Recent economic trends and developments in the ESCWA region

The expansion of the world economy eased in 2007 and towards the end of that year the prospects for 2008 became significantly less certain. In terms of real gross domestic product (GDP), the world economy grew 3.7 per cent in 2007 (table 1), which is moderately lower than the increase registered in 2006. By the summer of 2007, the credit crunch in the financial markets in the United States of America and Western Europe had become apparent. Over a short period of time, this has resulted in radical changes to the risk assessments and economic behaviour of world economic actors. The complications and controversies in risk valuations embodied in securitized financial products made appropriate adjustments to the balance-sheets of affected financial institutions difficult. In developed countries, the systemic risk of financial covenants and regulations attached to complicated securitized products has created a higher degree of uncertainty in the financial sector. Despite a series of interventions by central banks in developed countries, notably the Federal Reserve System of the United States, in aggressively easing monetary policy by lowering interest rates and providing significant amounts of additional liquidity, the credit turmoil continued in developed countries. Given this weakening in the financial sector, economic actors in developed economies, particularly on the production side, have become more risk-averse.

Related Subject(s): Economic and Social Development