Trade Hot Topics Issue#64: Small States in Global Economic Slowdown

The current economic downturn is affecting all countries, rich and poor, and large and small, demonstrating the greater interconnectedness of the global economy in recent decades. Most small developing countries lack the capacity and resources to implement effective countercyclical policies as has been adopted by many developed countries
to cushion the impact of the economic shock.

The global crisis is having serious implications for the small vulnerable economies that comprise the bulk of the Commonwealth’s membership (with 32 of the 53 members being classified as small states). The transmission channels have included declines in commodity prices, exports, remittances, tourism revenues, foreign direct investment (FDI) and capital flows. These effects have resulted in shrinking fiscal revenues, increased demand for social safety nets and higher levels of unemployment. This issue of Commonwealth Trade Hot Topics assesses the impacts of the economic downturn on small Commonwealth economies, and discusses some of the macroeconomic challenges they face in dealing with shocks emanating from the global slowdown.