PRESS BRIEFING ON 2002 TRADE AND DEVELOPMENT REPORT

There was very little optimism concerning the possibility for developing countries to return to the kinds of growth rates required to increase their per capita incomes, Jan Kregel, Senior Economic Adviser, United Nations Conference on Trade and Development (UNCTAD), told correspondents this morning at a Headquarters press briefing.

Launching the 2002 Trade and Development Report, he said that Part I of UNCTAD's flagship publication dealt with current conditions in both developed and developing countries and attempted to assess the impact of growth policies in developed countries on the prospects for development.  Part II dealt with the attempt by developing countries to become more fully integrated into the global trading system and looked at that attempt over the last 10-15 years in relation to the recent World Trade Organization (WTO) Ministerial Conference, held in Doha, Qatar in November 2001.  Also, a final chapter dealt with China in light of its recent accession to the WTO.

In looking at the performance of the global economy, particularly of the developed economies, he said that although the United States economy had entered into a deep recession starting in the spring of 2001, the recession had tended to be short.  That did not mean that recovery to growth conditions seen in the last decade was imminent.  Rather, it was likely that the United States economy would continue to grow at rates substantially below the rates experienced in the 1990s, ranging from 1 to 1.5 per cent.

In the recovery from the recession in 1991, he continued, the United States economy had been predicted to recover, and the private sector did start to increase its investment, but the consumer had lagged behind.  There was little increase in consumption and the economy had gone back into decline.  So, the recovery had been slow and protracted.  The current recovery would probably also be slow and protracted but it would differ from the 1991 recovery because the current recovery was driven by the consumer rather than by private sector investment.  This time it was private sector investment that was lagging behind. 

The collapse of the high technology sector that occurred in the economy in 2000 had left many of the most forceful areas of growth in the economy with substantial excess capacity and over-investment.  Until that over-investment had been worked off and until new investment opportunities were set up, it was unlikely that investment was going to recover.  Until investments started to increase dramatically, there would not be a sustained and substantial recovery.

The impact of that on the developing world was that developing country growth rates would continue to be stagnant, he said.  The European recovery would probably be as slow as that of the United States.  Japan was still struggling with a sustained recession.  Therefore, global growth would probably not be higher than 2 to 2.5 per cent in 2002.  The UNCTAD usually used a benchmark of 3 per cent as the global growth rate required to provide developing countries with the possibility of improving their growth rates.  Thus, with the global economy below 3 per cent, developing countries would not be able to meet their growth potential in the current year.     

One of the things the Report looked at was the relationship between the shift from primary commodity production to manufacturing goods production in developing countries and the impact that had on the ability of those countries to use that change in the pattern of their exports to increase their growth rates.  What the Report found was that although developing countries had increased their share of global manufacturing exports, the increase in value added had been much lower, he said.  That was because the prices of the manufacturing commodities the developing countries were producing were tending to fall relative to the manufactured goods produced in developed countries. 

One of the explanations for that was the increase in the use of international production networks, he went on.  Transnational corporations now had the ability, as a result of trade liberalization and increased globalization, to separate the various stages of production across geographical regions.  In general, they would attempt to locate the particular stages of production in those economies where labour costs tended to be lowest. 

That, he continued, had two impacts for developing countries.  The first was that if they moved into manufactured goods and were part of those production chains, their exports had a high import content.  The net benefit on the economy of the exports was reduced due to the high import content.  The second impact was that in determining those locations, corporations were always looking for the lowest possible costs so that developing countries were in effect selling cheap labour in the international market.

In response to a question on the balance of trade for 2002, he said the balance of trade for Latin America would deteriorate and the deficit would increase.  In the United States, the deficit would remain more or less stable and Japan had a surplus, which would be increasing.  The balance of trade in the European Union should remain stable or improve slightly, whereas in the Asian economies, it was expected to deteriorate.  The improvement was going to come primarily in terms of the developed countries.

While UNCTAD had not made a formal forecast of growth rates for this year, informally he said that global growth rates would not be above 2 per cent.  It would depend on what policy measures were adopted and what sort of political decisions were taken. 

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