The Hindu : India, China immune from global slump

Online edition of India's National Newspaper
Wednesday, May 01, 2002

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India, China immune from global slump — UNCTAD

By Our Special Correspondent

NEW DELHI APRIL 30. The United Nations Trade and Development Report 2002 expects only India and China to weather the reversal in the global economy in the Asian region which is expected to have a moderate improvement from the low levels of 2001. Other countries in Asia which are heavily dependent on exports have recently relied more on internal demand for their expansion but this may not be sufficient for sustained growth in the absence of a recovery in world.

The annual report prepared by the U.N. Conference on Trade and Development (UNCTAD) released here on Monday notes that the industrial countries seem unlikely to return quickly to the 3 per cent growth that is needed to support a strong increase in employment and income in the developing world. It is also unlikely that there will be substantial increase in demand for developing country exports, a major recovery in commodity prices or a strong increase in capital inflows to offset these tighter external constraints.

"The indications are consequently of a persistence of slower economic growth in developing countries with only a few managing to sustain expansion at rates similar to those of the early 1990s," the report says.

Indicating that the outlook for external capital flows seems unfavourable, the report says this assumes increased importance given the prospects for exports and current account balances for most developing countries. It predicts that the least affected by these conditions will be the emerging market economies in East and South Asia, most of which have recently been running current account surpluses and have relatively high ratios of foreign exchange reserves to their short term external debt.

The report points out that growth in the world economy slowed sharply in 2001. Performance was weak in all three leading economic regions in the developed world and the spillover effects on developing countries were much stronger than in previous downturns in the 1990s. Several emerging market economies in East Asia and Latin America entered into recession. Only China and India, "two large and relatively closed economies," it says , were by and large immune from the downward pressure of world markets.

The report notes that for the world economy, much still hinges on the strength of the U.S. recovery. A likely outcome, it maintains, is that the U.S. economy would stabilise at a low but positive rate of growth. Such an eventuality would have limited knock on effects for Europe and Japan, both of which are still dependent on an export-led upturn.

In such a context of slow global growth, UNCTAD feels improved market access could provide a useful boost to activity in developing countries and greater use of regional trade and financing mechanisms may provide relief from external constraints and protection against financial instability. Nevertheless, it points out that many developing countries will continue to require substantial official financial support if they are to be protected from the effects of the difficult external economic environment.

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