The book’s editor, Mustapha Nabli, estimates that the average potential growth rate for the ten countries before the financial crisis was about 6 percent. Unlike the overheated financial sector, pre-crisis trade and remittance levels were sustainable.
Once the crisis hit, however, less diversified countries really felt the heat. Their financial sectors eventually recovered, but trade remained low, thus adversely affecting their growth. 13.6 percent of Turkey’s 2009 GDP, for example, was shaved off during the financial crisis. Possibly this was due in part to fears left over from past financial crises.
Countries like China and India, which had buffers like adequate fiscal space, large international reserves and comparatively little short-term debt, emerged relatively unscathed. Moreover, their efforts to tackle the impact of the financial crisis (stimulus plans, increased public spending and active management of exchange rates) proved effective.
However, many of the reasons for resilience in some countries and vulnerabilities in others merit further exploration.
‘The Great Recession’ estimates that the crisis will have a negative impact in the next five years on the ten countries covered. That negative effect will amount to between 0.4 to 1 percent, with countries like Turkey and Malaysia being affected more than others. Impacts on the countries’ financial, fiscal and human development (for example, spending on social issues) systems will not be very significant, but some of the short term actions taken during the crisis could have lingering impacts in the long run. Brazil and India, for example, increased the role of public sector banks to implement their stimulus plans, but for longer run growth, stronger private sector banks will be critical. Similarly, many countries will need to bring down their stimulus spending to more sustainable levels.
Alan Gelb (Senior Fellow, Center for Global Development), Kemal Dervis (VP for Global Economics and Development, Brookings Institute) and Mustapha Nabli (Editor of this book) discuss and critique the main messages of the book.