Introduction
In last week’s column I completed a brief description of the ten most important channels through which the negative effects of the global financial crisis and economic recession, which erupted in 2008 impacted Guyana and Caricom. That crisis is now referred to as the Great Recession, indicating its harsh severity and at the same time its lesser destructive effects than the Great Depression of the 1930s.
I had also indicated the five major challenges, which the global economy presently faces. Put succinctly, these centre on re-setting globalization on a sustained path of explosive expansion through minimizing periodic capitalist market crises as well as excessive and irrational waves of private over-speculation and excessive risk-taking. In my view this is best achieved through promoting inter-governmental and other forms of regional and global collaboration in order to ensure that both the benefits and costs of globalization are fairly and justly distributed across countries, regions, and groups.
At the heart of this proposition lies my pessimistic assessment of the extent of real rather than manufactured uncertainty that surrounds the prospects for early global economic recovery. The question which readers could rightly raise at this point is: what has been the performance of the global economy like since 2008 including this year, which is not complete?
Global economic performance
The empirical data for the period after the eruption of the Great Recession in 2008 clearly reveal how deeply uncertain are the prospects for recovery and the full resumption of global and regional growth and development at the end of 2011. Available expert analyses conducted by both major private global financial firms like Morgan Stanley, UBS and HSBC as well as inter-governmental organizations like the United Nations, IADB, IMF and the World Bank currently hold the consensus view that a double dip to the recession is a real risk and underlining this global GDP growth for this year will be about 3.8 per cent, down on last year. This compares with previous global growth rates of minus 0.5 per cent in 2009 at the depth of the crisis and a definite rebound to 5.1 per cent in 2010. Of note the actual first quarter growth rate for this year was 4.3 per cent but this tailed off to an estimated 3.6 per cent as the year progressed!
The country/region distribution of the global GDP growth of 3.8 per cent for 2011 is highly instructive. As a group, the advanced industrialized economies grew by 1.6 per cent and the United States grew by 1.5 per cent, during this year. These growth rates compare with rates of 3.1 and 3.0 per cent per annum respectively for 2010. Meanwhile, although the emerging and developing economies are estimated to see their growth rates fall this year, the decline is from a staggering 7.3 per cent in 2010 to 6.5 per cent per annum for this year.
From public discussion readers should be aware that much of the failure in GDP growth performance in the advanced industrialized economies has been linked directly to policy failures to generate jobs, thereby stimulating private consumption spending, which is a major driver of their GDP growth. In the advanced industrialized economies the unemployment rate remains at about 8 per cent, which is where it was in 2009. Indeed in the euro area the unemployment rate is 9.9 per cent, which is above the 9.5 per cent level of 2009. And in the United States the unemployment rate remains above 9 per cent for this year (2011).
Based on present coverage in the global media, it seems that a great deal of financial market concern over the international economy resides in the sovereign debt risks of the highly industrialized economies and particularly those in the euro area and the United States. For the euro area as a group the debt/GDP ratio is presently just over 87 per cent. Surprisingly, the debt/GDP ratios for the United States and as a group the advanced industrialized economies are about 100 and105 per cent, respectively. Meanwhile for the emerging economies as a group their debt/GDP ratio is substantially lower at about one-third.
Mainly due to depressed demand (consumption) and sticky unemployment levels in the advanced industrialized economies the risk of global inflation is currently quite low. The United States, the euro area, and as a group the advanced industrialized economies have all averaged less than 2 per cent inflation since the crisis erupted and they are all expected to remain below this rate for 2012. However, in the emerging economies as a group, the inflation rate has been between 5-7 per cent per annum since the crisis has erupted. By the end of 2010 world non-fuel commodity prices had not yet recovered to their levels prevailing in 2008. These prices are expected to rise by the end of this year but are expected to fall back to their 2008 levels by the end of 2012.
Taken as a whole, world trade volume had declined by about 11 per cent in 2009. However this rose by over 12 per cent in 2010 and at a reduced rate of 7.4 per cent in 2011. As expected the emerging economies and the developing countries were the primary gainers from these improved trade flows.
Meanwhile international capital flows to the developing areas (which from the perspective of poor countries are the surest sign of global economic vibrancy) also grew significantly. For this year there were increases in net portfolio flows, FDI flows, and equity flows. These were particularly welcome given the huge declines that occurred in 2008 and 2009.
Conclusion
The uncertainty surrounding global economic recovery is real and not a political invention to suit partisan purposes. This is my painful conclusion although one year ago I had arrived at a different interpretation of the global crisis. Next week I shall briefly revisit this as I believe it adds a useful perspective to the present pre-occupation with the prospects of early global economic recovery.
