Press Conference on Update of Report: World Economic Situation and Prospects 2011, 25 May 2011
Department of Public Information . News and Media Division . New York
As output growth remained feeble in the developed world, robustly growing emerging economies in Asia and Latin America would continue to drive global economic recovery for the rest of the year and during 2012, United Nations economists said this afternoon during a Headquarters news conference.
“We forecast 3.3 per cent growth in 2011, which is slightly higher than the 3.1 per cent growth [forecast] in the annual report, and 3.6 per cent growth in 2012,” said Robert Vos, Director of the Development Policy and Analysis Division, of the Department of Economic and Social Affairs, as he launched a mid-year update of World Economic Situation and Prospects 2011, a joint publication of the Department, the United Nations Conference on Trade and Development (UNCTAD) and the United Nations five regional commissions.
Mr. Vos said that was “good news, slightly” as the recovery was uneven and still fragile. The growth outlook in large emerging economies driving the recovery, notably China, India and Brazil, was moderating due to persistently rising inflation, emerging domestic asset price bubbles and upwards pressure on exchange rates, fuelled in part by large inflows of capital.
Moreover, he said, recovery could suffer setbacks if public debt problems and financial-sector fragility in developed nations were not dealt with adequately, global commodity prices continued to climb and trigger belt-tightening policies in some nations, and global imbalances were not redressed to mitigate exchange-rate volatility and the further downfall of the United States dollar. Long-term unemployment in developed countries also remained a concern.
Assistant Secretary-General for Economic Development, Jomo Kwame Sundaram, said the breakdown in the past two years of international monetary policy cooperation and coordination also could dampen recovery prospects. That was particularly worrisome for non-members of the Group of 20 (G-20) Finance Ministers and Central Bank Governors, who were relying on the Group’s leadership in macroeconomic and trade affairs to weather crises.
That lack of coordination had fuelled commodity price volatility, driving up food and energy poverty, which was “a matter of ongoing concern for the United Nations”, Mr. Sundaram said.
Mr. Vos advised all Governments, in the short term, to avoid premature fiscal austerity, given the fragile state of the recovery and prevailing high unemployment levels. Instead, fiscal stimulus measures should be redesigned to work much more directly to create jobs and investment in sustainable development. In addition, he called for greater synergy between fiscal and monetary stimulus to avoid large, volatile short-term capital flows to emerging markets. International financial regulations must allow for much more space for capital controls, thus offloading pressure on capital flow volatility.
Moreover, he said, greater resources must be transferred from rich countries to poor ones, not the other way around, especially to assist developing nations with limited fiscal space and large development needs. He called for greater efforts to create credible, effective policy coordination among the world’s major economies, including operationalizing the G-20 framework for sustainable global rebalancing.
Asked if Governments were engaging in too much fiscal austerity, Mr. Vos said that in most cases, they were employing austerity measures too soon, hindering economic recovery, when they really should be focusing on fiscal consolidation over the medium term. Southern European countries would need financial stimulus measures, and not just bailouts.
Regarding the role of financial speculation on the debt problem in Portugal, Greece and other developed economies, he said it was difficult to assess the amount of unregulated resources in investment banking systems and derivatives markets, which caused sudden shifts in commodity prices. Financial regulation reforms must expand the focus into those areas.
Asked whether the recent turmoil at the International Monetary Fund (IMF) had hindered the ability of the United Nations to address issues affecting economic recovery, Mr. Sundaram said the Organization’s cooperation with IMF, particularly since the onset of the global economic crisis in 2008, had “reached new heights”. Much of that was attributed to the leadership of former IMF Managing Director Dominique Strauss-Kahn. Such cooperation must be enhanced.
Asked about changes in the international financial architecture to stop the flow of net transfers from developing to developed countries, Mr. Vos said despite some small, piecemeal improvements — such as the call for more special drawing rights for developing countries and discussions under way to expand the basket of currencies on which the special drawing rights value was based to include those of developing nations — much more was needed to address the problem, notably a system that would make it easier for developing countries to pool their risk.
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