Trouble for the U.S. spells more trouble for others

>> U.S. Financial Crisis Will Mean Slower Growth, Rising Inequality in Developing World

Bad times here: bad times there.  That seems to be the message of this new report from the Center for Global Development.

When the US experiences economic crisis — which it clearly is at the moment — the whole world is affected.  Ironically, tragically, the people likely to suffer most probably have nothing to do with the problem and no chance at input on the solution.  This is so often the case in our interconnected world.

Here’s an overview from Liliana Rojas-Suarez:

For many developing countries, the U.S. credit crisis will mean slower growth and rising inequality. The effects will be protracted, and not all will show up at the same time. And the nature and degree of impact will vary widely. Some countries, notably those with extensive foreign exchange reserves and strong fiscal positions, will be much better able to cope than others. But overall the crisis is very bad news for developing countries and especially for the poor.

During the first stage, impacts will be felt through two channels. First, lower growth in the industrial countries will mean less demand for developing countries’ exports, both manufactured goods and most commodities (gold will be a notable exception). A few developing countries are growing based on domestic demand but many are growing based on exports, and for them sagging rich-world demand will be a problem.

The second channel will be a reduction in capital inflows to developing countries. Because the U.S. crisis has created a global credit crunch, investors are becoming more risk averse and thus less willing to invest in developing countries.

Here are some other articles from CGD researchers:

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~ by h.e.g. on September 23, 2008.

One Response to “Trouble for the U.S. spells more trouble for others”

  1. That is a good point. I hadn’t thought about it like that. Whatever the outcome of the proposed bailout is, will be felt for the next 20 years all over the world.

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