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

“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 percent in 2012 to 2.1 percent 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 percent 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 percent and 2.7 percent respectively, it said.

“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 September, 12 Dr Mukhisa Kituyi, the new Secretary-General of UNCTAD, who replaced Dr Supachai Panitchpakdi on September 1, 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 said.

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.

- Third World Network Features