2009 will enter the history books as the first time that global GDP contracted.
It is possible that there was a world-wide fall in production during the Great Depression, but global statistics were not yet estimated at the time (as the IMF and the World Bank had not yet been created).
Another way to view it is that in 2009 more than 80 % of the countries of the world were in recession, something that had not occurred since the Great Depression.
The IMF’s World Economic Outlook (October 2009) estimates a fall in global GDP of -1.1 %.
The collapse in production would have been even worse, had it not been for the relative stability in China (GDP growth rate estimated at 8.5 %) and India (5.4 %).
The former “world economic engine”, the United States, had already entered in recession in December 2007, and will end 2009 with a -2.7 % contraction.
The contraction will be even more pronounced in Europe and Japan. In the euro zone, production will fall by -4.2 %; in UK by -4.4 %; and in Japan by -5.4 %.
The worst-performing economies worldwide are the Baltic states: -18.5 % in Lithuania, -18.0 % in Latvia, and -14.0 % in Estonia. These countries, together with Iceland, suffered a spectacular bursting of the real estate bubble, together with high levels of euro-indebtedness. Other countries with double digit contractions (depression?) were: Armenia (-15.6 %), Ukraine (-14.0 %), and Botswana (-10.3 %).
The stellar performers, apart from the aforementioned Chindia, were: Afghanistan (15.7 %), Qatar (11.5 %), Bhutan (8.5 %), Ethiopia (7.5 %), Azerbaijan (7.5 %) and Congo D.R. (7.4 %). However, in some of these cases (Afghanistan, Ethiopia, and Congo) this growth corresponds more to a recovery from their war-wracked economies.
Among the 30 OECD countries, only Poland (1.4 %), Australia (0.8 %) and South Korea (0.1 %) showed a (barely) positive growth.
The oil-exporting countries contracted by -2.1 %, whereas the net exporters of other products expanded by 2.6 %.
Latin America and the Caribbean are expected to contract by -2.5 % (after growing by 4.2 % in 2008). Mexico suffered a collapse of -7.3 %, as it was particularly affected by the fall in trade with the U.S.
Some Caribbean countries also suffered a severe recession (Antigua -6.5 %, Granada -4.0 %, Bahamas -3.9 %, Jamaica -3.6 %, Barbados – 3.0 %), due to the fall in tourism and the impact of hurricanes and other natural disasters.
Other Latin American countries with a dismal performance are Paraguay (-4.5 %), Argentina (-2.5 %), and Venezuela (-2.0 %; industrial production has already fallen in Venezuela by -12.4 % until June).
While quarterly GDP estimates are not yet available for the third quarter in Ecuador, GDP had fallen by -1.8 % until the second quarter, and more recently there have been severe energy shortages; thus, the contraction in GDP should reach 2 %. Unemployment in Ecuador has increased from 6.4 % in June 2008 to 9.1 % in September 2009, while investment (gross fixed capital) had fallen by 4.5 % until the second quarter.
Recovery, except for the Bolivarians
The IMF estimates a global growth rate of 3.1 % for 2010.
Among advanced economies, the best performers will be Singapore (4.1 %) and South Korea (3.6 %). China should recover a 9 % growth rate, and India 6.4 %.
The average for Latin America in 2010 will be 2.9 %. The stars in the Region will be Peru (5.8 %), Chile (4 %), Guyana (4 %), Paraguay (3.9 %) and Brazil (3.5 %).
However, the Bolivarians will continue to contract (Venezuela -3.4 %, Antigua -1.5 %) or show paltry growth rates (GDP declines in per capita terms): Nicaragua 1 %, Ecuador 1.5 %.
The four horsemen of the Apocalypse
A lingering effect of the crisis will be the increase in unemployment, together with an increase in poverty, hunger and malnutrition.
For the 30 OECD countries, average unemployment is expected to rise from 5.6 % in 2007 to 9 % in 2010 (8.6 % was already reached in September 2009). The recovery has a lagged effect on employment generation, as the initial effect is an increase in productivity, and reluctance by firms to hire long-term workers.
Latvia has reached a 19.7 % unemployment rate, and Spain is not far behind, with 19.3 %. The United States has breached the two digit barrier, at 10.2 %, the highest rate in 16 years.
The International Labor Organization (ILO) estimates that global unemployment could increase by 50 million workers, reaching a total of 230 million worldwide (a historical record). This is equivalent to 7.2 % of the workforce.
In Latin America and the Caribbean, the ECLAC and ILO estimate an average urban unemployment rate of 8.5 %, an increase of 2.5 million unemployed, for a total of 18.4 million urban unemployed. The highest levels observed were Colombia (12.6 %), Chile 10.2 %, Ecuador (9.1 %) and Argentina (9.1 %).
The increase in unemployment is reverting the significant decline in poverty rates that had been observed in recent years. Based on a daily $1.25 poverty line (adjusted by purchasing power parity, PPP), extreme poverty had declined from 1.8 billion in 1990 to 1 billion in 2008, thanks mainly to reductions in China, Brazil, India and East Asia.
Based on a $2 per day poverty line (PPP-adjusted), poverty should increase to 39 % in 2009, or 2.2 billion people, an increase of 64 million people.
In Latin America, poverty ($2 PPP per day poverty line) is likely to increase by 1.1 %, an absolute increase of 8.3 million people. This also reverts a downward trend: from 240.6 million in 2002 to 181.3 million in 2008.
The World Food Programme (WFP) estimates that hunger will afflict more than 1 billion people world-wide, an increase from 846 million in 2007.
The crisis in developed countries has also led to a reduction in remittances to Latin American and Caribbean countries, estimated by the Multilateral Investment Fund at 11 % in 2009. This is the first time that remittances have fallen since the MIF began to track them in 1999.
The OECD countries adopted a variety of stimulus packages, including the financial system bailouts; increase in public investment in infrastructure; subsidies to create (or conserve) jobs; extension to unemployment insurance; subsidies for investment in R&D, and in particular “green technologies”.
Six advanced economies (South Korea, the US, Australia, Japan, Turkey and Canada) introduced fiscal stimulus packages for 4 % of GDP or more. China (19 %) and Russia (8 %) went even further.
Part of the stimulus packages were geared towards “green technologies”, aimed at reducing greenhouse gas emissions. Among other countries, this included Australia (AUD 5.7 billion, 0.48 % of GDP); Canada (CAD 2.8 billion, 0.18 % of GDP); Germany (5.7 billion euro, 0.2 % of GDP); and the US (US$ 59 billion, 0.41 % of GDP).
Brazil, Chile and Mexico also extended unemployment insurance or subsidies to generate jobs.
Argentina, Brazil, Chile, Mexico and Peru also launched stimulus packages of fiscal investment in public works, worth a total of US$ 25 billion (or nearly 1 % of GDP).
The IMF indicates in its Regional Economic Outlook that Argentina, Ecuador and Venezuela did not have the capacity to adopt counter-cyclical polices as Brazil, Chile, Mexico and Peru did), because they had observed a pro-cyclical expansion in public expenditures before the crisis struck (Ecuador, for example, dismantled in 2007, under Correa, its “rainy day fund” based on oil income; in stark contrast with Chile’s copper sovereign wealth fund).
Venezuela and Ecuador, in particular, did not have fiscal space to launch a counter-cyclical policy. According to the World Bank, they suffered from an initial fiscal deficit; high dependence on exports of commodities; public expenditure rigidity; restrictions in access to external finance; and high financial costs.