Strategic Panorama 2009 - 2010 - IEEE

The global recession and its impact on international economic relations
TABLE 2
Inflation (%) 2007 2008 2009 2010 2014
United States 2.9 3.8 -0.5 1.3 2.2
Euro area 2.1 3.3 0.2 0.8 1.5
Japan 0.1 1.4 -1.1 -0.8 0.8
Emerging and developing states 6.5 9.3 5.4 4.6 3.9
Source: WEO, October 2009.
Although recovery appears to be close, there continue to be substantial
risks. First, that the process of deleverage and recognition of losses in
the financial system has not yet been completed. This means that credit
could become stagnant in wealthy countries and, furthermore, if new problems
surface in the banking system, prospects could take a fresh downturn,
leading to a relapse in activity. Second, that the developing countries
dependent on external financing could have difficulties raising capital,
which could generate economic instability and regional policies whose
consequences are difficult to predict. Third, that energy prices could
start to rise even before recovery is consolidated, owing to both growing
demand and surplus liquidity. This could force the central banks to raise
interest rates to prevent inflationary risks earlier than would be desirable,
with the consequent negative impact on recovery. Lastly, that unemployment
will continue to be high until well into 2010, rising above 10% in the
United States and 11% in the euro area, with sizeable differences between
countries (Spain’s unemployment rate will continue to be the highest in the
euro area and could verge on 20% by 2010).
The protectionist temptation
As in previous recessions, governments have again been under considerable
pressure to protect national production and employment by
erecting protectionist barriers. The various lobbies have promoted the
establishment of measures to hinder imports and bias public expenditure
towards domestic production in order to prevent part of consumers’ and
taxpayers’ money from contributing to increase foreign as opposed to
local demand. And in view of the intensity of the recession some governments,
concerned by the destruction of employment (and also seeking
short-term political returns), have given into the protectionist temptation.
The wealthy countries are thus using subsidies and other internal support
measures (such as, for example, aids targeted at the automobile sector or
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