DEVELOPMENT: Growth of World Economy Slows Down

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, Sep 15 1997 (IPS) - The world economy is growing slower than necessary, while social and economic inequalities between and within countries are increasing, says a U.N. Conference on Trade and Development (UNCTAD) report released Monday.

The slow pace of economic growth makes a significant reduction of poverty in the developing South and unemployment in the North difficult, states the 1997 Report on Trade and Development.

According to the document, since 1990 the global economy has grown at a slower pace than last decade’s, a trend that is expected to continue.

On the international trade front, imbalances similar to those seen in the 1980s were once again observed, UNCTAD points out. In 1994 and 1995, trade in merchandise grew three or four times faster than production – a difference that was greatly reduced in 1996.

That recent trend in trade, which could remain steady over the next few years, has been linked to a weakening of the prices of raw materials in 1996, especially those of interest to developing countries, the report adds.

In terms of performance by region, UNCTAD points to a recovery based on a number of factors in Africa. It cites an improvement in governability, sustained prices of raw materials, favourable weather conditions and the pacification of several internal conflicts.

But the agency warns that continued recovery in Africa depends on an additional factor: the expansion of non-traditional exports in order to obtain revenues for financing the imports necessary for investment.

In 1996, Africa showed 3.9 percent growth, which included several of the region’s least developed countries – a trend projected to continue this year.

In Latin America, which recovered from the “tequila effect” triggered by the late 1994 crash of the Mexican peso, growth in 1996 amounted to a modest 3.3 percent. But production is expected to rise in 1997.

Recovery in Argentina – the country hardest hit by the tequila effect – and Mexico, and strong steady growth in Chile contributed to the overall recuperation of the region.

Many Latin American countries are facing serious politicial dilemmas due to the need to simultaneously achieve growth and price stability. UNCTAD points out that getting inflation under control largely depended on stabilisation of the nominal exchange rate, while growth, even the most modest, was often linked to an increase in a country’s current accounts deficit.

Although Asia registered the highest growth rate – 6.9 percent – of any region, expansion was reduced by a weakening of exports, says the report, which did not mention recent monetary fluctuations in several countries in the area.

UNCTAD predicts few changes for the region this year, but warns that restrictive measures designed to safeguard the exterior equilibrium in several countries has introduced uncertainty in the short-term regional outlook. The report says that overall, many developing nations enjoyed improved economic results but it adds that it is still unclear as to whether growth will be more steady in the future.

Referring to the possibility of a repeat of the Mexican crisis, UCTAD cautions that vulnerability to fluctuations in capital flows remains high in a number of countries with large internal deficits.

With respect to inequalities between countries and within developing nations, the study says that the difference between the Gross Domestic Product (GDP) of the wealthiest 20 percent of the world population, and that of the poorest 20 percent, doubled in the years 1970-1990. While the rich have prospered everywhere, the poor and middle class in both developing and industrialised have seen their share of the pie diminish, says UNCTAD.

The U.N. body adds that finances have gained ground on industry and rentiers on investors. In some developing countries, the interest payments on the foreign debt eats is equivalent to 15 percent of GDP.

The portion of revenues going to remuneration of capital increased more than the share which went to jobs, employment and income insecurity are growing, and the gap between wages of skilled and unskilled labour is widening.

UNCTAD says there is no economic law establishing that developing economies will catch up to developed countries in terms of income simply by opening up.

Increased competition does not automatically translate into faster growth and development, nor do growth and development spontaneously reduce inequality, the study maintains. The U.N. agency recommends a carefully programmed liberalisation of trade with a view to integration into the global economy, with the process adjusted to the economic strength of the country in question and its institutions.