Global Trends by Martin Khor

Thursday 2 February 2006

At the Davos gathering last week, many economists warned that global growth will likely slow this year.  And a UN agency highlighted the problem of “jobless growth”, with an unemployment crisis looming worldwide.

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At the World Economic Forum in Davos last week, economists debated whether the world economy will sail along comfortably this year, or face some major problems.

There was no agreed conclusion. One of the main worries is that the high consumer spending in the United States, which has been behind much of the growth in that country is coming to an end.

Some fear that the housing bubble is bursting. "The property bubble is ending, this is the end of the great American spending binge," said the chief economist of Morgan Stanley, Stephen Roach.

The fear is that falling consumer demand will cause the US to buy less goods from the rest of the world, thus dampening global growth.

Another indicator closely watched is the value of the US dollar. With the country's budget and trade deficits having such huge deficits, there could be a reversal of mood among foreign investors, and if the deficits are not financed by capital inflows, the dollar could slide significantly.

"The pattern of strong global growth in the past few years is now shifting," said the Institute for International Finance's director Charles Dallara. "The question is whether it will be gradual or abrupt."

Another problem was highlighted at Davos - that there is a growing crisis of unemployment around the world. Growth of the past many years has not been translated into enough jobs in many countries.

The International Labour Organisation's director general Juan Somavia said in a statement in Davos that there is a growing employment crisis that threatens democracies around the globe, with 192 million people worldwide without jobs.

Despite a robust growth of 4.3 per cent in 2005, the world economy did not deliver the 40 million jobs needed annually over the next decade for people entering the workforce, he added.

He called on world leaders to take concrete steps to tackle a problem that he said threatens to create a more fragmented, protectionist and confrontational world.

"The global jobs crisis is one of the biggest security risks we face today, " said Somavia, "It is time to revisit the commitments made by the global community to promote social inclusion and jobs as the basis of poverty reduction, and respect for fundamental principles and rights at work."

Somavia advocated a shift in economic and social policies to put decent work at the centre of national and international development efforts and government regulatory environments.

A few days earlier, the ILO released its annual Global Employment Trends report which had some gloomy news on the jobs front. The number of people unemployed worldwide climbed to new heights in 2005, as growth failed to offset an increase in people seeking work. Some economists used to term this "jobless growth".

The ILO report showed that in 2005, of the more than 2.8 billion workers in the world, 1.4 billion still did not earn enough to lift themselves and their families above the $2-a-day poverty line - just as many as 10 years ago.

"Economic growth alone isn't adequately addressing global employment needs," said Somavia. "We are facing a global jobs crisis of mammoth proportions. We need new policies."

The unemployment rate in 2005 remained unchanged at 6.3%. The total number of jobless stood at 191.8 million at the end of 2005, an increase of 2.2 million since 2004 and 34.4 million since 1995. Almost half of the world's unemployed are young people aged 15 to 24.

"In many countries, agricultural workers are leaving a life of rural poverty in the hope of finding something better in the city but end up little or no better off in casual labouring jobs or petty trading," according to Somavia. Such issues need to be addressed by policy makers if they are to make sure that the development process will lead to poverty reduction.

Region-wise, the largest increase in unemployment occurred in Latin America and the Caribbean, where the number of unemployed rose by nearly 1.3 million
and the unemployment rate increased by 0.3 percentage points between 2004 and 2005 to 7.7%.

Also, the Central and Eastern Europe (non-EU) and Commonwealth of Independent States (CIS) saw unemployment rise to 9.7% from 9.5% a year earlier. In developed economies and the European Union (EU), unemployment rates declined from 7.1% in 2004 to 6.7% in 2005.

Unemployment rates in Asia did not change much.  East Asia's unemployment rate was 3.8%, the lowest in the world. South Asia's unemployment rate was 4.7% and South-East Asia and the Pacific's was 6.1%.

At 13.2% in 2005, the Middle East and North Africa remained the region with the highest unemployment rate in the world. Sub-Saharan Africa's rate stood at 9.7%, the second highest in the world. The region also had the highest share in working poor.

The ILO also said that rising energy costs can have an effect on growth and jobs. In Asia the impact will only become considerable if higher energy costs are sustained. In sub-Saharan Africa the short-term impacts are considerable.

On the textile and clothing, the ILO report said that since January 2005, with the phasing-out of quotas under the Multi-Fibre Arrangement (MFA), the sector is experiencing a major revolution.

The global number of jobs in the clothing sector fell from 14.5 million in 1990 to 13.0 million in 2000, as a result of a consolidation process and more intensive use of capital. Likewise, employment in textiles declined from 19.7 million workers in 1990 to 13.5 million in 2000.

According to the report, all studies estimating the impact of the phasing out of the MFA agree that China and India would gain market share and that local manufacturers in the EU and United States would lose market share. However, the magnitude of gains and losses and the impact on preference-receiving developing countries vary from one study to the next.

For example, poor, preference-receiving countries located in areas where they can easily integrate into regional supply chains could benefit from the quota phase-out. Cambodia and Viet Nam, for example, are attractive locations for assembly of apparel on behalf of lead firms in the major middle-income textile and clothing producers in Asia.

However, even if the quota phase-out has potential long-term benefits for development, the transitional period is likely to have adverse effects on workers and enterprises, especially the most vulnerable groups such as women, and on small and medium enterprises in the least developed countries.