GLOBAL ECONOMIC MONITOR April 2013
Five
years after the eruption of the global financial crisis in 2008, recovery of
the global economy remains fragile. In the third quarter of 2012, the
US
registered high growth and in the euro area pace of economic contraction
moderated. Nevertheless, prospects for advanced economies’ growth in 2013
remain subdued. The US GDP estimates for the fourth quarter of 2012 indicate a
tentative upturn on the back of improvement in housing and payroll employment.
However, the country’s macroeconomic prospects are clouded by the
uncertainty surrounding the temporary appropriations and the debt ceiling. The
euro area, plagued by contingent risks of political uncertainty and adjustment
fatigue, saw a contraction in its GDP for the third successive quarter in the
last quarter of 2012. Japan
too witnessed a contraction in its output in fourth quarter along with a
worsening trade deficit raising the question of effectiveness of the emerging
package of stimulus measures and how quickly they will turn around the economy.
Growth in emerging market and developing economies (EDEs) bottomed down as
well, but an enduring recovery is expected based on global headwinds. While
some EDEs, including China ,
are gradually returning to faster growth, activity is slowing in others,
hobbled by weak external demand and slack domestic investment.
Global
unemployment is expected to remain on a higher trajectory this fiscal. In some
advanced economies and emerging markets, demand for lower-skilled workers has
fallen, particularly in manufacturing, leading to rising inequality within
countries. Low female labor force participation in some countries represents
another significant missed opportunity to strengthen economic development and
growth. Adding to the complexity of these challenges, the global recession has
produced high unemployment and further exacerbated income disparities.
According to International Labour Organisation (ILO), the number of unemployed
worldwide is expected to rise by 5.1 million in 2013, to more than
202 million in 2013 and by another 3 million in 2014. In 2012 a
quarter of the increase of 4 million in global unemployment was seen in the
advanced economies, while three quarters was in other regions, particularly in
East Asia, South Asia and Sub-Saharan Africa.
During
the fourth quarter, international fuel prices remained high, though non-fuel
commodity prices softened modestly, despite the slowdown in global growth,
signaling persistent inflationary pressures, particularly for net energy
importers. Inflation in advanced economies is likely to remain subdued as
demand remains weak, leaving the global inflation scenario benign in the near
term. Improved supply prospects in key commodities such as oil and food are
also likely to restrain commodity price pressures. However, upside risks
persist, especially on the back of some recovery in EDEs and large quantitative
easing by advanced economies central banks. In the presence of significant
excess global liquidity, triggers for supply disruptions or incremental news
flow on reduced slack could exacerbate price volatility and become a source of
inflationary pressure.
Higher
threat of protectionism since the start of global economic crisis caused the
World Trade Organization (WTO) to issue a warning that as long as global
economic weakness persists, protectionist pressure will build and could
eventually become overwhelming. WTO figures show that world trade growth fell
to 2% in 2012, and is expected to remain sluggish in 2013 at around 3.3% as the
economic slowdown in Europe continues to suppress
global import demand. To prevent a self-destructive lapse into economic
nationalism, countries need to refocus their attention on reinforcing the
multilateral trading system. In 2012, the dollar value of world
merchandise exports only increased by 0.2% to US$18.3 trillion and value of
world commercial services exports rose just 2% in 2012 to US$4.3 trillion.
UNCTAD data reveals that during the period 1995-2011, world commodity exports
increased fivefold to reach US$6.055 trillion. The share of developing
countries in world commodity exports also grew by 11% during this period
reaching 51% by 2011. Commodity export value rose too as fuel exports increased
to 52% of all commodity exports in 2011.
International
financial market stress moderated greatly following aggressive monetary easing
measures by the central banks of advanced economies, and recent policy
initiatives on fiscal consolidation in the euro area economies, thereby
encouraging capital flows into EDEs. However, in the absence of credible long-term
fiscal consolidation in the US, and generally reduced fiscal space in advanced
economies, the efficacy of monetary policy actions may get subdued due to
resulting destabilising capital flows around the world. Easing measures by
advanced economies may lower the value of their respective currencies, making
their exports relatively cheaper and at the same time put pressure on the
currencies of emerging countries. This will raise the risk of currency war as
emerging markets are negatively impacted by volatile capital flows and currency
fluctuations caused by policies of advanced economies.
No comments:
Post a Comment