Economic environment

At the end of 2008 and up to the first half of 2009, the world economy experienced its deepest recession since the end of World War II. After the financial crisis reached its peak in the first quarter of 2009, the world economy steadied towards mid-year 2009 and moved into a recovery phase in the second half.

The recovery is attributable to four main factors:

  • extensive monetary policy
  • government economic programs in numerous countries
  • relative robustness of the emerging market economies
  • the comparatively low oil price in the first half of 2009

Global GDP decreased by 1.1 % compared to 2008. The emerging market and developing economies still showed a slightly positive development, with growth of 1.7 %. Industrial countries proved more vulnerable, with a decline of 3.4 %.

GDP share of leading Economies


in % 2008 2007
Source: International Monetary Fund (IMF), World Economic Outlook 2009 / 2008
United States 20.6 21.3
China 11.4 10.8
Japan 6.3 6.6
India 4.8 4.6
Germany 4.2 4.3
Russia 3.3 3.2

in % 2008 2007
Source: International Monetary Fund (IMF), World Economic Outlook 2009 / 2008
United States 20.6 21.3
China 11.4 10.8
Japan 6.3 6.6
India 4.8 4.6
Germany 4.2 4.3
Russia 3.3 3.2

Europe

After a sharp decline at the beginning of 2009, the economic situation in the Eurozone steadied towards the middle of the year and picked up slightly in the third quarter. For the full year 2009, GDP in the Eurozone decreased by 3.9 % (2008: +0.6 %). At minus 13.6 %, the decrease in exports was particularly pronounced. Private consumption, on the other hand, declined by only 1.0 %. Almost all countries clearly felt the economic crisis in their labor markets. Growth in unemployment was particularly high in countries that had previously experienced a real estate boom, such as Spain and Ireland.

Due to the still strained situation on the financial markets, the European Central Bank (ECB) within seven months cut its rate from 4.25 % to 1.0 %, its lowest rate ever. Commodity prices also fell sharply. In 2009, the average oil price, for instance, was US$ 36.76 below the previous year’s average of US$ 97.27 per barrel.

In Germany, the weakness of global demand at the beginning of 2009 led to a historically unprecedented decrease in exports. However, fiscal and monetary measures combined with stabilizing labor market programs helped to prevent an even steeper fall. The German government launched two economic programs worth a total of about € 84 billion – equivalent to more than 3 % of 2008 GDP – for 2009 and 2010. The introduction of short-time working and greater flexibility in the collective bargaining settlements especially contributed to the stability of the labor market. Overall, Germany’s GDP decreased by
4.9 % in 2009 (2008: +1.4 %).

The financial crisis also had a deep impact on the economies of Central and Eastern Europe. They suffered a strong decline in industrial production and exports as the demand from countries in the Eurozone significantly weakened. The countries of Eastern Europe especially, which had accumulated high current account deficits in the previous years, fell into a deep recession as a result of the abrupt worsening of refinancing conditions and reversing capital flows.

United States

In the United States, the economic downturn slowed significantly in the first half of 2009. A positive rate of GDP growth was again achieved in the second half of the year. For the full year 2009, GDP decreased by 2.4 %
(2008: +0.4 %). In the first half of the year, the economic support came from the external account as imports declined faster than exports. In the second half, however, private consumption was the main driver. In addition, investment activity picked up slightly again, a special contributing factor being the US economic program, the “American Recovery and Reinvestment Act”, under which about US$ 940 billion – more than 6 % of 2008 GDP – was made available for 2009 and 2010. The easing of the strains on the financial and real estate markets and the brightening external outlook also helped to improve the situation. Although prices stabilized, conditions on the real estate market were still marked by a high surplus supply. The unemployment rate rose to 10.0 % at the end of the year, its highest level in 26 years.

In addition, credit was substantially tightened in the wake of the banking crisis and there was a marked rise in the household saving ratio. Despite the upturn in the second half of the year, consumer spending was down 0.8 % in the full year 2009 and thus decreased more strongly than the year before. The conditions for private consumption, which is particularly important for the US economy, thus remained difficult.

Asia

The Asian emerging economies managed a notable turnaround after the abrupt collapse of their exports. GDP grew by 5.3 % in Asia (excluding Japan) in 2009. This was due among other things to the positive developments in China. Asia therefore continues to be the fastest growing region in the world. However, this growth is comparatively low versus the average GDP growth of
8 %, and even 13.6 % in China, between 2004 and 2008. A significant aspect of the present situation in Asia is the wide gap between the heavyweights, China and India, on the one hand – in 2009, GDP grew by 8.4 % in China
(2008: 9.0 %) and in India by 6.0 % (2008: 7.3 %) – and other countries such as Taiwan, Malaysia, Hong Kong, and Singapore, on the other, which suffered an average decline of 2 %.

Expansionary fiscal and monetary economic support measures, alongside rapidly reviving capital inflows, were the basis for the recovery. China, for instance, launched a government economic program worth about US$ 590 billion, or 13 % of 2008 GDP, for 2009 and the following years. By contrast, the volume of comparable measures in India and Indonesia was much smaller at about 1 % and 1.5 %, respectively. Lending was also stimulated by a relaxation of credit standards.

India, where exports account for only about 20 % of GDP, was affected much less by the decrease in world trade. The strong domestic bias therefore proved to be a relative strength.

In Japan, the key industrial sectors – automotive industry, engineering, and the electrical & electronics industry – were hit by the effects of the financial crisis. The Japanese economy only returned to a moderate recovery from the second quarter of 2009 onwards as the stimulus from the Asian emerging economies, especially China, made itself felt. However, the sharp decrease was not recouped and Japan’s GDP decreased by 5.6 % in 2009 (2008: -0.7 %).

Latin America

Most of the countries in Latin America had already overcome the global economic weakness in the second quarter of 2009 and have experienced a relatively rapid recovery since then. Latin America profited not only from a good regional demand, but also from a relatively robust financial sector, which makes it less dependent on foreign capital than Europe, for instance. Commodity and food exports continued to be the main drivers. Overall, the region’s GDP decreased by 2.8 % in 2009 (2008: +4.3 %).

Mexico was hit the hardest by the global financial and economic crisis owing to its strong trade ties with the United States. GDP decreased by 6.8 %
(2008: +1.8 %).

Argentina suffered the next biggest drop in GDP after Mexico, with -3.3 %. The country was hit particularly hard by the global financial crisis and suffered – as other countries with low credit ratings – from the investors’ increased risk averseness. In addition, the political climate in Argentina does not allow the government to push through important economic reforms.

In Brazil the economy weakened significantly, but was supported by robust domestic demand and by the broad geographical and sectoral diversification of its exports. Brazil’s GDP decreased by 0.3 % in 2009.

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