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Poor countries can no longer rely on exports to fuel growth, warns Unctad Poor countries can no longer rely on exports to fuel growth, warns Unctad
(5 days later)
Developing countries must avoid a race to the bottom to supply cheap goods to the world's richest economies, according to a new report from Unctad, the UN's trade and development arm.Developing countries must avoid a race to the bottom to supply cheap goods to the world's richest economies, according to a new report from Unctad, the UN's trade and development arm.
In its annual trade and development report (pdf), published on Thursday, the Geneva-based thinktank warns that the traditional model of "export-led development," which powered many countries in the runup to the financial crisis, is no longer viable.In its annual trade and development report (pdf), published on Thursday, the Geneva-based thinktank warns that the traditional model of "export-led development," which powered many countries in the runup to the financial crisis, is no longer viable.
"Prior to the Great Recession, exports from developing and transition economies grew rapidly owing to buoyant consumer demand in the developed countries, mainly the United States," writes Supachai Panitchpakdi, Unctad's outgoing secretary-general, in the report's foreword. "But the expansion of the world economy, though favourable for many developing countries, was built on unsustainable global demand and financing patterns. Thus, reverting to pre-crisis growth strategies cannot be an option.""Prior to the Great Recession, exports from developing and transition economies grew rapidly owing to buoyant consumer demand in the developed countries, mainly the United States," writes Supachai Panitchpakdi, Unctad's outgoing secretary-general, in the report's foreword. "But the expansion of the world economy, though favourable for many developing countries, was built on unsustainable global demand and financing patterns. Thus, reverting to pre-crisis growth strategies cannot be an option."
Panitchpakdi adds that relying primarily on cut-price exports to drive expansion leads to a "race to the bottom, with few development gains but potentially disastrous social consequences".Panitchpakdi adds that relying primarily on cut-price exports to drive expansion leads to a "race to the bottom, with few development gains but potentially disastrous social consequences".
World trade growth has not returned to its pre-crisis rate; it fell to just 2% in 2012, and Unctad points out that imports to developed regions, including the US and Europe, are still below 2007 levels. It suggests this downward trend "highlights the vulnerabilities developing countries continue to face at a time of lacklustre growth in developed countries".World trade growth has not returned to its pre-crisis rate; it fell to just 2% in 2012, and Unctad points out that imports to developed regions, including the US and Europe, are still below 2007 levels. It suggests this downward trend "highlights the vulnerabilities developing countries continue to face at a time of lacklustre growth in developed countries".
Unctad believes that developing country governments must focus on boosting domestic incomes for the poorest – and hence consumer demand – rather than pinning their hopes on a recovery in export demand among wealthier neighbours.Unctad believes that developing country governments must focus on boosting domestic incomes for the poorest – and hence consumer demand – rather than pinning their hopes on a recovery in export demand among wealthier neighbours.
The report calls for deliberate policies to encourage more generous wages; stronger social safety nets, paid for by better tax collection from those who can afford it; and recalibrating the financial system to focus on lending, not speculation.The report calls for deliberate policies to encourage more generous wages; stronger social safety nets, paid for by better tax collection from those who can afford it; and recalibrating the financial system to focus on lending, not speculation.
Unctad, which has often tended to present a more radical view than other multilateral economic bodies such as the International Monetary Fund or Organisation for Economic Co-operation and Development, also expresses concern that reform of the financial sector appears to have stalled.Unctad, which has often tended to present a more radical view than other multilateral economic bodies such as the International Monetary Fund or Organisation for Economic Co-operation and Development, also expresses concern that reform of the financial sector appears to have stalled.
"Five years after Lehman Brothers collapsed, it's amazing how much of business as usual is back in place," said Richard Kozul-Wright, a development policy expert at Unctad in London to launch the report."Five years after Lehman Brothers collapsed, it's amazing how much of business as usual is back in place," said Richard Kozul-Wright, a development policy expert at Unctad in London to launch the report.
He added that inequality has risen, global imbalances – the yawning trade and investment deficits and surpluses between many countries – remain untackled, and many of the world's largest banks are still too powerful.He added that inequality has risen, global imbalances – the yawning trade and investment deficits and surpluses between many countries – remain untackled, and many of the world's largest banks are still too powerful.
In the immediate aftermath of the 2008 crash, many believed there had been a decoupling of rapidly-expanding emerging countries from the west. On the contrary, said Kozul-Wright: "A significant reason for success was not so much their own internal dynamics, as a very favourable set of external growth circumstances."In the immediate aftermath of the 2008 crash, many believed there had been a decoupling of rapidly-expanding emerging countries from the west. On the contrary, said Kozul-Wright: "A significant reason for success was not so much their own internal dynamics, as a very favourable set of external growth circumstances."
High commodity prices, rapid capital flows and generous remittances from emigrant workers based abroad all helped to boost growth in export-led developing economies. Those various forces could now go into reverse, argued Kozul-Wright, potentially exposing the weaknesses in many countries. "I'm cautiously pessimistic," he said.High commodity prices, rapid capital flows and generous remittances from emigrant workers based abroad all helped to boost growth in export-led developing economies. Those various forces could now go into reverse, argued Kozul-Wright, potentially exposing the weaknesses in many countries. "I'm cautiously pessimistic," he said.
If, as expected, the Federal Reserve decides to start slowing the pace of its quantitative easing programme next week, it could accelerate the withdrawal of funds from emerging markets.If, as expected, the Federal Reserve decides to start slowing the pace of its quantitative easing programme next week, it could accelerate the withdrawal of funds from emerging markets.
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