New UNCTAD report argues that the world economy is experiencing a structural shift, and that countries must introduce fundamental changes in their growth strategies in order to adjust to it. In particular, developing and transition economies that have been overly dependent on exports should give a greater role to domestic and regional demand.
The Trade and Development Report 2013 notes that the current global economic and financial crisis reflects a structural shift of the world economy, and that adjusting to this structural shift requires fundamental changes to the prevailing growth strategies.
The world economy cannot revert to pre-crisis growth, which was built on unsustainable global demand and financing patterns.
Developed countries should act more decisively to address the fundamental causes of the crisis, and should move away from contractionary fiscal policies so as not to further undermine their already slow economic growth.
Nevertheless, demand growth in developed countries is likely to remain weak for a protracted period of time. Thus, developing and transition economies whose development strategies have been overly dependent on exports should move towards a more balanced growth strategy. They should give greater weight to domestic and regional demand.
Wage growth, employment creation and social transfers that favour lower- and middle-income households are crucial to this development strategy, because such households tend to spend a larger share of their income on consumption, particularly of locally or regionally produced goods and services.
Also needed is an expansion of production capacities, and their adaptation to the new demand pattern. This will require the provision of reliable and long-term financing. Countries should rely increasingly on domestic sources for such financing, with central banks conducting a credit policy, so that commercial banks, development banks and specialized institutions effectively finance the real economy.