Akyüz on the Global Crisis and Trade Imbalances

Yilmaz Akyüz, ex head of the macroeconomic and development division at UNCTAD, and chief economist at the South Centre has a new post on global imbalances. He says:

International trade has been the single most important channel of transmission of contractionary impulses from the financial crisis and recession in the US and the EU. After growing at an average rate of some 7 per cent per annum, the volume of imports by Advanced Economies (AEs) first decelerated sharply in 2008 and then fell by 12 per cent in 2009, largely because of the decline in imports by the US. It bounced back in 2010 due to a broad-based recovery, but lost momentum as Europe went into tailspin. Growth of total volume of imports by AEs barely reached 1 per cent in 2012. In order to avoid a sharp deceleration of growth, Developing Countries (DCs) have had to rely on their own markets or South-South trade. In fact, given the widespread economic downturn in AEs, the latter have also sought expansion in developing country markets in order to kick-start recovery.

Read the rest here.

South facing unfavourable global conditions

By Ylmaz Akyüz

The high-growth performance of many developing countries in 2003 to 2008 and then their quick recovery from the 2008-9 global financial crisis was largely due to favourable external conditions, including the policies in developed countries. (This was analysed in the previous issue of South Bulletin). However, these conditions do not exist today and in fact the global conditions have turned unfavourable. Hence developing countries are now facing serious vulnerabilities and risks to their economic situation, with each category of countries facing their own specific problems. Developing countries have to consider changing their growth and development strategies, in light of the changing global situation.

Read the rest here.

State of the World Economy: A South Centre's Perspective

During last Rio+20 Conference the South Centre organized a session with some local economists on the state of the world economy, which to a great extent reflects the views of their chief economist Yilmaz Akyüz (hat tip to Butch Montes for the link). Their views tend to be very pessimistic about the possibilities of sustained growth in the periphery and the continuity of the so-called double speed recovery, fast in the periphery and slow in the center.

For them the boom in the periphery in the New Millennium was caused by the commodity boom, and that, in turn, was dependent on China's exceptional growth record, which was heavily dependent on exports to developed countries. So the castle of cards is about to fall.

My views are slightly different (see here and here). I tend to think that Chinese growth may very well slow down, but may continue on the basis of domestic demand, and the structural transformation of the economy that will have to incorporate hundred millions in the next decades in the urban centers. Also, although the commodity boom eased the external constraint in other parts of the periphery, a lot of the growth was the result of the expansion of domestic demand too.

Also, as noted by the last Trade and Development Report by UNCTAD the expansion in several parts of the periphery has been based on higher rates of wage expansion, in other words, it has been based on an improvement of income distribution and higher domestic demand, in contrast to the stagnating wages in the center.

Finally, it is important also to note that commodity prices may also respond to speculation (as noted in the TDR report above), which explains the volatility of prices in the last decade, but also, as noticed in a recent paper by Franklin Serrano the supply conditions, and may for that reason be less vulnerable to a slowdown in China. In his view, part of the explanation of higher prices is the result of the revival of natural resource nationalism in a large number of developing countries, which has increased the state control of oil reserves and substantially raised the royalty rates and, the absolute rent component of the price of production of commodities.

So, perhaps China will still grow at a reasonably fast rate, and commodity prices might continue at relatively high levels, and there will still be some space for developing countries that do not decide, by doing fiscal adjustments of their own (yes I'm thinking about Latin Americans in particular), to cool down their economies to continue to grow. Sure enough a collapse of the euro, and of world trade, and a run for quality (towards dollars) might as well, as Abraracourcix feared, imply that the sky will fall on our heads, par Toutatis!