By Eswar Prasad and Karim Foda
The October 2010 TIGER update paints a sobering picture of a global economy that has lost momentum and is teetering between a slowdown and at best a tepid recovery. Advanced economies are stuck in a funk and even the dynamic emerging markets have lost some of their swagger.
The Global Financial Index took a beating in 2010 Q2 roughly around the initial period of the European debt crisis and has continued to weaken. Stock markets around the world remain in a state of torpor after a correction that signals a reversal of the optimism that led to their getting ahead—perhaps too far ahead—of improvements in real economic activity.
Credit growth, the latest addition to the TIGER financial (and overall) index, fell sharply towards the end of 2009, but has since begun to rebound, especially in emerging markets. Emerging market bond spreads and the TED spread have remained flat this year indicating that, despite the correction, financial markets are not under huge stress.