The current recession is as American as a jazz musician eating apple pie during a baseball game. That is to say, the United States gave birth to this deepening crisis; it’s our once-mighty financial machinery whose breakdown kick-started a global economic domino effect. Perhaps that’s why, if you live in the suddenly market-obsessed States — where politicos breathlessly dissect new line items in the stimulus package, profligate CEOs inspire public disdain once reserved for George W. Bush, and reports of massive layoffs have become as common a sight on CNN.com as stories about dogs calling 911 — it’s easy to forget that this is a global crisis, not just a domestic one. And despite what cash4gold.com‘s Super Bowl ad might have you believe, the US is not quite on the verge of collapse; other countries are in even direr straits. So if it’s financial schadenfreude you seek, this quick tour around the world should satisfy your fix.
No region on Earth has been spared by the downturn, but Asia has been particularly hard hit. China’s fairy-tale economy, which had been expanding at breakneck speed over the past few years, stomped on the brakes at the end of 2008. Millions of workers in the country’s countless factories are now jobless, and have returned to rural villages and uncertain futures. Japan has stagnated as well, and smaller nations such as Singapore and South Korea are faring even worse. The good news is that these countries aren’t saddled with the same worthless debts that plague their Western counterparts, which could make their recovery a less painful proposition. So why are they suffering more than anyone at the moment? As this thorough Economist article explains, deciphering the answer is a complicated business. The obvious explanation is that Asia depends heavily on exporting goods to the West, where demand has nosedived. While that’s undoubtedly part of the answer, a recent study shows that two other factors are also to blame: last year’s uptick in food prices, and domestic policies meant to curb inflation that ended up depressing consumer spending.
Europe hasn’t exactly been a funhouse, either. At the annual World Economic Forum in Davos, Switzerland, the usually upbeat business leaders were forecasting gloom and doom — and they’re the rich ones. In the less rarefied air of Europe’s city streets, some civilians are getting angry. After Iceland, usually a bastion of stability, shocked the world by going bankrupt (leading to a full-fledged government collapse), no one on the Continent feels safe. Western Europe faces the same credit-crunch problems the US does, albeit with the significant distinction that 16 of its countries use one currency, thereby tying their fortunes closely together. But, rather than waiting for the Euro zone (or just EU leadership, for the countries who haven’t adopted the currency) to arrive at a unified solution, some of the biggest players, such as the UK and Germany, have resorted to coming up with patchwork fixes of their own.
While Old Europe is certainly struggling, however, it’s the still-developing former Iron Curtain countries that may be in for the roughest sledding — and the most drastic political change. Many of their governments grossly over-borrowed during boom times, and since the countries have become accustomed to healthy growth in recent years (following the initial shock therapy of post-Soviet capitalism), stagnation comes as a rude awakening. Deteriorating economic conditions led to riots in Latvia and Lithuania, and likely herald political transformation in Hungary. Those nations are also disproportionately affected by Russia’s dimming fortunes. The latter country is home to the second-largest migrant-worker population on Earth, precipitating a ripple effect in former Soviet satellites such as Armenia and Tajikistan, as unskilled jobs dry up in the Motherland. Russia’s economy is inextricably linked to oil, which was all well and good when the price of black gold was in the stratosphere last summer; but now that it’s around $40 a barrel, even the seemingly invincible Vladimir Putin is starting to feel the heat. Will Russians respond to his autocratic rule when they aren’t reaping the benefits of a boom? Signs point to “no.”
Given what else we know, it’s not surprising that emerging markets in general are feeling the pinch. The aforementioned Asian and Eastern European nations fit this model, but so do countries such as Pakistan, formerly red-hot Brazil, and many African nations. For them, the days of unfettered, automatic growth may be over for the time being, but, as in Asia, some of these countries have escaped a heavy debt burden, and thus may be able to recover more quickly. Even more than their developed counterparts, it will be the way these governments react — or overreact — that will set the tone of economic revival in 2009.