We’re still in recession

March.16 : There is a section that is currently arguing that the world economy will bounce back after the Great Recession of 2008 and 2009, that the “green shoots” of recovery are for real and that the sharp fall in industrial activity, trade and investment was largely a trans-Atlantic phenomenon that originated from and primarily impacted developed countries in the United States, western Europe and Japan. There is reason to believe that none of these propositions are correct.
On the contrary, large parts of the planet are still in the grip of recession, the recovery is slow and the world is unlikely to return to the jobs scenario that prevailed in late-2007 in a hurry. One would be delighted to be proved wrong. But there are many reasons why the prevailing situation does not warrant excessive optimism.

According to the annual “global employment trends” report of the International Labour Organisation (ILO) presented on January 26, 2010, the number of jobless people worldwide reached nearly 212 million in 2009 following an “unprecedented” increase in the number of unemployed persons by 34 million compared to 2007. Based on forecasts made by the International Monetary Fund (IMF), the ILO estimates that global unemployment is likely to remain high through 2010.
The report says that while coordinated stimulus measures have averted a potentially far greater social and economic catastrophe, millions of women and men around the world are still without a job, unemployment benefits or any viable form of social protection.
The ILO estimates that the share of workers in “vulnerable employment” worldwide is estimated to reach over 1.5 billion, equivalent to over half (50.6 per cent) of the world’s labour force, this number having gone up by as much as 110 million between 2008 and 2009.
The Southeast Asian and Pacific region includes many economies that are highly dependent on foreign trade and investment flows. The number of workers in vulnerable employment in this region is estimated to have increased by close to five million since 2008; the regional unemployment rate has risen to 5.6 per cent in 2009, up 0.2 percentage points in comparison to 2007 and is expected to remain steady in 2010.
The World Trade Organisation (WTO) has stated that 2009 saw a 10 per cent fall in world trade, the steepest decline since such statistics were compiled. The estimates made by the United Nations Conference on Trade and Development (UNCTAD) are even more worrisome. UNCTAD data indicates a 15 per cent drop in the volume of world trade last year and this is expected to rebound by only five per cent this year.
Compounding the crisis, the total flows of foreign direct investment fell by a huge 39 per cent in 2009 and by as much as 50 per cent in certain developing countries, with not much of a rebound expected this year.
Speaking at a workshop organised by the South Centre in Geneva recently, Supachai Panitchpakdi, secretary-general, UNCTAD, warned developing countries not to be misled by talk about an “early recovery” as “more than 100 developing countries are still in recession”. The stimulus plans of developed countries cannot be sustained because they cannot raise more of the huge funds already used, he said, adding that the recovery is only partial, taking place in some sectors (the stock market and real estate). The unwinding and de-leveraging from household and corporate debt could take between five and seven years, he predicted.
Dr Supachai compared the current economic environment to the “delicate” condition of a patient who had just undergone a cardiac arrest. “We have not been successful in getting the global economy out of recession yet, and we should not fall into a ‘business as usual’ mode which is being promoted by big bankers and those they try to influence”, he said.
The UNCTAD chief said there was need to expand South-South cooperation, with developing countries increasing trade among one another and pooling their financial resources, including in new regional monetary funds. He called for addressing sharp fluctuations in commodity prices and reforms in the financial system so that banks are confined to “narrow” banking (namely, collecting savings from many and lending the funds) not anything “more fanciful”. Dr Supachai said the chance to reform the financial system after the Asian crisis in 1997-98 had been missed and another bigger crisis has now hit the world. “We may miss the boat again, unless something is done now”.
Other economic experts at the South Centre workshop, such as Yilmaz Akyuz, the centre’s special economic adviser and Deepak Nayyar, professor at Jawaharlal Nehru University, argued that China would not be able to replace the United States as the locomotive of world economic growth. Much of the imports entering China have been inputs used to produce Chinese exports and even if China maintains its high growth by switching from exports to local consumption, this will not help developing countries as much, because there is little import content in the goods that the Chinese produce for their local consumption.
“Thus China is not a good substitute for the US or Europe as a market for other developing countries’ exports, even if it were to maintain over 10 per cent growth based on domestic demand”, argued Mr Akyuz, who also anticipated a rise in protectionism and a backlash against globalisation in developed countries.  
Prof Nayyar said developing countries should realise that domestic markets are critical and cannot be substituted by external markets and that it was time to recognise the proactive role of the state in development. The conclusion from speakers at the workshop was that developing countries should draw their own lessons from the global crisis, not to be complacent about “recovery”, re-think development strategies and policy options and become ardent advocates of international financial reform.

Paranjoy Guha Thakurta is an educator and commentator

Paranjoy Guha Thakurta