Briefing Note

Project: Global Economy and Finance Department

Vanessa Rossi
(Former Chatham House Expert)
  • Recent figures from the more developed NE Asian exporters show global manufacturing industries falling at a shocking rate, indicating possible double-digit declines in GDP in 2009.
  • There have been worse than expected results in South America, with Brazil likely to see a fall of 3-5% in GDP. Mexico's results could be much worse.
  • The economic and financial situation in Eastern Europe and Central Asia is deteriorating rapidly and dangerously.
  • News from the US and Europe has also been poor but policy efforts may just about succeed in stabilizing these economies by mid-2009.
  • Against this background, analysts are no longer talking about imminent recovery but 'second order derivatives' and 'counterfactuals' - but what does this mean and how positive is it?
  • Effectively, the optimists hope that the global economy will shrink less rapidly in coming months (the second order derivative turns from positive, foot down on the accelerator, to neutral, foot off).
  • 'Counterfactual' means judging a policy's success or failure not by actual economic performance but performance relative to what it might have been without the policy in place: the US will hear more about this as the fiscal package will not lead to growth picking up but it has prevented a further collapse in the US economy.