Contagion risks flagged
DEVELOPED countries’ “mediocre” performance since the 20082009 economic and financial crisis is set to persist, but this time the loss of momentum in developing countries will become an added threat, the United Nations Conference on Trade and Development (UNCTAD) said.
“Without a change of course in the former, the external environment facing the latter looks set to worsen, with potentially damaging consequences for both their prosperity and stability in the short to medium term,” UNCTAD said in its Trade and Development Report for 2016 released on Wednesday.
It said the world economy in 2016 is in a fragile state, with growth likely to fall below the 2.5% recorded in 2014 and 2015. It added that more widespread contagion from unforeseen shocks cannot be ruled out, “knocking global growth back more sharply.”
It said one such shock is the decision by voters in the United Kingdom to leave the European Union.
In the United States, growth this year is likely to slow down. This is because the momentum it built “through the quick detoxification of its banking system and a more aggressive use of monetary policy loses traction.”
“Moreover, given its weak underlying employment rate, the number of distressed households with high levels of debt and exporters already struggling with a strong dollar, there are no guarantees that the economy will enjoy a robust period of growth any time soon,” the report said.
It said recovery in the euro zone has lagged behind that of the US, partly because of the more timid use of monetary policy after the crisis and the move towards severe austerity measures.
“The tentative pickup of growth from 2015 seems likely to stall this year, and could even be reversed due to the uncertainty triggered” by the UK’s departure from the EU, it said.
“Economic growth continues to be held back by weak domestic demand and only sporadic signs of an improvement in real wages. Efforts to tackle the sharply diverging economic performances of the countries in the euro zone are complicated by political uncertainties, such as the ongoing migration crisis, and doubts about the future pace and direction of European integration,” it said.
It said Japan continues to show the effects of decades of underperformance, “with persistently low and erratic growth accompanied by a low unemployment rate and a declining active population, a high domestic debt and a strong payments position.”
The UNCTAD report said in the absence of “concerted recoveries” in the developed economies, international trade is “in the doldrums for the fifth straight year.”
“To date, protectionist tendencies have been kept in check, but risk surfacing if the real causes of this slowdown are not tackled effectively. The major problem is weak global demand due largely to stagnant real wages,” it said.
It said slowing trade has stalled growth in many developing countries. These economies will likely register an average growth rate of slightly less than 4%, as they did in 2015, “but with considerable variation across countries and regions, along with mounting downside risks. Damaging deflationary spirals cannot be ruled out.” —