The Global Financial Crisis and Its Impact on Trade: The World and the European Emerging Economies

This paper describes how the global financial crisis of 2007-2010 impacted trade both globally and more specifically for the European emerging economies, which in terms of GDP decline, were the most negatively impacted economies in the world. Just as with GDP, the trade of the European emerging economies was more severely impacted by the crisis than the trade for other regions of the world; exports for over one half of these economies declined by more than 50 per cent between the third quarter of 2008 and the first quarter of 2009. Despite these large declines, the geographical and sectoral distribution of their trade remained relatively stable. Most of these economies adjusted to the shock with a currency depreciation of about 20 per cent. The current account deficits of many of these economies which were quite large prior to the crisis were reduced significantly. Although there were some increases in protectionist measures and they did have a beggar-thy-neighbor component, in many cases these measures reflected macroeconomic policy failures, especially regarding the coordination of fiscal stimulus programs, and may have been welfare improving second best policies. The crisis is unlikely to result in major design changes in the world trading system, although the opposite is true for the world financial system.