World economic growth could slow to 1 percent to 1.5 percent next year, about half of the projected 2.9 percent growth for this year, the UN trade and development body’s chief economist said on Thursday.
In its latest annual report, the UN Conference on Trade and Development (UNCTAD) assessed that in the middle of this year, the global economy was already “teetering on the brink of recession” because of financial market turmoil, commodity price hikes and huge exchange-rate swings.
But the UN agency also warned against over-estimating the problem of inflation, saying that the use of interest rate hikes to fight inflation could be counter-productive.
Rather, it called for wage restraint to prevent spiraling costs and for greater coordination among central banks on interest rate decisions.
The UN agency saw this year’s world output growth slowing by 1 percent compared with a year ago, with UNCTAD Secretary-General Supachai Panitchpakdi warning: “It might go even lower if the situation worsens in the second half of this year.”
For next year, UNCTAD chief economist Heiner Flassbeck said: “If you want my best guess, then indeed the world is going down from 2.9 percent in 2008” and would be closer to 1 percent to 1.5 percent.
The report said “the financial turmoil, the commodity price hikes and the huge exchange-rate swings are having an enormous impact on the global economy and are casting a shadow on the outlook for 2009.”
But as countries sought to deal with rising prices, UNCTAD warned against over-estimating the risk of inflation, as using interest rate hikes to rein in inflation could bring about a more rapid economic slowdown.
“Possible restrictive monetary policy responses to increasing pressure on the overall price index from higher commodity prices could well lead to a further deceleration of growth in developed and developing countries alike,” it said.
Instead, it called for other macroeconomic policies — such as wage restraints — to prevent spiraling costs.
It criticized the European Central Bank’s (ECB) quarter-point interest rate hike in July to 4.25 percent, saying that it could “negatively affect economic growth in the euro area and beyond.”
“Although rising commodity prices have lifted general price levels, most developed economies and many developing and transition economies do not yet face the threat of uncontrollable inflation,” it said.
It also asked central banks to coordinate their responses, saying that current divergent policies would only lead to greater risks of further speculation in the forex market.
Unlike the ECB, the US has been aggressively cutting interest rates.
Countries whose currencies are vulnerable to carry trade have also hiked interest rates to defend their exchange rates, UNCTAD said. Traders engaging in carry trade buy currencies with low-interest rates to convert them into investments fetching higher interest rates.
“These divergent policies may invite new speculation in foreign-exchange markets instead of calming the system,” UNCTAD said.
UNCTAD also had sharp words for the financial system, saying that such a system that throws up a crisis every three years must be “deeply flawed.”
“The recent crisis has shown once again that market discipline alone is ineffective in preventing recurrent episodes of ‘irrational exubuerance’ and that the market cannot cope with massive drops in financial asset prices,” it said.
On Sunday, the Bank for International Settlements (BIS) said the credit crisis had forced financial firms to write down US$503 billion in assets, but more losses could yet come in months ahead.
The notion that rapidly growing emerging markets were less reliant on developed markets has also been put to the test in recent months, particularly for countries that drew large investments from advanced economies, BIS said.
Also See: Taiwanese shares tumble after Wall Street’s decline
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College
TRADE: A mandatory declaration of origin for manufactured goods bound for the US is to take effect on May 7 to block China from exploiting Taiwan’s trade channels All products manufactured in Taiwan and exported to the US must include a signed declaration of origin starting on May 7, the Bureau of Foreign Trade announced yesterday. US President Donald Trump on April 2 imposed a 32 percent tariff on imports from Taiwan, but one week later announced a 90-day pause on its implementation. However, a universal 10 percent tariff was immediately applied to most imports from around the world. On April 12, the Trump administration further exempted computers, smartphones and semiconductors from the new tariffs. In response, President William Lai’s (賴清德) administration has introduced a series of countermeasures to support affected
RSS