution?”

3.  Bibliography: You will submit a preliminary bibliography that should consist primarily of scholarly works associated with your research topic, such as books, journal articles, and other published studies that have been subjected to peer review. University presses, as well as many other reputable publishers, produce peer-reviewed books.

• American Political Science Review
• American Journal of Political Science
• International Organization
• International Studies Quarterly
• World Politics International
• Journal of Political Economy
• Your bibliography must follow the guidelines found in the American Political Science Association’s Style Manual for Political Science.  (See the Citations page of this guide for link.)

4.  Theory Overview : The reading you do will allow you to become acquainted with different theories (or "models" as they are often called) about the phenomenon that you’re interested in. Review the most prominent or compelling theories. If there are competing theories, highlight their distinguishing factors.

5.  Thesis Statement : You will write one or two sentences that represent your thesis statement. This thesis statement should be a concise summary of your research paper’s argument or analysis. In other words, the thesis statement summarizes your findings, your predictions and your argument. It is “the punch line” of your paper and what follows fills out and supports this statement.

6.  Detailed Outline : You will provide a detailed outline of the various sections of your research paper. These sections may include, but are not limited to, the introduction (including your thesis statement), theory review, analysis, and conclusions.

7.  Rough Draft : You will submit a rough draft of your research paper for peer review. This draft does not have to be perfect. It simply represents your first attempt to put your thoughts in final form. However, the more work you put into this rough draft, the more likely it is that you will receive useful feedback from the peer review. You will get full credit for submitting the draft. (I will not be grading content at this point.) If you do not submit the rough draft you WILL NOT get any credit for completing a peer review.

8.  Peer Review:   You will provide constructive feedback on one classmate’s rough draft.  Using track changes and the insertion of comments, offer as much constructive criticism on your classmate’s paper as possible.  Constructive criticism is criticism that is intended to improve the paper and often identifies solutions to problems in a positive and productive way.  You might want to think about this peer review as a valuable opportunity to improve your own writing; as you edit and comment upon your classmate's work, you might discover things that you should or should not do in future essays and research papers. You will not get credit for this portion if you do not submit a rough draft yourself.

9.  Final Paper: Your final paper must be between 6-8 pages in length, double-spaced with 12-point Times New Roman font and 1-inch margins. Your paper must also include proper parenthetical citations and bibliography, following the guidelines found in the American Political Science Association’s Style Manual for Political Science.  (See the Citations page of this guide for link.)   Please upload your paper in Word (or Pages), not pdf.

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The Global Economic Outlook During the COVID-19 Pandemic: A Changed World

An empty highway in Dubai during the coronavirus pandemic. Above the highway, a sign reads "Stay Safe, Stay Home."  © Mo Azizi/Shutterstock

The COVID-19 pandemic has spread with alarming speed, infecting millions and bringing economic activity to a near-standstill as countries imposed tight restrictions on movement to halt the spread of the virus. As the health and human toll grows, the economic damage is already evident and represents the largest economic shock the world has experienced in decades.

The June 2020 Global Economic Prospects  describes both the immediate and near-term outlook for the impact of the pandemic and the long-term damage it has dealt to prospects for growth. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using market exchange rate weights—the deepest global recession in decades, despite the extraordinary efforts of governments to counter the downturn with fiscal and monetary policy support. Over the longer horizon, the deep recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages.

The crisis highlights the need for urgent action to cushion the pandemic’s health and economic consequences, protect vulnerable populations, and set the stage for a lasting recovery. For emerging market and developing countries, many of which face daunting vulnerabilities, it is critical to strengthen public health systems, address the challenges posed by informality, and implement reforms that will support strong and sustainable growth once the health crisis abates.

Historic contraction of per capita income

The pandemic is expected to plunge most countries into recession in 2020, with per capita income contracting in the largest fraction of countries globally since 1870. Advanced economies are projected to shrink 7 percent. That weakness will spill over to the outlook for emerging market and developing economies, who are forecast to contract by 2.5 percent as they cope with their own domestic outbreaks of the virus. This would represent the weakest showing by this group of economies in at least sixty years.

Every region is subject to substantial growth downgrades. East Asia and the Pacific will grow by a scant 0.5%. South Asia will contract by 2.7%, Sub-Saharan Africa by 2.8%, Middle East and North Africa by 4.2%, Europe and Central Asia by 4.7%, and Latin America by 7.2%.  These downturns are expected to reverse years of progress toward development goals and tip tens of millions of people back into extreme poverty.

Emerging market and developing economies will be buffeted by economic headwinds from multiple quarters: pressure on weak health care systems, loss of trade and tourism, dwindling remittances, subdued capital flows, and tight financial conditions amid mounting debt. Exporters of energy or industrial commodities will be particularly hard hit. The pandemic and efforts to contain it have triggered an unprecedented collapse in oil demand and a crash in oil prices. Demand for metals and transport-related commodities such as rubber and platinum used for vehicle parts has also tumbled. While agriculture markets are well supplied globally, trade restrictions and supply chain disruptions could yet raise food security issues in some places.

A possibility of even worse outcomes

Even this bleak outlook is subject to great uncertainty and significant downside risks. The forecast assumes that the pandemic recedes in such a way that domestic mitigation measures can be lifted by mid-year in advanced economies and later in developing countries, that adverse global spillovers ease during the second half of 2020, and that widespread financial crises are avoided. This scenario would envision global growth reviving, albeit modestly, to 4.2% in 2021.

However, this view may be optimistic. Should COVID-19 outbreaks persist, should restrictions on movement be extended or reintroduced, or should disruptions to economic activity be prolonged, the recession could be deeper. Businesses might find it hard to service debt, heightened risk aversion could lead to climbing borrowing costs, and bankruptcies and defaults could result in financial crises in many countries. Under this downside scenario, global growth could shrink by almost 8% in 2020.

Looking at the speed with which the crisis has overtaken the global economy may provide a clue to how deep the recession will be. The sharp pace of global growth forecast downgrades points to the possibility of yet further downward revisions and the need for additional action by policymakers in coming months to support economic activity.

A particularly concerning aspect of the outlook is the humanitarian and economic toll the global recession will take on economies with extensive informal sectors that make up an estimated one-third of the GDP and about 70% of total employment in emerging market and developing economies. Policymakers must consider innovative measures to deliver income support to these workers and credit support to these businesses.

Long-term damage to potential output, productivity growth

The June 2020 Global Economic Prospects looks beyond the near-term outlook to what may be lingering repercussions of the deep global recession: setbacks to potential output⁠—the level of output an economy can achieve at full capacity and full employment⁠—and labor productivity.  Efforts to contain COVID-19 in emerging and developing economies, including low-income economies with limited health care capacity, could precipitate deeper and longer recessions⁠—exacerbating a multi-decade trend of slowing potential growth and productivity growth. Many emerging and developing economies were already experiencing weaker growth before this crisis; the shock of COVID-19 now makes the challenges these economies face even harder. 

Another important feature of the current landscape is the historic collapse in oil demand and oil prices. Low oil prices are likely to provide, at best, temporary initial support to growth once restrictions to economic activity are lifted. However, even after demand recovers, adverse impacts on energy exporters may outweigh any benefits to activity in energy importers. Low oil prices offer an opportunity to oil producers to diversify their economies. In addition, the recent oil price plunge may provide further momentum to undertake energy subsidy reforms and deepen them once the immediate health crisis subsides.

In the face of this disquieting outlook, the immediate priority for policymakers is to address the health crisis and contain the short-term economic damage. Over the longer term, authorities need to undertake comprehensive reform programs to improve the fundamental drivers of economic growth once the crisis lifts.

Policies to rebuild both in the short and long-term entail strengthening health services and putting in place targeted stimulus measures to help reignite growth , including support for the private sector and getting money directly to people. During the mitigation period, countries should focus on sustaining economic activity with support for households, firms and essential services.

Global coordination and cooperation—of the measures needed to slow the spread of the pandemic, and of the economic actions needed to alleviate the economic damage, including international support—provide the greatest chance of achieving public health goals and enabling a robust global recovery.

• Global Economic Prospects
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Essays on a 21st century multilateralism that works for all

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Brahima sangafowa coulibaly , brahima sangafowa coulibaly vice president and director - global economy and development , senior fellow - global economy and development @bsangafowacoul kemal derviş , kemal derviş senior fellow amar bhattacharya , amar bhattacharya senior fellow - global economy and development , center for sustainable development homi kharas , homi kharas senior fellow - global economy and development , center for sustainable development john w. mcarthur , john w. mcarthur director - center for sustainable development , senior fellow - global economy and development @mcarthur amrita narlikar , amrita narlikar president - german institute for global and area studies @amritanarlikar josé antonio ocampo , josé antonio ocampo professor of professional practice in international and public affairs - columbia university, co-director of the economic and political development concentration - school of international and public affairs @josea_ocampo eswar prasad , eswar prasad senior fellow - global economy and development @eswarsprasad elizabeth sidiropoulos , elizabeth sidiropoulos chief executive - south african institute of international affairs dennis j. snower , dennis j. snower nonresident senior fellow - global economy and development @djsnower vera songwe , and vera songwe nonresident senior fellow - global economy and development , africa growth initiative @songwevera nathalie tocci nathalie tocci director - istituto affari internazionali, honorary professor - university of tübingen, visiting professor - harvard kennedy school @nathalietocci.

February 16, 2022

Edited by Brahima S. Coulibaly and Kemal Derviş, this collection of essays builds upon a 2021 global “experts” survey on multilateralism . While not an exhaustive list, the topics addressed here comprise some of the most pressing issues for international cooperation in the years ahead, as identified by both the survey respondents and the essay authors. The editors’ overview follows here.

By Brahima S. Coulibaly and Kemal Derviş

Introduction.

There is no general agreement on what shape the “world order” will take in the years and decades ahead. What is certain, however, is that humanity will have to deal with huge and in many ways unprecedented transformations and challenges, such as the digitalization of economies and societies, climate change and mitigation, pandemic preparedness, extreme income and wealth concentration, 1 and new types of “weapons” associated with dual-use technologies.

There are great opportunities for improved well-being associated with many of these challenges. Digitalization and artificial intelligence (AI) could result in tremendous increases in productivity, and the green transformation necessitated by climate change could constitute the greatest economic, social, and business opportunity since the industrial revolution. 2 However, failure to adequately address some of these challenges, notably climate change, could lead to immense economic and social damage; it could add to the existing pressures caused by mass migration resulting from the imbalance between geographic concentrations of populations and economic opportunities. Furthermore, digitalization could exacerbate inequalities and lead to mass surveillance of societies led by autocrats. In turn, some of the “weapons” that may be developed with new technologies could lead to a scale of destruction of the planet tantamount to nuclear weapons. The U.N. Secretary-General António Guterres starts his new agenda-setting report by stating “humanity faces a stark and urgent choice: a breakdown or a breakthrough.” 3 Multilateral cooperation is therefore needed more than ever to both fully realize the potential benefits of these shifting trends and minimize the dangers that accompany them.

The Global Economy and Development Program at the Brookings Institution conducted a global “experts” survey on multilateralism in the Spring of 2021 as part of a project on the future of global governance. 4 The topics addressed in this compilation of essays do not attempt to cover all challenges faced by multilateralism, but they reflect issues considered most important by the survey respondents, as well as the authors of these essays. Together, they address some of the most pressing questions and needs for international cooperation in the years ahead.

Read the rest of the overview in the full report

Overview Brahima S. Coulibaly and Kemal Derviş

1. multilateralism and dynamic divergence in the global economy eswar prasad and vera songwe, 2. global governance: balancing power and equitable representation kemal derviş and josé antonio ocampo, 3. regional cooperation: a necessary complement to global multilateralism brahima s. coulibaly and elizabeth sidiropoulos, 4. multilateralism and climate change: providing a global public good and following an ethical imperative amar bhattacharya and kemal derviş, 5. from vertical funds to purpose-driven funds: a new approach to multilateralism homi kharas, john w. mcarthur, and dennis snower, 6. liberal democratic values and the future of multilateral cooperation kemal derviş and nathalie tocci, 7. multilateralism, liberal values, and the global south amrita narlikar.

Related Content

Kemal Derviş, Sebastian Strauss

August 9, 2021

• Between 1995 and 2021 the top 1 percent of the global population captured 38 percent of the increase in wealth. See “World Inequality Report 2022.” https://wir2022.wid.world/www-site/uploads/2021/12/Summary_WorldInequalityReport2022_English.pdf .
• Nicholas Stern. “G7 leadership for sustainable, resilient, and inclusive economic recovery and growth.” https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/06/G7_leadership_for_sustainable_resilient_and_inclusive_economic_recovery_and_growth_full_report.pdf .
• United Nations. “Summary of Our Common Agenda Report.” https://www.un.org/en/content/common-agenda-report/summary.shtml .
• Dervis and Strauss, 2021. Responses contained in this survey.

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April 3, 2024

Kerllen Costa

March 28, 2024

The Truly Global Economy Essay

Introduction, globalization, a truly global economy, globalization theories, political and financial instabilities, ways in which people are still connecting despite economic crisis, factors affecting globalization, reference list.

Many people have had different questions regarding globalization, some asking whether it is the integration of economic, social, political and cultural systems across the world or the dominance of the developed countries in making decisions at the expense of the poor regions.

Others have questioned whether it can contribute to the economic growth, prosperity or the democratic freedom or it is a force for devastation of the environment and exploitation of the developing countries. This paper handles what a truly global economy is with emphasis on the consequences of the current economic crisis.

Globalization refers to all aspects that seek to increase not only the connectivity but also the interdependence of the world’s markets. The main factor that has led to the increase in globalization is the technological advancement that allows people to freely move communicate and trade internationally. It is the interconnectedness of production, communication and technologies all over the world. It involves both cultural and economic activities.

Additionally, it is said to be such a diverse, deep-rooted force that not even the current massive economic crisis can break it down or permanently destroy it. Many argue that globalization has brought about increased opportunities for everybody in the world, irrespective of their social backgrounds.

The rich and poor actively participate in globalization. On the other hand, others who are against globalization claim that it has deprived some people in terms of resources, as they cannot compete with the rest of the world. “Globalization raises new challenges for governance, especially vis-vis the roles of government, workers, and citizens in the new economic order” (Ashford, 2004, pp.52). The differential success of regulation regimes affects the progress of globalization within many nations around the globe.

Introduction of global markets has lead to many changes. One of the major changes is the harmonization of principles. This has been a success through the integration of ILO conventions and international environmental agreements. Many nations are reluctant in surrendering their overall autonomy since they are afraid of the possible negative impacts of the possible economic integration.

Nations around the world began to globalize their economies towards the end of the eighteenth century as major discoveries on geography started influencing everyday’s business life. During this time, the economic interests as well as the advancements in technologies could not stand to integrate the world’s economies.

Community wars and political instabilities have made the economic integration process and creation of a unified market place more unrealistic. This has caused the world economy to continue with the strengthening of integration. It is also being taken to the oblivion further by the differences in national developments that have proved to be increasing on a daily basis. As far as technology is concerned, many countries are lagging behind and have no characteristics of a global economy.

Countries that have large populations and provinces have a continual disparity in terms of economic and technological developments. For instance, in Bangladesh, the large populaces have never made a telephone call. The gap between the rich and the poor continue to widen. However, the companies in different regions and continents have integrated and made it a reality.

This does not mean that it is a truly global economy because globalization does not revolve around trade only. Countries such as Myanmar are working hand in hand with developed countries causing global economic harmonization. This creates GMP. A truly global economy requires a complete economic integration of the the various aspects of the national economy.

Several terms bring out several aspects of the term globalization in different ways and contexts. Globalization has been like an extension of modernization. The instability in capitalism and traditional sovereignty has sparked reaction against reason. According to the World Polity theory, globalization is about culture.

By the end of the twentieth century, world culture had crystallized and become part of the world society: a common heritage. Even so, it has not been able to claim global consensus. The main reason behind this is that different communities in different geographical locations differ in their interpretations of some aspects such as the rights each community in globalization.

This definitely makes it hard for the world to attain a homogenous state of economy. According to Meyer, “A polity system is a system of creating value through the collective conferral of authority” (1980, pp. 52). The players in the system happen to be “entities constructed and motivated by enveloping frames” (Boli and Thomas, 1997, pp.22).

This is why the nations have adopted analogous constitutional forms as well as educational systems among others. The international non-governmental organizations also play a big role in world citizenship. Some ample room is created for innovation while in pursuit of similar goals by the states thus causing intense competition. The competition as part of the world’s cultural standards causes reactions that later demands putting things right. This will continue for as long as the world lives.

Thirdly, there is so much pressure on survival brought about by the capitalists. According to Robertson “globalization is the compression of the world and the intensification of consciousness as a whole” (1992, pp.8).

By the end of the twentieth century, the world was in chaos as more people were being exposed to the need to live independently in such of sovereignty. According to the World System theory, globalization is a process by which the world’s system eventually becomes harmonized around the globe. It maintains that globalization is not a new phenomenon.

Wallerstein argues “the current ideological celebration of the so-called globalization is in reality the swan song of our historical system” (1998, pp.32). It started with the Europeans whose desire for feudalism provoked technological innovations and developments of market institutions in the quest for production. This made it even easier to reach the other parts of the world. Military strength and a good transportation system made it easier to establish economic ties with other nations.

The peripheral areas provided raw materials while the semi-periphery regions had little if not zero benefit. It reached its geographic limit with the extension of capitalist market. Even with this, there was no way to change the situation because polarization of the system had taken place. Crisis arose that could not be solved by exploitation of new markets and there could never be a more equal or democratic world. The periods of innovation had a negative impact to the economy.

Businesses experienced a reduction of profits, an aspect led to not only recession but also economic stagnation. It is clear that even with the theories, globalization actualization in its full capacity is an issue that seems to be at its peak though it is still in the process of winning many participants-nations.

The increased economic interaction between different nations has led to the propagation of a different and deep-rooted political change. This has been evident in that most of the poor or rather third world countries have become more dependent of the developed countries for everything. In addition, economic power has shifted from the nation-state to multinational corporations.

This is characterized by circulation of technologies, practices as well as ideas. “The intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa” (Anthony, 1990, pp.64).

With the current technological advancement, people are in a position to buy goods from the internet. They do not interact with the suppliers or the sellers but can only interact with the delivery personnel. Banking has also facilitated virtual interactions between the parties involved. The other casualties of this kind of a process have been a decline in national governments failure to direct and have an impact in their economies.

A good example could be Japan whose economic shifts can be felt in countries all over the entire universe because of the interconnectivity. The lack of influence in the national governments does not mean that they are gone completely but in essence they remain “pivotal institutions especially in terms of creating the conditions for effective international governance” (Hirst and Thompson, 1996, pp.170).

Multinational corporations are literal beneficiaries of globalization. The car manufacturing companies for instance go global in search of the parts required for the assembling of the same. According to Hirst and Thompson,

International businesses are still largely confined to their home territory in terms of their overall business activities, they remain heavily ‘nationally embedded’ and continue to be multinational rather than transnational corporations (1996, pp.98).

The impact of this globalization on the local communities is evident. The multinationals can influence local communities in many ways. First, in order for them to operate, they establish operations that include sales and services in the regions that will eventually offer cheap labor and resources as required.

This can bring wealth to the areas that the multinationals have elected; for instance, people can choose to work at the plant, on the one hand, or to be unemployment, on the other hand.

This is because incase of relocation, the locals who had been offering services as workers would be rendered jobless, and this could be devastating. In most cases, the public spaces like the parks are eroded with their activities. Social places become privatized and commercialized leaving the locals with no social grounds. Everything eventually becomes expensive and inaccessible for the locals.

Globalization is well thought-out to be a line in the sphere where the economic world is developing irremediably as well as irreversibly. Financial globalization presents a very high degree of development, especially within the financial markets. Technological changes in communication and data processing have made globalization to be identified as the irrefutable proof of huge capital movement achieved.

Nonetheless, a global financial industry has not been established yet. The current financial crisis around the globe is a major barrier to the advancement of the process of globalization especially to the developing nations. Though it has been of great help to not only the developing but also developed countries by alleviating their poverty levels, it is very vulnerable to terrible and costly backlashes, as history has shown.

The constantly changing global economy and market are challenges for all nations. The deteriorating economy poses a challenge to issues such as employment, occupational health and safety as well as people’s wages among others. (Ashford 2008, pp. 304). To achieve an affluent global economy, it is necessary for all nations to be aware of their rights to take part in the world trade and use the advantages of the innovations (Ashford 2004).

Nothing good comes on a silver platter and to achieve globalization in the vast continent has been a great achievement even with its failures. The failures that have brought about dysfunctional globalization as some view it, has been brought about by political and financial instabilities.

Many countries have outstretched to their limits in an attempt to adapt to globalization but ended up being exhausted especially in cases of financially driven globalization. These mainly are the developing countries whose financial status fails to handle their capital city’s economy and operations. Technical advances are the sole drivers for the upswing that causes many of the institutions to foster ways to adjust with some ending up being poorer than before. Protectionism became a key consequence in many of the countries.

This is why the G-20 summit of November 2008 in Washington produced some reverberating denunciations of countries and nations being protective of their possessions. This did not last long before measures regarding protectionism were implemented in many of the countries like China. This at some point brought about a misconception of the end of globalization because globalization is not just about international trade and investment, which the countries were shielding.

It is true that trade has plunged and financial flows drastically fallen and to some extent may not recover any time soon unless the main economic pillars are reignited. Although international trade plays a pivotal role in globalization, there other factors that are essential in enhancing the full realization of the process in developing an affluent global economy.

All over the world, people are still connecting despite economical crisis threatening the countries. Internet connectivity is a key boost in the advancement of the great relationships among the people in the world.

Social sites, like MySpace, Twitter, Facebook, have enabled communication to be cheaper and accessible even in the most of the remote areas one can ever think of. People from North islands can relate with people from Africa. E-bay also allows people to transact irrespective of their geographical locations. Their international activities could be bolstered regardless the current economic crisis.

As witnessed all over the world, the global charities might bring people together in one way or another. This is so because many countries are in need and none seems to be isolated to live on its own without ever mingling with the others. Amazingly enough, the ability of a national government to protect its economy and society from outside influences has no strong roots recently.

The current wave of globalization has proven to have unprecedented impacts, and this explains the reason why it is hard to tame and curb external influences. The internet allows Vietnam to trade their handicrafts in Europe without travelling there. The cultural, political, social, economic as well as military components have been quantified, so it is a matter of time before a qualitative change takes place.

Nevertheless, even with the financial crisis still going on, nations from all over the world are interconnected. Globalization has multiplied the number of problems that have made it hard for any country to solve them on its own. These problems include such issues as financial problems, climate changes, terrorism that has interconnected the East African countries with America in one way or another to curb the menace.

Pandemics like HIV/AIDS have brought together countries looking for cure, nuclear proliferations, among others. With the current global crisis, global governance will increase respectively. Countries in East and Central Africa have signed partnership deals to enable them to transport and export their products like oil through Kenya from South Sudan.

One of the major factors that affect globalization is the barriers associated with immigration. Some countries have imposed trade-impairing policies besides taking strict measures to curb immigration. Such an approach will work for a while, but the financial support will fail after a while.

The world culture theory also called the Homogenism theory acts in unison with these findings concerning globalization being there no matter what happens. The theory marks differences in cultural homogenization and sees globalization broadly being the increasing uniformity of cultures all over the world, instead of just viewing it from an economical perspective.

Transformational theory is handled in these findings as well. The theory focuses on the global forces that increase the powers of the nation-state. It maintains thinking globally as people or nations act locally, as well as maintaining diversity in the face of economic forces that encourage uniformity.

In conclusion, globalization presents both the opportunities and risks to every nation that indulges in it, especially the African nations. In most developing countries especially those in Africa, globalization presents certain risks. For instance, one of the possible impacts of globalization is the increase in political costs as well as the social tensions that come with (Ikeme 1999).

Owing to this, the economic state of most developing nations may end up being strained to levels beyond their abilities or rather resources. This translates to economic redundancy in such nations, which will have a negative impact on the global economy as well. It is no doubt that globalization has tremendous potential benefits for any developing country.

The bigest “challenge is to realize the potential benefits without incurring huge offsetting costs in loss of the ecological basis for development and in the increase of inequality and impoverishment of the public” (Ikeme 1999). Developing country should, therefore cease to see globalization as a result but as a means to the end. The end is sustainable wellbeing for everyone.

The chance is created by the opportunity that the fender-bender of the two approaches towards globalization and sustainable progress will cause a new stage of human development, “which offers up-to-the-minute opportunities for the re-negotiation, and re-juggling of the world economic configuration” (Ikeme 1999). Both the developing and developed nations have equal opportunities to participate in the globalization of the word’s economy.

However, their contribution is dictated by their economic stability. To do this, they must set free from all the stereotypes on frameworks for development that the Western powers have created in favor of their origin. To be competitive in the global economy, the nations should invest their natural capital in their economy. They should also train their locals and ensure that foreigner does not have too big share in the development of their economy.

Thus, making sure that local companies are owned by the locals themselves ensures that profits are reinvested in the country as well as innovations in technology are never imported but developed in their own homeland. Following this way, they will make quick leaps in attaining the global goal and they will benefit from it just like the rest of the developed countries.

Globalization is to stay and the countries that will be the most successful in the next near future will be the ready to take all the obligatory informed decisions of their endeavors and in light of their goals irrespective of the misinformed guidance from the development experts. The so-called experts and giants in the economy have little business in enhancing the locals of other nations to remain superior and relevant.

However, once the rest take up the task upon them to educate and take their country to the next level, the superiors will have no business with it. Unless this hard but fruitful task is yoked in the locals of the developing countries, the economic giants will always mingle in their affairs with no tangible returns witnessed. They should engage the global economy on the own terms and not using the preset order by the developed country. Until then, they will always have a way to elude them.

Ashford, NA 2004, “Sustainable Development and Globalization: New Challenges and Opportunities for Work Organization”, in C Nova-Kaltsouni & M Kassotakis (eds.) Promoting New Forms of Work Organization and Other Cooperative Arrangements for Competitiveness and Employability , National and Kapodistrian University of Athens, Athens, pp. 50-61.

Ashford, NA 2008, “Environmental Regulation, Globalization, and Innovation,” in KP Gallagher (ed.), Handbook on Trade and the Environment, Chettendam and Northampton, Virginia, USA, pp. 296-307.

Boli, J. and Thomas, G., 1997. World Culture in the World Polity. American Sociological Review, 62(2), pp.171-190.

Ikeme, J 1999, ‘Sustainable development, globalisation and Africa: Plugging the holes’, Africa Economic Analysis . Web.

Hirst, P & Thompson, G 1996, Globalization in question: The international economy

Meyer, W., Boli, J., Thomas, G. and Francisco O., 1997. World Society and the Nation-State. American Journal of Sociology, 103(1), pp.144-181.

Robertson, R., 1992. Globalization: Social Theory and Global Culture. London: Sage.

Wallerstein, I., 1998. Utopistics: Or, Historical Choices of the Twenty-First Century. New York: The New Press.

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IvyPanda. (2023, December 26). The Truly Global Economy. https://ivypanda.com/essays/the-global-economy/

"The Truly Global Economy." IvyPanda , 26 Dec. 2023, ivypanda.com/essays/the-global-economy/.

IvyPanda . (2023) 'The Truly Global Economy'. 26 December.

IvyPanda . 2023. "The Truly Global Economy." December 26, 2023. https://ivypanda.com/essays/the-global-economy/.

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I.M.F. Sees Steady Growth but Warns of Rising Protectionism

The International Monetary Fund offered an upbeat economic outlook but said that new trade barriers and escalating wars could worsen inflation.

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By Alan Rappeport

Alan Rappeport covers the Treasury Department and is reporting on the spring meetings of the I.M.F. and World Bank in Washington this week.

The global economy is approaching a soft landing after several years of geopolitical and economic turmoil, the International Monetary Fund said on Tuesday. But it warned that risks remain, including stubborn inflation, the threat of escalating global conflicts and rising protectionism.

In its latest World Economic Outlook report, the I.M.F. projected global output to hold steady at 3.2 percent in 2024, unchanged from 2023. Although the pace of the expansion is tepid by historical standards, the I.M.F. said that global economic activity had been surprisingly resilient given that central banks aggressively raised interest rates to tame inflation and wars in Ukraine and the Middle East further disrupt supply chains.

The forecasts came as policymakers from around the world began arriving in Washington for the spring meetings of the International Monetary Fund and the World Bank. The outlook is brighter from just a year ago, when the I.M.F. was warning of underlying “turbulence” and a multitude of risks.

Although the world economy has proved to be durable over the past year, defying predictions of a recession, there are lingering concerns that price pressures have not been sufficiently contained and that new trade barriers will be erected amid anxiety over a recent surge of cheap Chinese exports.

“Somewhat worryingly, progress toward inflation targets has somewhat stalled since the beginning of the year,” Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, wrote in an essay that accompanied the report. “Oil prices have been rising recently in part due to geopolitical tensions and services inflation remains stubbornly high.”

He added: “Further trade restrictions on Chinese exports could also push up goods inflation.”

The gathering is taking place at a time of growing tension between the United States and China over a surge of Chinese green energy products, such as electric vehicles, lithium batteries and solar panels, that are flooding global markets. Treasury Secretary Janet L. Yellen returned last week from a trip to China , where she told her counterparts that Beijing’s industrial policy was harming American workers. She warned that the United States could pursue trade restrictions to protect investments in America’s solar and electric vehicle industries.

The United States and China agreed to hold additional talks on “balanced growth.” On Tuesday afternoon, Ms. Yellen convened a meeting of the U.S.-China Financial Working Group and the Economic Working Group at the Treasury Department.

During her visit to China, Ms. Yellen suggested that tariffs on Chinese exports of green energy products were “on the table.” The Biden administration is weighing changes to tariffs that the Trump administration imposed on more than $300 billion worth of Chinese goods. The European Union has been pursuing its own trade restrictions on China, and fears over China’s growing dominance over clean energy production could lead to a new wave of protectionism globally.

On Tuesday, Ms. Yellen pointed out that the United States economy was defying expectations of weakness from a year ago, describing the labor market as “remarkably healthy” and noting that inflation had come down significantly from its peak.

I.M.F. officials have been wary about “fragmentation” in recent years, as economies gravitate to trading blocs with aligned political interests. The report on Tuesday warned that further restrictions on trade and investment could fuel more inflation and weigh on economies.

“Tariff increases could trigger retaliatory responses, raise costs, and harm both business profitability and consumer well-being,” the report said.

Ms. Yellen said on Tuesday that the I.M.F. is not sufficiently focused on the problem of Chinese overcapacity, arguing that China’s subsidies of its green energy sectors were creating an uneven playing field.

“With these subsidies, the amount of capacity exceeds global demand, and what it’s likely to be even over the next decade,” Ms. Yellen said. “When the markets weaken, prices fall and it’s our firms who go out of business, and those that are our allied countries. Chinese firms continue to receive support so that they remain.”

Officials from the Group of 7 nations and the Group of 20 will hold separate discussions on the sidelines of the meetings, which officially begin on Wednesday, on a variety of pressing issues including the fallout from the war in Gaza and Russia’s war in Ukraine.

Biden administration officials, including Ms. Yellen, are expected to meet senior Ukrainian officials as they try to build international support to provide more aid to Ukraine. The Treasury secretary will also continue to make the case for using Russia’s frozen central bank assets as a lifeline for Ukraine’s economy.

The meetings are taking place at a fragile time for the global economy, which has been battered in recent years by a pandemic and war. The world’s top financial officials will be discussing ways to maintain economic stability during a year when elections around the world could herald dramatic policy changes.

The I.M.F. report broadly described its growth outlook for the global economy as “stable but slow,” with much of the resilience powered by the strength of the United States, where growth is expected to increase from 2.5 percent in 2023 to 2.7 percent in 2024.

Output in the euro area remains sluggish, with growth increasing from 0.4 percent in 2023 to 0.8 percent this year.

China’s economy is expected to grow at a rate of 4.6 percent in 2024, down from 5.2 percent in 2023. But on Tuesday, China’s statistics agency reported stronger-than-expected growth in the first quarter, with the economy expanding at a 6.6 percent annual rate, as the country turned to manufacturing and exports to counter a downturn in the property market.

Efforts by central banks to contain price increases by raising interest rates have begun to tame inflation. The I.M.F. predicts that global headline inflation will decline from an annual average rate of 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent next year. But the slowdown is not happening at the same rate in every country and some places are further along in taming price increases than others. The I.M.F. said that a scenario where interest rates need to remain higher for a longer period of time could put added stress on housing markets and the financial sector,

The fight against inflation in the United States has begun to stall. While prices are rising more slowly than they had been, they are still higher than the 2 percent that the Federal Reserve targets. In March, the Consumer Price Index climbed by 3.8 percent on an annual basis after stripping out food and fuel prices, raising doubts among economists about whether the Fed will start cutting interest rates this year.

The most prominent threat to the inflation outlook is the possibility that regional conflicts could cause food and energy prices to spike. The I.M.F. said that an escalation of the conflict in Gaza, additional attacks on ships in the Red Sea and additional volatility associated with Russia’s war in Ukraine all represent wild cards that could disrupt supply chains and derail the world economy’s progress.

“Such geopolitical shocks could complicate the ongoing disinflation process and delay central bank policy easing, with negative effects on global economic growth,” the I.M.F. said.

Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. More about Alan Rappeport

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Term Paper on Global Economic Crisis | Economics

Here is a term paper on ‘Global Economic Crisis’. Find paragraphs, long and short term papers on ‘Global Economic Crisis’ especially written for school and college students.

Term Paper # 1. Introduction to Global Economic Crisis:

When the world economy crumbled in 1930, there was a clear writing on the wall that the market- based capitalistic economic system failed to work in the critical situations like recession and slump.

The over-enthusiastic advocates of market capitalism refused to learn that fundamental lesson and resurrected it again and again, sometimes in the garb of Brettonwoods system, sometimes in the form of the Reagan-Thatcher model that favoured finance over domestic manufacturing, and sometimes through the dispensations of the WTO.

The purpose here is not to debunk the market capitalism but to underline the fact that it is not always self-regulating and self-correcting. This system has certain rules of the game. When those rules do not apply, the system too becomes unworkable. The profit expectations were over-optimistic in 2007 such that the academic community failed largely to anticipate the impending disaster. They ignored the prophetic words of J.M. Keynes, “It is of the nature of the organised investment markets… that, when disillusion falls upon an over-optimistic and over-bought market, it should fall with a sudden and catastrophic force.”

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Only Nouriel Roubini of New York University did make forecast about it on Sept. 7, 2006 before an audience of economists at the I.M.F. meet. He unraveled correctly the contours of the financial meltdown in the United States and its global repercussions.

A person laughed at him and dismissed his assertions as devoid of mathematical models and was labelled as Dr. Doom. By the fall of 2007, Roubini stood fully vindicated, when the U.S. economy was faced with sub-prime mortgage crisis, bankruptcies, fall in hedge funds, crash at stock markets, impeding housing bust and increasing unemployment. Both Federal Reserve System and the U.S. administration had started making panicky interventions in the economic system by that time.

Term Paper # 2. United States and Economic Crisis:

The economic recession is generally defined as two consecutive quarters of declining activities. The Business Cycle Dating Committee of the National Bureau of Economic Research in the U.S.A. specified its own criteria for the determination of downturn. It stated, a recession is a significant decline in economic activity spread across the economy lasting more than a few months, normally visible in production, employment, real income and other indicators upto mid-2007.

This problem was not anticipated as the economy grew at a 0.2 percent rate in the fourth quarter of that year followed by the rates of growth of 0.8 percent and 2.8 percent respectively in the first and second quarters of 2008, while in the third quarter of that year, the real GDP growth dropped by 0.5 percent, there was stunning contraction of real GDP at the rate of 0.3 percent in the fourth quarter of 2008. It was then declared officially that the United States had entered into recession in December 2007.

The deepening of economic crisis in world’s largest economy was bound to have widespread repercussions upon the economies of all developed and developing countries of the world.

The most elementary question is what led to the global economic crisis first in the United States and subsequently in other countries of the world.

The causes of the economic meltdown in the U.S. economy were as under:

(i) The U.S. economy was confronted with sub-prime mortgage scandal in 2007-08. The FRS in the United States had kept the interest rates too low and for too long. The financial institutions bundled together goods, housing and other categories of loans. The rating agencies accorded high rating to these loan packages as they were being paid by those who were supposed to be rated by them. The packages of mortgages and other complex financial products were sold by one bank or financial institutions to another.

The house price bubble created by low interest got burst and the prices of housing units started declining. The depreciating values of the packages of mortgages made the banks to demand money back from their borrowers. This resulted in a severe liquidity and banking crisis. The U.S. administration had to offer bail-out packages to such financial giants as Bear Sterns, Freddie Mac and Fannie Mae. Then came the collapse of the three biggest financial players like Lehman Brothers Merrill Lynch and AIC.

The US economy received a stunning blow on June 1, 2009, when century-old giant automaker General Motors filed for bankruptcy. The relief of $ 20 billion provided by the administration to it could not help its revival. The collapse of this mighty firm employing 2, 44, 500 people worldwide and selling 8.35 million cars and trucks in about 140 countries was bound to have further grave effects on the U.S. economy.

The severity of the economic crisis was reflected by the fact that the United States witnessed 25 bank failures in 2008. Over the previous eight years (2000-08), 52 banks had collapsed. The financial meltdown continued unabated as 16 banks collapsed in the first two months of 2009. It was more than half of total bank collapses in 2008. The criticality of financial turmoil was evident because even the bail-out package of over 700 billion dollars adopted by the government had failed to stem the tide of financial collapse.

(ii) Another factor behind the recent crisis in the U.S. economy was the decline in domestic manufacturing. There was the predominance of manufacturing over finance in that country even upto 1960’s. But decline in American manufacturing saddled the economy not only with almost permanent negative balance of trade but also with a business community which was less and less concerned with the productive capacities in that country.

The globalisation of manufacturing left little room for the United States to revert to the levels of manufacturing that it was having in the good old days. The trend of decline in industrial output continued even after the largest economy of the world slid into recession in December 2007. In March 2009, the industrial output fell by 1.5 percent. It was nearly 13 percent below its level in March 2008 and it was the lowest since December 1998.

(iii) The retention of low rates of interest for creating investment stimulus resulted in the low rate of saving in the US economy. It meant that rest of the world came to hold a large part of capital in that country. As a consequence, the economy became more susceptible to the speculative international movements of capital. The keeping of interest rates too low for too long led to the housing bubble with all its consequences.

(iv) The collapse of a series of large financial institutions led to much speculative activity and excessive risk-taking in a frantic search for super profits at the Wall Street. Excessive selling activity in the stock market resulted in a crash and the Wall Street hit the levels below 8000 mark in November, 2008. Such a low level had not been seen since March 2003.

The worsening of the financial crisis in the United States economy during 2008-09 was on account of the following factors:

(i) The growth rate in the U.S. economy continued to plummet. In the third and fourth quarters of 2008, the real GDP in that country dropped 0.5 and 6.3 percent respectively. The staggering contraction in GDP was primarily due to negative contributions from exports, personal consumption expenditures and equipments and softwares among others. According to the Organisation for Economic Co-operation and Development (OECD), the United States economy was projected to shrink as much as 0.9 percent in 2009.

(ii) The financial meltdown was having serious adverse consequences due to the collapse of housing market, escalation of food and energy prices and the decline in industries like automobiles, steel, engineering, chemicals and many more. The ailing economy shed over 2.6 million jobs over the course of 2008, the most since 1945.

The job losses in November and December 2008 were of the order of 5.84 lakh and 5.24 lakh respectively. The rate of unemployment mounted to 7.2 percent in December 2008 which was the highest since January 1993. This jobs hemorrhage was likely to push up the unemployment rate from 9.0 to 9.5 percent in 2009 as the firms on a very wide front were engaged in lowering their cost structures through job reductions.

(iii) The increasing intensity of job losses resulted in cut in consumer spending in the United States at a rate which is, according to the Commerce Department Report, was the steepest in 28 years. Unless the support packages were directed to reverse the steep fall in consumer spending, the economy it was feared would remain sluggish.

(iv) The financial meltdown in the United States had continued despite the relief packages. Upto May 2009, there had been a collapse of 36 banks which was more than total bank collapses (25) in 2008 and was more than half of the total number of bank failures (68) in the previous nine years. This indicated that the severity of financial crisis could not be mitigated even by the close of May 2009.

The US financial companies were too big to fail and these failures would continue to generate tremors not only in the US economy but also in the other countries of world, unless effective regulatory mechanisms were put in place.

(v) The continued drift of the US economy was obvious on account of around fall in the investment activity. Owing to the fall in consumer spending, failure of banks, accumulation of excess capacity in several industrial sectors, decline in exports and failure of the revival of demand for housing units, the business confidence had been badly shattered despite lowest ever rates of interest as everyone was suspect in the eyes of others.

Even the mega relief package amounting to $ 7.8 trillion seemed inadequate to revive the investment demand. Investment worth $ 3 trillion was to be directed to buy stocks, corporate debts and mortgages.

An amount $ 3.1 trillion was meant for guaranteeing the corporate bonds, money market funds and money in specified deposit accounts. The liquidity crunch was still being felt by the investing companies. They were not yet ready to give their investment policies the benefit of doubt.

Although the US Fed had assured that it would print whatever notes would be required, yet the drift in investment continued. Even after the liquidity crunch was over, the companies still required some time to readjust their balance sheets and start improving their profit-loss situation.

It indicated that the downturn would persist through 2009 and further. Four out of every five investors believed that the United States as well as the other developed countries would continue to be gripped by the recession even beyond 2009. The investors remained embedded in a defensive asset allocation mindset. There was impending fear of deflation that perhaps kept them on the sideline.

(vi) The revival of demand in the US economy was not in sight on account of deteriorating conditions related to exports. The contraction of domestic manufacturing sectors, increasing excess capacities in industries, the declining overseas demand and appreciation of dollar had caused a collapse in the US exports. The growing protectionist tendencies in the US economy were likely to reduce demand for imports from abroad and the resultant contraction also in the US exports.

(vii) Another factor leading to worsening of economic crisis had been the strengthening of the US dollar since September 2008 along with other principal currencies. It resulted in a decline in US exports and inflows of capital from abroad which was being employed essentially for restructuring of assets of the weakening financial institutions.

(viii) In the prevailing bleak situation only possible engine of growth seemed to be the increased volumes of federal and local government spending. Once the stimulus packages would get expended, the federal deficits would shrink and even that engine of growth would slow down. Only hope for recovery in that eventuality, according to Christina Romer, would rest on export growth.

The countries of Europe, Japan, China, India and several other countries would also strive to step up their exports. It is impossible for all the big economies to improve their trade balance simultaneously. They are bound to resort to import restraints, dumping of products and manipulation of exchange rates. The world would witness a high degree of volatility in trade and financial flows, uncertainty and speculation.

In view of the conditions existing in the US economy at present, it is too early to congratulate the over-optimistic Fed experts for banishing the crisis through their scholarly prescriptions. The crisis is likely to remain with the US economy even beyond 2010.

Term Paper # 3. Economic Crisis and Other Countries:

The financial meltdown started in the United States in 2007. It soon took Britain into its fold. Thereafter, it engulfed the countries of European Union, Japan and emerging economies in Asia, Africa and Latin America.

The global sweep of the recession was described by Strauss-Kahn, the managing director of the IMF in these words, “Continued deleveraging by world financial institutions combined with a collapse in consumer demand and business confidence is depressing domestic demand across the globe, while world trade is falling at an alarming rate and commodity prices have tumbled.”

The depressing economic conditions in different parts of the globe and policy prescriptions applied by various countries to grapple with that crisis are discussed below:

(i) Britain:

Like the United States, the financial meltdown started in 2007, was not anticipated even by the British economists. The recession befell the British economy almost as early as the United States got engulfed into it. The meltdown in Britain too was precipitated by weakening of financial institutions, serious instability in equity market and crash of prices of housing units.

The data continued to get worse as the government revenues plunged, exports dwindled down and unemployment continued to mount up. In March 2009, the retail price index saw a negative growth of 0.4 percent. It was evident that Britain had slipped into deflation for the first time in nearly 50 years.

It was estimated by OECD that the British economy would contract by 3.7 percent which would be the worst since 1931. According to a private think tank, the number of jobless workers would exceed 3 million by the end of 2010. In order to grapple with the crisis, Britain announced £ 20 billion fiscal boost including a 2.5 point cut in the value added tax. In order to encourage a large credit flow, the policy of low interest rates was initiated. In February 2009, the Bank of England slashed its base rate to the lowest level of 1.0 percent.

This was the lowest level since the creation of Bank of England in 1694. Evidently, there was the element of desperation in that action. Having realized, like the United States, that initial rescue package did not work, Britain announced in January 2009 a second rescue plan which involved a cost of £ 100 billion or more. It included measures like raising the stake of the government in the Royal Bank of Scotland from 58 percent to 77 percent and provision of government insurance against big losses on toxic assets of the banks. The British Prime

Minister and some academicians held the view that the British economy would not be as badly damaged as the US economy and that its recovery would be faster. It was, in their opinion, on account of two reasons. First, there was depreciation of pound sterling particularly against Euro. It had provided a powerful reflationary effect, as it did back in the early 1990’s. Moreover, British exports were more competitive and there was also a growing evidence of import substitution.

The weakness of pound made some companies to repatriate services and operations which had been off-shored. Second, after the seriousness of the financial crisis and economic downturn was realized, the Treasury and the Bank of England moved much more aggressively than their European counterparts to deal with the situation. The interest rates had been reduced close to zero and there was also an aggressive expansion of money supply through quantitative measures. The IMF was, however, in disagreement with British optimism.

It maintained that the British economy, heavily dependent upon the ravaged financial sector, could be the worst hit in the industrialised world, shrinking by 2.8 percent in 2009.

According to OECD, the soaring deficit of Britain would hamstring the potential for a further boost unless a ‘credible’ framework for restoring public finances was set out. It said, “The room for additional fiscal maneuvers to respond to worse-than-expected development activity is, therefore, limited and new measures would need to be accompanied by detailed and credible fiscal consolidation plans, in order to ensure that confidence is not eroded.”

(ii) Euro-Zone Countries:

The European Union is comprised of a block of 28 nations. Out of them, the economies of 19 countries that share the common currency ‘Euro’ are called the Euro-zone countries. The 19 Euro-zone countries include Germany, Italy, France, the Netherlands, Belgium, Austria, Luxembourg, Portugal, Spain, Greece, Finland, Cyprus, Ireland, Malta, Slovakia and Slovenia etc.

Although the blame for global recession was put upon the USA and Britain, yet despite the claim of relatively greater financial stability in the Euro-zone, that region too slipped into the state of recession. During July-September period in 2008, the region’s economy contracted by 0.2 percent. In the third quarter, the economies of Germany and Italy shrank by 0.5 percent whereas decline was 0.4 percent for both the countries in the second quarter.

The economy of Spain, which was the fourth largest Euro-zone economy contracted by 0.2 percent. In the fourth quarter of 2008, the growth rates were 1.6 percent in the Euro area and -1.5 percent in the European Union. The Euro state said in a statement that the GDP in the 19 nation Euro-zone and the European Union’s shrank by 2.5 percent in the first three months of 2009. Among the Euro-zone countries, the German economy contracted at a staggering pace of 3.8 percent in this quarter on account of a sharp decline in exports.

According to the Organisation for Economic Co-operation and Development, the growth in the European Union Nations was expected to contract in 2009 by 0.4 percent. Out of them, 19 countries would have negative growth. In a report OECD said, “Projections point to a protracted downturn, with GDP likely to decline by a third of a percent in 2009, but the uncertainties are large. That goes not least for the depth and duration of the financial crisis, the prime driver of the downturn.”

It was clear that the European Union and Euro- zone countries were both in deep recession. That brought up the issue of how they planned to get out of this critical situation. The European Central Bank (ECB) applied a cut of 75 basis points on interest rates in December 2008. This move took the ECB’s main refinancing rate to 2.5 percent, its lowest level in nearly 2 and half years.

It was the third cut in barely two months amidst signs that the financial crisis was hitting hard into the real economy. The ECB also cut the rates on its over­night facilities by 75 basis points.

Funds borrowed from its marginal lending facility would now attract an interest rate of 3 percent and over-night deposits would pay 2 percent. Compared with countries like the USA, Britain and Sweden, the move of ECB was much more cautious.

It was because there were significant practical difficulties in following the lead set by the US Federal Reserve- System and the Bank of England. If the ECB were to embark upon a similar programme of asset purchases, it was to be faced with a difficult choice of which government bonds would it buy and in what measure.

If it were to buy the corporate debt, of which country, of which industry and of which companies should they be. Another problem was who would underwrite the credit risk. If the governments were involved, that might be in violation of the ECB’s jealously guarded principle of autonomy. The cautious approach of the ECB in cutting interest rates was also due to its reluctance to expand the supply of money which might result in inflationary conditions.

In order to stimulate the economies of European countries, the European Commission called for “timely, temporary and targeted” action. Apart from a stimulus package of £ 16 billion announced by Britain, the Commission called for a co-ordinated fiscal stimulus package worth E 200 billion (£ 170 billion) which was 1.5 percent of the GDP of Europe, made up of increase in public spending and tax cuts to shore up the confidence among consumers and business enterprises.

However, the fiscal packages subsequently announced by the leading countries of Euro-zone fell far short of the target proposed by the European Commission. The stimulus package announced by Germany was worth only E 12 billion. In case of France, it was E 26 billion.

The stimulus packages announced by Spain and Italy were of the worth of E 40 billion and E 80 billion respectively. The response of the United States, Europe and other regions of the world had been fundamentally on the lines of Keynesian prescriptions for the revival of demand. In that connection Sean O’Grady observed, “Even John Maynard Keynes himself, not an easy man to please, would have been impressed; a global implementation of the policies he prescribed three quarters of a century ago to avoid a slump.”

(iii) Japan:

The second biggest global economy Japan slipped into recession in November 2008, Japan slided into its first recession for seven years in the third quarter of 2008, as financial crisis curbed demand for the Japanese exports. The GDP of the country contracted 0.1 percent in the third quarter. In the earlier quarter, there had been a 0.9 percent fall in the GDP.

With the announcement of recession, Japan’s Nikkei dropped on the average by nearly 7 percent, below the key technical level of 8000 points for the first time in three weeks. It was indeed, true that the Japanese economy didn’t have a severe exposure to the toxic debt that had brought the financial institutions in the USA and Britain to their knees and forced those countries into recession. The recessionary conditions in Japan got precipitated by a high degree of dependence of that country on exports.

As the demand from Japan’s trading partners like China and the USA declined, the economy came under severe strain. The last official experience of recession in Japan was in 2001 after the technology bubble burst in the United States in that year. The Japanese economy went into free fall as the country’s debt and real estate bubble burst. Japan had actually not really got over that situation, when it came under further pressures in 2008.

In the case of Japan it was predicted that there would be at least two more quarters of contraction. The IMF believed that the Japanese economy would fall by 0.2 percent in 2009. The whole situation looked to be pretty grim in Japan. In the words of Kaoru Yosana, the minister of economy of Japan, “We need to bear in mind that our economic conditions could worsen further as the US and European financial crisis deepens, worries of economic downturn heighten and stock and foreign exchange markets make big swings.”

Like the USA and Britain, Japan too opted to cut interest rates to simulate the expansion of credit flow through the system. The Bank of Japan brought down the key interest rate to 0.1 percent during the months of October and November of 2008. On December 2008, the Bank of Japan slashed the un-collaterised overnight call rate by 20 basis points to 0.1 percent from 0.3 percent, its second rate cut in two months.

The Bank of Japan also announced several steps with the aim of ensuring stability in financial markets as well as facilitating corporate financing through the appropriate money market operations.

It also decided to adopt measures for further facilitating corporate financing, including outright purchases of commercial papers in addition to actions related to outright purchases of Japanese government bonds. But low interest rates could do little good to the economy because of the failure of credit markets and banks to pass them in full. For boosting the economic system, the government had to adopt fiscal packages involving tax cuts and public spending.

The funds meant for recapitalising banks were, enhanced from two trillion yen to 12 trillion yen ($ 131.1 billion) and one trillion yen package for securing jobs. By December 2008, Tokyo had already announced a package of economic measures worth 27 trillion yen ($ 295 billion) which included 5 trillion yen in new spending payouts to families, tax breaks on mortgages and relief for small firms. Japan proposed to spend at least $ 100 billion more to help its economy through the global crisis. It was expected that Japan might spend at least 2 percent of its GDP.

No doubt, Japan had adopted a hefty stimulus package, allowing government spending to replace exports but, according to Mallaby, it could not sustain that policy because the magnitude of its national debt was astronomical.

In addition, the Japanese policy of near zero rates of interest and large fiscal packages came a bit late as the confidence had drained from the economy. During 2009, some hopeful signs appeared in the economy, yet the recovery is not likely to occur in a robust manner until there is revival of demand for Japanese exports particularly in the USA and Europe.

(iv) China:

China’s economy is the third largest after the United States and Japan. Although China continues to keep a tight lid on the economic and social conditions in the country, yet the available accounts indicated that it too was faced with the worst financial and economic crisis in a century.

The growth rate of GDP of China was high at 11.9 percent in 2007. It slowed down to about 9 percent in 2008 and 8.5 percent in 2009. The IMF forecast was that the GDP growth rate in China would be just 6.7 percent over the next few years. The administration and party sources, however, persisted that 8 percent growth rate was the make-or-break threshold for holding down the rate of unemployment and to stave off the social unrest.

The collapse of overseas demand for textiles, toys, shoes and electronic goods had led to the shut-down of over 6.70 lakh small and medium sized enterprises. According to official estimates, about 20 million migrant workers had already lost jobs owing to the closure of export units, forcing many of them back to their rural homes.

The real estate’s market of China had been sagging. There had been slowing down of tax collections during the latter half of 2008. There had been dampening of investment with a decrease in the inflows of foreign capital. The consumer spending had also been on the decline.

It was evident that the global recession had afflicted very seriously the Chinese economy essentially because of severe slump in Chinese exports to many regions of the world. In order to tackle the crisis, China had adopted both monetary and fiscal measures. The package of policy measures was referred as “active” fiscal and “moderately active” monetary policies.

China announced its biggest interest rate cut in 11 years. The benchmark lending and deposit rates were cut by 108 basis points in November 2008. The People’s Bank of China also reduced reserve requirements by 1 percentage point in the case of big banks and by 2 percentage points in the case of smaller banks.

It was decided that commercial banks’ credit ceiling would be abolished to channel more lending to priority projects, rural areas, small enterprises, technical innovations and industrial rationalisation through mergers and acquisitions. It was specified that credit expansion must be rational and target the spheres that would promote and consolidate the expansion of consumer credit.

On November 10, 2008, China announced a bold stimulus package of 4 trillion Yuan (about $ 570 billion) to be spent over the next two years to finance programmes in 10 major areas including low-income housing, rural infrastructure, water, electricity, transportation, environment, technological innovations and disaster relief programme.

This stimulus package amounted to about one-sixth of China’s annual economic output. The fiscal policy measures included reduction in value added taxes that would cut industry’s costs by 120 billion Yuan and tax rebates for exports apart from several other tax initiatives. China could definitely afford massive fiscal stimulus in view of its huge foreign exchange reserves and large trade surpluses. It was supposed that higher social-welfare spending in public health, infrastructure and rural reform would stimulate private consumption.

The stimulus package announced by China was also intended to demonstrate its capability to contribute to global economic stability. It may yield political dividend to China as it hopes to be recognised as one of the major players in the power structure of international economic organisations like the World Bank and the IMF.

With the bold credit and fiscal initiatives, Chinese economy is expected to turn around by the last quarter of 2009 if, and that is a big if, that country becomes able to drive fast its export engine. Since all the countries like the USA, Britain, Germany, Japan and others will aim at boosting their exports, an intense economic war will be at hand. Since each one of them will try to jockey for advantage, they may start manipulating exchange rates and other measures.

The world, like the depression of 1930, still does not have rules for dealing with disputes that may arise out of such a conflict. It is too early to make any conjecture about the outcome of that struggle for boosting exports by the major trading countries of the world.

Term Paper # 4. Stimulus Packages of Economic Crisis in India:

The leading countries of the world had learnt an important lesson from the Great Depression of 1930’s that the conditions of recession or slump should be effectively dealt with through the demand- raising monetary and fiscal policies.

For tackling the recent global crisis, the rescue or relief packages announced by the governments across the world have crossed 10 trillion dollars which is equivalent to an amount nearly 10 times the total size of the Indian economy. The largest bailout plan of over $ 7 trillion was adopted by the United States. The Indian approach in this connection was of ‘doing too little and too late.’

1. Monetary Action:

By the mid-2008, it had become clear that the global economy, including that of India, had slipped into recession. The countries like the USA, European Union and Japan acted speedily and brought down the rates of interest to near even zero rates for stimulating the consumer spending and investment.

The RBI even then was keeping the interest rates high due to its pre-occupation with the spectre of inflation and for the consideration of foreign capital inflow. The industries and several other sectors even then were crying for low interest loans. In December 2008, the RBI lowered the interest rates with the object of increasing liquidity in the economic system.

The Repo rate, the interest rate charged by the RBI for lending to banks, was reduced from 7.5 percent to 6.5 percent. The reverse Repo rate, the rate at which RBI borrows funds from banks, was lowered from 6 percent to 5 percent. It was hoped that the commercial banks would lower their prime lending rates (PLR) and deposit rates. But the banks were slow in reducing their lending rates. They did not also cut down their deposit rates. The credit off take in the system remained low. It was not likely to make the desired impact on the recessionary conditions in the economy.

On January 2, 2009, RBI announced a further easing of money supply and structure of interest rates. The cash-reserve ratio was lowered by 0.5 percent to 5 percent. The repo and reverse repo rates were reduced by 100 basis points to 5.5 percent and 4 percent respectively. These measures were expected to release Rs. 20,000 crore into the banking system.

In view of the possibility of growing credit risk for banks owing to worsening economic conditions, the RBI observed that banks should “monitor their loan portfolio and take early action, including debt restructuring where warranted, to prevent the rise of bad debts down the road and safeguard the gains of the last several years in improving asset quality.”

It also stressed that banks should price the risk appropriately and sees that the quality enterprises continue to get the required fluids. In view of the system not responding to the earlier monetary steps taken by the RBI, the policy of further easing the rates was announced by it on April 21, 2009. The repo rate was cut by 25 basis points to 4.75 percent. The reverse repo rate was also lowered by 25 basis points to 3.25 percent.

The cash-reserve ratio was held unchanged at 5 percent. The bank rate was kept unchanged at 6 percent. The statutory liquidity ratio too was left unchanged at 24 percent. Despite the rate cutting by the RBI, the commercial banks seemed to be very cautious. They were slow to reduce the lending and deposit rates. It was on account of three reasons. First, banks were afraid that risk of repayment defaults had increased due to the economic slowdown.

Second, the government was expected to undertake massive borrowing programme and whatever additional liquidity was released through rate cuts was likely to be absorbed by the government borrowing programme. Three, banks were disinclined to cut the deposit rates. Industry and realty sector were not satisfied by the extent of rate reduction. They wanted the banking system to be more positive.

The RBI admitted that worst was not yet over. According to the RBI Governor, D. Subbarao, “While there are incipient signs of business confidence and consumer spending trying to gain toehold, rising unemployment, high inventories and financial stress weigh heavily on overall demand conditions.”

2. Fiscal Package:

In order to boost the economic system, the government came out with three stimulus and relief packages in December 2008, January 2009 and in February 2009.

On December 7, 2008, the government announced the fiscal relief and stimulus package for boosting up the sagging demand in sectors like housing, textiles, exports and infrastructure. An across-the-board cut on ad-valorem duty by 4 percent was permitted for encouraging additional spending. The additional relief of Rs. 1400 crore was provided to the textile sector towards the entire backlog of the technology upgradation fund (TUF).

In order to encourage exports, the government decided to provide an interest subvention of 2 percent upto March 2009 for the pre and post-shipment export credit for the labour-intensive exports such as textiles, marine products, leather and small and medium exports sector.

A provision of Rs. 350 crore additional funds was made by way of export incentives. A back up guarantee of Rs. 350 crore was assured to the Export Credit Guarantee Corporation (ECGC) for providing guarantee for exports to difficult markets and products. In some areas, the refund of service tax was permitted.

The government decided to seek authorisation for additional plan expenditure of Rs. 20,000 crores ($ 4 billion) in the year 2008-09. The total spending programme of the government upto March 2009 was expected to be of the order of Rs. 300,000 crore. This fiscal package made the provision that India Infrastructure Finance Company would raise Rs. 10,000 crores through tax free bonds by March 2009.

The government departments were allowed to take up the replacement of the government vehicles to assist the automobile sector. The government decided to lift the import duty on Naptha for use in the power sector. For assisting the export of iron ore, it was decided by the government to eliminate the export duty.

The second stimulus package was announced by the government on January 2, 2009. This package involved an increase in plan expenditure upto Rs. 20,000 crore with the object of strengthening the ongoing programmes in rural, infrastructure and social security schemes. The measures would be taken by the government to ensure easy availability of credit to exporters, industries and infrastructure developers.

The relief was provided to exporters by way of higher rates for tax refunds. The government also made the commitment to extend the reimbursement duty entitlement passbook scheme upto December 2009. It was decided to extend the duty drawbacks at enhanced rates to the specific sectors like knitted fabrics, bicycles, agricultural hand tools and some categories of yarn.

A line of credit of Rs. 5,000 crore was made available from the RBI for providing pre-shipment and post- shipment credit to Indian exporters at the competitive rates. In order to provide a boost to the sagging industrial sector, the government announced an across-the-board 4 percent cut in ad valorem cenvat rate. For refinancing banks lending for infrastructure projects, Rs. 10,000 crore were provided to India Infrastructure Finance Limited.

To give boost to the housing and construction sectors that were under severe pressure, the government decided to allow the development of integrated townships and an access to external commercial borrowings. This stimulus package provided about Rs. 25,000 crore for pending highway and port projects.

As the commercial vehicle manufacturers had been hit hard due to slump in their sales, it was hoped that there would be revival of demand with accelerated depreciation of 50 percent on vehicles purchased in the first quarter of calendar year 2009. The non- banking finance companies, which are often active in financing commercial vehicles, were assured of credit through the public sector banks.

Although certain elements of stimulus package second such as across-the-board cut of 4 percent in ad valorem cenvat rate and removal of ceiling of ECB and extension of DEPB schemes were welcomed by trade and industry, yet the additional plan expenditure of Rs. 20,000 crore on critical rural, infrastructure and social security schemes was found to be quite inadequate.

In view of cold response of government’s interim budget in February 2009 from trade and industry, the third stimulus package was announced by the government on February 24, 2009.

The important highlights of this package were:

a. Across-the-board 4 percent cut in excise duty to continue beyond March 2009;

b. Abolition of 10 percent excise duty slab involving a revenue loss of Rs. 30,000 crore to the government;

c. Reduction in the general rate of central excise duty from 10 percent to 8 percent;

d. Excise duty on bulk cement to be 8 percent or Rs. 230 per metric tonne, which ever higher;

e. No custom duty on naphtha used in power generation; extension of this relaxation beyond March, 2009; and

f. The rate of service tax on taxable services to be reduced from 12 percent to 10 percent.

Term Paper # 5. Recovery of Global Economy:

The world economy which was in the grips of serious recession since 2007-08, started having a turnaround, though weak, in the mid-2009. The Euro-zone Countries like Germany and France, along with Japan were the first to shrug off recession, followed by the United States.

In the third quarter of 2009, the American GDP increased by 3.5 percent compared with its growth in the second quarter of only 1.5 percent.

The third quarter growth was facilitated by the rise in personal consumption expenditure, federal government spending, exports, private inventory investment and residential fixed investment. However, the rate of unemployment was still quite high. The budgetary and monetary supports have to be withdrawn. There was still a great deal of volatility in stock market and currency creating some degree of uncertainty about the future course of the economy.

The EU countries including Britain, Germany and France started showing signs of revival even a little earlier than they appeared in the US economy. In Britain, the equity prices and the prices of housing units started rising in mid-2009 but a large number of people were willing to sell-off their holdings. That might have adverse effect on the level of confidence.

Moreover, the exit from stimulus package was looming large on the horizon. In the second and third quarters of 2009, the economy of Germany, the largest in Europe, expanded 0.4 percent and 0.7 percent respectively. However, zero growth rate of GDP in the last quarter of 2009 indicated that the recovery was weak in that country. In France, the growth rates of GDP in the third and fourth quarters of 2009 rose by 0.2 percent and 0.6 percent respectively. But the recovery was fragile even in that country at the beginning of 2010.

Japan climbed out of recession to join Germany and France in the latter half of 2009, after four straight quarters of recession. In the second largest economy of the world, GDP expanded by 0.9 percent in the second quarter and 1.1 percent in the fourth quarter of 2009. The better-than-expected performance of the Japanese economy was mainly driven by larger exports and stimulus package of over $131 billion.

In this connection, the fear was expressed that export-driven Japanese economy would perhaps see a sluggish growth in the near future.

The economy of China too emerged from the state of recession in the second half of 2009. While Chinese government pointed out that the GDP growth rate in that country would be 8 percent, the IMF estimate was higher at 8.7 percent. In 2010, the GDP growth in that country is likely to be about 9.5 percent.

Thus China has recorded a quicker recovery than other countries on account of huge stimulus package, strong domestic demand, high growth rate of manufacturing, increase in exports, and continued inflow of foreign capital and high growth rate of small and medium enterprises.

About some other Asian countries, the recovery from recession is on the way. South Korean economy is expected to expand by 4.5 percent in 2010 compared with low growth rate of only 0.25 percent in 2009. It is supported by strong export growth, particularly capital export to China and a continued boost from the inventory cycle and a rise in business investment in response to high capacity utilisation and strong business confidence.

The economies of ASEAN region are projected to grow by 5.5 percent in 2010. The prime factors leading to their recovery are private domestic investment coupled with boost in exports. Among the ASEAN-5, the economy of Indonesia has proved to be remarkably resilient with a rapid expansion of private investment.

The uncertain and volatile conditions are looming large in the world economy in the wake of recent debt crisis in the European Union.

Term Paper # 6. India’s Recovery from Recession:

India had to face the conditions of economic recession during 2008 and 2009, when the GDP growth rate slumped down to 6.7 from a high of 9.3 percent in 2007-08 resulting in widespread adverse effects like slump in manufacturing activity, net outflow of capital, increase in unemployment, fall in domestic demand, steep and continued contraction in exports and volatile conditions in stock market etc.

Indian economy, like other economies, is also on its way to recovery. The World Bank has pegged the growth rate of GDP in Indian economy at 7.5 percent and 8 percent in 2010 and 2011. According to the report published in May, 2010 by United Nations Economic and Social Commission for Asia and Pacific (ESCAP), forecast a growth rate of 8.3 percent for the Indian economy in the current fiscal year and stressed upon continued spending by the government on social programmes like food security, infrastructure, education, healthcare and poverty- removal.

The exports which had been falling for 13 straight months grew for the first time in November 2009. In December 2009, the exports grew further by 9.3 percent. There has also been some resurgence and revival of manufacturing sectors in the economy during the recent months. As regards the FDI flows, World Bank expressed the hope that these flows would get enlarged as India continues to improve its FDI policies by simplifying investment procedures and relaxing investment limits in some sectors.

In the first quarter of fiscal year 2009-10, some initial signs of recovery have appeared such as rise in growth rate of manufacturing industries, inflow of capital from FII’s, stability in the capital market etc. In some quarters, there are expectations that economy may turn around by the middle of 2010. But it seems to be over-optimistic as there are still many challenges like sluggish investment and industrial growth, accumulation of inventory stocks, increasing unemployment, under-utilisation of capacity, high proportion of banks NPA’s, low export, growth rate and low credit off-take.

Although India did recover from the recession by 1911, yet the recent developing situation in the Euro zone area and the worldwide fall-out of devaluation of Yuan by China in August 2015 are likely to result in some volatility in the domestic equity, debt and the forex market.

Related Articles:

• Recession | Economic Crisis | Economics
• Global Financial Crisis and Its Impact on India’s Growth
• Global Financial Crisis and the Indian Economy
• Current Global Economic Meltdown

Global economy is growing but may be headed for trouble, IMF says

Weak productivity means pace could slow between now and 2030.

Two wars, higher interest rates and the lingering effects of the coronavirus pandemic have done little to slow the global economy, but that may be about to change, according to the International Monetary Fund.

The fund’s new forecast calls for global growth of 3.2 percent this year and next, virtually unchanged from its January assessment . Central banks in the United States, Europe and key emerging markets are making progress corralling inflation , though the fund warned that the fight against rising prices is not yet won.

While positive, the outlook is cause for only muted celebration.

This year’s anticipated growth falls short of the pre-pandemic annual average of 3.8 percent and reflects an uneven global picture, with the United States posting a better-than-expected result while Europe languishes and the world’s poorest nations fall further behind.

Rising geopolitical risks, including signs of a global trading system dividing into separate blocs oriented around the United States and China, are also troubling fund officials. If that split widens, nations could suffer “large output losses” as goods and capital move around the world less efficiently, the fund warned in its flagship World Economic Outlook.

The view is darker a few years from now.

Unless policy reforms or new technologies emerge, annual global growth rates will slip over the remainder of this decade, the fund said in a detailed assessment of “medium-term” growth prospects.

By 2030, the global economy could be expanding at an anemic 2.8 percent annual rate, which the fund called “historically weak.” Slower growth would disappoint expectations of rising living standards and further progress in anti-poverty efforts.

Officials said chronic weakness in the global economy’s performance since the 2008 financial crisis raises concerns that growth will struggle to accelerate beyond today’s middling pace.

Growth has lagged because of a productivity slump in both advanced and developing economies. The supply of labor has expanded more slowly as societies have aged, while business investment has ebbed, the fund said.

The United States is an exception to the global trend, with its companies proving more adept at deploying workers and capital in more-efficient ways, the fund said.

The IMF’s economic forecasts and the global economy’s actual growth rates have steadily ratcheted lower over the past decade and a half.

In a speech last week, Kristalina Georgieva , the fund’s managing director, warned that the global economy is headed for “a sluggish and disappointing decade,” which she dubbed the “Tepid Twenties.”

Still, the current situation is better than what the fund anticipated six months ago. At that point, fund economists worried that the higher interest rates needed to fight inflation would send unemployment soaring.

But that hasn’t happened. If current trends continue as expected, central banks including the Federal Reserve should be in position to begin lowering interest rates later this year.

“Despite many gloomy predictions, the global economy has held steady, and inflation has been returning to target,” said Pierre-Olivier Gourinchas , the fund’s chief economist, who briefed reporters on the outlook.

The report was released on the eve of the annual spring meetings of the IMF and its sister organization, the World Bank. Central bankers and finance ministers from around the world will gather in Washington this week to discuss the inflation outlook, global debt and prospects for reform of financial aid for developing countries.

This year, China is likely to fall short of last year’s 5.2 percent growth, as a lingering property crisis weighs on the economy, according to the fund. And Russia , having shrugged off U.S. and allied financial sanctions imposed in response to its 2022 invasion of Ukraine, will grow at an annual rate of 3.2 percent.

That’s faster than the United States, Europe, Britain and Japan.

The fund coupled its praise of the United States, which it says will grow this year at an annual rate of 2.7 percent, with a warning that its government spending is “out of line with what is needed for long-term fiscal stability.” Last year’s $1.7 trillion U.S. federal budget deficit was up from about $1.4 trillion in fiscal 2022. All that red ink risks adding to inflation and damaging global financial stability in the long run, by raising borrowing costs for governments around the world, the fund said.

Officials repeated their call for governments that spent freely during the pandemic to rebuild their financial cushions to guard against future shocks.

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Welcome to the 'tepid twenties,' a decade of sluggish growth and rising debt, IMF chief says

• A decade of low growth and high debt is coming, IMF chief Kristalina Georgieva said in a Thursday speech.
• "Inflation is not fully defeated. Fiscal buffers have been depleted. And debt is up," she said.
• Medium-term global growth will reach just above 3% as productivity tumbles, the IMF estimates.

The world could soon sink into an era of depressed growth and spiraling debt, IMF managing director Kristalina Georgieva said in a speech delivered at an Atlantic Council event.

"Without a course correction, we are indeed heading for 'the Tepid Twenties' — a sluggish and disappointing decade," she said Thursday. 

"Inflation is not fully defeated. Fiscal buffers have been depleted. And debt is up, posing a major challenge to public finances in many countries," she outlined.  

Related stories

The IMF now expects medium-term global growth to reach just above 3% — well below historical averages, Georgieva said. That's on account of stalling productivity across economies that's chipped into growth potential:

Although the US' post-pandemic economy has largely been a story of success, its rebound stands in stark contrast to a wide-spread slowdown, with low-income countries taking on most of this burden.

"The sobering reality is global economic activity is weak by historical standards. Prospects for growth have been slowing since the global financial crisis," she said.

To counteract this, Georgieva called for policies that will decisively slash inflation and debt, allowing governments to pursue productivity-boosting policies, such as those that ramp up the geen and digital transition.

While central banks are generally making headway with price stability, global debt has churned so high that some countries are at risk of falling into distress, Georgieva cautioned. Though higher debt is not a new trend, the return of high interest rates has made debt servicing a challenge across the world.

"In advanced economies, excluding the US, interest payments on public debt will average about 5 percent of government revenues this year," she said. "But the cost of servicing debt is most painful in low-income countries. Their interest payments are set to average about 14 percent of government revenue—roughly double the level from 15 years ago."

As some countries are already facing debt distress, Georgieva called for improved restructuring programs. For all countries, she advocated for fiscal prudence, recommending a closure of tax loopholes, and improved public spending. 

This may be crucial, as the IMF forecasts deficits to remain too high to stabilize debt one-third of advanced and emerging economies. 

Watch: What Happens If The US Hits The Debt Ceiling And Defaults

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Transcript of April 2024 World Economic Outlook Press Briefing

April 16, 2024

Moderator: Jose Luis De Haro, IMF Communications Department

Pierre‑Olivier Gourinchas, Director, IMF Research Department

Petya Koeva Brooks, Deputy Director, IMF Research Department

Daniel Leigh, Division Chief, IMF Research Department

Mr. De Haro: We can start. I want to welcome everyone, good morning. Also hello to those who are joining us online. I am Jose Luis De Haro with the Communications Department here at the IMF. We are gathered here today to introduce the latest edition of the World Economic Outlook. If you have not got a copy yet, I would recommend you go to IMF.org. There you will find the flagship. Then also there is a blog and data underlining some charts and many other assets that might be helpful for your reporting.

And what best to discuss the World Economic Outlook than to be here today with Pierre‑Olivier Gourinchas. He is the Economic Counsellor and the Director of the Research Department. Also next to him are Petya Koeva Brooks, Deputy Director, and Daniel Leigh, Division Chief, also with Research Department.

Pierre‑Olivier is going to start with some opening remarks, and then we are going to proceed to take your questions. I want to remind everyone that this briefing is on the record and that we also have simultaneous interpretation. With that, Pierre‑Olivier, the floor is yours.

Mr. Gourinchas: Thank you, Jose. Good morning, everyone. The global economy continues to display remarkable resilience with growth holding steady and inflation declining, but many challenges still lie ahead. Global growth was 3.2 percent in 2023 and is expected to remain at that level both in 2024 and 2025. This represents a 0.3 percentage point upgrade from our October objections for 2024, with stronger activity than expected in the U.S., China, and other large emerging markets, but weaker activity in the Euro Area.

Inflation continues to come down. Median inflation will decline from 4 percent at the end of last year to 2.8 percent by the end of this year and 2.4 percent at the end of 2025, and most indicators continue to point to a soft landing.

A resilient growth and rapid disinflation are consistent with favorable supply developments, including the fading of energy price shocks and a striking rebound in labor supply, supported by strong immigration in many advanced economies.

We also project less economic scarring from the crisis of the past 4 years, although estimates vary across countries. The U.S. economy has already surged past its pre‑pandemic trend, but we now estimate there will be more scarring for low‑income developing countries, many of which are still struggling to turn the page from the pandemic and cost‑of‑living crisis.

Risks are now broadly balanced. On the downside, new price spikes from geopolitical tensions, persistent core inflation, or a disruptive turn towards a fiscal adjustment could slow activity. On the upside, faster disinflation or timely structural reforms that boost productivity could support activity. Insufficient action on the fiscal front could also stimulate growth, although this could force a more costlier adjustment later on.

Inflation trends are encouraging, but we are not there yet. Somewhat worryingly, progress towards inflation targets has stalled since the beginning of the year in some countries. This could be a temporary setback, but there are reasons to remain vigilant. Oil prices have been rising in part due to geopolitical tensions and services inflation remains stubbornly high in many countries. Further trade restrictions could also push up goods inflation. Bringing inflation back to target should remain the priority. There are stark divergences also between countries that call for careful calibration of monetary policy. The strong recent performance of the United States reflects robust productivity growth and growth in labor supply, but also strong demand pressures that could add to inflation. This calls for a cautious and gradual approach to easing by the Federal Reserve.

By contrast, growth in the Euro Area will rebound this year but from very low levels. Unlike in the United States, there is little evidence of a hot economy, and the European Central Bank will need to carefully calibrate the pivot towards monetary easing.

China’s economy remains affected by the downturn in its property sector. Domestic demand will remain lackluster unless strong measures address the root cause and monetary policy can afford to be more accommodative.

Going forward, policymakers should prioritize measures that help preserve or even enhance the resilience of the global economy. A key priority is to rebuild fiscal buffers, especially in an environment with high real interest rates, modest growth, and elevated debts. Unfortunately planned fiscal adjustments are often insufficient and could be derailed further given the record number of elections this year.

In the United States, the fiscal stance is out of line with long‑term fiscal sustainability. This raises short‑term risks to the disinflation process, as well as longer‑term fiscal and financial stability risks for the global economy. Fiscal consolidations are never easy, but it is best not to wait until market dictate their conditions.

Credible fiscal consolidations can help lower funding costs, improve fiscal headroom and financial stability. The key is to start early, gradually, and credibly. This will also pave the way for further monetary policy easing to support activity.

The second priority is to reverse the decline in medium‑term growth for low‑income countries. Structural reforms should promote domestic and foreign investment and increase fiscal revenues. This will help lower borrowing costs and reduce funding needs. These countries must also improve the human capital of their large, young populations, especially as the rest of the world is aging rapidly.

Artificial intelligence also gives hope for boosting productivity. It may do so, but the potential for serious disruptions in labor and financial markets is high, and the right infrastructure and regulations are needed.

Third, global growth prospects are also harmed by rising geo‑economic fragmentation. Trade linkages are already changing. Some economies could benefit from the reconfiguration of global supply chains, but the net effect may still be a loss of efficiency, making the global economy less, not more resilient, and the broader damage is to global cooperation.

A great achievement of the past few years has been the strengthening of monetary, fiscal, and financial policy frameworks, especially for emerging market economies. This has helped make the global financial system more resilient and avoid a permanent resurgence in inflation. Going forward, it is essential to preserve these improvements, and that includes protecting the hard‑won independence of central banks.

Lastly, the green transition requires major investments. Cutting emissions is compatible with growth, but emissions are still rising, so more needs to be done and done quickly. This will require technology transfers by other advanced economies and China to weather emerging and developing economies, as well as substantial private and public financing.

On these questions, as well as many others, multilateral frameworks and cooperation remain essential for progress. Thank you. 

Mr. De Haro: Thank you, Pierre‑Olivier. Before we open the floor to your questions, some ground rules. If you have a question, please raise your hand and wait until I call you. If I do, please identify yourself and the outlet you represent. We will be taking questions also online and via WebEx. I want to remind everyone that we are here to discuss the World Economic Outlook. If you have questions regarding country programs, negotiations, there is going to be plenty of regional press briefings later on in the week where you can tackle these issues. We are going to start here on the second row.           

Question: David Lawder with Reuters News Service here in Washington. Pierre‑Olivier, can you go a little bit deeper into the scarring that is happening with low‑income developing economies? You said many of these are having a hard time sort of recovering after the various crises that they have been through. How is this being manifested? Which countries are having the worst time of it? Also, if you could comment a bit on the energy price outlook. The United States is looking at potentially new sanctions against Iran after its attack on Israel. That is likely to come in the oil sector. If we do see spikes in prices, what does that mean for inflation globally and the recovery? Thank you.

Mr. Gourinchas: Thanks, David. Yes, as I mentioned, estimates of scarring, which is the amount of decline in output relative to our pre‑pandemic, say January 2020 estimates, have been reduced for most regions and countries, but they have been increased for low‑income developing countries. Another thing we have noticed over the recent estimates and recent run of projections is also inflation and price pressures have been revised up, so what we are seeing for that region is a combination of still impacts in terms of output and also prices that remain quite strong, price pressures that remain quite strong.

What is going on here is we are seeing a combination of the effect of relatively high energy and food prices, increased food insecurity in countries in the region that is affecting outcomes. This is a region that is also—had limited—more limited fiscal buffers during the pandemic and the cost‑of‑living crisis to protect its population, and we see the remaining effect of this going on. We are in an environment in which interest rates are rising. There are fiscal pressures and so there is limited space for a lot of these countries to address this among low‑income and developing economies.

Now, in terms of potential output for energy price and what it might do to the global economy, this is something that we explored in our report. We looked at a scenario where we would have more geopolitical tensions that would result in elevated oil prices and energy prices and shipping costs. And what we find is that this would lead to higher price pressures in the global economy that would be higher inflation, there would be lower output. And roughly the estimates we have for a sustained increase in oil prices by about 15 percent would be an increase in inflation globally of about 0.7 percent. So there is some effect there. We are not in that scenario right now. Our assessment of what has been happened with the tensions in the Middle East is there has been some increase in oil prices, but it is too early to say whether that would be sustained, and it is not in our baseline, but we certainly looked at the scenario very carefully.           

Mr. De Haro: Let us go there.              

Question: Hello. This is Noor with Bloomberg Asharq. We have a question now. You touched upon the rising inflation again. So interest rates are already really high. How do you see central banks dealing with this, specifically the Fed, especially that now the probability of any decrease in interest rates in June is basically declining?

Mr. Gourinchas: This is one of the divergences we highlight in our report. We are saying that indeed the drivers of the inflation in countries like the United States are somewhat different than they are in other regions in the world, especially if you look at the Euro Area or the U.K. or Japan. There is evidence, which we document in our report, that tight labor markets, strong demand are playing a role in the U.S. And if that were to be reinforced, then the recent inflation print numbers in the U.S. seem to point in that direction, although we have to take that with a grain of salt. There is a lot of volatility in the month‑to‑month inflation numbers. Then I would probably call for a delayed easing of monetary policy in the U.S.

At the same time, I want to say that we would still expect the U.S. to be in a position where it starts easing sometime in 2024. The progress has been enormous in terms of disinflation and the resilience of the economy. What we are seeing now is maybe a slight adjustment in terms of the baseline.        

Mr. De Haro: OK. We are going to go here in the first row and then we will go back. 

Question: Yes. Thank you very much for the opportunity. So, China’s Q1 GDP number just came in at 5.3 percent, which was just released last night. So, how does that number look to you and given all‑year target, 5 percent, in the setback in the China government, so does that first quarter GDP number give you more confidence that we can reach the—hit the target for the whole year?  

Also, in your remarks, you mentioned that China’s domestic demand will remain lackluster for quite some time. So strong measures and reforms just the root cause, so can you elaborate? What do you mean by the strong measures and the reforms? Thank you very much.

Mr. De Haro: Before we answer the question, we also have a question on WebEx on China, please, the reporter that wants to come in on WebEx. Weier.

Question: This is question from ETIME Media Group. In the context of the green transition, how should global cooperation be instructed and what role can China play in this collaborative effort? Additionally, at the last WEO release, you noted that globalization is plateauing. Have there been any changes in this trend and what impact might this have on global cooperation to address the climate change? Thank you.

Mr. De Haro : So, we can go with the GDP numbers and then we can go with the climate one.

Mr. Gourinchas: Yes, happy to. First, yes, last night, it was released that China’s GDP year‑on‑year for the first quarter was 5.3 percent. This is higher than the estimates. This is certainly higher also than the estimates we had here at the Fund. So the team will be assessing how they are revising their growth projections for the annual numbers, and it might be revised upwards. But I would like to emphasize some of the—some of the structural forces that are driving the Chinese economy right now. And certainly one of the important ones is the weakness in the property sector. And in our forecast for this year, our forecast was unchanged from January at 4.6 percent. There were two balancing forces. One was stronger stimulus that was coming from the Chinese government with measures that were announced as recently last month, in March, but then the continued weakness in the property sector and the two in our assessment were balancing each other out and leading to an unchanged forecast. Now we will have to see whether that is revised.

But the underlying weakness in the property sector is still there, and some of the indicators that we have and that were released even in the last few days do seem to point out that that weakness will persist. So when we are referring to reform measures that would be needed, those would be measures that would directly address some of the root cause in the weakness in the property sector, and that includes dealing with property developers that are struggling right now and recapitalizing or winding them down, then finding ways in which also there might be ways to sustain domestic consumption for China in the medium to long term, and that includes maybe building stronger safety nets.

The broader context here, and that allows me to answer the second question on China, is that with an economy that has potentially still relatively weak domestic demand but is growing, then there would be an increased reliance on the export sector. And that is something that in the context of very tight trade tensions could be complicated. So certainly that would be in the interest of the Chinese economy to develop ways of sustaining domestic demand. Let me turn to Daniel to see if there are any other points on China.

Mr. Leigh: I would just add that the green transition and the high-tech sectors present a great opportunity for China and policies like evening the playing field between state‑owned and private enterprises are going to help China capitalized on this great potential.

Mr. De Haro: OK. We are going to the third row. It is the third row. Yes, there.

Question: Larry Elliott of the Guardian. I just wonder whether you could say a bit more about the tensions in the Middle East. The world economy has been hit by a number of shocks in recent years, including the war in Ukraine. Is there a risk that the conflict between Israel and Iran could be the next [malign] in the global economy? Maybe you could unpack a bit more how you think it would impact on the global economy, not just through oil prices, but through business and consumer confidence.

Mr. Gourinchas: Yes. Certainly we watch the developments happening in that space, and we try to adjust our scenarios and our analysis based on that, so as I mentioned earlier, the way we approach this is by evaluating different possible trajectories for the global economy. The one that we describe in detail in our report is one where you would have fairly significant disruptions in oil markets that will lead to a 15 percent increase in oil prices and also an increase in shipping costs.

So, of course, one could think about more adverse scenarios than that, but I think that is something that we have not really contemplated just yet. The impact, to unpack a little bit the channels here, you are right, there would be an impact on business confidence. There would be an impact on investment, probably.

The increased inflation that would come from higher energy prices would trigger a response from central banks that would tighten interest rates in order to secure inflation coming back to target, and that would weigh down on activity, and that would do so in the context in which in some countries activity in growth is already fairly weak, and so that might also have a strong effect there.

Mr. De Haro: OK. First row there.              

Question: Thank you very much. Joel Hills from ITV News. I wanted to pick up, Pierre‑Olivier, on some of the comments you were making about prioritization of rebuilding buffers, consolidation you say is never easy, but it is important that it is early gradual and credible. Sort of within that context, are you comfortable with the British approach of cutting taxes on an assumption, I suppose of future unspecified cuts to public spending?

Mr. De Haro: There is another question online from Holly Williams, Press Association, that says was it responsible for the U.K. chancellor to cut taxes in the latest budget when inflation is still above target, and it risks putting more pressure on price rises? 

Mr. Gourinchas: What we emphasize in our report is a number of countries need to do—many of the countries in the world that have deployed fiscal buffers during the pandemic and the cost‑of‑living crisis have seen their debt‑to‑GDP increase substantially. Now, some of that has come down a little bit. This is the effect of unexpected inflation, if you want, but if you look at the trajectory, it is starting to grow again in many countries. And so we are calling for rebuilding these buffers, which is absolutely necessary to be able to deal with the kind of shocks that might be larger in magnitude and might be the—there might be more than one and the same time. We seem to be living in this shock‑prone world. Having that fiscal capacity is important. That is true for the U.K., but that is true for many other countries. That is true for many—chiefly this is true for the United States, this is true for many European economies, this is true for many countries around the world. So this is a general assessment that it is very important to do that. We see very clearly that those country that had the fiscal room to protect households and businesses during these two crises were able to do much better and were able to rebound much more quickly. So it is a time now that these crises are behind us, at least both of these crises are behind us, but we could be facing future crises and they could be coming to be prepared.       

Mr. De Haro: We will take a question from WebEx and then go back to the room. Be patient. We will take more questions do not worry.

We have a question from Siram. Please go ahead. Hello. Can you here us?                     

Question: You projected a 6.8 percent and 6.5 percent growth rate for India over the last 2 years. Could you please elaborate on your policy recommendations for India? Specifically, could you comment on the employment situation there and other pressures to these growth numbers, such as net financial assets for those and private consumption which has been impacted by food inflation for many? Thank you.   

Mr. De Haro: We have another question, similar question on India from the Economic Times on the press center that says, you have raised India’s growth forecast for 2024. What are the upsides and downside risks to this 6.8 percent number? How will the geopolitical tensions in the Middle East affect growth and inflation forecasts?

Mr. Gourinchas: Yes, thank you. Indeed, India is one of the strong performers. We had a fairly sharp revision in the Fiscal Year 2023 to 2024, the one that is ending, and that has just ended. Then we have 0.3 percentage point upgrade for Fiscal Year 2024 to 2025. So India is doing quite well. Let me turn to Daniel to answer more specifically.

Mr. Leigh: [No audio]. Moderation partly reflects the tightening in monetary policy and the tightening in fiscal policy, which is necessary to bring inflation down. We see inflation coming down — is in the target range 4.6 this year, 4.2 next year. There are upside risks to this forecast. They could be further strengthened in private demand.

Also, an upside comes from the potential for reforms that would liberalize foreign investment and really boost exports and boost jobs and labor force participation. So it’s a very strong outlook, and there’s a balanced risk outlook.       

Mr. De Haro: Do we have any questions? We are going to the second row. 

Question: Hi. I am Daniel Avis, AFP. Just a quick question about Russia, if I may. Can you help us just to understand what is behind the very significant increase not only now but over the last few months to the IMF’s forecast for Russia? Thank you.   

Mr. De Haro: And I think we have another question on question on WebEx. Please come in. We cannot hear you. 

Question: Good morning. Anton with TASS Agency of Russia. Thank you so much for doing this. The same question.

The growth rate of the Russian economy is high into 2024, then similar figures on the Group of Seven countries that imposed sanctions against Russia. In this case, can we say that Russia was able to successfully overcome the sanctions restrictions? Thank you so much.             

Mr. De Haro: Yes.     

Mr. Gourinchas: Yes. So we have revised Russia’s GDP growth in 2024 by 0.6 percentage points, to 3.2 percent, so this is a significant upward revision. We are still expecting growth to decline in 2025, from 3.2 percent to 1.8 percent.

I will turn to my colleague Petya Koeva Brooks to provide additional details.   

Ms. Koeva Brooks: Thank you. So there are several factors behind the resilience of the Russian economy and the upgrades that we have made. I would mention four factors.

First, oil export volumes have held steady. The second part is that we have seen a lot of strength in corporate investment, including by state‑owned enterprises. The third is that we have also seen a lot of robustness in private consumption that has underpinned growth. And last, but not least, we have also had the impact from government spending; though there, we have seen much larger increases in security‑related spending than overall spending.

Now to put this in context, though, if we look into the medium term, there, we still have growth rates that are significantly below what they were prior to the war. Now we have growth rates in the order of one and a quarter, as opposed to 1.7, which we had previously, which is another way of saying that the Russian economy is still expected to face these headwinds as a result of the—again, the impact of the war and the associated sanctions. Thanks.

Mr. De Haro: We are going to go to the fourth row. Yep.

Question: Thank you. Susan Lynch from Politico. I have a question about the growth figures for Europe, the German economy, in particular, only going growing by 0.2 percent. What’s your analysis of that? And how concerned are you about the eurozone economy, in particular, particularly in comparison to the U.S.?

Mr. Gourinchas: So on the the euro economy, we have a region that has been feeling the full brunt of the energy crisis of the last 2022 and part of 2023 and is gradually emerging from that in the context of tight monetary policy. And so what we are seeing is a pickup in activity from 2023 to 2024. So growth in Germany, for instance, is very modest, 0.2 percent, but it’s higher than the negative growth in 2023. And the same is true at the level of the euro area, where we expect growth to grow from 0.4 percent in ‘23 to 0.8 percent in ‘24. And then as we go into 2025, we expect that monetary policy will start easing. So financial conditions will become easier, and also that the cost of living receding the purchasing power of households and workers will increase as real wages catch up. And that will also sustain demand. But we start from a position of relatively weak consumer sentiment, still tight monetary policy, and that’s still weighing down on growth in this year. Let me turn to Petya for additional comments on Germany and Europe.

Ms. Koeva Brooks: I don’t have much to add on Germany. For the euro area, some of the same factors are playing a role, although we do have quite a lot of heterogeneity within the euro area. So we do have upward revisions in other countries—for instance, Spain, Portugal, Belgium—that partially offset the downward revisions in Germany and France.

Mr. De Haro: We go to the first row here, and then we will move to this side. 

Question: Thank you. Two questions on Argentina. You foresee a sharp decline in inflation and a rebound of GDP. I was hoping, if you could elaborate, if you see the disinflation process on solid footing, first. 

Second, there’s a debate among economies, whether the recovery is going to be in L, V, or U shape. I was hoping you could pick a letter and tell us how and when the recovery, you see it happening. Thanks.

Mr. Gourinchas: So, on Argentina, I mean, the authorities are implementing a very ambitious stabilization plan to restore macroeconomic stability. And as you know, the plan is centered on a strong fiscal anchor that eliminates, in particular, any central bank financing of the government, which was one of the factors that was leading to very elevated inflation numbers under—in previous years. And so that is already showing its effects. We see this sharp decline in month‑on‑month inflation.

So the progress so far has been really impressive. The authorities have been able to record a fiscal surplus for the first time in over a decade. But, of course, this is going to take some time, and that’s going to require steadfast policy implementation. Much more needs to be done, and much more needs to be done on the broader scale. So I think this is—we are watching this situation closely. Our teams here at the Fund are in close contact with the authorities. But the progress, again, has been quite sharp. Now, whether that’s going to be a V, U, or L, let’s agree that we’d much prefer V over U over L.

Mr. De Haro: And with the alphabet, we are going to move toward this side of the room, the lady that —thank you.

Question: Hello. Ana Rodriguez. El Tiempo, Colombian Newspaper. In general, what the growth perspective for Latin America, not only for Argentina? And across the world, what is the—how do you see the oil markets in that region, please? Thank you. 

Mr. De Haro: Before we answer, there are two specific questions about the outlook on Mexico and Brazil. So if we could elaborate, too, that would be great.      

Mr. Gourinchas: So let me just give a few numbers and then turn it over to Petya.

The Latin American and Caribbean region, we see growth that has been—is going to slow down a little bit, from 2.7 percent to 2.5 percent. The numbers I give you here are excluding Argentina and Venezuela, which have fairly specific environments. And that is revised up in 2024 by 0.2 percentage points. So there is a lot of resilience in the region, as well; although, of course, a number of countries in the region have tight monetary policy—in fact, tight monetary policy that started ahead of what advanced economies did. And that is weighing down on growth and is expected to go away as we have some easing of monetary conditions. Petya. 

Ms. Koeva Brooks: Maybe a few words on Mexico and Brazil. Starting with Brazil, we are expecting growth to come down from 2.9 in ‘23 to 2.2 this year, and then to stay about the same at about the same rate, 2.1, in 2025. 

Now, last year, we saw a lot of strength due to record agricultural production. And this time around, we see moderation in that, as well as the—

We also have an upgrade in our forecast for this year as a result of the fiscal support, which is expected to be seen in the country.      

Now, when it comes to Mexico, we are expecting growth to come down to 2.4 this year, from 3.2 last year, and then going onto 2025 to be a 1.4. We have seen a strong recovery in the second half of 2023 due to a lot of internal demand, especially investment. And, of course, the strength of the U.S. economy and the close links of Mexico with that have also played a role. I will stop here. Thanks. 

Mr. De Haro: OK. We have 10 minutes. I am going to come back here. I know that you’ve been waiting very patiently. Let’s go to that side of the room, Bloomberg, and then we will end up here. I hope that we still have two, three questions left. So don’t worry. 

Question: Thank you, Pierre‑Olivier. Eric Martin with Bloomberg News.

I wanted to ask you about your commentary on the U.S. fiscal situation and the fiscal balance. In the report, it mentions larger‑than‑expected government spending, including what’s estimated — or comparison, excuse me, with prior WEO forecasts, 2 percent of GDP in the U.S. Can you talk a little bit about the conversations between the IMF and the U.S. in terms of what the U.S. should be pursuing in terms of fiscal policy and given the size of the U.S. economy—about a quarter of the world economy—how concerning this is for overheating around the world? 

Mr. Gourinchas: Yes. So there is, of course, the cyclical part, and there’s a more structural part. So let me start with the cyclical part. Here, what I would want to emphasize is the U.S. is expected to turn toward fiscal consolidation in 2024. In our projections, there is a 1.9 percent increase in the structural fiscal balance of the U.S. for 2024. And that is one of the reasons, among others, why we are expecting also growth to slow down in this year compared to last year and after that. So there is some movement in the right direction, if you want. 

But as for many other countries, we are concerned that this is, A, not enough and, B, more importantly, not necessarily sustained over a sufficient period of time, that it would bring back debt‑to‑GDP levels into a more comfortable zone. 

And the background here is that, even if we have an easing of monetary policy that is expected—our baseline is still that the Fed is going to cut policy rates sometime later this year—the funding costs for government debt may not be decreasing as much because of what is called the term premium, the risk premium on government debt has increased in recent times and may remain high in the context that debt levels are elevated and there are risks around that. So we are concerned that more of that medium‑term implication of the fiscal trajectory for the U.S. Daniel, anything to add? 

Mr. De Haro: Third row there. Nope. I will take both questions. You are first. 

Question: My name is Ivan. I work for AFP and the Africa Report. I have one question. This is going to be a very interesting year for Africa, especially about close to 19 countries are going for general elections. I want to know your projections, considering the fact that this usually comes with a lot of political violence in some areas, as well as sluggish growth that has affected the sub‑Saharan region. I want to know more about the recommendations you have for these African countries that are going for elections, especially in this period, and what you expect. Thank you. 

Mr. De Haro: Yeah. Let’s go first with this question and then we can— 

Mr. Gourinchas: I mean, 2024 is the biggest election year on record, and so the question of elections is important for many parts of the world, including Africa. And that is a concern especially in relation to what we just discussed, which is the fiscal trajectories that there is a risk there that there could be some fiscal slippage. 

For the sub‑Saharan Africa region, our growth number for 2024 is 3.8 percent. This is actually unchanged from our January projection, and it’s up from 3.4 percent in 2023. So there is a rebound in growth and activity, as the supply side improves and maybe as the negative effects of past weather shocks subside.

Daniel, anything to add? 

Mr. Leigh: After four years of quite—a lot of turmoil, this is the year where we really see a turnaround in investor appetite for Africa. We have had Côte d’Ivoire issuing the Eurobond, Benin, Kenya spreads easing. So this is going to ease some of the pressure on these economies. Also, as inflation starts to come down, inflation is coming down as those past shocks fade and also thanks to the tight policies that have been implemented. Of course, there’s a lot of risks around this scenario in the context of elections. There could be more spending in the short term that could provide a boost, but there are serious potential disruptions later on, if there’s an easing, as in other parts of the world, this is our assessment. 

Also, there’s the upside risk from further acceleration of reforms to help people get jobs and attract more foreign investment. 

Mr. De Haro: Allow me to remind you that there’s going to be regional press briefings going on later this week so we can continue tackling some of these issues. Go ahead and then we will have time for only one question, and we will have to end. 

Question: OK. Thank you very much. My name is Hope Moses from Business Day Nigeria. You raised Nigeria’s growth from 2.9 percent to 3.3 percent, so what are the drivers of this growth, considering the fact that inflation is rising every day, and then the impact of fuel subsidies and other factors. Thank you. 

Mr. Gourinchas: Thank you. I will ask Daniel. 

Mr. Leigh: Yes. Growth in Nigeria, steady but actually rising this year, from 2.9 percent last year to 3.3 percent this year. We have seen an expansion from the recovery in the oil sector, with a better security situation and also improved agriculture, benefiting from the better weather conditions and the introduction of dry season farming. So there’s a broad‑based increase also in the financial sector, in the IT sector. Inflation, yes, it has increased. Part of this reflects the reforms, the exchange rate and its pass‑through into other goods from imports to other goods. So this explains also why we revised up our inflation projection for this year to 26 percent. But with the tight monetary policies and that interest rate increase, significant interest rate increases during February and March, we think—we see inflation declining to 23 percent next year and then 18 percent in 2026. So in the right direction, definitely. 

Mr. De Haro: Last question is going to be the gentleman there. And I am sorry. There’s going to be more opportunities to ask more questions. There are regional press briefings happening later this week where you can tackle all the country‑specific questions.    

Question: Hi. I am from Geo TV Pakistan. We all know climate change is a big problem. So how has the climate change impacted the growth and inflation in the last few years? Because in 2022, floods in Pakistan caused an estimated economic loss of around $30 billion. This is an estimate by the World Bank. And I also would like to know, what is the IMF doing to help these countries that are being damaged by the climate change? 

Mr. Gourinchas: So we are seeing, in fact, increased weather shocks related to the climate transition, and that is impacting sometimes countries at a macroeconomic level. And the example of Pakistan I think is a relevant one here. But there are other countries that are, of course, in that situation. And often, what we have is that countries that are among the low‑income countries might be more vulnerable to these extreme weather events. So it’s a conjunction of having relatively little in terms of fiscal buffers or ability or infrastructure and the capacity to deal with these events and, therefore, they have a much larger impact on people’s well‑being and livelihoods. So that’s something that is factored into our rounds of projections. We do take into account the broad array of risks that countries are facing. 

The second part of your question, what the Fund can do. I mean, the Fund, along with other organizations, is of course—international organizations, is very focused on climate issues. We have an instrument, the Resilience and Sustainability Trust, that is designed to help countries build that resilience going forward and help them be able to weather these types of shocks. We are also involved in providing technical assistance in helping countries both adapt and put in place mitigation strategies for climate change. Thanks.

Mr. De Haro: OK. So we are going to have to wrap it here but on behalf of Pierre‑Olivier, Petya, and Daniel, the Research Department, Communications Department, I want to thank you all. A couple of reminders, the next press briefing is the Global Financial Stability Report in this same room. Tomorrow, pay attention to the Fiscal Monitor and as I said, later this week, regional press briefings. You can tackle those country‑specific questions. And don’t forget also to come to the Managing Director’s press briefing. Thank you very much. Any comments, questions, [email protected].

IMF Communications Department

Media relations.

PRESS OFFICER: Jose De Haro

Phone:  +1 202 623-7100 Email: [email protected]

@IMFSpokesperson

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IMF head projects slightly stronger global growth in 2024 and warns of potential long-term pitfalls

FILE - Kristalina Georgieva, Managing Director of the International Monetary Fund takes part in a panel discussion at the Annual Meeting of World Economic Forum in Davos, Switzerland, Jan. 17, 2024. Strong economic activity in the United States and emerging markets is projected to help drive global growth by about 3% in 2024, the International Monetary Fund chief said Thursday, below the annual historic average and a warning sign about potential lackluster performances through the 2020s. (AP Photo/Markus Schreiber, File)

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WASHINGTON (AP) — Strong economic activity in the United States and emerging markets is projected to help drive global growth by about 3% this year, the International Monetary Fund’s chief said Thursday, below the annual historic average and a warning sign about potential lackluster performances through the 2020s.

“Without a course correction, we are indeed heading for ‘the Tepid Twenties’ -– a sluggish and disappointing decade,” said Kristalina Georgieva, the organization’s managing director, in announcing the economic projection and longer-term outlook.

She said global economic activity is weak by past measurements and debt is up, posing major challenges to public finances in many parts of the world.

“The scars of the pandemic are still with us. The global output loss since 2020 is around $3.3 trillion, with the costs disproportionately falling on the most vulnerable countries,” she said.

The anticipated growth rate of just more than 3% is slightly above last year’s projection. The historic average is 3.8%.

“Global growth is marginally stronger on account of robust activity in the United States and in many emerging market economies,” Georgieva said.

The IMF and its fellow lending agency, the World Bank, will hold their spring meetings next week in Washington, where finance ministers, central bankers and policymakers will discuss the global economy’s most pressing issues.

The annual gathering will take place as several conflicts threaten global financial stability, including Russia’s invasion of Ukraine and the war between Hamas and Israel in Gaza.