Developing Economies continue to be main drivers of global growth: UNCTAD

The developing economies continue to be the main drivers of growth, contributing to about two-thirds of global growth in 2013 and are expected to grow at the rate of 4.5–5% in 2013, similar to 2012. Growth in some large developing economies, such as Argentina, Brazil, India and Turkey, which was subdued in 2012, is forecast to accelerate.

According to the Trade and Development Report 2013 by UNCTAD, global growth rate is forecasted at 2.1% this year compared with 2.2% in 2012 as the US may decelerate to 1.7% from 2.2% in 2012 and Europe will stay in recession for the second consecutive year.

In the European Union, GDP is expected to shrink for the second consecutive year and the economic contraction is likely to be more severe in the euro area than in other EU countries while the developing countries are expected to grow by between 4.5- 5% in 2013, similar to 2012. Japan has taken various austerity measures which have helped it to maintain a GDP Growth Rate close to 2% in 2013.

The developing economies continue to be the main drivers of growth, contributing to about two-thirds of global growth in 2013. They are expected to grow at the rate of 4.5–5% in 2013, similar to 2012. Growth in some large developing economies, such as Argentina, Brazil, India and Turkey, which was subdued in 2012, is forecast to accelerate.

A new pattern of global growth is suggested to emerge from the continuing expansion of developing economies as a group which has led to their gaining increasing weight in the world economy. While developed countries remain the main export markets for developing countries as a group, the share of the latter’s contribution to growth in the world economy has risen from 28% in the 1990s to about 40% in the period 2003–2007, and close to 75% since 2008. However, more recently, growth in these economies has decelerated due to high dependence on developed economies as markets of exports.

There is a structural shift in the world economy due to the current global economic and financial crisis which requires fundamental changes to the prevailing growth strategies to adjust to this structural shift.

The Report suggests that the developed countries should address the fundamental causes of the crisis by moving away from contractionary fiscal policies so as not to further undermine their already slow economic growth. The developing and transition economies whose development strategies have been heavily dependent on exports should move towards a more balanced growth strategy with more focus on domestic and regional demand as demand growth in the developed economies is likely to remain weak for longer period of time.

The focus on lower and middle income households in terms of wage growth, employment creation and social transfers should form the crux of development strategy as such households tend to spend a larger share of their income on consumption, particularly of locally or regionally produced goods and services. Also there is a need to expand the production capacities with adaptation to the new demand pattern which will require the provision of reliable and long-term financing.

Warm regards,

Dr. S P Sharma

Chief Economist