[G20 summit agenda] Rebalancing global growth

The following is the seventh in a series of articles analyzing the major problems that the G20 leaders should tackle to stabilize the global financial markets and rebalance the world economy. Ed.

By Tu Packard

For the first time in modern history, the emerging market countries especially China, India and Brazil-supplanted the United States in leading the world economy out of the deepest recession since 1929. Also for the first time, the governments of these rapidly growing economies took seats at the Group of 20 global policymaking table, marking a major transition in the global economic order. This long-anticipated development was accelerated by the 2007-2008 financial crisis that originated in the U.S. subprime mortgage market and in the excessive risk-taking by financial firms whose demise would have brought down the international financial system. 
The global spread and depth of the financial shock plunged the world economy into its first highly synchronized recession since the Great Depression. The shock froze global private sector credit and chilled private sector demand, especially in the developed economies. Trade plummeted and unemployment rose rapidly. The United States and United Kingdom two countries at the epicenter of the financial storm were hit hard, but export-dependent Germany and Japan suffered even more from spillover effects. 
Only decisive and concerted action by leaders of the world’s largest economies this degree of global policy coordination also was without precedent saved the world economy from sliding into an even deeper and more protracted recession. Governments and central banks around the world spent over $11 trillion to support the financial system and about $6 trillion in fiscal stimulus measures to shore up the global economy. Without these extraordinary policy measures, private demand would have collapsed. The resulting social and economic costs would have been even greater (see Charts 1 and 2). 

Emerging market countries