Recession reports - Virtually all markets and countries effected - UNCTAD

Thursday, 10 Sep 2009

According to UNCTAD's Trade & Development Report 2009, since September 2008, the financial crisis has turned into a full fledged recession affecting virtually all markets and countries, either through direct financial contagion or through falling export earnings and lower migrants' remittances. As a result, the world economy is experiencing its first contraction since the Second World War, with attendant effects on employment in all countries. The contraction now makes it virtually impossible to reach the United Nations Millennium Development Goals by 2015.

UNCTAD economists cite deregulation of financial markets as the main cause of the global financial and economic crisis. Absence of regulation allowed uncontrolled innovation in financial instruments that obscured creditor debtor relations and invited irresponsible risk taking. As a result, finance came to predominate over the real economy, a large part of the financial sector became detached from productive sectors; and the influence of speculative forces was strengthened.

The report said that the crisis that initially began in the financial sector now has turned into a dramatic downturn in the real economy, global GDP is expected to fall by more than 2.5% in 2009. The crisis is unprecedented in its depth and breadth, and has left virtually no country unscathed. GDP in the developed nations will contract by some 4% in 2009, and output in the transition economies is expected to fall by more than 6%. In developing countries, growth is expected to decelerate from 5.4% in 2008 to 1.3% in 2009, implying a reduction of average per capita income. Even economies that will grow this year, such as those of China and India, are slowing significantly compared to previous years.

In the current dramatic crisis situation, low income countries require more support in the form of an internationally coordinated effort to increase official development assistance. In addition, a temporary moratorium on these countries' debt owed to official creditors would help them better to maintain needed levels of public expenditure and imports. This would not only help beneficiary countries and their populations overcome the crisis, but would provide a countercyclical stimulus that could help spur global demand.