Crisis Impact on Emerging Market Economies: Evidence from mid-2010
While emerging market economies were major beneficiaries of the economic boom before 2007; more recently, they have become the victims of the global financial crisis. Several countries were hit quite significantly, losing a substantial portion of their GDP and reversing part of the earlier accomplished progress in poverty reduction. Although it is still to early to assess the scale of the damage, it is clear that many emerging markets face deteriorating fiscal accounts, increased indebtedness, and in some cases, damaged credibility of their national currencies. Recovering these loses will not be easy and will take time.
Their future development of emerging markets depends, to a large extent, on global economic prospects. Today the global economy and the European economy are much more integrated and interdependent than they were ten or twenty years ago. Every country must recognize its limited economic sovereignty and must be prepared to deal with the consequences of global macroeconomic fluctuations.
The statistical data for 2009 provides a mixed picture with respect to the impact of the crisis on various groups of countries and individual economies. On average, Central and Eastern Europe experienced a smaller output decline than the Euro area and the entire EU while the CIS, especially its European part, contracted more dramatically. However, there was a deep differentiation within each country group. Looking globally, richer countries, which are more open to trade and in which the banking sector plays a larger role and which rely more on external financing, suffered more than less sophisticated economies, which are less dependent on trade and credit (especially from external sources). With some exceptions, the previous good growth performance helped rather than handicapped countries in the CEE and
CIS regions in the crisis year of 2009.
The post-crisis recovery has been rather modest and incomplete. It remains vulnerable to new shocks (like the Greek Fiscal crisis), the danger of sovereign default and other uncertainties. Full post-crisis recovery and increasing potential growth will require far going economic and institutional reforms on both national, regional (e.g., EU) and global levels.
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Read “The Global Financial Crisis and its Impact on Emerging Market Economies in Europe and the CIS: Evidence from mid-2010” (CASE Network Studies and Analyses No. 411) by Marek Dabrowski