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According UNCTAD: no signs of global economic recovery but there are speculations
Economists of the United Nations disputed assertions that the global economy is recovering. They warned against terminating government stimulus injections as this would make the crisis worse.
In its annual report, the U.N. trade and development agency UNCTAD also urged the creation of a new world reserve system using several currencies rather than just the U.S. dollar, and called for tough controls on cross-border financial flows.
World Output Grouth since 1991
“The likelihood of a recovery in the major developed countries that would be strong enough to bring the world economy back to its pre-crisis growth path in the coming years is quite low,” the report said.
UNCTAD Secretary-General Supachai Panitchpakdi and senior aide Heiner Flassbeck declined any “green shoots” of recovery in wealthy economies this year.
“We don’t see any real rebound,” said Supachai, former head of the World Trade Organisation and one-time deputy prime minister of Thailand. “There is no sign of a strengthening of underlying economic factors.”
Figures appearing in the surveys and reports on economic condition in the US, Europe and China that are cited today as a proof of upsurge cannot be taken as a fact, according to conclusions made by the UNCTAD.
What started as a financial crisis has turned into a deep recession with a dramatic impact on the real economy. Virtually all markets and economies have been affected. As a result, it has become almost impossible to achieve the Millennium Development Goals.
Global GDP is expected to fall by more than 2.5 per cent in 2009. Economic contraction will be about 4 per cent in developed countries and more than 6 per cent in transition economies. Developing countries will suffer a strong deceleration of growth to only 1.3 per cent.
The main cause of the global financial and economic crisis is found in financial markets deregulation. This allowed uncontrolled innovation in financial instruments, which obscured creditor-debtor relations and led to excessive risk taking. The result was that finance came to predominate over the real economy.
Large parts of the financial sector have become detached from the productive sector of the economy. The predominance of speculative forces over fundamentals in determining market outcomes is reflected in the uniform behaviour of many different markets, including financial, commodity and currency markets.
The financial and economic crisis spread from developed countries to developing and transition economies through different channels:
- A sharp contraction in international trade volume, which mirrored the fall in manufacturing production;
- A sharp correction of previously rallying primary commodity prices as a result of lower demand for raw materials and the unwinding of speculative positions;
- Lower capital inflows;
- Declining migrants? remittances flows;
- Worsening of external debt indicators.
Developing countries have been hit by the crisis differently according to their diverse pre-crisis situations. Some of them, particularly in Asia and Latin America, had strong macroeconomic positions before the crisis and thus have been less vulnerable than in previous crises. Other emerging market economies, notably in Eastern Europe, suffered from financial markets? general loss of confidence in their ability to cope with their external financial exposure.
The short-term policy response to the immediate effects of the crisis has included:
- Monetary policy easing;
- Support for ailing financial institutions;
- Unprecedented fiscal stimulus packages.
Monetary easing and large bailout operations have succeeded in preventing a meltdown of the financial system, but were insufficient to revive aggregate demand and halt rising unemployment.
Additional policy measures needed include:
- Strengthened countercyclical policy measures that have a direct effect on aggregate demand;
- Increased financial support from the IMF to developing and transition economies, which should avoid procyclical conditionality;
- For low income countries, an internationally coordinated effort to increase official development assistance and a temporary moratorium on their debt owed to official creditors. This would help to mitigate the impact of the crisis on poverty and also provide an additional stimulus to global demand.
In order to halt the contraction of GDP and prevent the risk of deflation, the expansionary stance of monetary and fiscal policies should be maintained or even strengthened.
“The synchronized rise in a wide range of markets that do not normally move in the same direction shows that what we have been seeing in the first half of the year is driven by speculation,” Flassbeck told reporters in Geneva.
“What is going on is speculation on a recovery, an attempt to anticipate a recovery. But it is a fiction, it is not there yet,” he said. “It would be very dangerous if governments start talking about exit strategies from stimulus policies.”
