Transcript Terrones TD1

From Recession to Recovery
Marco E. Terrones
June 2009
Motivation

Global economy is experiencing deepest
downturn in post-WWII period


Most advanced economies currently in recession
Two key aspects of the current recessions are:
Their association with financial crisis
 Their high international synchronization

Questions

Are recessions and recoveries associated with
financial crises different from others?

What are the main features of globally
synchronized recessions?

What are the implications for the short-term
prospects of the global economy?
Key Messages

Recessions associated with financial crises are severe
and recoveries from such recessions are typically slow.
These features become more pronounced if, in
addition, the recession is global.

Consistent with these findings, the April 2009 WEO
projected that global economic activity will decline in
2009 and recover gradually during 2010.

Recent developments are mixed … outlook remains
broadly in line with April 2009 WEO forecast.
1. Recessions and Recoveries
We Examine Business Cycles in 21
Advanced Economies …

Excluding the current recessions, there were 122
recessions since 1960. Of which:
15 were associated with financial crises
 37 were globally synchronized (1975, 1980 and
1992).
 6 were both associated with financial crises and
globally synchronized.

Recessions and Recoveries are Longer when
Global and associated w/ Financial Crises …
Recessions
Recoveries
Average time until recovery to previous peak
(quarters)
Additional
Average duration (quarters)
Additional
All recessions
All recessions
Financial
crises
Financial
crises
Financial
crises which
are highly
synchronized
Financial
crises which
are highly
synchronized
0
2
4
6
8
0
3
6
9
12
15
Mainly Reflecting Consumption Dynamics …
(Median = 100 at t = 0; peak in output at t = 0)
Highly Synchronized Recessions
Financial Crises
108
106
Mean time
to trough
for all
other
recessions
108
Mean time to
trough for
financial crises
106
104
All other
recessions
102
Mean time
to trough
for all
other
recessions
Mean time to
trough for highly
synchronized
recessions
All other
recessions
104
102
100
Highly
synchronized
recesions
100
Financial crises
98
98
96
96
0
2
4
6
8
10
12
0
2
4
6
8
10
12
Which, in turn, Reflects House Prices Dynamics …
(Median = 100 at t = 0; peak in output at t = 0)
Highly Synchronized Recessions
Financial Crises
105
100
Mean time
to trough
for all
other
recessions
105
Mean time to
trough for
financial crises
100
Mean time
to trough
for all
other
recessions
Mean time to
trough for highly
synchronized
recessions
All other
recessions
All other
recessions
95
95
Financial
crises
90
90
85
0
2
4
6
8
10
Highly
synchronized
recesions
12
85
0
2
4
6
8
10
12
And sharp increases in unemployment …
(Median difference from t = 0, in percentage points; peak in output at t = 0)
Highly Synchronized Recessions
Financial Crises
4
3
Mean time
to trough
for all
other
recessions
4
Mean time to
trough for
financial crises
3
Financial crises
2
Mean time
to trough
for all
other
recessions
Mean time to
trough for highly
synchronized
recessions
Highly
synchronized
recesions
2
All other
recessions
1
1
All other
recessions
0
0
0
2
4
6
8
10
12
0
2
4
6
8
10
12
Exports Play Important Role in Recovery …
(Median = 100 at t = 0; peak in output at t = 0)
Highly Synchronized Recessions
Financial Crises
120
115
Mean time
to trough
for all
other
recessions
120
Mean time to
trough for
financial crises
115
All other
recessions
110
Mean time
to trough
for all
other
recessions
Mean time to
trough for highly
synchronized
recessions
All other
recessions
110
105
105
Financial crises
100
100
95
95
0
2
4
6
8
10
12
Highly
synchronized
recesions
0
2
4
6
8
10
12
2. Current Global Outlook
WEO forecast sees world contracting
in 2009 and recovering modestly in 2010 …
Real GDP Growth
(Annual percent change)
10
8
Emerging and
Developing economies
6
4
2
Advanced
economies
0
World
-2
1970
75
80
85
90
95
2000
05
10
-4
Advanced economies are projected to suffer the
deepest recession since World War II...
Real GDP Growth Rates
(percent change)
10
Growth
January 2009 WEO
Average 1998-2007
8
6
4
2
0
-2
-4
2007 08 09 10
United States
2007 08 09 10
Euro area
2007 08 09
Japan
10
-6
2007 08 09 10
Emerging and
14
Developing Economies
Unemployment in advanced economies would reach very
high levels, retreating only in 2011 ...
Unemployment Rate
14
12
10
8
6
4
Advanced economies
2
Euro area
0
2007
08
09
10
11
12
13
14
Emerging economies are projected to suffer too,
but high growth in Asia is holding up activity …
Real GDP Growth Rates
(percent change)
10
Growth
January 2009 WEO
Average 1998-2007
8
6
4
2
0
-2
-4
2007 08 09 10
Africa
2007 08 09 10
Emerging Asia
2007 08 09 10
Latin America
2007 08 09 10
Middle East
2007 08 09 10
Emerging
Europe&CIS
-6
Risks to April WEO projections were seen to be
large and tilted to the downside.
Global GDP Growth
(percent change, ppp-GDP weighted average)
6
5
4
3
2
1
0
-1
90% Confidence interval
70% Confidence interval
WEO projection
-2
-3
-4
2006
07
08
09
10 17
April 2009 WEO baseline is broadly consistent
with recent developments …
• Following a disappointing Q1-2009, some
indicators suggest that global downturn might be
moderating.
• However, signals are mixed and not uniform
across country regions.
Risks to the outlook remain tilted to the downside,
although probably to a diminishing extent …
• Downside risks.
•
•
•
•
Financial strains could intensify again.
Trade and financial protectionism remains a concern.
Deflation risks.
Concerns about high public debt and fiscal sustainability.
• Upside potential.
• Faster than expected restoration of market trust and
confidence, helped by successful macroeconomic policies.
Websites:
http://www.imf.org/external/pubs/ft/weo/2009/01/index.htm
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