Global Economic and Financial Crisis: Impact on Developing Asia and Immediate Policy Implications

OVERVIEW OF THE GLOBAL ECONOMY After a challenging two years in which the global economy endured the worst recession since the Second World War, recovery is now unambiguously underway. In this chapter, we examine the main factors which will frame global economic issues in the coming months. 1.1 Current state of the global economy: recovery masks fragility We start with a characterisation of the current state of the global economic environment in which Asian economies operate. First, the Great Recession is over: recovery is sufficiently entrenched to ensure global economic growth will continue to recover Chart 1.1 shows the JP Morgan Global All Industry Output Index, the best available measure of overall global activity on a monthly basis. This index shows that the global economy has stopped contracting and that the recovery has been sustained for some months now. Chart 1.1 Chart 1.2 Global economy growing now …and lead indicators suggest this will last Source: Collated by Centennial Group from JP Morgan and OEC. More encouragingly, the available lead indicators suggest that this rebound in global economic growth is likely to be sustained into early 2010. Chart 1.2 shows the OECD's composite lead indicators for the G3 economies - lead indicators all three major economies point unequivocally to the recovery continuing for at least the next six to nine months. Charts 1.3 and 1.4 show how the lead indicators for other OECD economies are also turning around. Prospects for recovery are supported by an array of other forward-looking indicators: Similarly, the Conference Board Business Conditions Index (BCI) in the US has recently moved into positive territory (Chart 1.5). A recovery in US new orders is a positive sign for US trade partners (Chart 1.6). The eurozone ZEW economic expectations index showed an unexpected dip in November 09 falling from 56.9 in October 09 to 51.8 in November 2009. The index has been improving since 4Q08. The score for Business Condition Survey by the Bank of England reached its highest value since March 2008, signalling optimism in the retail sales market. However, the score is well below the 2007 and 2006 average,download.