The Global Economy in Turbulent Times

CHAPTER 15 TW3 2011: Annus Horribilis¹

As the world recovered in 2010 from the throes of the 2008/2009 recession, it turned lackluster in 2011—dragged down by the downturn as the debt crisis in peripheral Europe engulfed its neighbors, in the face of flattish growth in the United States and a mild contraction in Japan. All this pulled down demand for exports and, with it, slower growth in the emerging and developing (E&D) world. A horrible and a hugely disappointing year. For the second time in three years, global recovery stands at risk. That was the world that was (TW3) in 2011.

Storm Clouds Gather

The world has become an increasingly dangerous place. Thousands of people have taken to the streets to protest, including on Wall Street, London, and Warsaw. Global activity weakened in the course of 2011 and became even more uneven. Since midyear, confidence has fallen sharply, and downside risks have grown and are still evolving.

Against the backdrop of a world immersed in imbalances, a barrage of shocks hit the global economy this year: the devastating Japanese earthquake and tsunami, and the Arab Spring unrest in many parts of oil- producing Middle East and North Africa. The US economy slackened, reflecting political impotence; the eurozone debt crisis blew out of hand, encountering major turbulence; and markets were subject to major sell-off of risky sovereigns. These imposed unprecedented risks with adverse spillover to the real economy, already fragile with the jobless ...