The current situation is very different, and while the pace of the recovery is yet to be seen, forecasts for the three-year period 20092011 point at the world economy growing by an average of 2.1% per year, 0.8% for the U.S. 11 In the 1930s, U.S. unemployment soared to 25%, much higher than the 10% projected this time. Also, the world faced a severe deflation in the early 1930s, in some cases sinking  8  Although the evidence shows that financial development is good for economic growth, excessive credit expansion can exacerbate a crisis, as happened during the debt crisis in Latin America (De Gregorio and Guidotti, 1995). 9  One example is the new households’ financial survey of the Central Bank of Chile, which seeks to strengthen the analysis of a sector that is becoming ever more important in our financial system. 10  Evidence provided by Eichengreen and O’Rourke (2009) shows that the first few months of the current crisis are pretty similar to the Great Depression, although in recent months they seem to diverge, because the current episode has begun to show signs of recovery while in the Great Depression the fall continued. 11  For the 1930s, the data come from Maddison (2009), while current growth projections come from Consensus Forecast and investment banks. BIS Review 112/2009  5  below -10%. We do not see that today, and while inflation has fallen dramatically around the world, it remains far from the levels seen during the Great Depression.
However, China’s rapid growth also presents major domestic challenges. The Chinese leadership understands well the dangers of overheating in the economy and has been applying the brakes to bring about a soft landing. In addition, China has to grapple with capital account liberalisation and financial system reforms. India, too, is rising but along a different path. It is rapidly becoming a powerhouse for “soft” infrastructure businesses such as software development, business process outsourcing and creative industries. India, too, has its own set of challenges, particularly in the areas of fiscal and structural reforms. But the Congress-led coalition Government, under Prime Minister Manmohan Singh, is committed to the path of reform and liberalisation. Japan appears to be shaking off a decade of sluggish growth. Its recovery is due to the effects of many years of structural reform and strong external demand. But not everyone is convinced that this recovery is self-sustaining. BIS Review 72/2004  1  In ASEAN, peaceful elections and leadership transitions have taken place in the Philippines, Malaysia and Indonesia. In Singapore, too, we have a new Prime Minister and several new Ministers. The new leaders in ASEAN will have the opportunity to address economic and security challenges together, hopefully in a bold, creative and pragmatic manner. The rise of China and India presents both opportunities and challenges for ASEAN. To seize the opportunities and meet the challenges, these new leaders must work with their other colleagues to speed up the integration of the ASEAN economies.