6 in late 2009, growth is beginning to revive in the US and parts of Europe, as well as in China and elsewhere in Asia, and this is the positive (or rather, the “least negative” hoped-for outcome). The “U scenario” (sometimes described as the “bath scenario” when the upturn is delayed) suggests a similar outcome, but with a more protracted dip. Less comfortable is the W scenario – a double dip growth path, but with a subsequent revival to past growth trajectories. This is an outcome considered more realistic by some, such as the CEO of the Hong Kong and Shanghai Bank. The most pessimistic outcome to the financial crisis is that it will follow the same path as that experienced by Japan after its financial bubble burst in the early 1990s, that is, a sharp downturn followed by a protracted period of stagnation. This is the “L scenario”. Somewhere between the L and the W scenarios is “square root scenario” ( ), that is a sharp downturn, followed by a small rise (consistent with the revival of activity in late 2009), followed by a period of protracted stagnation. A recent study supports this likely outcome – “we expect growth to resume by the end of [2009] in most countries, [but] the level of output in the OECD will remain permanently lower” (Holland et al, 2009: 9).

It is important, however, to avoid treating the global economy as a homogeneous entity and recognize the possibility – we believe likelihood – of diverse regional outcomes. The structural analysis which follows contrasts the likely outcome in the northern economies (Section 3.1) with that in two key southern economies, the Asian Driver economies of China and India (Section 3.2).

# **_3.1. Structural Crisis in the North_**

High rates of global economic growth during the 1990s and the first decade of the new century were essentially fuelled by high rates of consumption in key northern economies, particularly in the large economies of the US, the UK and Spain, as well as in some smaller economies such as Ireland, Greece and Iceland. In each of these cases, this consumption boom was made possible through a series of financial bubbles, particularly in housing which allowed consumers to drawn on the “wealth” arising from inflating house prices. This resulted in two sets of related phenomena – falling rates of household and personal savings (in some cases falling into dis-savings) and a rise in balance of payments deficits. These deficits in external payments were filled by large payments’ surpluses in key exporting economies, particularly China, Japan and Germany, made possible by restrained personal consumption arising from high rates of personal (and in recent years, corporate) savings and/or low rates of consumption.

**Table 1:** **<u>Country Current Account Balance (Percent of Country GDP)</u>**

||**Brazil**|**India**|**China**|**Germany**|**Japan**|**Spain**|**UK**|**USA**|
|---|---|---|---|---|---|---|---|---|
|**1985**|-0.1|-1.8|-3.7|2.5|3.8|1.6|0.7|-3.0|
|**1990**|-0.8|-2.2|3.4|2.8|1.5|-3.5|-3.9|-1.4|
|**2000**|-3.8|-1.0|1.7|-1.7|2.6|-4.0|-2.7|-4.3|
|**2005**|1.6|-1.0|7.2|5.1|3.6|-7.4|-2.6|-5.9|
|**2008**|-1.7|-1.0|11.0|6.7|3.2|-9.6|-2.8|-4.7|

Source: Calculated from OECD Database, accessed November 2009.