Recovery 2.0: Restablizing the World Economy

About the series

The return of market volatility has shaken the confidence of a fragile recovery. How are leading economies responding?  Is the current turmoil giving way to another free-fall in global markets? Are the international governance mechanisms, established after the last crisis, up to the task of averting another crises? What can the major powers do?

In this timely commentary series, CIGI experts examine these key issues, and offer recommendations for policymakers looking to re-stabilize the world economy.

In the Series

In early August and in September, G7 governments met and pledged to take the necessary measures to support financial stability and growth, and reassure fragile financial markets. The financial press reported that market participants and economists dismissed the statements as vacuous and insufficient. The view was that global measures that do not include the major emerging economies — in particular China — are meaningless.
How will the major emerging economies of Brazil, China and India be affected by the current wave of financial instability? Lower stock prices in the United States and Europe have lowered growth expectations in all three of these countries, along with their stock prices. Higher interest rates due to the higher default risk in OECD countries also affect them. The volatility that has affected stock markets in these three economies is, therefore, the same as it is elsewhere. But will the instability spread more widely within their financial sectors and economies more broadly, impairing their growth performance?
As volatile share markets have fallen around the world in recent weeks, central banks are once again faced with the question of how to stabilize the financial markets. Unlike the crisis in 2008, current market volatility is not due to worries about the creditworthiness of private borrowers and their impact on financial institutions. The situation today is partly a consequence of the fiscal policy actions taken by governments in 2008, and partly the inability of central banks to bolster confidence and stimulate lending.