Davydova J. A., Omelchenko A. A.
Donetsk national university of economics and trade named after Mikhail
Tugan-Baranovsky, Ukraine
GLOBAL
ECONOMY UNDER STRESS
The
actuality of this theme is defined by the fact that world financial crisis
touched all countries of world economic community more or less. Now its
sequences are the sharpest problem for a lot of governments.
The
purpose of this article is to consider crisis’s main features and its influens
on global tendencies.
For four years through the summer of 2007, the global
economy boomed. Global GDP rose at an average of about 5 percent a year, its
highest sustained rate since the early 1970s. About three-fourths of this
growth (measured on a purchasing-power-parity basis) was attributable to a broad-based
surge in the emerging and developing economies. Inflation remained generally
contained, albeit with some upward drift.
Over the past year, the global economy has been
buffeted by the deepening crisis in financial markets, by major corrections in
housing markets in a number of advanced economies, and by surges in commodity
prices. Indeed, the financial crisis that erupted in August 2007 after the
collapse of the U.S. subprime mortgage market entered a tumultuous new phase in
September 2008 that has badly shaken confidence in global financial
institutions and markets. Most dramatically, intensifying solvency concerns
have triggered a cascading series of bankruptcies, forced mergers, and public
interventions in the United States and western Europe, which has resulted in a
drastic reshaping of the financial landscape. Moreover, interbank markets have virtually
locked up as trust in counterparties has evaporated. Responding rapidly, the
U.S. and European authorities have announced far-reaching measures aimed at supporting
key institutions, stabilizing markets, and bolstering confidence, but markets
remains highly unsettled and volatile as this report goes to press.
Faced by increasingly difficult conditions, the global
economy has slowed markedly. The advanced economies grew at a collective
annualized rate of only 1 percent during the period from the fourth quarter of
2007 through the second quarter of 2008, down from 2 percent during the first
three quarters of 2007. The U.S. economy has suffered most from the direct effects
of the financial crisis that originated in its own subprime mortgage market,
which has tightened credit conditions and amplified the housing correction that
has been under way since 2006. Aggressive policy easing by the Federal Reserve,
a timely fiscal stimulus package, and strong export performance on the back of a
weakening U.S. dollar have helped cushion these blows, but the economy has
still managed to grow by only 1 percent on average since the fourth quarter of
2007. Activity in western Europe has also slowed appreciably, dampened by high
oil prices, tightening credit conditions, housing downturns in several
economies, the U.S. slowdown, and the appreciating euro. Japan’s economy
initially showed more resilience but has recently been affected by slowing exports
and the impact of deteriorating terms of trade on domestic demand.
Available data for the third quarter and
forward-looking indicators suggest that the downturn in the advanced economies
is continuing to deepen. Indeed, business and consumer confidence indicators
for the United States and the euro area are now close to lows experienced
during the 2001-02 recession.
The emerging and developing economies have not
decoupled from this downturn. Growth in these countries eased from 8 percent in
the first three quarters of 2007 to 7 percent in the subsequent three quarters,
as domestic demand (particularly business investment) and net exports have
moderated. Moreover, recent trade and business activity indicators are
signaling continuing deceleration. Growth has been most resilient in
commodity-exporting countries, which are benefiting from still-high export
prices. By contrast, countries with the strongest trade links with the United
States and Europe are slowing markedly, while some countries that relied on bank-related
or portfolio inflows to finance large current account deficits have been hit
hard by an abrupt tightening of external financing. Nevertheless, as a group,
emerging economies have so far sustained market access better than in earlier episodes
of financial turbulence, reflecting improvements in policy frameworks and
stronger public sector balance sheets.
Despite the deceleration of global growth, headline
inflation has risen around the world to the highest rates since the late 1990s,
pushed up by the surge in fuel and food prices. In the advanced economies, 12‑month
headline inflation registered 4 percent in August 2008, down modestly from a
peak in July in the wake of some commodity price easing. Measures of underlying
inflation-price indices excluding food and fuel prices, inflation expectations,
and labor costs - have been broadly contained, although there has been upward drift
in some measures. Reflecting heightened inflation concerns, the Federal Reserve
has held the federal funds rate at 2 percent since April, after six months of
steep cuts, and the European Central Bank increased its policy rate one notch to
4. percent in early July.
The resurgence in inflation has been more marked in
the emerging and developing economies, with headline inflation reaching 8 percent
in the aggregate in August and with a wide swath of countries now experiencing
doubledigit inflation. To some extent, the difference reflects the considerably
greater weight of food prices in consumption baskets in these economies - typically
in the range of 30–45 percent as opposed to 10–15 percent in the advanced economies.
However, inflation excluding food and fuel has also accelerated markedly, and there
are signs of rising inflation expectations and wage increases, although such
data are not as systematically available as in the advanced economies. If we
will look at the relationship between commodity prices and inflation, we will find
that emerging economies have been more vulnerable to second‑round
effects. This is because the greater weight of food prices has put more
pressure on real wages, because inflation expectations are less well anchored
by central bank credibility, and because fast growth has eroded margins of
spare capacity.
Policymakers in emerging and developing economies have
responded to rising inflation with an eclectic mix of measures. Many central banks
have raised interest rates, but others have relied more on increasing reserve
requirements and tightening credit, particularly where interest rate policy has
been constrained by inflexible exchange rate management. However, as discussed
below, some of these steps have been reversed recently in the face of intense
liquidity strains related to recent financial turmoil. Some countries have also
tightened fiscal policies to help restrain the growth of aggregate demand. Going
beyond macroeconomic policies, a number of countries have sought to limit the
impact of rising international commodity prices on domestic prices by delaying
or limiting the passthrough of oil prices - with a potentially heavy fiscal
cost - by lowering tariffs on imported food, and in some cases by prohibiting
or imposing taxes on food exports.
The weakening of U.S. growth relative to its trading
partners and the sustained depreciation of the U.S. dollar since 2002 helped
lower the U.S. current account deficit to 5 percent of GDP in the first half of
2008, from 6. percent in late 2005. The decrease is even larger if net oil
imports are excluded. Despite some strengthening since early 2008, the real
effective exchange rate of the U.S. dollar is at its lowest level in decades,
and the dollar is now assessed to be broadly in line with medium-term
fundamentals. The adjustment in the dollar in recent years has largely come
against other advanced economy currencies, notably the euro (which is now
judged to be on the strong side of fundamentals) and the yen (which is still
assessed to be undervalued relative to fundamentals), as well as other floating
rate currencies.
Among emerging economies, China’s exchange rate has
continued to appreciate at a moderate pace, with a somewhat faster rise in real
effective terms owing to the pickup in inflation. Nevertheless, China’s current
account surplus has remained above 10 percent of GDP, and with strong capital
inflows despite a tightening of controls, reserves have continued to mount. In
the IMF staff’s view, the renminbi remains substantially undervalued relative
to medium-term fundamentals. Many oil exporters in the Middle East have
continued to peg against the U.S. dollar. As a result, their nominal effective
exchange rates have tended to depreciate, although exchange rates have
appreciated moderately in real terms because of rising inflation. Elsewhere,
experiences are quite diverse. Currencies in emerging Europe and Latin America
have generally appreciated, as monetary policy has been tightened and commodity
exporters have benefited from terms-of-trade gains, although some currencies
have come under pressure recently as commodity prices softened and risk
aversion increased. A number of currencies in Africa and south and east Asia (for
example, India, Korea, Pakistan, and South Africa) have depreciated over a
longer period, in part owing to rising costs of commodity imports and widening
current account deficits.
So that, we can make such conclusions: the deepest
inflation processes take place in food and fuel sectors of economy, downturn of
economic continue to deepen because of the world financial crisis. The most
reliable currencies of the world became euro and yen. Governments are trying to
use some measures to make the situation stable. Among them are the increasing
of interest rate, increasing of reserve requirements, tightening of credit and
other. How effective these measures are the time will show.
References:
1. Electronic resource. - http://www.imf.org.
2. Electronic resource. - http://korrespondent.net.
3. Electronic resource. - http://www.expert.ru.