A global recovery typically involves broad-based rebounds in multiple measures of economic activity and financial markets. The strength of recoveries differs across countries and country groups. For instance, there is evidence that recoveries from the four global recessions tend to be weaker in countries with fixed exchange rate regimes than in countries with more flexible regimes. Following the 2009 global recession, advanced economies experienced the weakest recovery among the four episodes while EMDEs enjoyed their strongest. 

Broad rebound in activity. Most indicators of global activity started expanding in the first year of each recovery (Figure 9.A). The average growth rate of global output in the first year (or the first three years) of recoveries was close to the average growth rate in a typical year of the full sample period (Table 6). The growth rates of consumption, investment, and international trade picked up in the first year of each recovery while oil consumption tended to increase. The global recovery from the 1975 recession was the strongest in terms of average output growth in the first three years of the recovery, as well as in terms of growth in the first year. The recovery after the 1991 global recession was the weakest. 

Figure 9.A. Economic activity during global recoveries 


Table 6. Main features of global recoveries 

  Global recoveries (ititial years) Global recoveries (fist three years) All years
  1976 1983 1992 2010 Average 1976-78  1983-85 1992-94   2010-12 Average
Activity
Output 5.2 2.7 1.7 4.4 3.5 4.4 3.6 2.1 3.4 3.4 3.7
Output per capita 3.4 0.9 0.2 3.1 1.9 2.6 1.7 0.6 2.1 1.8 2.0
Industrial production 7.9 1.7 -0.1 8.6 4.5 5.5 3.9 1.6 4.8 3.9 3.5
Trade 8.5 1.5 3.8 114.0 6.6 6.4 4.4 5.4 7.6 6.0 5.8
Unemployment rate 0.0 -0.2 0.3 -0.1 0.0 0.1 -0.2 0.3 -0.1 0.0 0.1
Od consumption 6.2 -0.2 1.6 3.4 2.8 5.0 0.9 1.3 1.9 2.2 2.3
Investment 5.6 1.8 -1.8 5.3 2.7 5.0 2.8 0.3 5.1 3.3 4.4
Consumption 4.7 3.3 2.7 3.0 14.0 4.3 3.5 2.7 2.7 3.3 3.6
Output (PPP) 5.6 2.8 1.8 5.3 3.9 4.6 3.5 2.3 4.2 3.7 4.0
Output per capita (PPP) 3.8 1.0 0.3 4.1 2.3 2.8 1.7 0.8 3.0 11.0 2.3
Financial markets
Capital flows 0.5 -1.5 2.0 8.0 2.3 -0.2 -0.1 0.3 1.0 0.2 0.2
Credit 3.7 4.3 2.4 1.1 2.9 4.4 5.7 2.5 1.8 3.6 5.2
Equity prices 2.6 212.0 10.4 17.4 13.4 -3.9 16.2 12.5 4.1 7.2 5.3
House prices -0.4 -0.1 -1.7 1.3 -0.2 1.8 -0.1 -1.1 -0.2 0.1 1.8
Financial conditions ... 0.2 -0.1 -0.8 -0.2 ...  0.3 0.2 -0.3 0.1 0.1
Inflation -2.8 -2.3 -1.5 1.5 -1.3 -1.4 -0.1 -0.6 0.6 -0.6 0.0
Interest  rates, confidence, sad uncertainty
Nominal interest rate 0.3 -13.0 -1.0 -0.1 -0.6 0.2 -0.9 -0.9 0.0 -0.4 0.0
Real Serest rate 1.8 -0.1 -0.1 -1.6 0.0 1.0 0.0 -0.5 -0.4 0.0 0.0
Business confidence 1.7 1.5 -0.1 1.7 1.2 0.6 0.5 0.2 0.4 0.4 0.0
Policy uncertainty     1.7 -6.6 -2.4     -6.1 7.5 0.7 3.8
Policies
Government expendiure 4.1 1.7 5.0 2.3 3.3 4.1 2.9 3.8 2.3 3.3 4.8
Policy rate 0.1 -IS -1M 0.0 -0.7 0.2 -0.9 -0.8 0.1 -0.3 0.0

Recoveries in financial markets. Global financial markets have tended to rally as recoveries have strengthened over time (Figure 9.B). In the recoveries from both the 1991 and 2009 recessions, for which these estimates are available, broad financial conditions loosened further in the first year of the recovery but then gradually tightened. Although global equity prices on average have picked up quickly, in the first year of recoveries, house prices have tended to remain depressed for two to three years. Credit growth has also generally taken longer to attain the rates observed during non-recession periods. Housing markets were depressed mostly during the recoveries following the three most recent global recessions. Equity markets remained weak during the recovery from the 1975 recession, partly reflecting the stagflation in several major advanced economies. 

Figure 9.B. Financial markets during global recoveries


The 2009 episode, which saw the lowest rate of inflation during a recession, was followed in 2010 by a further dip of inflation to near zero. It thereafter rose quite modestly, to stabilize at a rate in the low single digits. Because of the depressed inflation post-2009, accommodative monetary policies kept nominal interest rates low, and real interest rates remained somewhat below zero (Figure 9.C). Nominal rates declined during and after previous recessions too, but there was a less consistent pattern to real rates. For example, although real interest rates remained negative after the 1975 and 2009 episodes, they went up following the recession of 1982. Business confidence quickly recovered to the prerecession levels except after the 1991 recession because of the financial turbulence in Europe. 

Figure 9.C. Interest rates, confidence, and uncertainty during global recoveries 


Differences across country groups. The four global recoveries featured many commonalities, but they also displayed important differences across country groups and EMDE regions (Figure 9.D; Table 7). First, advanced economies on average delivered better per capita GDP growth outcomes (in the first three years) during the first three recoveries than did EMDEs. They also experienced faster trade growth during these episodes. Second, per capita GDP growth in LICs was much weaker than in the broader group of EMDEs, as well as the advanced economies, during the global recoveries. Third, while EAP and SAR experienced robust recoveries, other regions suffered significant contractions during some recovery episodes mostly because of region-specific factors (Table 8). For example, LAC and SSA saw slumps in per capita output during the 198385 recovery because of the debt crises engulfing these regions, and ECA experienced a serious recession during the 1992-94 global recovery driven by the challenges of transition. 

Figure 9.D. Economic activity during global recoveries, by country group 


Table 7. Main features of global recoveries (by country group) 

  Global recoveries (initial years) Global recoveries (frst three years) All years
1976 1983 1992 2010 Average 1976-78  1983-85  1992-94 2010-12 Average
Advanced economies
Output 4.8 3.1 2 2.9 3.2 4.2 3.8 2.1 1.9 3 3.3
Output per capita 3.9 2.4 1.3 2.3 2.5 3.5 3.2 1.4 1.3 2.3 2.4
Industrill production 7.8 2.3 -0.3 7.6 4.3 5.5 3.9 1.3 3.4 3.5 3
Trade 10.7 2.8 5 12 7.6 7.2 5.8 5.5 6.5 6.3 5.9
Unemployment rate 0 0.3 0.6 0.3 0.3 0 -0.1 0.3 0 0.1 0
Output (PPP) 4.9 3.2 2.1 3 3.3 4.3 3.9 2.2 2 3.1 3.3
Output per capita (PPP) 4.1 2.5 1.4 2.4 2.6 3.6 3.2 1.5 1.4 2.4 2.5
Credit 3.6 4.7 1.7 -1.2 2.2 4.5 5.9 1.8 -0.6 2.9 4.7
Government expenditure 3.4 2.8 5.1 0.4 2.9 3.9 3.1 3.1 -0.1 2.5 4.2
Policy rate 0.1 -2 -1 0 -0.7 0.2 -1.0 -0.9 0 -0.4 0
EMDEs
Output 6.7 1.6 0.9 7.4 4.2 5 2.8 2.1 6.3 4 4.7
Output per capita 4.5 -0.5 -0.8 6 2.3 2.9 0.7 0.5 4.9 2.2 2.8
Industrial production  … … 1.4 11 6.2 … … 3.6 7.9
 5.7 5
Trade 4.6 -1.2 0.5 13.2 4.3 5.1 1.4 5.0 9.8 5.3 5.6
Unempbyment rate ... -0.5 0.3 -0.3 -0.2 ... -0.3 0.3 -0.2 -0.1 0
Output (PPP) 6.7 2.2 1.4 7.5 4.5 5 2.9 2.4 6.3 4.2 4.8
Output per capita (PPP) 4.6 0.2 -0.3 6.1 2.6 2.9 0.9 0.7 4.9 2.3 2.9
Credit 6 -6.8 15.8 12.5 6.9 3.3 -0.2 13.8 12.4 7.3 7.8
Gov nt expenditure 12 -5.2 4.7 6 4.4 6.9 2 6.3 6.7 5.5 5.8
Policy rate 0.2 -0.2 -1.3 -0.1 -0.3 0.3 0.1 -0.5 0.2 0 0
LICs
Output 0.9 1.3 -1.7 6.9 1.9 0.7 2 -0.4 6.4 2.2 3.8
Output per capita -1.5 -1.4 4.5 4 -0.8 -1.7 -0.8 -3.3 3.5 -0.6 1.1
Trade -2.3 0.9 4.3 15.1 1.8 4.7 7.9 -0.8 13.8 6.4 6
Output (PPP) 1.3 1.4 -1.3 7.2 2.1 1 2.1 0.0 6.3 2.3 3.9
Output per capita (PPP) -1.1 -1.4 -4.1 4.2 -0.6 -1.4 -0.7 -2.9 3.3 -0.4 1.2

Table 8. Main features of global recoveries (by region) 

Recovery following the 2009 recession. The trajectory of per capita global output in the most recent recovery was slightly weaker than that of the period following the 1975 global recession (Figure 9.A). After the latest recession, there were stronger rebounds in industrial production and trade in the first three years than in the previous three recoveries. The pattern of global unemployment during the latest global recovery follows that of the previous episodes but the average rate of unemployment remained elevated in 2010-12. 

Financial markets experienced a subdued recovery after 2009 (Figures 9.B and 9.C). Credit registered its weakest growth among the four episodes, while both housing and equity markets struggled in the first three years. The latest recovery was characterized by the lowest inflation and nominal interest rates. Capital flows, however, picked up quite strongly in the first year of the recovery, and then stabilized at a lower level than the average over the 2003-07 period. 

The global recovery from the 2009 recession was significantly different from the previous three episodes, particularly in its uneven nature – especially in the differences in performance between advanced economies and EMDEs (Figure 9.D; Table 7). Advanced economies were the engines of previous global recoveries, but EMDEs accounted for the lion's share of global growth after the 2009 global recession: the average contribution of advanced economies to global growth during the previous three global recoveries (i.e., over 1976-78, 1983-85, and 1992-94) was 75 percent, but it dropped to 35 percent in 2010.  

For the advanced economies, the most recent recovery, in 2010-12, was the weakest in terms of both output and output per capita. This reflects in part the legacies of the global financial crisis, particularly the deterioration in credit and housing markets, as well as labor markets. The balance sheets of households and financial sectors were severely damaged, resulting in a sharp contraction of investment, especially construction. Some countries in the euro area also struggled to finance their public debt and experienced severe sovereign debt crises in 2011-13, including Cyprus and Greece. Compared to the previous episodes, growth rates of consumption and investment were much weaker in advanced economies. Reflecting anemic income growth in these economies, unemployment declined only slowly during the recovery, especially in the euro area. 

In contrast, EMDEs, as a group, enjoyed their strongest recovery following the 2009 global recession. Despite an unfavorable external environment, both industrial production and trade rebounded strongly, supported by a sharp increase in credit growth (Table 7). EMDEs weathered the global recession relatively well thanks to the large, prompt, and globally coordinated policy support, as discussed below. The strong performance of EMDEs during the early years of the recovery also reflects previous structural improvements such as better-regulated financial systems and stronger macroeconomic policy frameworks that allowed them to pursue more credible and effective countercyclical policies. 

While it was a relatively robust recovery for EMDEs generally, its strength differed among the regions, with growth stronger in EAP, SAR, and LAC than in ECA and MNA. For example, the ECA region suffered a financial shock qualitatively similar to that in many advanced economies, its growth was slower than the other regions in the first year of the recovery.  Among the four global recoveries examined, the most recent was the first in which LICs were able to deliver positive per capita GDP growth, partly because of a sharp increase in their exports.  

Policy responses during recessions and recoveries. In response to the prospect of large output and employment losses in the wake of the financial turbulence of 2008, a number of advanced economies and EMDEs employed wide-ranging expansionary fiscal policy measures during 2008–09. These coordinated measures were instrumental in supporting global demand at the height of the global financial crisis and in limiting the decline in activity. However, as public debt and financing requirements rose significantly, market pressures and – perhaps more important – political constraints led advanced economies to withdraw fiscal support in 2010.  

The change in fiscal policy stance led to an unprecedented outcome, with quite different paths for government expenditures in advanced economies from past recoveries, when policy was expansionary for longer, with continued increases in real primary government expenditures (Figure 10). In contrast, in EMDEs, the recovery was accompanied by expansionary fiscal policy. EMDE governments employed fiscal packages that included infrastructure investment, tax cuts, and social protection programs. 

Monetary policies in advanced economies remained exceptionally accommodative during the latest recovery – more so than in earlier episodes. Monetary policy played a key role in restoring financial sector health, limiting the economic downturn, and supporting the recovery. During the early stages of the global financial crisis, central banks in the major advanced economies sharply reduced interest rates, expanded their liquidity facilities, and started large-scale purchases of longer-term assets. The combination of near-zero policy interest rates and the record expansion of central bank balance sheets was unprecedented. Policy rates remained at, or close to, the zero lower bound, and below zero in some cases, and central bank balance sheets were expanded further. In addition, central banks began or intensified the use of forward guidance about the direction of monetary policy to help manage expectations and lower longer-term interest rates. EMDE central banks too lowered policy interest rates, which was made easier by their success in taming inflation before the crisis, and some EMDEs intervened in foreign exchange markets to support their currencies, having accumulated ample foreign reserves before the crisis.