Ebook fImpact of the Global Financial and Economic Crisis on Uganda’s Economy
The economic crisis currently afflicting the global economy is the most severe since before the second world war. It was triggered by the financial crisis in the United States and some other advanced economies, which led to a sharp contraction in global aggregate demand.
Output in the global economy contracted by about 6 percent on an annualised basis in the last quarter of 2008 and has continued to fall in 2009, although the trough in global output may now have been reached. Global output is forecast by the IMF to contract by 1.4 percent in 2009. The impact of the economic crisis on world trade is even more pronounced. The volume of world trade is forecast to fall by 12 percent in 2009, while non fuel commodity prices are forecast to fall by 24 percent.
Although the impact of the crisis is not uniform across all countries, no region of the world is unaffected; all regions are experiencing a marked reduction in GDP growth and many countries are suffering recession. GDP in the advanced economies, which still provide the main export markets for Africa, is forecast to contract by 3.8 percent in 2009. Recession is also forecast in the transition economies of Eastern Europe and the former Soviet Union as well as in Latin America in 2009.
Output in sub-Saharan Africa is forecast to grow by 1.5 percent in 2009, but this is four percentage points lower than in 2008 and more than five percentage points lower than the economic growth in 2007. Even the rapidly growing developing economies of Asia are experiencing a sharp fall in their output growth, mainly because of the slump in their export markets in the advanced economies. These forecasts are shown in table 1.
Against this background of a truly global economic crisis on an unprecedented scale, it is unrealistic to expect that Uganda will emerge unscathed. Nevertheless, if we continue to manage the macroeconomy in a sound manner, we can mitigate the worst effects of the global crisis and ensure that the Ugandan economy avoids recession and continues to grow, although growth will inevitably slow down from the vey robust rates averaging 9.4 percent per annum recorded during the period from 2005/06 to 2007/08. Formulating the appropriate macroeconomic policies to deal with the global crisis requires that we understand clearly the channels through which the crisis will affect our economy and the impact it will have.
In this presentation I want to outline how the global crisis is affecting the Ugandan economy and to explain why the effects have not been much worse. I will then discuss what sort of macroeconomic policy response is needed to stabilise the economy in the face of the shocks emanating from the global crisis.
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