unctad.org | Avoiding another recession – UNCTAD economists warn of risks from austerity and financial instability
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Avoiding another recession – UNCTAD economists warn of risks from austerity and financial instability
Debate to focus on measures needed to prevent downturn amid controversy over whether governments should increase or cut back spending - Government ministers and other senior officials at UNCTAD XIII - to discuss topic at 22 April round table

UNCTAD/PRESS/PR/Doha/2012/003
Geneva, Switzerland, (29 March 2012)

An acute risk remains for global recession if government and international officials fail to address joblessness, debt distress and the fragile state of the global economy, UNCTAD research indicates. The topic is controversial as others argue that governments should focus on continued austerity as well as measures to increase labour market flexibility and competitiveness, rather than expanding demand and social protection.

This topic will be discussed by government ministers and high-level officials at a 22 April round table staged as part of the programme of the UNCTAD XIII quadrennial conference. The focus – based on the conference’s sub-theme of “enhancing the enabling environment” for stable, broad-based economic growth – will be on reforms and changes in strategy that could help to avoid a new downturn. Speakers include senior parliamentarians and policymakers from Argentina, China, Germany, and South Africa, among other countries. They will offer a range of experiences and lessons learned about efforts taken to respond to the fallout from the crisis and to promote recovery. Particular attention will be given to the challenges that developing countries face in today’s highly connected and interdependent global economy. Speakers will highlight what developing countries can do to reduce their vulnerability to external shocks.

An important theme for discussion is the direction in which current macroeconomic policy choices are heading, especially in the major developed economies, and what this implies for developing countries. This has been a point of vigorous debate within the G-20 Finance Ministers track, which UNCTAD has been contributing to since 2009 as part of the engagement of the United Nations in that process. Concerns are growing that the world is heading towards a new major financial disruption, on the back of government budget cutting, wage reductions or restraint, and other austerity measures. This may choke off potential growth, increase already high unemployment and further reduce the current fragile demand for goods and services. Reflecting these concerns, the baseline outlook of United Nations World Economic Situation and Prospects 2012 forecasts that global growth could reach 2.6 per cent in 2012 and 3.2 per cent in 2013, assuming relatively optimistic conditions, with an acute risk remaining for a global recession in 2012–2013 if decision makers fail to tackle the jobs crisis, sovereign debt distress and financial sector fragility.

Another likely theme concerns the evolution of the international monetary and financial system, which UNCTAD describes as a “non-system”. Recent evidence indicates that it has not succeeded in reducing the global imbalances that contributed to the build-up to the crisis. Destabilizing capital movements continue, and exchange rates for many countries remain highly unstable, creating large and volatile gaps between market rates and the underlying fundamentals. In some countries, concerns are focused on carry-trade exchange-rate movements that divert funds away from productive investment and destabilize other important markets. Delegates are also likely to discuss financially driven speculation in such commodities as staple foods, since food prices and commodities exports are vital for basic health and for stable economic growth in many poor countries.

The round table will feature an interactive discussion in two parts: "Economic challenges and crisis-mitigation strategies in developed, developing and transition economies” and “The need for structural reforms: towards a new international financial architecture?”

 

 


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