The world economy has not yet escaped the growth doldrums in which it has been marooned for the past four years, and there is a growing danger that this state of affairs is becoming accepted as the “new normal, ” the United Nations (UN) trade agency said in its annual report published Wednesday. "Policymakers everywhere, but particularly in the systemically important economies, need to assess current approaches and pay closer attention to signs of inclement economic weather ahead," it said.
The United Nations Conference on Trade and Development (Unctad) says that given weak global demand, it is highly unlikely that international trade alone will be able to boost economic growth. It expects growth of 2.5 to 3% in 2014 with the global recovery remaining weak, "while the policies supporting it are not only inadequate but often inconsistent, the report argues. Getting back to business as usual has failed to address the root causes of the crisis."
The annual report [pdf] says that breaking from a protracted period of low economic growth requires strengthening aggregate demand through real wage growth and more equal income distribution rather than new financial bubbles. "The continuing dominance of finance over the real economy and the persistent decline in the wage share are symbolic of the inability to come to grips with the causes of the crisis and its abnormal recovery, the report says."
In a review of trends in the global economy, the report observes that a modest improvement in growth is expected in 2014. After expanding by around 2.3% in 2012 and in 2013, world output growth is projected to rise to 2.5−3% in 2014. Most of this moderate acceleration of growth stems from developed countries raising their growth rate from 1.3 in 2013 to 1.8% in 2014. This in turn results from a slight pickup in the European Union, since growth in Japan and the United States of America is not expected to improve in 2014.
The report also argues that developing countries should carefully consider the loss of policy space when engaging in bilateral and regional trade and investment agreements. Such agreements often come with stricter commitments in areas covered by multilateral agreements or extend to new areas, requiring policymakers to forsake the use of instruments that have proved effective in supporting industrialization.
"Conventional wisdom suggests that accepting such stricter policy and regulatory commitments is necessary to attract foreign direct investment and to enable firms from developing countries to join global value chains. The report, by contrast, suggests that while these commitments may provide short-term trade and employment benefits, in the longer run they can trap producers into commodity enclaves or low-value niches of manufacturing. The report also points to problems arising from the current international investment framework and the related ad hoc arbitration tribunals that have assumed important law-making functions usually allocated to States. In addition to the lack of transparency and coherence often observed in the operations of those tribunals, this set-up follows a model developed for resolving disputes between private commercial actors, and thus the tribunals have no reason to consider the broader interests of a host country and its development strategy."