Question

Suppose that in the next five years CEECs will experience a rapid turnaround (increase and then...

Suppose that in the next five years CEECs will experience a rapid turnaround (increase and then decrease) in capital inflows and output decline. Based on what you know about economic performance and the impact of the 2008 financial crisis on these countries, how would you explain why output might fall further in some countries than in others and why growth might resume relatively quickly in some countries relative to others?

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Answer #1

The economic output will fall significantly in less development countries like Zambia, Zimbabwe, Pakistan due to lack of presence of large fiscal and monetary stimulus, political instability, lower forex reserves, ageing population, higher fiscal deficit and government debts.

However, countries like India will recover quickly due to strong macroeconomic fundamentals like strong forex reserves, exchange rate stabilisation, larger modernisation and political stability, young population and better consumption patterns, faster availability of healthcare reforms and vaccines, better fiscal package and monetary liquidity, higher private spending, lesser government debt and fiscal deficit, lower trade deficits, multiple plurilateral agreements with developed nations, etc.

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