1. From Recession to Recovery
Marco E. Terrones
June 2009

2. 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

3. 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?

4. 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.

5. 1. Recessions and Recoveries

6. We Examine Business Cycles in 21 Advanced Economies …
Excluding the current recessions, there were 122 recessions since 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.

7. Recessions and Recoveries are Longer when Global and associated w/ Financial Crises …
Note:
Source: P:\WRK\CHT\w2009weo\Ch3\Figures\Video\Ch3_VIDEO_FIG1.xls 7

8. Highly Synchronized Recessions
Mainly Reflecting Consumption Dynamics … (Median = 100 at t = 0; peak in output at t = 0)
Financial Crises
Highly Synchronized Recessions
Note:
Source: Fig 3.8 & 3.10 8

9. Highly Synchronized Recessions
Which, in turn, Reflects House Prices Dynamics … (Median = 100 at t = 0; peak in output at t = 0)
Financial Crises
Highly Synchronized Recessions
Note:
Source: Fig 3.8 & 3.10 9

10. Highly Synchronized Recessions
And sharp increases in unemployment … (Median difference from t = 0, in percentage points; peak in output at t = 0)
Financial Crises
Highly Synchronized Recessions
Note:
Source: Fig 3.8 & 3.10 10

11. Highly Synchronized Recessions
Exports Play Important Role in Recovery … (Median = 100 at t = 0; peak in output at t = 0)
Financial Crises
Highly Synchronized Recessions
Note:
Source: Fig 3.8 & 3.10 11

12. 2. Current Global Outlook

13. WEO forecast sees world contracting
in 2009 and recovering modestly in 2010 …
Real GDP Growth
(Annual percent change)
Emerging and
Developing economies
Source: P:\WRK\TULUN\JD\Figures 1,3,4,5.xls
Advanced
economies
World
1970 75 80 85 90 95
2000 05 10

14. Advanced economies are projected to suffer the deepest recession since World War II...
Real GDP Growth Rates
(percent change)
CC Oct 2008.xls: Sheet [3c]
United States
Euro area
Japan
Emerging and
Developing Economies

15. Unemployment in advanced economies would reach very high levels, retreating only in 2011 ...
Unemployment Rate
P:\WRK\CHT\W2009WEO\CH2\JY\GGD_LUR_NGAP.XLS

16. Emerging economies are projected to suffer too, but high growth in Asia is holding up activity …
Real GDP Growth Rates
(percent change)
Africa
Emerging Asia
Latin America
Middle East
Emerging
Europe&CIS

17. (percent change, ppp-GDP weighted average)
Risks to April WEO projections were seen to be large and tilted to the downside.
Global GDP Growth
(percent change, ppp-GDP weighted average)
CC OCT 2008.xls: Sheet [2]

18. 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.

19. 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.

20. Websites: