The world economy is on a brink. Since December last, the world's leading economies have been pouring billions of dollars in a desperate bid to forestall anything like the Depression of 1930s. Now, their leaders head off to London for possibly the most crucial economic summit of our times, searching for the "green shoots" of recovery, at home, and around the globe.
In the run up to the April 02 summit of world leaders in London, the International Monetary Fund (IMF), in its latest update on its much watched World Economic Outlook, has come out with more bad news -- news which seems to get worse at every update. The latest prediction is that the world economy will shrink for the first time in the postwar era.
In 2009, world GDP is slated to decline by 0.5 to 1.0 per cent. Industrialised countries are expected to register negative growth of 3.0 to 3.5 per cent. Developing countries, which averaged 5.0 per cent growth for the past decade, will only be growing by 1.5 to 2.5 per cent, according to IMF. Not until 2010, says the IMF, is the world economy expected to revert to positive growth, as the stimulus package unleashed worldwide will need time to take hold.
As if this was not bad enough, Pascal Lamy, vociferous Director General of the World Trade Organisation (WTO), announced WTO's latest projections of world trade for 2009. World trade volume is slated to shrink 9% in 2009, also for the first time since the second World War. Exports from the developed countries are expected to fall by 10% while those from developing countries, 2.0-3.0%. As the recession deepens, and production sags, trade volumes shrink. In tandem with the credit squeeze in financial markets and declining cross-border financial flows, depleted trade finance has been making matters worse.
Recall that throughout the post-war period, world trade growth outpaced output growth, creating jobs and income around the world. Trade had become an engine of global prosperity. So Pascal Lamy chose to sound a note of warning as the WTO observed rising protectionism around the globe lately - in rich countries and emerging markets alike - which he rightly believes will "choke off" trade, a potent engine for the economic recovery that is the target of global leaders meeting in London. Drawing lessons from the 1930s beggar-thy-neighbor tariff increases that literally destroyed world trade and made the Depression worse, WTO is carefully monitoring trade policy developments, urging governments not to make the situation worse by reverting to protectionism.
All said, world leaders will have to confront a number of burning issues, some inherently contentious. A pre-summit meeting of Finance ministers last week sought to thrash out existing differences of which there are quite a few. Too much is at stake for world leaders to let this opportunity go without a well coordinated approach to turning the global economy around in as short a time as possible. Below is a glimpse of some of the key concerns on the table.