World Bank2012-03-192012-03-192010978-0-8213-8226-4https://hdl.handle.net/10986/2415The world economy is emerging from the throes of a historically deep and synchronized recession provoked by the bursting of a global financial bubble. The consequences of the initial bubble and the crisis have been felt in virtually every economy, whether or not it participated directly in the risky behaviors that precipitated the boom-and-bust cycle. And while growth rates have picked up, the depth of the recession means that it will take years before unemployment and spare capacity are reabsorbed. This year's global economic prospects examines the consequences of the crisis for both the short and medium term growth prospects of developing countries. It concludes that the crisis and the regulatory reaction to the financial excesses of the preceding several years may have lasting impacts on financial markets, raising borrowing costs and lowering levels of credit and international capital flows. As a result, the rate of growth of potential output in developing countries may be reduced by between 0.2 and 0.7 percentage points annually over the next five to seven years as economies adjust to tighter financial conditions. Overall, the level of potential output in developing countries could be reduced by between 3.4 and 8 percent over the long run, compared with its pre-crisis path. The report further finds that the very liquid conditions of the first half of the decade contributed to the expansion in credit available in developing countries and that this expansion was responsible for about 40 percent of the approximately 1.5 percentage point acceleration of the pace at which many developing-country economies could grow without generating significant inflation. While developing countries probably cannot reverse the expected tightening in international financial conditions, there is considerable scope for reducing domestic borrowing costs, or increasing productivity and thereby regaining the higher growth path that the crisis has derailed.CC BY 3.0 IGOACCESS TO CAPITALASSET PRICEBALANCE SHEETSBANK CREDITBANK LENDINGBANKING MARKETSBANKING SECTORBANKING SECTOR EFFICIENCYBANKING SECTORSBANKING SYSTEMBASIS POINTBASIS POINTSBONDBOND FLOWSBOND INDEXBOND MARKETSBOOM-BUST CYCLEBOOM-BUST CYCLESBORROWERSBORROWING COSTSBORROWING REQUIREMENTSBUDGETBUDGET DEFICITSCAPITAL ACCOUNTCAPITAL ACCOUNT LIBERALIZATIONCAPITAL CONSTRAINTCAPITAL FLOWSCAPITAL INFLOWSCAPITAL INVESTMENTCAPITAL REQUIREMENTSCAPITAL SHORTAGESCENTRAL BANKCENTRAL BANKSCOLLATERALCOMMERCIAL BANKCOMMERCIAL BANKSCOMMODITY PRICECOMMODITY PRICESCONSUMER PRICE INDEXCOUNTRY RISKCREDIT DEFAULTCREDIT DEFAULT SWAPSCREDIT EXPANSIONCREDIT GROWTHCREDIT MARKETSCREDIT PROVISIONCREDIT RATINGCROSS-BORDER FLOWSCURRENCIESCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT SURPLUSDEBT FINANCINGDEBT FLOWSDEBT OBLIGATIONSDEPOSITDEPOSIT MONEY BANKSDERIVATIVEDERIVATIVE TRANSACTIONSDERIVATIVESDEVELOPING COUNTRIESDEVELOPING COUNTRYDOMESTIC BANKDOMESTIC BANKINGDOMESTIC BANKSDOMESTIC BORROWINGDOMESTIC CREDITDOMESTIC FINANCIAL MARKETSECONOMIC DEVELOPMENTEMERGING ECONOMIESEMERGING MARKETEMERGING MARKETSEQUITYEQUITY CAPITALEQUITY FLOWSEQUITY MARKETEQUITY MARKETSEXCHANGEEXCHANGE RATEEXCHANGE RATESEXPORTERSEXTERNAL DEBTEXTERNAL FINANCEEXTERNAL INDEBTEDNESSFEDERAL RESERVEFEDERAL RESERVE BANKFINANCEFINANCIAL CRISISFINANCIAL FLOWSFINANCIAL INSTITUTIONSFINANCIAL INSTRUMENTSFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL SYSTEMFINANCIAL SYSTEMSFISCAL DEFICITSFISCAL POLICYFIXED INVESTMENTFLEXIBLE EXCHANGE RATESFOREIGN BANKFOREIGN BANK PARTICIPATIONFOREIGN BANKSFOREIGN CAPITALFOREIGN DIRECT INVESTMENTFOREIGN INVESTMENTFOREIGN INVESTMENT BANKSFUTUREGLOBAL BANKINGGLOBAL ECONOMYGLOBAL FINANCEGLOBAL MARKETSGLOBAL TRADEGOODGOODSGOVERNMENT BONDGOVERNMENT DEBTGOVERNMENT REVENUESGOVERNMENT SECURITIESGROSS DOMESTIC PRODUCTGUARANTEEHOLDINGSINDEBTEDNESSINFLATIONINFLATION RATESINFLATIONARY PRESSURESINFORMAL LENDERSINFRASTRUCTURE INVESTMENTINITIAL PUBLIC OFFERINGSINSTITUTIONAL INVESTORSINSURANCEINTERESTINTEREST PAYMENTSINTEREST RATEINTEREST RATE SPREADSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL BANKINGINTERNATIONAL CAPITALINTERNATIONAL DEVELOPMENTINTERNATIONAL FINANCEINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL FINANCIAL SYSTEMINTERNATIONAL INVESTORSINTERNATIONAL MARKETINTERNATIONAL SETTLEMENTSINVENTORIESINVENTORYINVESTMENTINVESTMENT ACTIVITYINVESTMENT BANKSINVESTMENT CLIMATESINVESTMENT RATESINVESTMENT VEHICLESINVESTMENTSINVESTORINVESTOR CONFIDENCEIPOISSUANCESLENDERSLEVEL OF INTEREST RATESLIQUIDITYLOANLOAN PORTFOLIOSLOCAL CURRENCYLOCAL STOCK MARKETMACROECONOMIC CONDITIONSMACROECONOMIC POLICIESMACROECONOMIC STABILITYMARKET BORROWERSMONETARY AUTHORITYMONETARY FUNDMONETARY POLICYMONEY MARKETSMUTUAL FUNDSNET DEBTNONPERFORMING LOANSOIL PRICEOIL PRICESOPEN ECONOMIESOPPORTUNITY COSTPORTFOLIOPORTFOLIO FLOWSPOVERTYPRIVATE CAPITALPRIVATE CREDITPRIVATE FINANCEPROPERTYPROPERTY RIGHTSPURCHASING POWERRATE OF RETURNREAL INTERESTREAL INTEREST RATESREGULATORY FRAMEWORKREGULATORY REACTIONREMITTANCESRESERVERESERVESRETURNRETURNSREVENUESRISK ASSESSMENTSRISK AVERSIONRISK PREMIUMSRISK SHARINGRULE OF LAWSHARESHARE OF INVESTMENTSOFT LOANSSOVEREIGN DEBTSTOCKSTOCK MARKETSTOCK MARKET CAPITALIZATIONSTOCK MARKET VOLATILITYSTOCK MARKETSSWAPT-BILLTRADE FINANCETRADE LIBERALIZATIONTRANSITION COUNTRIESTREASURYTREASURY BILLWITHDRAWALWorld Bank10.1596/978-0-8213-8226-4