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Global Economic Upturn Seen as 2010 Approaches


The New York Stock Exchange

The New York Stock Exchange

The global economy is expected to show a 1.1 percent drop in output for 2009, following a five percent expansion in 2007 and three percent growth in 2008

Economists are forecasting a rosier 2010 for global finances than this year has been. But they warn that the economic recovery remains fragile and will not be led by the world's advanced industrialized nations.

2009 began with a sinking global economy paralyzed by a worldwide credit crunch, stung by a cascading failure of banks and financial institutions, and undermined by panic and pessimism on the part of consumers and investors from Wall Street to Tokyo. Central banks and governments fought back with massive cash injections, financial rescue packages and stimulus programs, but success in containing the crisis was far from assured.

Days before becoming U.S. president, Barack Obama warned of the economic perils ahead.

"In short, a bad situation could become dramatically worse," Mr. Obama said.

The global economy is expected to show a 1.1 percent drop in output for 2009, following a five percent expansion in 2007 and three percent growth in 2008.

The past year has seen sharp spikes in unemployment, which peaked at 10.2 percent in the United States, 9.8 percent in Europe, 9 percent in Brazil and 5.7 percent in Japan.

But a turnaround is underway, according to U.S. Treasury Secretary Timothy Geithner.

"The U.S. economy and the world economy are now growing again. Businesses are starting to invest again, consumers are now spending, business and consumer confidence has improved, global trade is now expanding at an encouraging pace," Geithner said.

But analysts warn that perils remain, and badly needed financial reforms in the United States and elsewhere have yet to be implemented.

Mark Zandi is Chief Economist at Moody's Economy.com.

"You know policymakers have done a lot of good work stabilizing the financial system, but they have not changed anything fundamentally. And until they do, the risk of another financial panic in our future is still very high," Zandi said.

Policymakers must also decide when to wind down unprecedented levels of government stimulus and financial support. Those measures were deemed necessary in the face of an economic crisis, but can spark inflation if sustained for too long.

Russian Deputy Prime Minister, Igor Shuvalov:

"I think this year, it would be more about how to live after the crisis. What to do with exit policies and whether all of us carry on with fiscal stimulus or when we exit and on what conditions," Shuvalov said.

The global economic downturn struck advanced industrialized nations particularly hard, providing an opening for rising economic powers like India and China to shine on the world stage, according to World Bank President Robert Zoellick.

"India is now a rising economic power that handled the recent economic crisis very well. It has contributed to world economic stability and could become the pole [focus] of global economic growth over time," Zoellick said.

For many nations, the passing of the financial crisis means attention must be refocused on long-term problems that preceded the global recession. In the United States, massive government debt continues to grow at a time when an aging population is placing ever-greater demands on social welfare programs.

In much of the developing world, such as in Kenya, other challenges must be tackled, according to World Bank Vice President for Africa Obiageli Ezekwesili.

"In terms of competitiveness in the new global environment, Kenya will have absolutely no choice but to tackle the most important constraint to its development. It has been corruption," Ezekwesili said.

Unlike in past economic rebounds, the United States is not in a position to drive global growth, according to the World Bank's Robert Zoellick.

"In every past economic crisis, what you have had is the U.S. consumer and the purchasing start the ball rolling again," Zoellick said. "And that consumption leads to increased business demand and investment on the business side. Most economists expect that is not going to be the case, this time."

Instead of advanced industrialized nations leading the way, analysts say global economic growth will likely be powered by rapid expansion in countries like China and India, with contributions also coming from lesser-developed nations.

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