Quarterly Bulletin


Developments in the World Economic Environment


INTRODUCTION

The global economy which saw the worst downturn since the Great Depression of the 1930s is gradually coming out of the recession with some signs of recovery. 2009 has been a turbulent year characterized by contraction in global economic conditions caused by steep declines in world trade and industrial production. While fiscal and monetary stimulus packages and easy monetary policies may have averted a complete collapse of the global financial system and limited the depth of the recession, conditions for a robust and sustainable world economic recovery are still uncertain. The global recession created an unprecedented level of unemployment in 2009 and industrialized economies were the worst affected with unemployment rate soaring from 5.7 percent in 2007 to 8.4 percent in 2009 and is expected to worsen to 8.9 percent in 2010 according to the International Labour Organisation (ILO). The organization therefore recommends that developed countries must tackle unemployment with the same urgency and decisiveness with which the financial sectors were rescued in order to boost consumer levels and household spending. The apparent turnaround in global economic activity is being driven mainly by rising manufacturing activity, recovery in housing markets and the restoration of consumer confidence but constrained by high unemployment rates and sluggish credit growth as financial institutions continued to uphold their cautious approach to credit expansion. As a result of the fragile nature of the recovery, the downside risk to the global economic outlook remained as high unemployment rates in the US and OECD countries are evident. With the resurgence in global oil and commodity prices and expansionary monetary policies, renewed concerns are raised on consumer prices picking up in the near-team. The premature and incoherent withdrawal of supportive policies is also seen as a threat to the recovery as it would undermine global growth and its rebalancing.


In order to surmount the crisis fully, radical policy action will be essential in the coming years to restore sound macroeconomic balance, healthy growth and low unemployment.

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