UN expert forecasts tough time for global economic recovery in 2010

10:28, December 04, 2009      

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The world economy is struggling its way up from the global financial crisis, but the recovery will be fragile next year due to some difficulties in the global efforts to spur the economic rebound, a UN economic expert said in an exclusive interview with Xinhua.

Hong Pingfan, chief for global economic monitoring of the UN Department of Economic and Social Affairs (DESA), told Xinhua on Tuesday that "the world economy is climbing out of the financial crisis step by step. But in 2010, the world will encounter a lot of difficulties in promoting continuous economic recovery."

Hong made the statement on the day when DESA launched the first chapter of "the World Economic Situation and Prospects 2010 (WESP)," which said, "an increasing number of economies showed positive growth in the second quarter of 2009, and momentum towards recovery continued to build in the third quarter." The rest chapters of the report will be released on Jan. 15, 2010.

FRAGILE RECOVERY

"The global stocks markets have been bouncing back since March 2009, all kinds of risk indicators on the credit market have been down back to or close to the pre-crisis levels," he said.

Indices also showed some improving signs for the international trade and industrial production in the world at large, and more and more countries have reported quarterly indicators of growing gross domestic product (GDP), rather than the downturn in the previous periods, he said.

In most of the countries, the economic rebound has been built around three factors in particular. The first factor consists of the massive, and to some extent concerned, policy actions taken by the major economies, the second one relates to a change in the global inventory cycle, and the third concerned with the international repercussion effects of the first two.

Despite the fact that the world economic situation has been on the mend since the second quarter of this year, the world gross product (WGP) is estimated to fall by 2.2 percent for 2009, the first time for the world to see the drop in WGP since the end of the Second World War, he said.

Premised on the assumption of a continued supportive policy stance, a mild growth of 2.4 percent worldwide is forecast in the baseline scenario for 2010, which is, however, still below the average world growth rate of 3 percent, he said. "Taking into account of the growth and decline in the world economy between 2008 and 2010 in an accumulative way, the global financial crisis has eroded 7 percent points in the WGP growth."

"In the first half of 2010, the priority of governments in the macro-economic policy is to continue their support for the lasting economic recovery and take necessary steps to avoid an early retreat from a series of major stimulus measures," he said.

MAJOR DIFFICULTIES

Rising unemployment rates, inflation, the rising trend of trade protectionism and the global imbalances pose grave challenges for the continuous economic rebound in the world, Hong said.

The continued weakness of the global economy is manifested in the continued increases in unemployment, he said, adding that unemployment rates are expected to continue to rise well into 2010.

The number of the jobless has more than doubled in the United States since the beginning of the recession in December 2007, and the unemployment rate in the world's most developed country topped10 percent, reaching the record high in 26 years, he said.

"In developing countries, including China, most job losses are in the export sectors, thus making it a universal problem for many nations that youngsters, involving new college graduates, remain jobless," he said.

On the international trade, Hong said that most developing countries highly rely on the international trade for economic growth and the global finance crisis affected the development of the world trade.

The financial crisis has led to collapses in the prices of oil and non-oil primary commodities, he said. "As a consequence, many developing countries have suffered strong swings in their terms of trade."

Even given the recent rebound, trade flows for 2009 as a whole were still estimated to decline by more than 12 percent. A mild growth of 5 percent is forecast for the volume of world trade in 2010 along with the projected moderate recovery of global aggregate demand, below the average level before the financial crisis, he said.

Meanwhile, trade protectionism increased as the crisis evolved, making the international economic environment even less favorable, he said. "A sizable number of countries, developed and developing alike, have raised tariffs and introduced new non-tariff measures in response to a sharp decline in production in certain industries."

The fiscal stimulus package and the financial measures adopted by many developed countries also contain certain protectionist elements through direct subsidies and support for domestic industries. A few countries also reintroduced export subsidies for some agricultural products that had been previously eliminated, including those for dairy products in the European Union and the United States, reports said.

"Great importance should be attached to the rising trend of trade protectionism, particularly at a time when many countries report further worsening employment situation and some countries are prone to more protective measures due to rising pressures at home," he said.

On the global imbalances, Hong said that the global financial crisis and worldwide recession have led to a recessionary adjustment of imbalances in current accounts across deficit countries with steeply falling imports.

"The global imbalances mean the imbalances between major economies in revenues and expenditures in current accounts, this is closely associated with the financial crisis," Hong said.

As the financial crisis abates and global growth tentatively recovers, the risk of a substantial further widening of the imbalances also rises.

On the policy responses, Hong said that governments will encounter such challenges as how to maintain a strong policy support to ensure further economic recovery, how to ensure steady and orderly retreat from the crisis-oriented measures after the economic recovery is consolidated and how to avoid the widening global imbalances as the recovery prevails.

"During the financial crisis, all countries have strengthened their cooperation and coordination in policy responses, and the Group of 20 largest economies in the world (G-20) have played a decisive role in preventing the world economy from being plunged into another 'Great Depression' by engaging extensive cooperations," Hong said. "As the crisis is fading away, all countries should further strengthen, rather than weaken, their cooperation and coordination in the field of policies."

Source: Xinhua
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