Unctad urges focus on domestic economy
Developed and developing nations should cope with the spectre of unprecedentedly prolonged stagnation by continuing to stimulate their economies rather than cutting spending, according to a report by the United Nations Conference on Trade and Development
They are also advised to use a managed-float approach on exchange rates and to prevent speculation in commodities, as such speculative activity would result in high inflation and slower growth.
Unctad's "Trade and Development" report, released yesterday, showed that the global economy is expected to grow by 3 per cent this year.
The figure is lower than for last year, when the world economy grew by 4 per cent. This is due to sluggishness in developed countries, which are forecast to grow by only 1.5-2 per cent this year, while developing nations' economies are expected to expand by 6 per cent, the Unctad report said.
To ensure overall global growth, the report suggested that every country must strengthen its collaborative efforts in regard to fiscal and monetary reform. The best strategy for reducing the public-debt ratio is to promote growth and maintain low interest rates, it said.
Developed nations should also have stringent measures in place to prevent a "too big to fail" mentality applying to distressed financial institutions in the future.
Giant financial institutions should be reduced in size, the report said, while the activities of commercial and investment banking should be clearly separated in order to reduce the risk of contagion.
Meanwhile, developing nations have warned that they are still at risk of higher inflation as a result of rising commodity prices.
The recovery of commodity prices has helped developing countries maintain their growth momentum, but these prices are prone to considerable volatility as they are strongly influenced by speculation, the report said.
Although growth in a number of large developing countries has come to rely more on domestic drivers than exports, it remains vulnerable to adverse developments in the international financial system. Unctad, therefore, advises developing nations to maintain stable macroeconomic conditions domestically and to strive to contain external disruptions.
Weerasak Kowsurat, executive director of the International Institute for Trade and Development, said the global economy is expected to post slower growth for the next decade as the United States would be unable to return to pre-crisis growth levels soon, while the stringent control of euro-zone countries' spending would lead to lower consumption and higher unemployment.
As a relatively small country, Thailand will continue to grow by relying more on emerging countries such as China, India and Indonesia. However, as the economy is still dependent on exports, the Kingdom will inevitably be affected by sluggishness in the United States, the European Union and Japan, he said.
