“More support” needed for developing economies

Developing economies hit by the global downturn need greater financial support, according to a report from the United Nations Conference on Trade and Development (Unctad).

The report says deregulation of financial markets led to excessive risk taking and was the main cause of the global financial crisis.

This led to a dramatic downturn in the real economy, which Unctad economists estimate will cause global GDP to fall by over 2.5% in 2009.

The report also predicts that world trade will fall by at least 11% in real terms this year.

In developed countries, GDP is expected to fall by 4%. In developing nations, growth is expected to slow to 1.3% in 2009 compared with 5.4% in 2008.

The developing regions hit most severely by the global recession include Latin America, West and South East Asia, all of which are expected to report a decline in GDP in 2009.

In Africa, growth is expected to slow to 3% in North Africa and 1% in sub-Saharan Africa, which Unctad economists warn will make it impossible to achieve the United Nations Millennium Development goals by the target deadline of 2015.

Led by strong growth in China and India, East and South Asia are expected to grow by 3-4% over 2009. The report says the rebound seen in China over the second quarter of 2009 demonstrates that government deficit spending can be very effective, if applied quickly and forcefully.

However, the report says whilst the most public resources committed to the crisis have been aimed at sustaining the financial sectors of developed economies, low-income countries need more support.

Monetary easing and financial bailouts have not prevented significant unemployment, nor have they stimulated demand. Therefore low-income countries are struggling, and Unctad proposes a temporary moratorium on these countries’ debt to help maintain public expenditure and imports.

The report concludes that inflation risk is overstated, and that instead, low capacity and rising unemployment make deflation the real danger. To reduce this risk, Unctad says that central banks will need to maintain or even increase, their expansionary monetary and fiscal policies.

The Unctad report does predict that global GDP growth will return in 2010 but not to exceed 1.6%.

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