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September 2013 UN: SUSTAINED GLOBAL ECONOMIC RECOVERY STILL ELUSIVE While growth in developing economies may exceed those of developed economies, it will nonetheless remain well below pre-2008 crisis levels. By Kanaga Raja Third World Network Features "The global economy is still struggling to return to a strong and sustained growth path," and world output growth is forecast to decelerate further from 2.2% in 2012 to 2.1% in 2013, according to the United Nations Conference on Trade and Development (UNCTAD). In its flagship Trade and Development Report 2013, UNCTAD said that developed countries will continue to lag behind the world average, with a likely 1% increase in gross domestic product (GDP), due to a slight deceleration in the United States and a continuing recession in the euro area. Developing and transition economies should grow by about 4.7% and 2.7% respectively, it added. "Eventhough these growth rates are significantly higher than those of developed countries, they remain well below their pre-crisis levels. Furthermore, they confirm the pace of deceleration that started in 2012." At a media briefing on 12 September, Dr Mukhisa Kituyi, the new Secretary-General of UNCTAD, who replaced Dr Supachai Panitchpakdi on 1 September, said that for about five years, as the crisis in the world economy has refused to go away, UNCTAD has been very consistent in its argument that the traditional paradigms - the traditional assumptions - about getting out of the financial crisis do not appear to be part of the solution. New thinking and new approaches are needed urgently at the global and national levels in areas of economies to be emphasised but importantly in looking afresh at unfettered deregulation in particular in financial markets and how it impacts on national policy, planning and projection, he added. Analysing recent trends in the global economy, the UNCTAD report said that economic activity in many developed countries and a number of emerging market economies is still suffering from the impacts of the financial and economic crisis that started in 2008 and the persistence of domestic and international imbalances that led to it. However, continuing weak growth in several countries may also be partly due to their current macroeconomic policy stance. Among developed economies, growth in the European Union (EU) is expected to shrink for the second consecutive year, with a particularly severe economic contraction in the euro area. Private demand remains subdued, especially in the euro-zone periphery countries (Greece, Ireland, Italy, Portugal and Spain), due to high unemployment, wage compression, low consumer confidence and the still incomplete process of balance sheet consolidation. Given the ongoing process of deleveraging, expansionary monetary policies have failed to increase the supply of credit for productive activities. In this context, continued fiscal tightening makes a return to a higher growth trajectory highly unlikely, as it adds a deflationary impulse to already weak private demand. The report said that while foreign trade (mainly through the reduction of imports) contributed to growth in the euro area, this was more than offset by the negative effect of contracting domestic demand, which even the surplus countries have been reluctant to stimulate. This perpetuates disequilibrium within the euro zone and reduces the scope for an export-led recovery of other countries in the zone. "Hence, despite the fact that the tensions in the financial markets of the euro area have receded following intervention by the European Central Bank (ECB), prospects for a resumption of growth of consumption and investment in these countries remain grim." Japan is bucking the current austerity trend of other developed economies by providing a strong fiscal stimulus in conjunction with monetary policy expansion with the aim of reviving economic growth and curbing deflationary trends. An increase of government spending on infrastructure and social services, including health care and education, has been announced, to be accompanied by efforts to boost demand and structural policies oriented towards innovation and investment. To complement these efforts, UNCTAD noted, in April 2013, the Bank of Japan announced that it will increase its purchase of government bonds and other assets by 50 trillion yen per year (equivalent to 10 per cent of Japan's GDP) in order to achieve an inflation target of 2 per cent. Overall, these measures could help maintain Japan's GDP growth at close to 2% in 2013. The United States is expected to grow at 1.7%, compared with 2.2% in 2012, due to a new configuration of factors. Partly owing to significant progress made in the consolidation of its banking sector, private domestic demand has begun to recover. The pace of job creation in the private sector has enabled a gradual fall in the unemployment rate. "On the other hand, cuts in federal government spending, enacted in March 2013, and budget constraints faced by several State and municipal governments are a strong drag on economic growth. Since the net outcome of these opposing tendencies is unclear, there is also considerable uncertainty about whether the expansionary monetary policy stance will be maintained." By contrast, said UNCTAD, developing countries continue to be the main drivers of growth, contributing to about two thirds of global growth in 2013. In many of them, growth has been driven more by domestic demand than by exports, as external demand, particularly from developed economies, has remained weak. It forecast developing countries to grow at the rate of 4.5-5% in 2013, similar to 2012. "This would result from two distinctive patterns. On the one hand, growth in some large developing economies, such as Argentina, Brazil, India and Turkey, which was subdued in 2012, is forecast to accelerate. On the other hand, several other developing economies seem unlikely to be able to maintain their previous year's growth rates. Their expected growth deceleration partly reflects the accumulated effect of continuing sluggishness in developed economies and lower prices for primary commodity exports, but also the decreasing policy stimuli which were relatively weak anyhow." The combination of these factors may also affect China's growth rate, which is expected to slow down moderately from 7.8% in 2012 to about 7.6% in 2013. Even though this would be only a mild deceleration, it is likely to disappoint many of China's trading partners. Among the developing regions, East, South and South-East Asia are expected to experience the highest growth rates in 2013, of 6.1%, 4.3% and 4.7%, respectively. In most of these countries, growth is being driven essentially by domestic demand. Economic growth in West Asia slowed down dramatically, from 7.1% in 2011 to 3.2% in 2012, a level that is expected to be maintained in 2013. Weaker external demand, especially from Europe, affected the entire region, but most prominently Turkey, which saw its growth rate fall sharply from around 9% in 2010 and 2011 to 2.2% in 2012, but it is expected to accelerate towards 3.3% in 2013. Growth in Africa is expected to slow down in 2013, owing to weaker performance in North Africa, where political instability in some countries has been mirrored in recent years by strong fluctuations in growth. In sub-Saharan Africa (excluding South Africa), GDP growth is expected to remain stable in 2013, at above 5 per cent. The main growth drivers include high earnings from exports of primary commodities and energy as well as tourism, and relatively strong growth of public and private investment in some countries. Growth is set to remain relatively stable in Latin America and the Caribbean, at around 3 per cent, on average, as a slowdown in some countries, including Mexico, is likely to be offset by faster growth in Argentina and Brazil. The report noted that the continuing expansion of developing economies as a group (in particular the largest economy among them, China) has led to their gaining increasing weight in the world economy, which suggests the possible emergence of a new pattern of global growth. While developed countries remain the main export markets for developing countries as a group, the share of the latter's contribution to growth in the world economy has risen from 28% in the 1990s to about 40 per cent in the period 2003-2007, and close to 75% since 2008. "However, more recently, growth in these economies has decelerated. They may continue to grow at a relatively fast pace if they are able to strengthen domestic demand and if they can rely more on each other for the expansion of aggregate demand through greater South-South trade. However, even if they achieve more rapid growth by adopting such a strategy, and increase their imports from developed countries, this will not be sufficient to lift developed countries out of their growth slump." UNCTAD also pointed out that international trade in goods has not returned to the rapid growth rate of the years preceding the crisis. On the contrary, it decelerated further in 2012. And while the outlook for world trade remains uncertain, the first signs in 2013 do not point to an expansion. After a sharp fall in 2008-2009 and a quick recovery in 2010, the volume of trade in goods grew by only 5.3% in 2011 and by 1.7% in 2012. This slower rate of expansion occurred in developed, developing and transition economies alike. "Sluggish economic activity in developed countries, particularly in Europe, accounted for most of this very significant slowdown." Overall, said UNCTAD, "this general downward trend in international trade highlights the vulnerabilities developing countries continue to face at a time of lacklustre growth in developed countries. It is also indicative of a probably less favourable external trade environment over the next few years, which points to the need for a gradual shift from the reliance on external sources of growth towards a greater emphasis on domestic sources." According to UNCTAD, the analysis has revealed that neither the developed economies, nor the developing and transition economies have been able to return to the rapid growth pace they experienced before the onset of the latest crisis. Since, it argued, the factors that underpinned the pre-crisis economic expansion were unsustainable, endogenous adjustment mechanisms or automatic stabilizers are not likely to restore them. Moreover, relying on such a strategy will not succeed in returning economies to their previous growth pattern, nor is it desirable. – Third World Network Features. -ends-
The above is an abridged version of an article published in the SUNS #7654, 16 September 2013. When reproducing this feature, please credit Third World Network Features and (if applicable) the cooperating magazine or agency involved in the article, and give the byline. Please send us cuttings. And if reproduced on the internet, please send the web link where the article appears to twnet@po.jaring.my. 4003/13
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