Notwithstanding the relief provided by the recent decline in oil prices, the global economy is hardly out of the woods yet. In the US, the stimulus from the fiscal package, which combined tax rebates and increased transfer payments, may be short-lived, as other factors remain hostile to a quick recovery.

After the effects of the package wear off, the continuing sluggishness in the housing and financial sectors is very likely to push the economy into negative growth territory. Under more conducive circumstances, the Federal Reserve would have continued cutting interest rates to deal with the situation.

However, inflationary pressures even as growth slows down have stayed its hand. Europe is in a similar quandary, with the European Central Bank having to hold rates firm in the face of inflationary threats even as growth sputters. Japan is also dealing with a sharp slowdown in growth in the midst of persistent inflation, leaving the Bank of Japan with little room to manoeuvre.

The situation is complicated by the fact that the decline in oil prices may well reverse sharply the minute there is any sign of recovery in these large consumers. That will obviously rein in any potential growth acceleration and prolong the sluggishness. In short, the growth picture during 2009 is highly unlikely to be very different from the sluggish one that is visible this year.

The impact of this on emerging markets will vary. China and India, though inevitably slowing down from their very buoyant performances in 2007, still have reasonable momentum from their domestic drivers. However, there are signs that the Chinese government is becoming concerned about slowing growth.

Their currency has begun to depreciate, deviating in recent weeks from the three-year-old policy of managed appreciation. Also, it recently announced an enhanced public investment package, with the objective of offsetting the growth slowdown.

Given India's deteriorating fiscal situation, it is unlikely to do anything similar, which, given the current inflationary situation, means that India's growth prospects for next year also look relatively sluggish. It is, of course, a sign of the times that a growth rate of around 7.5 per cent is seen as something to be worried about.

Brazil and Russia, in sharp contrast, are weathering the global storm very well. Brazil is now realising the benefits of its strategic shift away from fossil fuels, while Russia is making the most of high oil prices.

The smaller economies, more dependent on exports, are caught between the pincers of slowing demand and higher input prices, though some of them are benefiting from the commodity boom.

The stark fact is that there simply isn't any magic bullet that central banks or finance ministries can use to solve the current problems. The adjustment process will have to be gone through, slow and painful as it may be. Some comfort can be taken from the fact that business cycles inevitably turn.

Also, in this particular episode, as a result of the world economy itself having been on a relatively strong trend over the past few years, the trough of the cycle does not look that bleak.

Further unanticipated shocks may yet make things worse, but for the moment, the odds are that the global economy will end the decade bruised and battered but still standing and, hopefully, a little wiser.