Global Economy Crisis

Over the past year, the global economy has been buffeted by the deepening crisis in financial markets, by major corrections in housing markets in a number of advanced economies, and by surges in commodity prices. Indeed, the financial crisis that erupted in August 2007 after the collapse of the U.S. subprime mortgage market entered a tumultuous new phase in September 2008 that has badly shaken confidence in global financial institutions and markets. Most dramatically, intensifying solvency concerns have triggered a cascading series of bankruptcies, forced mergers, and public interventions in the United States and western Europe, which has resulted in a drastic reshaping of the financial landscape. Moreover, interbank markets have virtually locked up as trust in counterparties has evaporated. Responding rapidly, the U.S. and European authorities have announced far-reaching measures aimed at supporting key institutions, stabilizing markets, and bolstering confidence, but markets remains highly unsettled and volatile as this report goes to press.
Faced by increasingly difficult conditions, the global economy has slowed markedly.
... Available data for the third quarter and forward- looking indicators suggest that the downturn in the advanced economies is continuing to deepen. Indeed, business and consumer confidence indicators for the United States and the euro area are now close to lows experienced during the 2001–02 recession. The emerging and developing economies have not decoupled from this downturn. Growth in these countries eased from 8 percent in the first three quarters of 2007 to 7½ percent in the subsequent three quarters, as domestic demand (particularly business investment) and net exports have moderated. Moreover, recent trade and business activity indicators are signaling continuing deceleration. Growth has been most resilient in commodity-exporting countries, which are benefiting from still-high export prices. By contrast, countries with the strongest trade links with the United States and Europe are slowing markedly, while some countries that relied on bank-related or portfolio inflows to finance large current account deficits have been hit hard by an abrupt tightening of external financing. Nevertheless, as a group, emerging economies have so far sustained market access better than in earlier episodes of financial turbulence, reflecting improvements in policy frameworks and stronger public sector balance sheets.
And here's where they talk about the future:
Prospects for the global economy are exceptionally uncertain as this report goes to press. A key assumption underlying the baseline projections is that comprehensive actions by the U.S. and European governments succeed in stabilizing financial market conditions and avoiding further systemic events. Nonetheless, markets are likely to remain under heavy strain throughout 2008 and 2009. Even with successful implementation of the plan to remove troubled assets from U.S. bank balance sheets, it will take time to rebuild confidence in asset valuations and alleviate counterparty concerns. Moreover, banks are going to remain under pressure from the need for more capital combined with growing credit losses coming from the broader economy.
...The U.S. economy faces flat to negative growth during this period, as support from the fiscal stimulus ebbs, export momentum moderates, and tight financial conditions take an increasing toll. An eventual turnaround in the housing sector and more stable oil prices should help lay the basis for incipient recovery in the second half of 2009, but the revival is expected to be much more gradual than in previous business cycles, as tight credit conditions continue to weigh heavily on domestic demand. Most other advanced economies are also expected to go through a period of extremely sluggish growth or contraction in 2008 and the first half of 2009, and to experience only a modest upturn in the latter part of the year. In fact, all the G7 countries but Canada are now projected to grow by less than 1 percent on a fourth-quarter-over-fourth-quarter basis during both 2008 and 2009.