The United Nations Conference on Trade and Development (UNCTAD) recently released its report on trade and development for 2010. The report gives an overview of global developments since 2009 and some thoughts on development trends in the future.
According to the report, recovery from the worst economic and financial crisis since the 1930s is fragile and a premature exit from demand stimulated macroeconomic policies targeting fiscal consolidation could stall recovery.
One of the main trends of thought in the report is that not all countries can depend on exports to boost growth and development and it is emphasised that adequate attention needs to be paid to strengthening domestic demand.
While the US has lost its place as the global engine of growth, it was felt that no other country could take its place as the global leader. The report stresses on the necessity for developing and emerging economies with large current account surpluses and underutilised production potential to focus on domestic demand-led growth in order to prevent the recurrence of imbalances similar to those which contributed to the outbreak of the global financial crisis.
The importance for many developing countries which are heavily dependent on export demand for growth and development to focus on domestic demand-led growth is also stressed.
Unemployment, identified as one of the most pressing social and economic problems of the world at present, and the need for employment creation to be a priority in economic policy has been discussed in detail.
The global employment to population ratio since 2008 has been declining sharply with many countries now facing the highest unemployment rates in the last 40 years. In this context, macroeconomic policy framework has to be strengthened to promote sustainable growth and employment creation in both developed and developing countries.
Employment creation will be particularly challenging for developing countries as the process of economic development and employment creation for the growing population requires an expansion of modern activities and reallocation of labour from the traditional to the modern sectors.
Even if the world economy continues to recover in the near future, it is unlikely that the external environment for developing countries will again be favourable as it was before the crisis.
Continued global coordination of efforts directed at crisis management and systemic reforms, according to the report, remains an acute challenge. There is a weakening of global coordination and of the G20-process.Failure to coordinate policies at the G20 level with a more expansionary overall stance raises the prospect of a re-emergence of global imbalance especially among developed countries.
After the contraction of almost 2% in 2009, global real GDP is expected to grow about 3.5% with output growth in most regions excepting the EU and some transitional economies. But recovery will not continue if based on temporary measures such as exceptional fiscal stimulus and if the shortcomings which created the crisis such as unregulated financial systems persist. Unless new sources of dynamism are found, the report predicts a downturn in growth rates in most countries in 2011.
World trade which had plunged by more than 13% in volume and 23% in value in the first half of 2009 started to recover in mid 2009 and recovery was much faster in developing countries than the developed countries. In South Asia, most countries are on track to return to the pre crisis growth rates.
An important development which has been confirmed in the report is that China, India and to a lesser extent Brazil are leading the global economic recovery, not only in the respective regions, but in the world, while US and other European countries which were at the centre of the global crisis are lagging behind in the global recovery.
(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)