Global Financial Turmoil

The financial turmoil which began in the summer of 2007 has developed into a global financial crisis. With the end of the boom in the US housing market and increasing interest rates on sub-prime mortgages, delinquency rates on mortgage loans rose. The value of mortgage- backed securities dropped heavily. Crisis in sub-prime market segment gradually spilled over to most other asset markets, in particular the credit derivatives markets, corporate bond and equity markets, and also to the money markets, not only in the US but also in the Euro area and elsewhere. The combined strength of the various shocks affecting the global financial system has been broadly unexpected, started to move the global economy into a recession. On an annual basis, global growth is expected to moderate from 5.0 percent in 2007 to 3.9 percent in 2008 and 3.0 percent in 2009. Great uncertainty surrounds the implications of this crisis for developing countries. However, the crisis as such cannot be regarded as a complete surprise. It did not build up overnight but instead has developed gradually over several years. Governments in both developed and developing countries have started to put together fiscal and monetary stimulus packages in order to prevent the global financial crisis from turning into another Great Depression.