caleb m fundanga : africa and the global financial and economic crisis – an opportunity or a curse? speech by dr caleb m fundanga, governor of the bank of zambia, at the forum “ developing africa – an opportunity for europe, italy and sicily ”, taormina, sicily, 1 - 2 october 2009. * * * chairperson, distinguished participants, today we gather at a time when the world economy has gone through a tremendous economic and financial shock, which may well have long lasting social consequences. when we met last year, we were on the eve of disaster although we did not, and perhaps could not, appreciate the depth and severity of the crisis that we faced. in many ways we were in the calm before the storm. what subsequently transpired in september and october 2008, when financial markets froze and stock markets collapsed, was the greatest macroeconomic challenge that many of us, as practicing economists, are likely to face in our lifetime. as we all know, trade and output contracted sharply across the globe particularly in the fourth quarter of 2008 and first quarter of 2009, the downward trend in commodity prices witnessed since the historic highs of july 2008 accelerated, and perhaps most significantly confidence and trust in the market economy was severely impaired. in this regard, estimates from the international monetary fund ( imf ) are that in the fourth quarter of 2008 global exports contracted by an average of 15. 1 %, whilst global output contracted by 6. 5 %. 1 this broad based deterioration in the global economy was carried through into the first and second quarters of 2009. the most recent projections by the imf suggest that global growth will contract by 1. 4 % in 2009 before recovering to a growth rate of 2. 5 % in 2010. for the united states of america and the euro area, growth in 2009 is projected to contract by 2. 6 % and 4. 8 %, respectively ; whilst in japan and the united kingdom, growth is projected to contract by 6. 0 % and 4. 2 %, respectively. although emerging and developing economies are projected to perform much better, with a projected growth rate of 1. 5 %, this rate of growth is significantly below the estimate of 6. 0 % growth in 2008. further, growth in sub - saharan africa is projected to decelerate sharply to 1. 5 % from 5. 5 % in 2008. thankfully, as we meet today there is growing evidence that in many parts of the world, the worst of the crisis may be over.

theory have a large economic impact, but they had to be avoided because of harmful side effects ( instrument instability, financial instability, balance of payments repercussions, etc. ). the changes in credit conditions that were feasible had a comparatively limited effect. third, the credit channel was thought to be the main source of impact of monetary policy on the economy. conventional monetary policy instruments ( open market operations, bank reserve management, and bank rate changes ) were said to affect credit flows by changing the liquidity positions of financial institutions. this credit channel embodied the effects of both the availability and the cost of borrowing. however, its overall influence was complex and typically slow ; and the impact of an easing of credit was considered to be especially weak – “ you can ’ t push on a string. ” 6 fourth, a need was seen for moral suasion or formal controls on lending in difficult short - run situations, such as balance of payments crises. the commission recognized the defects of such measures : arbitrary discrimination, economic distortions, and eroding effectiveness over time. however, the general view at the time was that such controls were helpful when quick effects were urgently needed. 2. the relationship between inflation and economic activity in 1958, a. w. phillips published the analysis of the relationship between wage increases and unemployment in the united kingdom that now bears his name, and researchers in the united states soon found a similar relationship. 7 by the early 1960s macroeconomists were regarding see, for example, friedman ( 1956 ). these ideas were also to be found in similar inquiries of that time in the united kingdom ( the radcliffe report ) and in the united states ( the commission on money and credit ). however, there were some differences in the argumentation of the three reports. for example, radcliffe was most interventionist while porter was the strongest advocate of market mechanisms. porter commission report, p. 434. phillips ( 1958 ), samuelson and solow ( 1960 ). the phillips curve as a description of a policy trade - off between inflation and unemployment. by accepting more inflation, it seemed possible to reach a higher level of output. a seminal study of the policy implications of the phillips curve was in a royal commission working paper by grant reuber. 8 the porter commission accepted this line of reasoning and argued that a balance had to be struck between the goals of price stability and maximizing output, and that neither should be pursued to the exclusion of the other. at the same