Page 25 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

According to recent estimates from the International
Monetary Fund (IMF), the world economy shrank by 1.1 per-
cent in 2009. The advanced economies (especially the exporting
ones such as Germany, Japan, and Korea) suffered the most,
shrinking by 3.4 percent during this period. 1
But even the emerging economies fared poorly—except
China, whose growth rate (buoyed by fiscal stimulus) slowed to
8.5 percent in 2009 from 9.0 percent in 2008 and 13.0 percent
in 2007. Russia contracted by 7.5 percent, having grown by 5.6
percent in 2008 and by 8.1 percent in 2007. Brazil fell by 0.7
percent, having enjoyed growth of 5.1 percent in 2008 and 5.7
percent in 2007. And India saw growth of 5.4 percent, down
from 7.3 percent in 2008 and 9.4 percent in 2007.
The impact of the crisis on world economies would have been
even worse without the drastic measures taken by governments and
central banks. Governments mobilized an unprecedented amount
of money in an attempt to right their economic ships. Estimates
range from a massive $5 trillion to a truly staggering $18 trillion to
stabilize the financial sector and $2.5 trillion to stimulate demand
in the “real economy”—where the production and consumption of
goods and nonfinancial services takes place. The IMF puts the esti-
mate at an impressive 29 percent of 2008 gross domestic product
for the advanced economies. Meanwhile, leading central banks
have lowered interest rates and taken aggressive measures such as
quantitative easing—the direct purchasing of financial assets such
as government bonds. As a result, the balance sheets of the central
banks have grown significantly since the crisis started in the sum-
mer of 2007. The U.S. Federal Reserve’s balance sheet grew by 229
percent from July 2007 to July 2009.
These measures have arrested a slump that was, until the
summer of 2009, looking very similar to the Great Depression

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