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After a year of financial shock and sharp economic loss, 2009 is likely
to be extremely difficult for the global economy, with investors,
business leaders and policymakers struggling to find signs of recovery,
according to Wharton faculty and academic partners around the world.
In the wake of crumbling stock markets, mounting bad debt and rising
unemployment, policymakers are scrambling to devise strategies to
restore stability and lay the groundwork for new growth. “There’s no
country in the world that’s doing well,” Allen continues. “Everybody is
doing badly, with large amounts of debt and heading toward
deflation,” plus “unemployment and a rush by companies to fire
people.”
Around the world, emerging markets in Latin America, India and China
are still growing, but at lower rates – exposing some underlying
problems in their economies.
Even before the Wall Street financial crisis hit, China’s export-oriented
economy was under pressure. The international community was
pressing China to raise the value of its currency. In addition,
thousands of factories in south China were shutting down due to
tighter regulation of product quality and labor and environmental
standards, signaling that deep change in the economy is coming.
“It’s very possible that China will expand policies in this regard and the
economy will be better in the second half of 2009,” he says. “The stock
market might have a rebound by then, but it will only be a rebound,
not a real bull market. The key issue is, what shall we rely on to
support our future growth?”
In his column in Cai Jing magazine, Huang Yi Ping, chief economist for
Citigroup Asia Pacific, writes that “the sky will not fall even if growth is
lower than 8%.” He assured readers that China’s government is
determined to keep growth above that level and is capable of making
that goal.
“It’s easy to say that this, too, shall pass. People are talking about
2009 being tough and things will turn around in 2010,” says Percival.
“I’m not so sure. It could be longer than that.”
U.S interest rates are hitting historic lows and a flood of liquidity is
coming into financial markets through Treasury bonds, he adds, noting
that low interest rates did not do much to speed recovery in Japan in
the 1990s and he does not expect them to help much in the United
States now.
The new year will also be difficult in Europe, in part because the
recession started there about six months later than in the United
States, says Guillén, who is also director of Wharton’s Joseph H.
Lauder Institute of Management & International Studies. He adds that
European economies are less flexible than the U.S. system and will
take longer to adjust to the changing economic climate, prolonging the
downturn. “The outlook for 2009 in Europe is not great. It’s going to
be a difficult year.”
The global economic slump threatens to stall Eastern Europe’s
promising economic growth. “For the last 10 years, all these countries
have been trying to make the transition to a market economy, and the
financial systems are kind of shaky,” he says. “I think they’re going to
have some hard times.”
While the transition will slow growth, Guillén does not believe
governments in these emerging markets will backslide into
protectionism or reject other free-market characteristics of their
economies, although they may postpone additional reforms. “The
countries that have become members of the European Union realize
how important that is for them and they don’t want to do anything
that will jeopardize their standing,” Guillén notes.
However, 2009 is going to be hard for Latin America, which will not be
able to totally escape the global economic problems, says Martínez
Lázaro. He predicts that the region will suffer the impact of the global
downturn in several areas: manufacturing exports, remittances from
workers living abroad, investments and financing. Some countries will
suffer more than others.
Generally, Latin America was well prepared for this crisis. “During
boom times, they did their [macroeconomic] homework, so 2009 is not
going to be dramatic,” states Martínez Lázaro, adding that the entire
region is going to grow more slowly, at about 2.5%. While growth will
slow, he says, the region should not drop its guard. Latin America “can
pursue a very stable macroeconomic policy and [also] reduce [social
and economic] inequality. It would be a shame if [Latin America] loses
its way moving down that road.”
Other indicators also point to hard times for India, where in recent
years the economy was soaring. Industrial output fell 0.4% in October,
marking the first decline in 15 years, and exports were down 12%, the
first decline since 2003. Excise duty collections plunged 15% in
November.
Exports – where much damage has already taken place – will continue
to suffer. “Nothing is going to improve before 2010-11 because the
whole global situation is going to remain depressed all through 2009,”
says Chakrabarti. Adds Kumar: “The export sector is not in good shape
because of the volatility in the exchange rate. The rupee depreciation
is a respite, but greater volatility is a matter of concern.”
As the rest of the world comes to grips with the global financial crisis,
Japan, the world’s second-largest national economy, is suffering too.
Wharton’s Allen says Toyota’s first money-losing quarter underscores
the severity of Japan’s economic problems. Not only are Toyota and
other Japanese companies facing a slowdown in demand from China
and the U.S., but investors are seeking safe haven in the yen. As the
yen rises in value, Japanese exporters suffer even more in the global
economy.
“We can come up with some ideas and a range of forecasts and some
information about the risk of what is out there,” he says, “but the
reality is that all sorts of things can come out of nowhere and suddenly
hit you.”
“The problem is that very often the best thing to do is to simply not do
anything,” says Tschoegl. “But no politicians can bring themselves to
stand up here and say, ‘We don’t have the faintest idea of what to do,
and right now we’re not going to do a damn thing.’”