A new report warns the gloomy economic outlook for rich nations could spread and halt the recent boom in developing countries, if commodity prices plunge. The annual Trade and Development Report by the U.N. Conference on Trade and Development or UNCTAD, sees a great deal of uncertainly and instability in international financial markets.
By the middle of this year, the report notes some economies had gone into recession while others were on the brink of recession. UNCTAD Secretary-General, Supachai Panitchpakdi, says this depressing state of affairs comes after four years of relatively strong growth.
He says a combination of factors have conspired to create this unfortunate economic downturn.
"First, it is a slowdown from the global fall-down from the financial crisis in the U.S. Second, the bursting of housing bubbles in the U.S. and in other large economies. Third, soaring commodity prices," Supachai said. "Fourth, increasingly restrictive monetary policies in a number of countries and fifth, stock market volatility."
All these factors, says Supachai, have had a hand in squelching economic growth.
UNCTAD expects world output to grow by around three percent this year. That is almost one percentage point less than in 2007. In the developed countries, the report says GDP growth is likely to be around one-and-one half percent.
Supachai says the short-term outlook is better for the developing world, where growth could exceed six percent. This, as the result of domestic demand in some countries and because of commodity price hikes.
He points to the Sub-Saharan economy as a particular bright spot.
"This year, it is probably the only region that will be seeing a rising rate of economic growth which might reach seven percent," Supachai said. "This is probably one of the largest growth rates ever seen in the Sub-Saharan economies. But, the sad fact is that this is mainly attributable to the effects of the income from commodity exports, mainly oil."
Supachai cautions this healthy growth in Africa is unlikely to do much to reduce poverty. He says little of the income from oil, the mining and extractive sectors trickle down to the poor.
And, he warns fallout from the recession in rich countries and overly restrictive monetary policies in countries with high inflation could lead to a further deceleration of growth in developing nations.
UNCTAD economists say greater diversification and industrial development is the best long-term strategy for reducing vulnerability to commodity price shocks.
They find speculative swings in the commodity market pose a real threat to the global economy, as has been shown in the wild fluctuation in the price of oil. They recommend stricter regulations in the system of global finance to better control speculative movements.
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