The impact of the global crisis and the short-term policy response

The world economy is experiencing its first contraction since the Second World War. Even before the problems in financial markets turned into a full-blown crisis in September 2008, the growth of gross domestic product (GDP) had ground to a halt in most developed countries. The bursting of the housing bubble in a number of countries, the subprime financial crisis in the United States, rising commodity prices, and in several countries, restrictive monetary policies led the global economy to the “brink of recession” in the first half of 2008 (TDR 2008: 1). Whereas the exhaustion of credit-based demand growth brought these economies to a standstill, the collapse of credit supply and financial asset prices pushed it into a severe recession. After slowing down from 3.7 per cent in 2007 to 2 per cent in 2008, global GDP is expected to fall by more than 2.5 per cent in 2009 (table 1.1).

Related Subject(s): International Trade and Finance