The Global Context and its Implications in the Arab Region

Throughout 2012, the world economy continued to struggle to recover from the global financial crisis of 2008-2009. Central banks in developed economies took the stance of monetary easing to its maximum. A series of monetary policy coordination efforts of that line had successfully contained the contagion of liquidity crisis. Moreover, in 2008 and 2009, a series of fiscal stimulus policies at the global level had successfully averted the risk of an implosion in global demand growth and prevented the world economy from becoming trapped in a deflationary spiral. Nevertheless, despite those short-term successes, the struggle for a stable economic recovery became more apparent in 2012 as economic policy options for many governments were further exhausted. The quickly shrinking fiscal space forced many governments to maintain a stance of fiscal austerity. Meanwhile, the speed of the balance-sheet adjustments of the financial sector varied: while a smooth adjustment has been observed in the United States, the process has been slow in the Eurozone area. The remaining uncertainty over financial risks, which still could be contagious, precluded the strong investment-led growth recovery of the world economy at this stage. The developed economies, particularly in Europe, are still prone to a double-dip recession (table 1.1).

Related Subject(s): Economic and Social Development