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Wealthy countries must bolster public spending to avoid global slump, UN says Wealthy countries must bolster public spending to avoid global slump, says UN
(35 minutes later)
Rich countries must boost public spending and kickstart growth if the world is to avoid a damaging downturn as emerging economies slow, according to the UN’s trade and investment arm, Unctad.Rich countries must boost public spending and kickstart growth if the world is to avoid a damaging downturn as emerging economies slow, according to the UN’s trade and investment arm, Unctad.
In its annual trade and development report, the Geneva-based body warns that developed countries risk sliding into “secular stagnation” – a long period of lacklustre economic growth, driven by weak consumer demand.In its annual trade and development report, the Geneva-based body warns that developed countries risk sliding into “secular stagnation” – a long period of lacklustre economic growth, driven by weak consumer demand.
With many emerging economies suffering crises, Unctad argues the prospects for global growth look grim unless rich countries can boost their growth rates, which could mean boosting public investment and tackling inequality by increasing wages.With many emerging economies suffering crises, Unctad argues the prospects for global growth look grim unless rich countries can boost their growth rates, which could mean boosting public investment and tackling inequality by increasing wages.
“Enhancing public investment should be a key instrument for addressing secular stagnation,” Unctad said, adding that pushing up wages through an “incomes policy” should also help, by boosting workers’ productivity – something George Osborne hopes to achieve with his “national living wage” policy. “Enhancing public investment should be a key instrument for addressing secular stagnation,” Unctad said, adding that pushing up wages through an “incomes policy” should also help, by boosting workers’ productivity – something George Osborne hopes to achieve with his “national living wage”.
Richard Kozul-Wright, director of Unctad’s division on globalisation and development strategies, said the blame for the looming downturn would lie not with the emerging economies that were sliding towards recession, but with the rich world. Richard Kozul-Wright, the director of Unctad’s division on globalisation and development strategies, said the blame for the looming downturn would lie not with the emerging economies that were sliding towards recession, but with the rich world.
“There are growing reasons to worry; and underneath it all is the failure of advanced economies to get onto a sustainable footing: it’s the weakness of demand; the failure to get to grips with unregulated finance; the failure to tackle inequality,” he said.“There are growing reasons to worry; and underneath it all is the failure of advanced economies to get onto a sustainable footing: it’s the weakness of demand; the failure to get to grips with unregulated finance; the failure to tackle inequality,” he said.
The credit booms unleashed in many emerging economies over recent years had been “the spillover effect of quantitative easing”, he said, as cheap money unleashed by central banks in the US, the UK and the eurozone flooded into Asia, Africa and Latin America, leaving many countries vulnerable as the tide of capital turned. Since the crisis, the report says, developed countries have continued a pattern of “generating more liquidity in the private sector but with limited growth returns”.The credit booms unleashed in many emerging economies over recent years had been “the spillover effect of quantitative easing”, he said, as cheap money unleashed by central banks in the US, the UK and the eurozone flooded into Asia, Africa and Latin America, leaving many countries vulnerable as the tide of capital turned. Since the crisis, the report says, developed countries have continued a pattern of “generating more liquidity in the private sector but with limited growth returns”.
The International Monetary Fund (IMF) warned last week that a rapid increase in corporate borrowing in emerging economies could create a fresh financial crisis if, as many commentators expect, global interest rates soon start to rise. Yet Unctad points out that while the side-effects of quantitative easing appear to have helped boost share prices in the developing world in recent years, investment, which tends to improve the long-term prospects of economies, has remained all but flat:The International Monetary Fund (IMF) warned last week that a rapid increase in corporate borrowing in emerging economies could create a fresh financial crisis if, as many commentators expect, global interest rates soon start to rise. Yet Unctad points out that while the side-effects of quantitative easing appear to have helped boost share prices in the developing world in recent years, investment, which tends to improve the long-term prospects of economies, has remained all but flat:
The report also argues that despite the proliferation of post-crisis summits and committees aimed at re-regulating the financial system, too little has been done to rein in the tendency towards “optimism, excessive private risk-taking and over-borrowing … Post-crisis regulatory reforms have been more likely to preserve than to transform the financial system. A more ambitious reform agenda is necessary if finance is to become less fragile and better serve the needs of the real economy and of society.”The report also argues that despite the proliferation of post-crisis summits and committees aimed at re-regulating the financial system, too little has been done to rein in the tendency towards “optimism, excessive private risk-taking and over-borrowing … Post-crisis regulatory reforms have been more likely to preserve than to transform the financial system. A more ambitious reform agenda is necessary if finance is to become less fragile and better serve the needs of the real economy and of society.”
Unctad often takes a more radical stance than the institutionally cautious IMF, which published its own downbeat assessment of the world economy on Tuesday.Unctad often takes a more radical stance than the institutionally cautious IMF, which published its own downbeat assessment of the world economy on Tuesday.
Unctad would like to see tougher controls on flows of global capital, to prevent bubbles repeatedly inflating across different asset markets; and a bankruptcy mechanism for countries that would prevent long-running and debilitating debt crises, such as those faced by Argentina and, most recently, Greece. Unctad would like to see tougher controls on flows of global capital, to prevent bubbles repeatedly inflating across different asset markets, and a bankruptcy mechanism for countries that would prevent long-running and debilitating debt crises, such as those faced by Argentina and, most recently, Greece.