Home spending urged

The United Nations Conference on Trade and Development (Unctad) has advised governments to stimulate domestic consumption and be less dependent on exports to drive their economies, after projecting global economic growth of 2.2 per cent for this year.

Developed nations were growing by only 1 per cent, while most developing countries were witnessing growth of up to 4.5 per cent – and economies in Southeast and East Asia were recording as much as 5.5 per cent – according to Unctad’s trade and development report for 2013, said Watcharas Leelawath, director of the International Institute for Trade Development.

East Asia and Asean – including Asean+3 and Asean+6 – nations will contribute the most towards global economic growth. However, the growth of these countries is not balanced and sustainable as they are heavy dependent on exports, which could be adversely affected when global economic growth is weak, he said. 

Unctad suggests, therefore, that export-driven countries try to boost domestic consumption and promote trade among countries in the same regional bloc, such as the coming Asean Economic Community, where the 600-million combined regional population will serve as a huge market.

Thailand has begun to shift its export focus towards Asean nations, as evident by the rise in the proportion of its exports going to those countries, from 13.8 per cent in 1992 to 25 per cent last year.

Furthermore, Unctad advises nations not to resort to belt-tightening when the economy is down, as it would weaken purchasing power and further depress gross domestic product and prolong the recession. 

 

Policies to stimulate GDP growth 

The UN body also mentions in its report the employment of monetary and fiscal policies to stimulate GDP, especially public- and private-sector investments and domestic consumption, Watcharas said.

Moreover, it suggests developing nations rely less on highly volatile foreign-capital inflows, which tend to spur risk and speculation in local financial assets, potentially leading to a bubble economy and causing sharp appreciation in the local-currency exchange rate.

Developing countries should rely more on domestic capital, and upgrade factory machinery to achieve optimal efficiency and productivity, the report recommends.

Unctad also advises providing funding support for local small and medium-sized enterprises, as they account for most of the jobs. Meanwhile, the government is advised introduce measures to ensure people in the lower-income group benefit from the country’s economic growth, as they can help boost domestic consumption when their living standards improve.

Pisith Puapun, director of macroeconomic analysis at the Fiscal Policy Office, said Asean member states were mostly developing nations at the peak stage of the economic-stimulation stage, as evidenced by Thailand’s current-account deficit figure being capped at no more than 5 per cent of GDP. As to Unctad’s suggestion on boosting domestic consumption, he said the government had introduced the lower-tax first-car and first-home buyer schemes to boost consumption, but it should not be overlooked that these programmes had also increased the level of consumer debt. 

Given the danger of rising debt, an alternative method of boosting consumption is to create more jobs and boost the nation’s output and productivity, he said, adding that with income, consumers would have purchasing power to contribute towards raising domestic consumption.