Latest data from the 2013 United Nations Conference on Trade and Development (Unctad) report indicated that forecasts for world output growth, for the year 2013, are expected to see further decrease.
“What we’re expecting is that the developed economies will continue to lag behind the world average, and that developing and transition economies will maintain similar levels of growth from the year before,” Unctad economist Diana Barrowclough told CNBC Africa.
“The big new trend is the continued growth of South-South exports and contribution to GDP. What we see now is that South-South growth accounts for 45 per cent of GDP, so that’s a huge tectonic plate shift in the global economy.”
Unctad’s report states that developed countries will need to start acting decisively to address the fundamental causes of the crisis. These include rising income and equality, the diminishing economic role of the state, and an international system which is still prone to global imbalances.
Barrowclough added that reverting to pre-crisis growth strategies is also no longer a valid path as countries have begun to depend on domestic consumption from the more advanced economies.
“Export-led growth is not going to be the primary goal for a successful development strategy. Rather, what we argue in the report, is there needs to be more reliance on domestic-led growth and regional [led growth],” Barrowclough explained.
“The advantage for many developing countries is large populations, billions of people starting to be consumers on a scale that we haven’t seen before. The pre-crisis strategy, we can’t go back to that, but what we do face is quite big challenges in making the move that’s needed to go to more domestic-led consumption.”
The report suggests that governments should be implementing structural changes to take advantage of domestic growth potential, these include job creation policies and wage restructuring.
“We often think that low wages are seen as a way to get cost down, which is successful for export-led growth. It’s not successful for domestic demand-led growth because workers are also consumers and they’re tax payers. Higher wages will help to boost their consumption and help to pay tax back to government,” said Barrowclough.
A regional integration approach for developing countries is also needed to decrease the reliance of export and import markets in Asia and America.
“Imagine that one country is trying very hard to beef up domestic consumption and trying to increase imports from neighbouring countries. It’s important that neighbouring countries are also following a similar strategy, otherwise we’ll end up in a situation where countries have balance and payments constraints,” she said.