Annual Report 2008 - Ministry of Finance and Planning

1. Macro Economic Perspectives
23
A Transition from High Inflation to Low Inflation/Deflation
The world economy after going through a high inflationary
phase over the last few years is presently experiencing a
deflationary phase. Emerging and developing economies
have registered an average consumer price inflation of 9.3
percent in 2008 with some regions showing somewhat
higher inflation. In the context of declining commodity
prices experienced recently, the average consumer price
inflation of emerging and developing economies is projected
to be around 5.7 percent in 2009.
Financial Crisis
Source: www.economist.com
According to IMF, the growth of world GDP declined to 3.2
percent in 2008 from 5.2 percent in 2007, with advanced
countries registering a 7.5 percent reduction in output during
the fourth quarter of 2008. GDP growth in these economies
is projected to decline by 3.8 percent in 2009. In emerging
and developing economies, the GDP growth declined to 6.1
percent in 2008 and are expected to grow only by 1.6 percent
in 2009. In this context, Sri Lanka’s growth also declined to
6 percent in 2008 with a likelihood of a further moderation
in 2009.
Chart 1.4
Recession and Rise in Unemployment
The impact of the recession has been felt by many countries
signified by massive lay-offs. Despite large fiscal and
monetary stimulus packages been launched, unemployment
rate in the US reached 8.5 percent in March 2009, while
China experienced a 9 percent unemployment rate with
many other countries approaching the double digit level.
Sharp Contraction of World Trade and Finance
The growth of the world trade volume declined by 50
percent in 2008 to 3.2 percent and is projected to decline to
-11.5 percent in 2009 with terms of trade for emerging and
developing countries expected to deteriorate by 8 percent
in 2009. The import growth of advanced countries declined
to mere 0.4 percent in 2008 from 4.7 percent in 2007 and
is expected to decline by 12.1 percent in 2009. Meanwhile,
net foreign private capital flows to emerging and developing
economies had declined from US$ 617.5 billion in 2007 to
US$ 109.3 billion in 2008, indicating a 83 percent contraction
while the prediction for 2009 is a net capital outflow of US$
190.3 billion from these economies. However, the net official
capital flows to these emerging and developing countries
have been negative in 2008.
Ministry of Finance and Planning Sri Lanka
Annual Report 2008