UN eco­nomic re­port

The Pak Banker - - 4EDITORIAL -

THERE is more gloomy news for the world econ­omy which is in a slow­down mode. Af­ter IMF and the World Bank, the United Na­tions has come out with a re­port which says that global growth was a mere 2.4 per cent in 2015, down 0.4 per­cent­age points from fore­cast made by the world body six months ago. The re­port en­ti­tled ' World Eco­nomic Sit­u­a­tion and Prospects 2016' says that 2015 was a dif­fi­cult year, while 2016 will wit­ness only mod­est im­prove­ment in view of the per­sis­tence of a num­ber of cycli­cal and struc­tural prob­lems. The world econ­omy is pro­jected to grow by 2.9pc in 2016, but 2017 is ex­pected to be bet­ter with 3.2pc growth, sup­ported by gen­er­ally less re­stric­tive fis­cal and ac­com­moda­tive mon­e­tary pol­icy stances world­wide.

A sum­mary of the re­port has been re­leased by the United Na­tions Depart­ment of Eco­nomic and So­cial Affairs which says that amid lower com­mod­ity prices, large cap­i­tal out­flows and in­creased fi­nan­cial mar­ket volatil­ity, growth in de­vel­op­ing and tran­si­tion economies has slowed to its weak­est pace since the global fi­nan­cial cri­sis of 2008-09. Ac­cord­ing to the re­port, growth in de­vel­oped economies will gain some mo­men­tum in 2016, sur­pass­ing the 2pc mark for the first time since 2010. Eco­nomic growth in de­vel­op­ing and tran­si­tion economies is ex­pected to bot­tom out and grad­u­ally re­cover, but the ex­ter­nal en­vi­ron­ment will con­tinue to be chal­leng­ing and growth will re­main well below its po­ten­tial.

As per the re­port, the global econ­omy faces five ma­jor risks: con­tin­u­ing macroe­co­nomic un­cer­tain­ties; low com­mod­ity prices and di­min­ished trade flows; ris­ing volatil­ity in ex­change rates and cap­i­tal flows; stag­nant in­vest­ment and pro­duc­tiv­ity growth; and ris­ing dis­con­nect be­tween fi­nance and real sec­tor ac­tiv­i­ties. The weak­ness in growth is also ad­versely im­pact­ing labour mar­kets in many de­vel­op­ing and tran­si­tion economies. The re­port in­di­cates that the chal­lenges for pol­i­cy­mak­ers around the globe are likely to in­ten­sify in the short run in view of the weak­nesses in the world econ­omy. De­vel­op­ing economies in gen­eral would need to find new sources of growth do­mes­ti­cally or re­gion­ally to es­cape the po­ten­tial down­ward spiral em­a­nat­ing from shocks re­lat­ing to com­mod­ity prices and the ex­change rate.

This would re­quire gov­ern­ments to un­der­take com­pre­hen­sive struc­tural trans­for­ma­tion and in­dus­trial poli­cies that would mo­bilise do­mes­tic sav­ings and in­vest­ment, im­prove in­sti­tu­tions and cor­po­rate gov­er­nance and re­duce trans­ac­tion costs and in­crease com­pet­i­tive­ness. Also im­por­tant is the need for sus­tained im­prove­ment in labour pro­duc­tiv­ity which would al­low de­vel­op­ing coun­tries to cre­ate more jobs, in­crease the work­ers' share of in­come and re­duce in­come in­equal­ity both within and be­tween coun­tries.

It is per­ti­nent to note here that more than seven years af­ter the great fi­nan­cial cri­sis that shook the western economies, the world is still strug­gling to re­store the pace of bal­anced global growth. In de­vel­oped coun­tries, most of the bur­den of pro­mot­ing growth has fallen on cen­tral banks, which have used a wide range of con­ven­tional and un­con­ven­tional pol­icy tools, in­clud­ing var­i­ous largescale quan­ti­ta­tive eas­ing pro­grammes, for­ward guid­ance and neg­a­tive nom­i­nal in­ter­est rates. As for the emerg­ing economies, pol­i­cy­mak­ers would need to fine­tune their pol­icy mix to meet the chal­lenge of volatile global fi­nan­cial con­di­tions. The re­port rec­om­mends that in­stead of mon­e­tary in­stru­ments, fis­cal poli­cies should play a greater role in lift­ing the global econ­omy. At the same time, pro­gres­sive labour mar­ket strate­gies should be adopted to com­ple­ment fis­cal poli­cies to re-in­vig­o­rate pro­duc­tiv­ity, em­ploy­ment gen­er­a­tion and out­put growth. The chal­lenges ahead are for­mi­da­ble in­deed.

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