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Monday, May 18, 2009

Overview of the Economic Outlook - Synchronized Downturn needs Sustainable Recovery

Robert Vos, Director, Development Policy and Analysis Division, Department of Economic and Social Affairs, United Nations. During his presentation, Mr. Vos introduced a United Nations analysis of the short- and long-term economic outlook. ICGFM members were first to learn about this analysis.

Mr. Vos suggests that the world is experiencing the worst recession since the end of the Second World War. The results suggests a synchronized recession affecting almost every country.

World Economic Situation and Prospects 2009-2010

Mr. Vos introduced the credit crunch in the United States. There has been a reversal in capital flows to developing countries. Around 100 countries will be short of liquidity to service external debt and handle imports. 13 low-income countries are likely to have less than 3 months of liquidity.

World trade has collapsed further than it has since the 1930's. Some observers believe that the collapse has been faster than in the great depression. The report suggests that trade will improve should countries move out of recession.

Mr. Vos discussed the changes in oil prices and the affect of the changes in U.S. dollar valuation and financial investment. Shifts in the oil industry to renewable energy is expected.

Food prices have come down but remain above historic levels. This is a significant burden on people in developing countries. There is systematic underproduction of food around the world. This adds to a worsening worldwide economic situation. The forecast for 2010 ranges from an optimistic growth of 1.6% or pessimistic view of little or no growth.

60 developing countries will see declining incomes, according to Mr. Vos. There has been a severe recession in developed economies. The new members of the EU that had seen high growth has also witnessed a recession. Mr. Vos showed how countries that had experience higher than average growth are now witnessed higher than average recessions.

All developing countries are affected through slowing trade. The primary exporters are also seeing trade deterioration. Low-income, net food and oil-importers are seeing improving terms of trade, but are suffering mainly through reduced demand for exports.

The balance of payments constraints are emerging in growing number of countries and vast reserves are quickly evaporating. Remittances to developing countries have reduced.

There are prospects for recovery, but here are risks that this will be a deeper and more prolonged crisis. Global imbalances may continue. The volatility in the American dollar may be caused by the debt load. This leads to general worldwide economic issues.

There has been an "extraordinary responses to deal with the crisis." Mr. Vos concludes that the "financial landscape has changed".

Mr. Vos believes that bolder action is needed because so much of the stimulus has occurred in some countries, many of whom are running deficits. "Business as usual will not be good enough." Improvements recommended by the United Nations study includes:

  • Decisive and cooperative action is restore the health of financial sector.

  • Fiscal stimulus aligned with global sustainable development objectives

  • Fundamental reforms of the international financial system to overcome the systemic flaws

  • A new framework for global economic governance

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