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Trade and Development Report 1992

image of Trade and Development Report 1992

The world economy has been suffering its most severe recession since the Second World War. Production has fallen in the United States and flattened in Japan. Western Europe is stagnating: the boost provided by German unification has petered out, while high interest rates remain. Growth has picked up in Latin America, but remains slow there and in other developing regions, other than parts of Asia. Central and Eastern Europe are suffering a precipitous fall in living standards; the transition process is proving much more painful than anticipated. Overall, signs of improvement are scant.

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The undercurrent of debt deflation

The ability of the world economy to recover from recession and return to conditions of sustained expansion in the 1990s will depend in large part on the spending decisions of firms and households. These decisions will in turn depend not only on expectations regarding future economic conditions, but also on the ability of firms and households to finance expenditures from their earnings or through borrowing from financial markets. Since recessions are characterized by a fall in earnings, the willingness and ability of firms and households to issue equity and incur debt will be especially important.

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