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STORY: IMF / TRADE LEVELS AFTER THE CRISIS
TRT: 2:06
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE: 29 SEPTEMBER 2010, WASHINGTON, DC / RECENT
RECENT 2010, WASHINGTON DC
1. Wide shot, exterior IMF headquarters
29 SEPTEMBER 2010, WASHINGTON DC
2. Med shot, Abdul Abiad working
3. SOUNDBITE (English) Abdul Abiad, Research Department, IMF:
“The recovery’s been pretty uneven across countries. An important distinction is whether a country has had a banking crisis or not recently. For countries that didn’t have a crisis, trade is pretty much almost back to normal. But for countries that recently went through a crisis and this includes large, advanced economies such as the U.S. and much of Western Europe, trade is about 20 percent or more below its pre-crisis levels and much below what the pre-crisis trend would suggest.”
SEPTEMBER 2010, BALTIMORE, MD
4. Various shot, Port
29 SEPTEMBER 2010, WASHINGTON DC
5. SOUNDBITE (English) Abdul Abiad, Research Department, IMF:
“In the countries that had a crisis, trade will like not return to normal anytime soon. What we found when looking at past banking and debt crisis is that once these crises hit, imports fall substantially in the first few years of the crisis and then they tend to stay depressed over the medium term. You don’t see a strong recovery right away.”
SEPTEMBER 2010, BALTIMORE, MD
6. Various shots, Port
29 SEPTEMBER 2010, WASHINGTON DC
7. SOUNDBITE (English) Abdul Abiad, Research Department, IMF:
“For the U.S. and Europe, or the European countries that recently had a crisis, what this means is that their import demand is likely to remain pretty weak and pretty anemic in the coming years, and even weaker than what their output recoveries would suggest.”
SEPTEMBER 2010, BALTIMORE, MD
8. Various shot, Port
Trade is rebounding from the recent recession, but has not yet fully recovered the ground lost during the global economic crisis. This is particularly the case in economies that were hit by a banking crisis, the IMF says in an analysis of how trade was affected.
Because the crisis occurred in economies that account for almost half of global demand, the speed and extent of the recovery in their imports will have a significant impact on growth in their trading partners, the analysis in the IMF’s latest World Economic Outlook (WEO) says.
“The recovery’s been pretty uneven across countries. An important distinction is whether a country has had a banking crisis or not recently. For countries that didn’t have a crisis, trade is pretty much almost back to normal. But for countries that recently went through a crisis and this includes large, advanced economies such as the U.S. and much of Western Europe, trade is about 20 percent or more below its pre-crisis levels and much below what the pre-crisis trend would suggest,” IMF Senior Economist Abdul Abiad said.
The WEO chapter, which looks at the impact of financial crises on imports and exports over the past 40 years, finds that imports tend to decline sharply in the first two years after a financial crisis and remain depressed even in the medium term. In contrast, exports are relatively unaffected.
IMF economists wanted to analyze trade dynamics following past banking and debt crises to help understand how trade might evolve in the wake of the recent financial crisis. They looked at 169 episodes of banking and debt crises in advanced, emerging, and developing economies. The authors tracked the behavior of imports and exports after these crises, both to estimate the overall trade declines and to assess the effects of various factors, such as output, credit conditions, and exchange rate dynamics, on trade.
They found that imports fall sharply after a financial crisis and remain below normal (that is, below their predicted level) even over the medium term, while exports are relatively unaffected.
“In the countries that had a crisis, trade will like not return to normal anytime soon. What we found when looking at past banking and debt crisis is that once these crises hit, imports fall substantially in the first few years of the crisis and then they tend to stay depressed over the medium term. You don’t see a strong recovery right away,” said Abiad.
A number of factors explain the decline in imports. The decline in output accounts for roughly half of the post-crisis fall in imports. In the early years of the post-crisis period, increased exchange rate volatility and currency depreciation are associated with the import fall. Over the medium term, poor credit conditions are also a factor.
Imports also fall disproportionately more than output following crises because demand for products that comprise a larger share of trade than of output experience a particularly large decline, for example, consumer durables or investment goods. This may be explained by the fact that demand for these goods relies heavily on credit, which is tight after a crisis.
“For the U.S. and Europe, or the European countries that recently had a crisis, what this means is that their import demand is likely to remain pretty weak and pretty anemic in the coming years, and even weaker than what their output recoveries would suggest,” said Abiad.
The full recovery of import demand in countries that recently suffered a banking crisis including the United States, the United Kingdom, and much of advanced Europe may be more protracted than suggested by their tempered output projections, the analysis says. The recent narrowing of the large current account deficits of crisis countries may thus prove to be quite durable.
The findings of the chapter underscore the importance for crisis-hit economies to adopt structural reforms that support the recovery of output and trade.
For economies that have relied heavily on demand from these countries, the findings highlight the urgency of boosting the contribution of domestic demand to growth so that their economies are fired by “twin engines.”
