February 2009

Summary: 

• The impact of the financial crisis on economic activity has intensified worldwide.
• Industrial production and international trade flows have declined sharply, and unemployment is rapidly rising globally.
• Countries need to move more swiftly to forceful and globally coordinated policy actions to prevent the financial crisis from turning into a large-scale economic and social crisis.

The world economy has begun 2009 on a grim note. The major developed economies had already fallen into a deep recession, while developing countries are now also experiencing a dramatic downturn. After tens of trillions of dollars of financial wealth have evaporated, the global financial crisis has also begun to take a tremendous toll on human capital. Unemployment rates are rising at an alarming pace worldwide and many more job losses are expected to follow in the coming months. As a result of the demand retrenchment in the major developed countries, global industrial production and trade have fallen precipitously in recent months, sharply dragging down growth in many developing countries with the accompanying risk of rising poverty rates.

Financial markets remain under great strains worldwide. The balance sheets of major financial institutions continue to deteriorate and credit markets remain clogged. More seriously, a vicious interaction between the financial crisis and the economic recession is forming. In order to avert another Great Depression, policymakers worldwide need to act swiftly to adopt considerable fiscal stimulus packages in an internationally concerted manner.

Download the World Economic Situation and Prospects Monthly Briefing No. 5