World needs policies for demand-led recovery - UNCTAD
More than five years after the onset of the global financial crisis,
the world economy has not recovered a strong, sustainable or balanced
growth path said the UNCTAD study, 'Macroeconomic Strategies and Trade
from a Global Perspective'.
The lack of dynamism is most visible in output, employment and
investment figures, the study explained, but it is also apparent from
the sluggish growth of international trade.
However, trade facilitation and other supply-side measures cannot
reignite trade and growth without a strong expansion of demand -
including income redistribution, particularly in major surplus
Meanwhile, some policy measures, such as spending cuts and wage
compression, are counterproductive, the study argued.
The trade facilitation agreement reached by the World Trade
Organisation in Bali in December 2013, while a welcome sign that
multilateralism is still alive, did not address the main constraints on
trade, contends the UNCTAD study, which was presented at a meeting in
Quebec, Canada, of the G-20 Framework Working Group for Strong,
Sustainable and Balanced Growth.
Policy choices aimed at spurring exports, such as 'internal
devaluations', including wage reductions, would be self-defeating -
especially if followed by several trading partners at the same time -
the G-20 meeting heard.
The UNCTAD study also said that to be sustainable, demand growth must
be based on household spending and supported by rising labour incomes
(whose share in the GDP declined in most countries in the past two or
three decades). Rising private consumption, combined with public
investment and expenditure in public services, would provide the basis
for increased private investment, the study argued.
This would be in contrast with the pre-crisis pattern of boosts in
private spending based on consumer credit and asset bubbles, which
contributed to internal and external imbalances and to the financial
In an interdependent global economy, the manner in which domestic
demand spills across countries is of paramount importance, according to
the UNCTAD study.
One isolated country or group of countries can try to exit the crisis
through net exports, even if other components of domestic demand remain
anaemic; but if this strategy is followed by many trading partners, it
creates a 'fallacy of composition' whereby too many goods chase too few
A wider revival of economic growth and trade could conceivably follow
from surging demand in a number of systemically important economies, the
UNCTAD report contended. However, demand must be geographically
distributed in a way that is consistent with the reduction of global
This means that surplus countries take the lead in expanding domestic
demand and make possible an expansionary adjustment - in contrast with
the recessionary bias of balance-of-payment adjustments that may put the
entire burden on deficit countries.
Since 2010, UNCTAD has participated as an observer in several
meetings of the G-20 Framework Working Group on Strong, Sustainable and
Balanced Growth and has submitted several technical papers.