East Asia and Pacific Update, December 2008 : East Asia - Navigating the Perfect Storm
As the global economy finds itself in the worst financial crisis since the great depression, the East Asia and Pacific region has not been spared the full fury of the economic storm. The surge and subsequent drop in food and fuel prices was followe...
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| Format: | Serial |
| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/593791468244552163/East-Asia-navigating-the-perfect-storm http://hdl.handle.net/10986/33512 |
| Summary: | As the global economy finds itself in
the worst financial crisis since the great depression, the
East Asia and Pacific region has not been spared the full
fury of the economic storm. The surge and subsequent drop in
food and fuel prices was followed by the intensification in
the financial crisis that began in mid- 2007 in the U.S.,
deepened through the first half of 2008, and took a sharp
turn for the worse after September 15. Even as East Asian
policymakers were battling the previous crisis in late 2007
and early 2008 - the rise in inflation following the steep
increases in food and fuel prices they were confronted by
sudden falls in equity prices and exchange rates, sharp
increases in short-term interest rates, and an abrupt
deceleration in export growth. The epicenter of the storm
was in the developed countries, but its reach spread quickly
across the globe. The failure of important financial
institutions in the major financial systems froze interbank
and credit markets around the world and revised the price of
risk upward, triggering a global liquidity shortage. The
ensuing search for liquidity worldwide prompted, among other
things, the sale of equity and debt securities and the
withdrawal of capital from emerging markets, destabilizing
banking systems far from the center of the crisis. Boosts to
liquidity and injections of capital in financial
institutions by developed country authorities may avert a
systemic meltdown of financial markets, but heightened risk
aversion and an ongoing deleveraging across the world is
causing capital to retreat from developing countries and the
cost of financing to rise. The loss of trust, breakdown in
financial markets, and curtailment of bank loans have hit
investment, production, and trade, causing global growth to
slow rapidly. Japan and Europe are already in recession, and
the US is expected to follow soon. All three are expected to
contract further in 2009, dampening import demand and
resulting in the first decline in world trade volumes in a
quarter century. |
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