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Dr Normaz Wana Ismail

  
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@ During the past three years, the world economy has been rocked by the
bursting of a financial ´super-bubbleµ which had formed in the aftermath of
the 2001 dotcom crisis, as housing and other asset prices, all interlinked on
a global scale, had become over-inflated owing to speculation, excessive
leverage, loose macroeconomic policy and weak regulation.

@ After the bankruptcy of the United States investment bank, Lehman

Brothers, in September 2008,

stock markets collapsed throughout the

global industrial
world
production and trade
then plummeted at
global financial markets rates similar to those
froze as banks stopped lending to each other following the Great
because of mutual distrust about their level Depression of 1929
of assets and liabilities
     



@ it was the first time in the post- almost all regions in
the world were
war period that global GDP affected
contracted
@ the time lapse between the
financial shock and its impacts
on the real economy was
remarkably short.
@ No region was spared by the
crisis.
 where the financial crisis originated

@ Developed economies and transition

economies were the worst affected

@ developing economies also suffered GDP

contractions, or at least a significant
deceleration

contraction of almost 2 per cent in

2009, global GDP
@ most developed and emerging
economies posted strongly negative including several
emerging
growth rates in the last quarter of economies that
had been
2008 and the first quarter of 2009, growing at a fast
pace in the first
half of 2008

@ Even those emerging economies that

avoided an outright recession
(including China, India and Indonesia)
could not escape a significant slowdown of
economic growth at that time
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@ In developed economies, the rescue packages
initiated by governments in 2008 and 2009
@ Prevented the collapse of financial markets,
@ supportive fiscal and monetary policies
partially compensated for sluggish private
demand.
@ With some exceptions (e.g. Finland, Greece,
Iceland, Ireland, Italy, Spain and the Baltic
countries)
mm m 

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@ developed economies returned to positive growth
rates between (the second and the fourth quarter
of 2009)
@ It is estimated that in 2010, growth rates will be
close to 3 per cent in Australia, Canada, Japan and
the United States

@ However, it is unlikely that developed countries as

a whole will return to rapid and sustainable growth
rates in the near future.
Ômm m Ô
@ [he main reason is that,
@ in general, final domestic demand remains weak
(owing to continued high unemployment and low
private consumption.)
@ Households tend to increase savings partly for
precautionary reasons
@ « also because of declining real income and the
scarcity of bank credit.
@ Investment remains discouraged by idle productive
capacities, uncertain future demand and more
difficult access to credit.
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@ uneven in developed countries.
@ the United States has witnessed a stronger
recovery in domestic demand than the leading
current-account surplus countries ² Germany
and Japan.
@ But «..the United States has to deal with the
problem of 8 million crisis-related job losses,
@ ecovery in Germany and Japan continues to be
characterized by their strong reliance on exports.
@ [he main source of export stimulus has increasingly
shifted away from the United States towards China and
other emerging-market economies.
@ And weak domestic demand in Germany is no longer
being offset by more buoyant domestic demand
elsewhere in the EU.
@ Europe has become the centre of the global crisis and in
the global recovery
@ Why?? Because its home-grown problems and add to
the vulnerability of its shaky financial markets.
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@ In the first half of 2010, stress in the markets for some
European countries· public debt escalated.
@ [he relevant European authorities, assisted by the IMF,
responded with a support package for Greece and other
European countries that may face difficulties, which
helped to calm financial markets.
@ However, doubts remain as to how the underlying real
regional disequilibria in competitiveness will be
addressed,
@ and how the fiscal retrenchments and wage cuts will
affect recovery of domestic demand.
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@ Instability in the euro area is largely a
homegrown problem.
@ [he subprime mortgage crisis in the United
States merely acted as the trigger for a series
of events that led to the European debt crisis of
2010
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@ [he 16 euro zone countries have, in theory,

750 billion euros at their disposal to combat
the crisis.
@ Of the total, 250 billion comes from the IMF,
440 billion from euro zone governments and
60 billion from the 27-country EU.
@ [he most needed bailout ECB: Spain, Ireland,
Greece, Portugal, Italy
@ trade deficit
between 1997
and 2008
@ A loss in
competitiveness
may partly
explain the
worsening
balance of trade
in consumer
goods
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@ After a contraction of almost 2 per cent in
2009, global (GDP) is expected to grow by
about 3.5 per cent in 2010
@ with a re-acceleration of output growth in most
regions.
@ Exceptions are the European Union (EU) and
some transition economies, where recovery is
proving to be much slower.
 m  m m

@ [he financial shock seriously affected those

emerging-market economies that had been
running current-account deficits and depended
heavily on net capital inflows.
@ Many of them were transition economies which
were forced to apply restrictive macroeconomic
policy responses, in some cases under IMF-led
programmes.
Ô   
@ [he financial turmoil had little direct effect on
low-income countries
@ Why?
@ [hey are largely excluded from international
financial markets and on emerging-market
economies that had avoided large external
deficits
@ and accumulated significant international
reserves in the years prior to the crisis.


8

@ Most Asian and Latin American emerging-

market economies were able to contain a rise
in unemployment during the crisis
@ And achieve a rapid recovery of domestic
demand.
@ [his served to drive their output growth in 2010
 

8  


@ China, which was severely hit by the slump in its key
export markets in developed economies, was the most
decisive in fuelling domestic demand through stimulus
measures.
@ Its GDP growth accelerated already in the second
quarter of 2009, as did growth throughout East and
South-East
@ Asia, once again contributing to an increase in
employment and production capacities.
@ China, (to a lesser extent India and Brazil), are leading
the recovery, not only in their respective regions but also
in the world.
@ [he fall in global trade in 2009 is explained by
several factors:
@ the collapse in demand,
@ the drying up of trade finance,
@ a larger fall in demand for highly traded goods
(such as machinery and transport equipment)
relative to less traded goods and services,
@ and the vertically integrated nature of global
supply chains.


33

 

@ In times of economic
recession:
@ protectionist sentiments
against imports competing
with domestic products
tend to rise.
@ Domestic businesses
demand that their
government introduce
measures to restrict
imports

 
 mm 



@ [he United States Government, for example, instituted the ecovery
and einvestment Act of 2009 in February 2009, which included a
´buy Americanµ clause to encourage the purchase of domestic
products.
@ Following the entry into effect of this provision, ´buy Indonesianµ and
´buy Victorianµ campaigns started (the latter in the Australian state
of Victoria).
@ European countries such as Germany, France, and the United
Kingdom have successively announced bail-out measures for their
automotive industries,
@ Argentina, India and Indonesia have introduced new import licensing
systems.
@ Ecuador, ussia and Ukraine have raised tariffs on a wide range of
imported products, including automobiles, electrical goods, iron and
steel, and machinery.
rr


 
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r  r

@ Following the financial crisis, a number of
countries increased their tariffs.
@ Ecuador, ussia and Ukraine increased tariffs
on a large number of products
@ Brazil, the EU, India, [urkey, and Viet Nam,
among others, increased tariffs on specific
items.
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@ Following the r


financial crisis, a number of
developed countries announced the introduction
of
@ measures to bail out their struggling industries
Chrysler and General Motors (GM)
@ In the EU, French President Nicolas Sarkozy
announced the provision of EU 6 billion in loans
to Peugeot-Citroen and enault in February 2009.
@ Germany, Italy, Spain, Sweden and the United
Kingdom have also announced economic
packages in support of their automotive industries

 
 
@ It is possible that the current economic climate
may delay the conclusion of those F[As which are
currently under negotiation,
@ as governments worldwide are primarily focused
on domestic policies against the background of
the global recession.
@ [he strengthening of the W[O and the conclusion
of F[As will be effective against the new increase
in trade-restrictive measures in the post-crisis
world

 
9 

@ In many countries, unemployment remains

unacceptably high.
@ many jobs depend on both imports and
exports.
@ Imported inputs are increasingly used in local value-added production, with
the output often destined for export markets.
@ In fact, most trade is in intermediate products and services: over 50% of
goods trade and almost 75% of services trade.
@ Eg. the Boeing 787 Dreamliner,:
the production of which is creating significant new employment in a number
of countries.
[o build this aircraft:
- the wings are produced in Japan,
- the engines in the United Kingdom and the United States,
- the flaps and ailerons in Canada and Australia, the fuselage in Japan, Italy
and the United States,
- the horizontal stabilizers in Italy,
-the landing gear in France and the doors in Sweden and France.
[he production involves 43 suppliers spread
over 135 sites around the world collaborating
for their mutual benefit.
rr
  


@ [he world economy is far more integrated than it was in

1929
@ trade today would have even larger for the global
economy.
@ trade is an essential component of sustainable
economic growth
@ other policy choices matter as well.
@ Among the most fundamental is the establishment of an
adequate system of economic governance, including
institutions and rule of law, which are crucial for
property rights and for lowering transaction costs
@
 m33Ô 
m: ;
@ [rade did not cause the current crisis
@ In fact, it is already contributing to recovery
@ [rade operates in a variety of ways to positively affect
@ through promotion of competition, specialization and innovation;
@ it also provides an important channel for international technology
transfer.
@ With appropriate complementary policies, trade can contribute on a
sustained basis:
-to productivity growth,
- quality job creation,
-increased consumer choice.
@ Protectionism simply cannot deliver the goods - or the services - in
any of these areas.