The Global Economic and Financial Crisis – a comparative Assessment of its Impact on the CESEE Region and Latin America

Notwithstanding these differences there were remarkable similarities in the economic development of these regions in the run up to the global economic and financial crisis. Both regions were experiencing booming economic conditions, with rapid GDP and credit growth. Average annual GDP growth was 5% in the CESEE region and 4.3% in Latin America between 2002 and 2008. Both regions were receiving large amounts of capital inflows on the back of easy global liquidity conditions and favourable growth prospects. Economic growth in both regions was led by domestic demand, with private consumption providing the largest positive contribution to GDP growth, followed by investment. Net exports contributed negatively to GDP growth during the 2002-08 period, in particular in the CESEE countries (-1.6% per annum on average in CESEE, however with very wide cross-country variation, and -0.8% in Latin America). . Similar to other emerging economies, both regions were initially surprisingly resilient to the global financial crisis for over one year. However, they were both strongly affected by the sharp retrenchment in capital inflows and the collapse of global demand that followed Lehman Brothers’ bankruptcy in September 2008. Although there were differences in the channels of transmission and the intensity of the propagation, the short-term outcome in 2009 has been one of the worst recessions in decades for both regions.