The Current World Economic Situation, the Outlook for the Coming Decade and Implications for LDCS

Economic Review, January 2012 | Go to article overview

The Current World Economic Situation, the Outlook for the Coming Decade and Implications for LDCS


1. LDC PROSPECTS IN THE CHANGING GEOGRAPHY OF THE WORLD ECONOMY

Since the onset of the new millennium, the global economy has witnessed the emergence of strong and sustainable growth poles in the South, and the intensification of South--South economic linkages through trade, capital, technology and labor flows (UNCTAD, 2011d). Such a rise of the South, as it is sometimes referred to, has resulted in shifts of balance in the world economy. These economic and geostrategic changes in the world economy during the 2000s were characterized by OECD (2010) as "shifting wealth". The main argument is that the centre of gravity of the world economy is shifting to the East, namely to Asia. Given the substantial difference in the rate of economic growth recorded after the 2008--2009 crisis, China and other dynamic economies like India, Brazil, South Africa and the Russian Federation, would continue to narrow the gap with advanced economies even faster than in the previous decade. The recent news that China has become the world's second largest economy is symbolic of the depth and significance of these shifts.

These changes, however, are not confined to the above-mentioned economies. For example, the GDP of the seven largest developing economies, adjusted for purchasing power parities, grew from 10.5 per cent of the GDP of OECD countries in 1980 to 21 per cent in 2010. Although the common perception is that the surge of Southern growth poles is largely an Asian phenomenon, Africa, Latin America and Western Asia also managed to expand their share of global output in the last 10 years. Similarly, a growing number of developing countries have been catching up with advanced economies, thanks to their faster GDP growth rates (OECD, 2010).

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This tendency has become even stronger in the aftermath of the global recession because developed and transition economies suffered deeper contractions of GDP during the 2008--2009 period, and their recovery is still uneven and extremely fragile, unlike that of a number of developing countries. The latest available forecasts at the time of writing (IMF, 2011) suggest that the South, particularly the Asian economies, is likely to increase its importance in the future (chart 8). There is every indication that the South's importance in the world economy will continue increasing in the foreseeable future.

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The shifting balance in the global economy has been mirrored in the growing importance of the South in world trade and investment flows (UNCTAD, 2011f; OECD, 2010). In the last two decades, other developing economies, not including LDCs, have succeeded in increasing their shares of global merchandise imports and exports, as well as strengthening their role as a source of outward FDI (chart 9). South--South trade grew, on average, 12 per cent per year from 1996 to 2009, that is, 50 per cent faster than North--South trade. In 2010, the share of developing and transition economies in the world's total FDI has for the first time reached that of developed economies (UNCTAD, 2011f). The intensification of South-South trade and investment flows is thus a fairly broad-based trend that has rendered the world economy considerably more interdependent.

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These processes are already exerting far-reaching effects on the world economy in terms of the economic size of national economies, economic growth and global demand patterns, and incomes and demographic trends. If the current trends continue, these effects will be even stronger in the future. Most importantly, they will likely result in significant breakdowns of the dominant position of the United States of America. Long-entrenched features of the economic, political and even ideological landscape will likely be further disrupted and reconfigured in the process. This is also an opportunity for the LDCs to reassess their national development strategies, rethink their global alliances and reposition themselves in the evolving international division of labor. …

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