Despite the intensive efforts of a number of governments to contain the fallout of the crisis, it has spread to many regions and sectors. The decline in economic activity is unusually strong and parallel across economies around the globe. The world economy is in a deep recession, and this is reflected in the dramatic setback in the recent global growth rates, which were consistently above 3% for several years. Although this reversal is mainly owing to deep contractions in the developed world (-2%), a considerable slowdown in growth rates in developing countries and transition economies (down to 3%) also contributes to the dismal outcome.

The world is not witnessing the kind of cyclical decline that occurs once every few years. This time the downturn is driven by an unprecedented and rapid deleveraging on a global scale. The subprime credit collapse highlighted the exposure to risk in many areas and triggered the sudden and parallel unwinding of speculative positions in the stock, commodity and foreign exchange markets, causing a drastic decrease in asset prices. As many markets were equally overvalued, the correction is sweeping. It started with house prices, stocks followed, commodity prices were next, and foreign exchange markets then turned around in the unwinding of carry trade operations. This global deleveraging process cannot be easily stopped. The resulting changes in relative prices occur at a breathtaking speed and have led the world economy into a deep recession.

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