UN - World Economic Situation and Prospects 2011

8/6/2019 UN - World Economic Situation and Prospects 2011

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World Economic Situationand Prospects 2011

asdfUnited Nations

New York, 2011


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Note

The designations employed and the presentation o the material in this publication do not imply the expressiono any opinion whatsoever on the part o the Secretariat o the United Nations concerning the legal status o

any country or territory or o its authorities, or concerning the delimitations o its rontiers.

The term country as used in the text o the present report also reers, as appropriate, to territories or areas.

The designations o country groups in the text and the tables are intended solely or statistical or analytical

convenience and do not necessarily express a judgement about the stage reached by a particular country or

area in the development process.

Mention o the names o frms and commercial products does not imply the endorsement o the United

Nations.

Symbols o United Nations documents are composed o capital letters combined with fgures.

United Nations publication

Sales No. E.11.II.C.2

ISBN 978-92-1-109162-5

Copyright United Nations, 2011

All rights reserved

Printed at the United Nations, New York


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iii

Acknowledgements

Te report is a joint product o the United Nations Department o Economic and Social Aairs (UN/DESA), the UnitedNations Conerence on rade and Development (UNCAD) and the ve United Nations regional commissions(Economic Commission or Arica (ECA), Economic Commission or Europe (ECE), Economic Commission or Latin

America and the Caribbean (ECLAC), Economic and Social Commission or Asia and the Pacic (ESCAP) and Economicand Social Commission or Western Asia (ESCWA)).

For the preparation o the global outlook, inputs were received rom the national centres o Project LINK androm the participants at the annual LINK meeting held in New York rom 20 to 22 October 2010. Te cooperation andsupport received through Project LINK are grateully acknowledged.

Te United Nations World ourism Organization (UNWO) contributed to the section on internationaltourism.

Te report has been prepared by a team coordinated by Rob Vos and comprising sta rom all collaboratingagencies, including Grigor Agabekian, arik Alami, Clive Altshuler, Shuvojit Banerjee, Sudip Ranjan Basu, Jerey Bliss,

Alredo Calcagno, Rodrigo Crcamo, Jaromir Cekota, Ann DLima, Oumar Diallo, Adam Elhiraika, Kumi Endo,Pilar Fajarnes, Heiner Flassbeck, Marco Fugazza, Samuel Gayi, Sergei Gorbunov, Cordelia Gow, Yejin Ha, Aynul Hasan,Pingan Hong, Alberto E. Isgut, Alex Izurieta, Osvaldo Kace, Jane Karonga, Matthias Kemp, John Kester, Detle Kotte,Nagesh Kumar, Alexandra Laurent, Daniel Jeongdae Lee, Hung-Yi Li, Muhammad Hussain Malik, Sandra Manuelito,

Joerg Mayer, Nicolas Maystre, Simon Neaime, Victor Ognivtsev, Ann Orr, Oliver Paddison, Jos Palacin, Ingo Pitterle,

Marco V. Snchez, Benu Schneider, Krishnan Sharma, Robert Shelburne, Amos aporaie, Alexander repelkov,Aimable Uwizeye-Mapendano, Sergio Vieira, Jrgen Weller, Yasuhisa Yamamoto and Anida Yupari.

Jomo Kwame Sundaram, Assistant Secretary-General or Economic Development, provided commentsand guidance.

For further information, see http://www.un.org/esa/policy or contact:

DESA:

Mr. Sha Zukang, Under-Secretary-General, Department o Economic and Social Aairs, Room DC2-2320,United Nations, New York, NY 10017, USA; telephone: +1-212-9635958; email: [email protected]

UNCTAD:Mr. Supachai Panitchpakdi, Secretary-General, United Nations Conerence on rade and Development,Room E-9042, Palais de Nations, CH-1211, Geneva 10, Switzerland; telephone +41-22-9175806;email: [email protected]

ECA:

Mr. Abdoulie Janneh, Executive Secretary, United Nations Economic Commission or Arica, P.O. Box 3005,Addis Ababa, Ethiopia; telephone: +251-11-544 3336; email: [email protected]

ECE:

Mr. Jn Kubi, Executive Secretary, United Nations Economic Commission or Europe, Inormation Service,Palais des Nations, CH-1211, Geneva 10, Switzerland; telephone: +41-22-9174444; email: [email protected]

ECLAC:

Ms. Alicia Brcena, Executive Secretary, Economic Commission or Latin America and the Caribbean,Av. Dag Hammarskjold 3477, Vitacura, Santiago, Chile; telephone: +56-2-2102000; email: [email protected]

ESCAP:

Ms. Noeleen Heyzer, Executive Secretary, Economic and Social Commission or Asia and the Pacic,United Nations Building, Rajadamnern Nok Avenue, Bangkok 10200, Tailand; telephone: +66-2-2881234;email: [email protected]

ESCWA:

Ms. Rima Khala, Executive Secretary, Economic and Social Commission or Western Asia, P.O. Box 11-8575,Riad el-Solh Square, Beirut, Lebanon; telephone: +961-1-978800; website: http://www.escwa.un.org/about/sta.asp

Cover photo credits:

iStockphoto.com/Konstantin Inozemtsev


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v

Executive Summary

The global economic outlook

Weaker global growth is expected in 2011 and 2012

Ater a year o ragile and uneven recovery, global economic growth started to decelerateon a broad ront in mid-2010. Te slowdown is expected to continue into 2011 and 2012as weaknesses in major developed economies continue to provide a drag on the global re-covery and pose risks or world economic stability in the coming years. Te unprecedentedscale o the policy measures taken by Governments during the early stage o the crisis nodoubt helped stabilize nancial markets and jump-start a recovery. Te policy response

weakened during 2010, however, and is expected to be much less supportive in the nearterm also, especially as widening scal decits and rising public debt have underminedsupport or urther scal stimuli. Many Governments, particularly those in developed

countries, are already shiting towards scal austerity. Tis will adversely aect globaleconomic growth during 2011 and 2012.

as multiple risks to the recovery remain

Despite the notable progress made in reducing the share o troubled assets in the bankingsector, multiple risks remain. Real estate markets may deteriorate urther, credit growthremains eeble, and levels o unemployment are persistently high. Most countries havekept in place, or even intensied, policies o cheap money (low interest rates and quantita-tive easing) in eorts to help nancial sectors return to normalcy and stimulate economicactivity as scal stimuli are being phased out. Tis has, however, added new risks, includ-ing greater exchange-rate volatility among major currencies and a surge o volatile capitalows to emerging markets, which have a lready become a source o economic tension andcould harm the recovery in the near term. Such tensions have weakened the commitmentto coordinate policies at the international level, which in turn has made dealing with theglobal imbalances and other structural problems that led to the crisis, as well as those that

were created by it, all the more challenging.

The global recovery has been dragged down by the developed economies

World gross product (WGP) is orecast to expand by 3.1 per cent in 2011 and 3.5 per centin 2012. Te recovery may, however, suer setbacks and slow to below 2 per cent, whilesome developed economies may slip back into recession i several o the downside riskstake shape.

Among the developed economies, the United States of America has been on

the mend rom its longest and deepest recession since the Second World War, but hasnonetheless been experiencing the weakest recovery pace in history. Although the level ogross domestic product (GDP) will return to its pre-crisis peak by 2011, a ull recoveryo employment will take at least another our years. Growth in many European countries

will also remain low; drained by drastic scal cuts, some may continue to be in recession.Growth in Japan wil l also decelerate notably.


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vi World Economic Situation and Prospects 2011

Developing country growth will also moderate

Developing countries and the economies in transition continue to drive the global recovery,but their output growth is also expected to moderate during 2011 and 2012. DevelopingAsia continues to show the strongest growth perormance. Strong growth in major devel-oping economies, especially China, is an important actor in the rebound in global trade

A decelerating global recovery

Percentage change in world gross product

4.0

3.6

4.1 4.03.5

1.6

-2.0

3.6

3.1

-3

-2

-1

0

1

2

3

4

5

2004 2005 2006 2007 2008 2009 2010a 2011b 2012b

Baselin

e

Optimist

ic

Pessim

istic

Source: UN/DESA andProject LINK.

Note: For the baselineorecast assumptions, see

box I.1. The pessimisticscenario reers to a situation

o enhanced macroeconomicuncertainty in the outlook

(see box I.4), while theoptimistic scenario is oneo limited, but improved,

international policycoordination (see box I.5).

a Partly estimated.

b United Nations orecasts.

Percentage

Developing country growth is leading the recovery

Developed

economies

Economies in

transition

Developing

economies

Least developed

countries

2009

2010a

2011b

2012b

-8

-6

-4

-2

0

2

4

6

8


a Partly estimated.b United Nations orecasts.


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viiExecutive Summary

and commodity prices, which is beneting growth in Latin America, the Commonwealth ofIndependent Statesand parts oAfrica. Yet, the economic recovery remains below potentialin all three regions. Te uel-exporting economies oWestern Asia have not levelled oilproduction ater the cutbacks made in response to the global recession; hence, the recoveryin this region is also below pre-crisis levels o output growth.

Formidable challenges remain or the long-run development o many low-income countries. In particular, the recovery in many o the least developed countries(LDCs) will also be below potential.

The outlook or employment, achievement o theMillennium Development Goals and ination

Between 2007 and the end o 2009, at least 30 million jobs were lost worldwide as a resulto the global nancial crisis. Despite a rebound in employment in parts o the world, espe-cially in developing countries, the global economy will still need to create at least another22 million new jobs in order to return to the pre-crisis level o global employment. At the

current speed o the recovery, this would take at least ve years.

Long-term unemployment is rising

Owing to the below-potential pace o output growth in the recovery, particularly indeveloped economies, ew new jobs have been created to rehire those workers who have beenlaid o. As more Governments are embarking on scal tightening, the prospects or a quickrecovery o employment look even gloomier. Te longer term employment consequences othe present crisis are already becoming visible, as the share o the structurally or long-termunemployed has increased signicantly in most developed countries since 2007.

Percentage share of labour force

Persistent high unemployment in developed countries

5

6

7

8

9

2005 2006 2007 2008 2009 2010a 2011b 2012b

Source: UN/DESA.

a Partly estimated.b United Nationsbaseline orecasts.


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viii World Economic Situation and Prospects 2011

The recovery o employment has been aster in developing countries

Workers in developing countries and economies in transition have also been severely a-ected by the crisis, although the impact in terms o job losses emerged later and was muchmore short-lived than in developed countries. Te impact on aggregate employment wasalso sotened by the absorption o many workers into the inormal sector, although many

more workers have ended up in more vulnerable jobs with lower pay as a result. Job growthin developing countries started to rebound rom the second hal o 2009; by the end o therst quarter o 2010, unemployment rates had already allen back to pre-crisis levels in anumber o developing countries.

The crisis has caused important setbacks in progress towards the MDGs

Te economic downturn has caused important setbacks in progress towards the MillenniumDevelopment Goals (MDGs). Achieving the millennium target o halving global povertyrates by 2015 (rom 1990 levels) is within reach or the world as a whole, although it willnot be met in sub-Saharan Arica nor, possibly, in parts o South Asia. However, the crisishas signicantly increased the challenge o achieving targets or universal primary educa-

tion, reducing child and maternal mortality and improving environmental and sanitaryconditions. Te requirements or stepping up economic growth and social spending posedsignicant macroeconomic challenges even beore the crisis; these have become all themore pressing in cases where setbacks have been the greatest. Unortunately, the mood orscal tightening is taking hold even in those developing countries with a policy intentiono saeguarding priority social spending. Tis is a worrying trend, particularly whereGDP growth is still well below potential and tax revenues have declined signicantlybecause o the crisis. Among the many low-income countries especially, sucient supportthrough ocial development assistance (ODA) will be critical or enabling stepped-upeorts to achieve the MDGs.

Ination does not pose a present danger, except in parts o South Asia

he current rates o headline ination have stayed at very low levels despite the massivemonetary expansion. Except in some Asian economies, where increasingly strong ina-tionary pressures reect a combination o supply and demand-side actors, inationaryexpectations are likely to remain muted in the near uture owing to the stagnation incredit growth, alongside wide output gaps and elevated unemployment in most developedeconomies.

Trade and commodity prices

The rebound in world trade decelerated during 2010

World tradecontinued to recover in 2010, but the momentum o the strong growth ob-served in the rst ha l o the year has started to peter out. While the volume o exports omany emerging economies has already recovered to, or beyond, pre-crisis peaks, exportso developed economies have not yet seen a ull recovery. In the outlook, world trade isexpected to grow by about 6.5 per cent in both 2011 and 2012, moderating rom the 10.5per cent rebound in 2010.


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ixExecutive Summary

Despite the gradual recovery o the past two years, the value o imports o thethree largest developed economies was still signicantly below pre-crisis peaks by August2010. Meanwhile, export recovery in these economies is mirrored in the ast growth o im-ports by countries in East Asia and Latin America. Te question now is whether emergingeconomies can continue to act as the engines o world trade growth in the outlook, par-

ticularly as the dynamics o the initial phase o the recovery seem to be ading and asgrowth in developed countries remains sluggish.

Financial actors are exacerbating thevolatility in ood and other commodity prices

Most commodity prices have rebounded. Te world price o crude oil uctuated around$78 per barrel during 2010, up rom an average o $62 or 2009. However, oil prices areexpected to decrease somewhat in 2011. World prices o metals ollowed a similar trend in2010 and are expected to edge up only slightly in 2011 and 2012.

Food prices declined during the rst hal o 2010, but rebounded in thesecond. While the expansion o global acreage and avourable weather patterns in keyproducing areas helped increase global ood supplies considerably during 2009 and early2010, adverse weather conditions in mid-2010 aected the harvests o basic staples. In ad-dition, speculation amplied many commodity prices. Food prices will remain vulnerableto supply shocks and speculative responses in commodity derivatives markets.

International nance or development

Net transers rom developing to developed countriesincreased again in 2010 and are set to continue on this trend

Developing countries as a group continued to transer vast amounts o nancial resourcesto developed countries. In 2010, net transers amounted to an estimated $557 billiona

slight increase rom the level registered in the previous year. As has been the pattern ormore than a decade, much o the net transers reect additional reserve accumulation bydeveloping countries. In the outlook, net resource transers rom developing countries areexpected to increase moderately along with the projected widening o current-account im-balances. Tis continuation o the pre-crisis pattern, in which, on balance, poor countriestranser signicant amounts o resources to much richer nations, is also a reection o theneed elt by developing countries to continue to accumulate oreign-exchange reservesas a orm o sel-protection against global economic shocks. Instances o global nancialmarket turbulence, increased exchange-rate volatility among major reserve currencies anda surge in short-term private capital ows have added to the sense o high macroeconomicuncertainty and the perceived need or sel-insurance.

Net private capital ows to developingcountries have increased signicantly

Net private capital ows to developing countries have recovered strongly rom their slumpin 2008 and early 2009. Investors are searching or higher returns, and economic growthin emerging and other developing economies has been much stronger than in advancedeconomies; also, extensive monetary easing has kept interest rates very low in the latter.


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With continued ragility and the substantial excess liquidity in developed nancial mar-kets, investors have shited parts o their portolios to emerging markets. Much o thesurge in private capital ows to developing countries has taken the orm o short-term, andprobably volatile, equity investments, though oreign direct investment (FDI), especiallyin the extractive industries o commodity-exporting economies, has also increased.

The crisis has increased the need or ODA,but has complicated the delivery on commitments

Te global nancial crisis and economic recession o 2008 and 2009 negatively impactedmany developing countries and put a severe strain on many low-income countries, makingthe delivery o committed ODA even more critical. Although net transers to low-incomecountries have remained positive during 2010, the ragile recovery in developed countriesand the possible threat o a double-dip recession create considerable uncertainty about theuture volume o ODA ows. Moreover, aid delivery is alling short o commitments bythe donor community.

The debt situation in many developing

countries has improved, but problems remain

Despite improvements in the debt position o many developing countries prior to the cri-sis, some countries, including some small middle-income countries, remain in vulnerablesituations. In the wake o the crisis, other developing economies have moved into morecritical debt positions. Te total external debt (public and private) o developing countriesas a share o GDP rose to 24.8 per cent in 2009, an increase o 2.2 percentage points overthe previous year, while the downward trajectory o the debt service-to-exports ratio was

Billions of dollars

Net financial transfers from poor to rich countries still flow at an increased rate

Low-income countriesLower middle

income countriesUpper middle

income countriesAll developing

countries

Average 2000-2008

2009

2010

-600

-500

-400

-300

-200

-100

0

100

Source: UN/DESA, based onInternational Monetary Fund

(IMF), World Economic OutlookDatabase, October 2010 and

IMF, Balance o PaymentsStatistics.


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xiExecutive Summary

reversed because o the negative impact o the crisis on the dollar value o both GDP andexports. As a result, the average external debt-to-export ratio o developing countries andtransition economies increased rom 64.1 per cent in 2008 to 82.4 per cent in 2009. Inmany countries, debt ratios increased even more signicantly, as managing the impact othe crisis resulted in rapid increases in public debt. Despite the generous debt relie pro-

vided, 13 (out o 40) heavily indebted poor countries (HIPCs) are classied as being indebt distress or at high risk o debt distress, while 7 non-HIPC low-income countriesare identied as acing debt problems.

Te persisting external debt problems among both low- and middle-incomecountries and the surge o sovereign debt distress among a number o developed countriespoints to the limits o the existing arrangements or dealing with debt problems. It alsopoints to the urgent need or setting up an international sovereign debt workout mecha-nism which would al low countries to restructure their debt in a timely and comprehensivemanner.

Some progress has been made towards providinga better ramework or regulating the nancial sector

A reorm agenda set out by the Group o wenty (G20) envisaged the introduction omacroprudential supervision that would take due account o systemic risk and the overallstability o the nancial system, including pro-cyclicality and moral hazard caused byactivities o systemically important nancial institutions. A new capital and liquidity re-orm package, Basel III, was agreed upon and issued by the Basel Committee on BankingSupervision. Tis is an important step orward, as it requires banks to hold larger amountso capital and reserves against outstanding loans so as to increase their resilience undermore turbulent nancial market conditions. However, these new capital and liquiditystandards apply only to banks. Consequently, more also needs to be done to address risksoutside the traditional banking system (investment banks, hedge unds, derivatives mar-kets, and so orth), which represented a major actor in generating the global crisis in

2008. Te new standards and rules will have to be made applicable across dierent typeso nancial markets and inst itutions oering similar products.

Uncertainties and risks

Key uncertainties and risks to the baseline scenario or 2011 and 2012 are slanted towardsthe downside.

Fiscal austerity could risk urther deceleration o the recovery

Despite continued ragile recovery, the sense o urgency and the will to move scal andmonetary policies in tandem dissipated during 2010 over worries, especially in developed

countries, that scal sustainability could be in jeopardy. Such worries are juxtaposed toears that the phasing-out o scal stimulus and a quick retreat into scal austerity wouldrisk urther deceleration o the recovery and ail to bring unemployment down, whilepublic debt ratios would continue to rise because o insucient output growth.

Since budget decits have widened sharply, public debt o developed countrieswill continue to increase, even under conservative assumptions, surpassing 100 per cento GDP, on average, in the next ew years. Governments o many advanced economies


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will thus ace large and increasing unding needs. At the same time, the risk o enhancednancial ragility has increased because o the way in which public indebtedness becamelinked to the health o the banking sector during the crisis: while Governments haveguaranteed vast amounts o bank liabilities, banks have been purchasing large amounts ogovernment securities. As a result, a heightened risk or the nancial health o one o these

two parties will eed into the other, possibly orming a vicious circle that could ampliy therisk throughout the whole economy.

Increased exchange-rate instability remains a risk

he exchange rates among major currencies experienced high volatility during 2010, withescalated tension spreading rapidly to other currencies. Te ailure to maintain exchange-rate stability among the three major international reserve currencies has also aected cur-rencies o emerging economies. he surge in capital inows to emerging economies, uelledby the quantitative easing in developed countries and portolio real location by internationalinvestors, as well as by the weakening o the dollar, has led to upward pressure on theexchange rates o some emerging economies. Developing countries have responded by in-tervening in currency markets and/or imposing capital controls to avoid soaring exchange

rates, loss o competitiveness and inating asset bubbles. Currency instability and perceivedmisalignment o exchange rates could become part o a major skirmish over trade, whichmay well turn into a wave o protectionist measures and retaliations worldwide, once againrisking derailment o global growth and destabilization o nancial markets.

as does an uncoordinated rebalancing o the world economy

Te global imbalances may widen again, which in turn could eed more instability backinto nancial markets. Prospects or narrowing the imbalances will depend on how suc-cessul economies will be in making structural adjustments. However, the path o theseadjustments is unclear, particularly given the uncertainties about how the risks o a urtherslowing o growth and the persistence o high rates o unemployment, sovereign debt

problems and urther exchange-rate instability will a ll play out. Even i the global imbal-ances do not edge up signicantly in the near term, the underlying adjustment in stockso international asset and liability positions would continue to move in a risky direction,particularly as the global nancial crisis has caused a surge in net oreign liabilities o theUnited States.

More quantitative easing and a urther depreciation o the dollar might be away or the United States to try to inate and export its way out o its large oreign liabilityposition, but it would more likely risk disruption o trade and nancial markets. Moreover,dollar weakness poses a threat because it increases import prices in the United States, the

worlds largest consumer market, and thus erodes purchasing power. Tis could lead to adecline in global trade, constituting the antithesis o the United States consumption boomthat uelled global economic growth beore the nancial crisis.

Accordingly, i concerns grow about exports being hit by dollar weakness,developing countries will understandably eel inclined to intervene in their oreign-exchange markets, as is already the case. However, requent intervention in oreign-exchange markets increases the potential or international currency and trade conicts,

which could urther undermine the international cooperation shaped at the level o theG20. A urther waning o the commitment to international policy coordination will be anadded liability or the prospects o a balanced and more sustained global recovery.


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xiiiExecutive Summary

Policy challenges

Five major policy challenges need to be addressed

Te potentially damaging spillover eects o national policies once again highlight theneed or strengthened international policy coordination. Unortunately, during 2010, the

cooperative spirit among policymakers in the major economies has been waning. WorldEconomic Situation and Prospects 2011 suggests that avoiding a double-dip recession andmoving towards a more balanced and sustainable global recovery would require that atleast ve related major policy challenges be addressed.

First, continued and coordinated stimulus

First, by using the ample scal space that is still available in many countries, additionalscal stimulus, in tandem with appropriate monetary policies, is needed in the short runto boost the global recovery. Such action should be adequately coordinated among themajor economies to ensure a reinvigoration o global growth that will a lso provide externaldemand or those economies which have exhausted their scal space. Absent a new net

scal stimulus and aster recovery o bank lending to the private sector, growth is likely toremain anaemic in many countries in the oreseeable uture.

Second, redesigning scal stimulus

Second, scal policy needs to be redesigned to strengthen its impact on employment andaid in the transition towards promoting structural change or more sustainable economicgrowth. A prudent policy would be to target public investments with a view to a lleviatinginrastructure bottlenecks that mitigate growth prospects. One priority area would be toexpand public investment in renewable clean energy as part o commitments to reducegreenhouse gas (GHG) emissions, and in inrastructure that provides greater resilienceto the eects o climate change. Another area might be to expand and improve publictransportation networks, which would create potentially signicant amounts o new jobs

while at the same time helping to reduce GHG emissions, particularly in rapidly urbaniz-ing environments. Social protection policies are another crucial element in cushioning theimpact o economic shocks, boosting aggregate demand and contributing to the sustain-ability o economic growth.

Third, more efective monetary policy andaddressing international spillover efects

Te third challenge is to nd greater synergy between scal and monetary stimulus, whilecounteracting damaging international spillover eects in the orm o increased currencytensions and volatile short-term capital ows. Tis will require reaching agreement aboutthe magnitude, speed and timing o quantitative easing policies within a broader rame-

work o targets to redress the global imbalances. It will also require deeper reorms onancial regulation, including those or managing cross-border capital ows, as well as inthe global reserve system in order to reduce dependence on the United States dollar.


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xiv World Economic Situation and Prospects 2011

Fourth, more predictable access to

development nance or achieving the MDGs

Te ourth challenge is to ensure that sucient resources are made available to developingcountries, especially those possessing limited scal space and acing large developmentneeds. Tese resources will be needed, in particular, to accelerate progress towards the

achievement o the MDGs and or investments in sustainable and resilient growth. Apartrom delivering on existing aid commitments, donor countries should consider mecha-nisms to delink aid ows rom their business cycles so as to prevent delivery shortalls intimes o crisis, when the need or development aid is most urgent.

Fith, more concrete and enorceabletargets or international policy coordination

Te th challenge is to nd ways to arrive at credible and eective policy coordinationamong major economies. In this regard, there is some urgency in making the G20 rame-

work or sustainable global rebalancing more specic and operational. In this context,establishing concrete current-account target zones might be a meaningul way orward.

Having clear and veriable targets or desired policy outcomes would help make partiesaccountable, while the possible loss o reputation through non-compliance would be anincentive to live up to policy agreements. Such target zones would also highlight the needor both surplus and decit countries to contribute to sustaining global eective demand.

Te target zones should not, however, be seen as an end in themselves, butrather as a guide towards a sustainable growth path or the world, which should encompassthe proposed actions to address all ve challenges listed above. Tey should also be seen asan intermediate step towards the more undamental reorms o the global reserve systemand the nancial regulation that are needed to prevent uture global nancial instabilityand meltdowns.


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Contents

Acknowledgements ..................................................................................................................................................................................... iii

Executive Summary ...................................................................................................................................................................................... v

Contents .............................................................................................................................................................................................................. xv

Explanatory Notes ......................................................................................................................................................................................... xix

I Global outlook .................................................................................................................................................. 1

Macroeconomic prospects or the world economy ................................................................................................................ 1

Growth prospects ..................................................................................................................................................................... 3

Outlook or employment ..................................................................................................................................................... 10

Prospects or achieving the Millennium Development Goals ...................................................................... 13

Continued low ination ........................................................................................................................................................ 17

International economic conditions or developing countries and economies in transition ......................... 18

Returning, but risky, capital ows ................................................................................................................................... 18Rebounding world trade, volatile commodity prices ........................................................................................ 20

Declining remittances ............................................................................................................................................................ 22

Uncertainties and risks................................................................................................................................................................................ 23

Risks associated with sovereign debt and scal austerity ............................................................................... 23

Risk o increased exchange-rate instability ............................................................................................................... 28

Risks o an uncoordinated rebalancing o the world economy ................................................................... 30

Policy challenges ............................................................................................................................................................................................ 33

Continued and coordinated stimulus .......................................................................................................................... 36

Redesigning scal stimulus ................................................................................................................................................. 37

Making monetary policy more eective and addressing its international spillover eects ...... 39

Financing or achieving the MDGs and investments insustainable development in low-income countries ......................................................................................... 40

Strengthening the ramework or policy coordination ..................................................................................... 40

Appendix............................................................................................................................................................................................................. 44

II International trade ........................................................................................................................................... 47

The below-trend recovery o world trade ...................................................................................................................................... 47

Terms o trade o developing and transition economies ..................................................................................................... 49

Trends in primary commodity markets ............................................................................................................................................ 51

Markets or non-oil commodities ................................................................................................................................... 51

Agricultural commodities .................................................................................................................................................... 55

Minerals and metals ................................................................................................................................................................ 57

The oil market .............................................................................................................................................................................. 58

Trade in services ............................................................................................................................................................................................. 60

Developments in trade policy ............................................................................................................................................................... 65

The Doha Round ....................................................................................................................................................................... 65

Resumption o the trend towards more preerential trade agreements................................................ 66

The continuation o low-intensity protectionism ................................................................................................. 67


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xvi World Economic Situation and Prospects 2011

III Financial ows to developing countries ........................................................................................................ 63

Net resource transers rom poor to rich countries .................................................................................................................. 63

Private capital ows to developing countries .............................................................................................................................. 71

International nancial cooperation .................................................................................................................................................... 74

Ocial development assistance ...................................................................................................................................... 74

South-South cooperation .................................................................................................................................................... 77

Innovative sources o development nance ........................................................................................................... 77

Debt relie ...................................................................................................................................................................................... 81

Strengthening the international nancial architecture ......................................................................................................... 85

Reorm o the ramework or nancial regulation ................................................................................................ 85

Multilateral surveillance and policy coordination ................................................................................................ 88

A global nancial saety net ............................................................................................................................................... 90

The international reserve system .................................................................................................................................... 92

Strengthening global economic governance......................................................................................................... 94

IV Regional developments and outlook ............................................................................................................ 97

Developed market economies .............................................................................................................................................................. 97

North America: decelerating recovery ......................................................................................................................... 98

Developed Asia and the Pacic: diverging outlook ............................................................................................. 101

Developed Europe: cautious recovery ......................................................................................................................... 103

Economies in transition ............................................................................................................................................................................. 108

South-eastern Europe: a eeble recovery ................................................................................................................... 109

The Commonwealth o Independent States: a muted recovery ................................................................ 110

Developing economies.............................................................................................................................................................................. 114

Arica: divergent growth recovery .................................................................................................................................. 115

East Asia: moderate growth, but the outlook is still good ............................................................................... 118

South Asia: robust growth momentum ...................................................................................................................... 123

Western Asia: solid growth ater a sharp rebound ............................................................................................... 125Latin America and the Caribbean: strong economic

recovery, but diverging across countries ................................................................................................................. 128

Statistical annex

Country classication .................................................................................................................................................................................. 133

Annex tables ..................................................................................................................................................................................................... 145

Boxes

I. 1 Key assumptions or the United Nations baseline orecast or 2011 and 2012 ...................................................... 4

I. 2 Prospects or the least developed countries ................................................................................................................................ 7

I. 3 Impact o the crisis and macroeconomic challenges to

meeting the Millennium Development Goals .......................................................................................................................... 14

I. 4 A pessimistic scenario or the world economy ........................................................................................................................... 34

I. 5 Feasible policy coordination or rebalancing the world economy................................................................................. 42


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xviiContents

II. 1 The nancialization o commodity trading ................................................................................................................................... 53

II. 2 International tourism ................................................................................................................................................................................... 63

III. 1 Mechanisms underlying innovative nancing or global health ..................................................................................... 80

IV. 1 Banking systems and nancial risks in the CIS economies .................................................................................................. 112

IV. 2 Addressing global macroeconomic imbalances in East Asia ............................................................................................. 121

IV. 3 Currency appreciation in Latin America and the Caribbean .............................................................................................. 130

Figures

I. 1 Growth o the world economy, 2004-2012 ................................................................................................................................... 6

I. 2 Growth o GDP per capita, by level o development, 2000-2012 .................................................................................... 7

I. 3 Post-recession employment recovery in the United States, 1973, 1980, 1981, 1990, 2001 and 2007 ...... 11

I. 4 Proportion o working poor, 2003, 2008 and 2009 ................................................................................................................... 13

I. 5 Foreign reserve accumulation by developing countries, rst quarter 2007-second quarter 2010 ............ 19

I. 6 Volume o world merchandise trade, January 2005-August 2010 .................................................................................. 20

I. 7 Historical best case, worst case and average scenarios or the general

government gross debt burden, selected developed economies .............................................................................. 25

I. 8 Flow costs o public debt, selected emerging and other developing countries, 2000-2009 ........................ 27

I. 9 Exchange rates among major currencies, March-October 2010 ..................................................................................... 29

I. 10 Trade-weighted eective exchange rates, selected countries, March-October 2010 ........................................ 30

I. 11 Resurge in global imbalances, 1996-2011 ...................................................................................................................................... 31

I. 12 Net international investment position o the United States, 1976-2009 .................................................................... 32

II. 1 Growth o world income and o the volume o imports, 2002-2012 ............................................................................ 47

II. 2 Growth o the volume and dollar values o world exports, 2002-2012 ....................................................................... 48

II. 3a Net barter terms o trade, selected developing and

transition economies, by trade structure, 2000-2010 ........................................................................................................... 50

II. 3b Terms o trade, selected developing and transition economies, 2000-2010 ........................................................... 50

II. 4 Trade shocks by export specialization, country groups, 2001-2010 .............................................................................. 52

II. 5 Non-oil commodity price index, all groups, in dollar and SDR terms, January 2006-September 2010 ... 53

II. 6 Price indices o selected agricultural commodities, current

United States dollars, January 2006-September 2010 ......................................................................................................... 55

II. 7 Price indices o selected minerals, in current United States dollars , January 2006-September 2010 ...... 57

II. 8 Growth o exports o trade in services in current United States dollars, 2005-2009............................................ 60

II. 9 Components o liner shipping connectivity, country averages, July 2004-July 2010 ......................................... 62

III. 1a Net nancial transers to economies in transition and developing countries, 1998-2010 .............................. 70

III. 1b Net nancial transers, by income categories, 2000-2010 .................................................................................................... 70

III. 2 Net ODA o DAC members, 1990-2009, and DAC secretariat simulations to 2010 .............................................. 75

III. 3 Low-income countries in debt distress or at high risk o debt distress, October 2010 ...................................... 84

IV. 1 Unemployment rates in the G7 countries, 2008-2012 ........................................................................................................... 97

IV. 2 Evolution o United States civilian employment during the recession,

and possible uture path, June 2007-October 2013 .............................................................................................................. 99

IV. 3 Industrial production in the euro area and selected Western European economies,

second quarter 2008-ourth quarter 2010................................................................................................................................... 104


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xviii World Economic Situation and Prospects 2011

IV. 4 Industrial production, excluding construction, selected

new EU member States, October 2009-August 2010........................................................................................................... 107

IV. 5 Comparison o retail turnover in countries o the Commonwealth o

Independent States, 2009 and 2010 (January-June) ............................................................................................................. 111

IV. 6 Arica growth map ........................................................................................................................................................................................ 116

IV. 7 GDP growth in selected East Asian economies, 2009-2011 ................................................................................................ 119IV. 8 Year-on-year changes in the consumer price index in selected

South Asian economies, January 2007-July 2010 ................................................................................................................... 124

IV. 9 GDP growth in Western Asia, 2002-2012 ........................................................................................................................................ 126

IV. 10 Latin America: GDP growth rate and contribution to growth o

components o aggregate demand, 2004-2010 ..................................................................................................................... 128

IV. 11 Latin America and the Caribbean: government revenue,

expenditure and scal balances, 2006-2010 .............................................................................................................................. 132

TablesI. 1 Growth o world output, 2006-2012 .................................................................................................................................................. 5

I. 2 Frequency o high and low growth o per capita output, 20082012 ......................................................................... 9

I. 3 Growth o worker remittances to developing countries and economies in transition, 2004-2009 ........... 22

II. 1 Income gains or losses rom the terms o trade o selected developing

and transition economies, by trade structure, 2002-2010 ................................................................................................. 51

II. 2 Growth o trade in services by category, 2006-2009 ............................................................................................................... 61

II. 3 Major providers o international services among

developing countries, 1990, 2000, 2007, 2008 and 2009 ................................................................................................... 62

II. 4 Growth rate o export services o LDCs and comparison with developing countries, 2005-2009 ............. 63

III. 1 Net transer o nancial resources to developing economies

and economies in transition, 1998-2010 ...................................................................................................................................... 71

III. 2 Net nancial ows to developing countries and economies in transition, 1997-2011 ..................................... 72

III. 3 Ocial development assistance in 2009 and 2010 in relation to commitments and targets ....................... 76


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xix

Explanatory Notes

The ollowing symbols have been used in the tables throughout the report:

.. Two dots indicate that data are not available or are not separately repor ted. A dash indicates that the amount is nil or negligible.

- A hyphen (-) indicates that the item is not applicable.

- A minus sign (-) indicates decit or decrease, except as indicated.

. A ull stop (.) is used to indicate decimals.

/ A slash (/) between years indicates a crop year or nancial year, or example, 2008/09.

- Use o a hyphen (-) between years, or example, 2008-2009, signies the ull period involved, including the

beginning and end years.

Reerence to dollars ($) indicates United States dollars, unless otherwise stated.

Reerence to billions indicates one thousand million.

Reerence to tons indicates metric tons, unless otherwise stated.

Annual rates o growth or change, unless otherwise stated, reer to annual compound rates.

Details and percentages in tables do not necessarily add to totals, because o rounding.

Project LINKis an international collaborative research group or econometric modelling, jointly coordinated by

the Development Policy and Analysis Division o the United Nations Secretariat and the University o Toronto.

Data presented in this publication incorporate inormation available as at 30 November 2010.


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xx World Economic Situation and Prospects 2011

The ollowing abbreviations have been used:

ASEAN Association o Southeast Asian Nations

BCBS Basel Committee on Banking Supervision

BIS Bank or International Settlements

BRIC Brazil, China, India and RussiaCFA Communaut anancire aricaine

CIS Commonwealth o Independent States

CMIM Chiang Mai Initiative Multilateralization

Agreement

CRA credit-rating agency

CTT currency transactions tax

DAC Development Assistance Committee (o the

Organization or Economic Cooperation and

Development)

DCF Development Cooperation Forum

DFQF duty-ree, quota-ree

DRF Debt Reduction Facility

ECA Economic Commission or Arica

ECB European Central Bank

ECE Economic Commission or Europe

ECLAC Economic Commission or

Latin America and the Caribbean

ECU European Currency Unit

EMBI+ Emerging Markets Bond Index Plus

ESCAP Economic and Social Commission or

Asia and the Pacic

ESCWA Economic and Social Commission

or Western Asia

EU European Union

FAO Food and Agriculture Organization

o the United Nations

FCL Flexible Credit Line

FDI oreign direct investment

Fed United States Federal Reserve

FSAP Financial Sector Assessment Program

(o the International Monetary Fund)

FSB Financial Stability Board

FTAs ree trade agreements

FTT nancial transactions tax

G8 Group o EightG20 Group o Twenty

GAVI Global Alliance or Vaccines and Immunisation,

now called the GAVI Alliance

GCC Gul Cooperation Council

GDP gross domestic product

GHGs greenhouse gases

GNI gross national income

HICP Harmonised Index o Consumer Prices

HIPCs heavily indebted poor countries

IBRD International Bank or Reconstruction

and Development

IDA International Development AssociationIFC International Finance Corporation

IFIs international nancial institutions

ILO International Labour Organization

IMF International Monetary Fund

IMFC International Monetary and Financial Committee

LDCs least developed countries

LSCI Liner Shipping Connectivity Index

(o the United Nations Conerence

on Trade and Development)

MAP Mutual Assessment Process

mbd millions o barrels per day

MDGs Millennium Development Goals

MDRI Multilateral Debt Relie Initiative

MBS mortgage-backed securities

NAMA non-agricultural market access

NAB New Arrangements to Borrow

NGOs non-governmental organizations

NPLS non-perorming loans

NTM non-tari measures

ODA ocial development assistance

OECD Organization or Economic

Cooperation and Development

OPEC Organization o the Petroleum

Exporting Countries

pb per barrel

PCL Precautionary Credit Line

RTAs regional trade agreements

SDRs Special Drawing Rights

SIFIs systemically important nancial institutions

SGP Stability and Growth Pact

TEUs twenty-oot equivalent units

UNCTAD United Nations Conerence on

Trade and Development

UN/DESA Department o Economic and Social Aairso the United Nations Secretariat

UNICEF United Nations Childrens Fund

UNWTO United Nations World Tourism Organization

WEFM World Economic Forecasting Model

(o the United Nations)

WGP world gross product

WHO World Health Organization

WTO World Trade Organization


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1

Chapter I

Global outlook

Macroeconomic prospects or the world economyTe road to recovery rom the Great Recession is proving to be long, winding and rocky.

Ater a year o ragile and uneven recovery, growth o the world economy is now decelerat-ing on a broad ront, presaging weaker global growth in the outlook.

Weaknesses in major developed economies continue to drag the global recov-ery and pose risks or world economic stability in the coming years. Tere will be noquick x or the problems these economies are still acing in the atermath o the nancialcrisis. Te unprecedented scale o the policy measures taken by Governments during theearly stage o the crisis has no doubt helped stabilize nancial markets and jump-start arecovery, but overcoming the structural problems that led to the crisis and those that werecreated by it is proving much more challenging and will be a lengthy process. For example,

despite the notable progress made in disposing o troubled assets, many o the banksin major developed countries remain vulnerable to multiple risks. Tose risks include aurther deterioration in real estate markets, more distress in sovereign debt markets, andcontinued low credit growth associated with overall economic weakness and the ongoingdeleveraging among rms and households. Persistent high levels o unemployment, withincreasing numbers o workers that have been without a job or prolonged periods, arerestraining private consumption demand; they are also a continued cause o increasinghousing oreclosures, which are adding to the ragility o the nancial system. roubles

with public nances have become daunting as well. Fiscal decits have widened dramati-cally and have become a source o political contention. Decits have increased, mainly asa consequence o the impact o the crisis on alling government revenues and rising socia lbenet payments. Te costs o scal stimulus measures have compounded this situation

but, contrary to popular belie, have contributed only in minor part to the increase inpublic indebtedness. Yet, rising public debt has engendered political and nancial stress ina number o European countries and, more broadly, has undermined support or urtherscal stimuli. However, as Governments shit rom scal st imulus to austerity, the recov-ery process is being placed in urther jeopardy. Te scal consolidation plans that havebeen announced so ar by Governments o developed countries will impact negatively ongross domestic product (GDP) growth in the outlook or 2011 and 2012.

Tis contrasts with the strong GDP growth in many developing countries andeconomies in transition, which has been contributing to more than hal o the expansiono the world economy since the third quarter o 2009. Te rebound has been led by thelarge emerging economies in Asia and Latin America, particularly China, India and Brazil.Many developing countries have been able to use the policy buers (in the orm o ample

scal space and vast oreign-exchange reserves) they had generated in the years beore thecrisis to adopt aggressive stimulus packages. Tese have helped boost domestic demandand have thus acilitated a relatively quick recovery rom the global downturn. Since thesecond quarter o 2009, low- and middle-income countries have also led the recovery ointernational trade, building on ties among developing countries through global valuechains. Many smaller economies in Arica and Latin America have been able to benetrom these South-South linkages, as well as rom more buoyant international primary

Weaker global growth is

expected in 2011 and 2012

There will be no quick x

or economic problems in

advanced countries

Developing country growth

remains the main driver o

the global recovery


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2 World Economic Situation and Prospects 2011

commodity prices which have rebounded largely on account o the recovery in demandin the large developing economies. Te return o private capital inows to middle-incomecountries has urther supported the recovery. By late 2010, developing country trade andindustrial output had climbed to above pre-crisis levels.

It is uncertain, however, whether the developing countries and economies

in transition can sustain the same robust pace o growth in 2011 and beyond. Despitestrengthened trade ties amongst these countries, they remain highly dependent on demandin the developed countries or their exports. Access to capital ows and ocial develop-ment nance is also highly conditioned by nancial circumstances and scal stances inadvanced economies. A altering recovery in those economies, on account o the above-mentioned risks, should thus be expected to moderate growth prospects or developingeconomies as well.

In addition, there are also important risks associated with the surge in privatecapital ows to emerging market economies. Tese ows are causing upward pressureon these countries currencies and risk inating domestic asset bubbles. Te return ocapital ows is associated, to some degree, with the strong monetary expansion in themajor developed countries, which has induced investors to seek more protable ventures

given continued weakness in nancial sectors and the real economy in those countries. Ithas led policymakers in the emerging market economies to worry about the competitive-ness o exports and the possibility o sudden capital ow reversals. Tey are respondingby intervening in currency markets and imposing controls on short-term capital inows.Fears o protectionist retaliation by developed countries have increased. As primary com-modities are increasingly seen as alternative nancial assets, short-term capital has alsomoved deeper into commodity markets, risking higher volatility in commodity prices andraising economic insecurity or many developing countries. ogether with the increase involatility in the exchange rates o major reserve currencies (the dollar, the euro and theyen) and a weakening commitment to coordinate policies to redress the global imbalanceseectively, these actors pose increasing risks to the stability o international trade andnance, and, unless addressed in a timely ashion, will impede a strong, sustainable and

balanced recovery o the global economy.Mitigating these risks poses enormous policy challenges. In major developed

economies, macroeconomic policy options are limited by political actors restra ining ur-ther scal st imulus and market responses to sovereign debt distress. Tis has led policymak-ers to rely increasingly on monetary policy. Authorities in the main developed countrieshave cut interest rates urther and moved deeper into quantitative easing, but it is unlikelythat this will suce to boost aggregate demand and create new jobs, especially as longas nancial sector weaknesses remain and scal stimulus is on the wane. Active incomepolicy could be an alternative or complementary tool or strengthening domestic demand,but it remains largely unused. Te surge in capital ows to emerging and other developingeconomies and the consequent pressures on currencies are complicating the internationalenvironment or developing countries, rendering policies to restructure their economies in

support o sustained growth all the more challenging. Te spillover eects o national poli-cies are signicant and a potential source o renewed instability. Tis once again highlightsthe need or strengthened international policy coordination. In this regard, the waningcooperative spirit among policymakers in the major economies has become an additionalrisk to the recovery o the world economy.

but developing countries

ace challenges

in the outlook


23/202

3Global outlook

Growth prospects

Ater a year o ragile and uneven recovery, global economic growth started to decelerateon a broad ront in mid-2010. Te slowdown is expected to continue into 2011 and 2012.Te outlook is shrouded in great uncerta inty and serious downside risks remain. Premisedon the key assumptions delineated in box I.1, the United Nations baseline orecast or thegrowth o world gross product (WGP) is 3.1 per cent or 2011 and 3.5 per cent or 2012,

which is below the 3.6 per cent estimated or 2010 and the pre-crisis pace o global growth(see table I.1 and gure I.1). Te recovery may suer urther setbacks i some downsiderisks take shape. In such a pessimistic scenariodiscussed urther in box I.4growth othe world economy could slow signicantly, to 1.7 per cent in 2011 and 2.3 per cent in2012. Better outcomes may be expected only through strengthened international policycoordination (see the section on policy challenges and box I.5 below).

Among the developed economies, the United States of America has been on themend rom its longest and deepest recession since the Second World War. Yet, the paceo the recovery has been the weakest in the countrys post-recession experience. At 2.6per cent in 2010, growth is expected to moderate urther to 2.2 per cent in 2011 and to

improve slightly to 2.8 per cent in 2012. At these rates, the level o GDP will return to itspre-crisis peak by 2011, but a ull recovery o employment would take at least another ouryears (see below), leaving the level o output well below potential.

Te growth prospects or Europeand Japan are even dimmer. Assuming con-tinued, albeit moderate, recovery in Germany, GDP growth in the euro area is orecast tovirtually stagnate at 1.3 per cent in 2011 and 1.7 per cent in 2012 (growth in 2010 was 1.6per cent). Many European countries will see even less growth, especially those in whichdrastic scal cuts and continued high unemployment rates are draining domestic demand.Tis is especial ly the case in Greece, Ireland, Portugal and Spain, which are entrapped insovereign debt distress and whose economies will either remain in recession or stagnate.

Japans initially strong rebound, uelled by net export growth, started to alter in thecourse o 2010. Challenged by persistent deation and elevated public debt, the economy

is expected to grow by a meagre 1.1 per cent in 2011 and 1.4 per cent in 2012.Among the economies in transition, the Commonwealth of Independent States

(CIS) and Georgia experienced a rebound in GDP by about 4 per cent on average in 2010,up rom the deep contraction o 6.7 per cent in 2009. Increased external demand andrebounding commodity prices are the drivers o the recovery. Domestic demand remains

weak in most economies, especially in Ukraine. Te recovery has slowed in the course o2010, however. Output growth is not expected to accelerate in the outlook or 2011 and2012. Ater a prolonged period o contraction, output growth in the economies in transi-tion in South-eastern Europe, except or Croatia, returned to positive territory in 2010. Inthis case, too, export growth has been driving most o the recovery so ar, while domesticconsumption and investment demand remain subdued. In 2011 and 2012, the pace orecovery in South-eastern Europe is expected to be rather slow.

Developing countries continue to drive the global recovery, but their outputgrowth is also expected to moderate to 6.0 per cent on average during 2011-2012, downrom 7.1 per cent in 2010. Developing Asia, led by China and India, continues to showthe strongest growth perormance, but GDP growth in these two new economic giants isexpected to experience some moderation in 2011 and 2012.

Growth in Latin America, particularly that in the South American economies,is projected to remain relatively robust at about 4.1 per cent in the baseline orecast. Yet,

The global recovery started

to alter in mid-2010

Slower economic growth

is expected in the United

States, Europe and Japan

Developing country growthis also expected

to moderate during

2011-2012


24/202


25/202

5Global outlook

this implies a marked moderation rom the 5.6 per cent GDP growth estimated or 2010.Brazil continues to act as the engine o regional growth, with strong domestic demandhelping to boost the export growth o neighbouring countries. Te subregion also benetsrom improved terms o trade and strengthened economic ties with the emerging econo-mies in Asia.

Table I.1Growth o world output, 2006-2012

Annual percentage change

Change rom UnitedNations orecast o

June 2010c

2006 2007 2008 2009 2010a 2011b 2012b 2010 2011

World outputd 4.0 3.9 1.6 -2.0 3.6 3.1 3.5 0.6 -0.1

o which:

Developed economies 2.8 2.5 0.1 -3.5 2.3 1.9 2.3 0.4 -0.2

Euro area 3.0 2.8 0.5 -4.1 1.6 1.3 1.7 0.7 -0.2

Japan 2.0 2.4 -1.2 -5.2 2.7 1.1 1.4 1.4 -0.2

United Kingdom 2.8 2.7 -0.1 -4.9 1.8 2.1 2.6 0.7 -0.2

United States 2.7 1.9 0.0 -2.6 2.6 2.2 2.8 -0.3 -0.3

Economies in transition 8.3 8.6 5.2 -6.7 3.8 4.0 4.2 -0.1 0.6

Russian Federation 8.2 8.5 5.2 -7.9 3.9 3.7 3.9 -0.4 0.7

Developing economies 7.3 7.6 5.4 2.4 7.1 6.0 6.1 1.2 0.2

Arica 5.9 6.1 5.0 2.3 4.7 5.0 5.1 0.0 -0.3

Nigeria 6.2 7.0 6.0 7.0 7.1 6.5 5.8 0.6 -0.5

South Arica 5.6 5.5 3.7 -1.8 2.6 3.2 3.2 -0.1 -0.3

East and South Asia 8.6 9.3 6.2 5.1 8.4 7.1 7.3 1.3 0.2

China 11.6 13.0 9.6 9.1 10.1 8.9 9.0 0.9 0.1

India 9.6 9.4 7.5 6.7 8.4 8.2 8.4 0.5 0.1

Western Asia 6.1 5.1 4.4 -1.0 5.5 4.7 4.4 1.3 0.6

Israel 5.7 5.4 4.2 0.8 4.0 3.5 3.0 1.1 0.4

Turkey 6.9 4.7 0.7 -4.7 7.4 4.6 5.0 3.9 1.3

Latin America and the Caribbean 5.6 5.6 4.0 -2.1 5.6 4.1 4.3 1.6 0.2

Brazil 4.0 6.1 5.1 -0.2 7.6 4.5 5.2 1.8 -1.1

Mexico 4.9 3.3 1.5 -6.5 5.0 3.4 3.5 1.5 0.6

o which:

Least developed countries 7.6 8.1 6.7 4.0 5.2 5.5 5.7 -0.4 -0.1

Memorandum items:

World tradee 9.3 7.2 2.7 -11.4 10.5 6.6 6.5 .. ..

World output growth withPPP-based weights 5.1 5.2 2.7 -0.8 4.5 4.0 4.4 0.6 0.0

Source: UN/DESA.

a Partly estimated.

b Forecasts, based in part on Project LINK and baseline projections o the United Nations World Economic Forecasting Model.

c See World economic situation and prospects as o mid-2010 (E/2010/73), available rom http://www.un.org/esa/policy/wess/wesp2010les/wesp10update.pd.

d Calculated as a weighted average o individual country growth rates o gross domestic product (GDP), where weights are based on GDP in 2005prices and exchange rates.

e Includes trade in goods and non-actor services. Previous WESP reports reported growth o merchandise trade only.


26/202


Te economic recovery in Western Asia is also expected to moderate rom 5.5per cent in 2010 to 4.7 per cent in 2011 and 4.4 per cent in 2012. At this pace, averageannual output growth will be below the rates prevailing in the years beore the crisis. Teuel-exporting economies o the region have not levelled oil production ater the cutbacksmade in response to the global recession.

Economic recovery has been solid but below potential in most countries in

Africa. In South Arica especial ly, the regions largest economy, output growth remains sub-par as a result o, inter alia, weak manuacturing export growth. Elsewhere in the region,the economic recovery has been supported by the rebound in the demand or and priceso primary commodities as well as by increases in public investments in inrastructure,oreign direct investment (FDI) in extracting industries and improvements in conditionsor agricultural production. In the outlook, the economic growth in the region is expectedto remain somewhat below pre-crisis rates, averaging about 5.0 per cent or 2011-2012.

On the other hand, ormidable challenges remain in the long-run developmento many low-income countries. Although average per capita income growth or these coun-tries is expected to return to near pre-crisis rates in the outlook (gure I.2), it will not besucient to ully make up or the setbacks caused by the crisis. In particular, the recoveryin many o the least developed countries (LDCs) will be below potential. Per capita income

growth among LDCs is expected to reach about 3 per cent per annum during 2010 and2011, which is well below the annual average o 5 per cent achieved during 2004-2007. TeLDCs ace diverging conditions. Bangladesh and the LDCs in East and Southern Arica areshowing strong economic growth, while production in the Sahel, West Arica and parts o

Asia is suering either rom adverse weather conditions or rom ragile political and securitysituations, or both (see box I.2 or the economic prospects or the LDCs).

Overall, the number o countries experiencing declines in per capita incomedropped signicantly, rom 52 in 2009 to 12 in 2010 (table I.2). During 2010, 45 developing

The recovery in least

developed countries will

be below potential in

the near term

Figure I.1

Growth of the world economy, 2004-2012

Percentage change

4.0

3.6

4.1 4.03.5

1.6

-2.0

3.6

3.1

-3

-2

-1

0

1

2

3

4

5

2004 2005 2006 2007 2008 2009 2010a 2011b 2012b

Baseline

Optimistic

Pessim

istic


Note: See box I.1 orthe baseline orecast

assumptions. The pessimisticscenario reers to a situation

o enhanced macroeconomicuncertainty in the outlook

(see box I.4), while theoptimistic scenario is oneo limited, but improved,

international policycoordination (see box I.5).

a Estimates.

b United Nations orecast.


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7Global outlook

Figure I.2

Growth of GDP per capita, by level of development, 2000-2012

Percentage

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2000 2002 2004 2006 2008 2010 2012

Source: UN/DESA and ProjectLINK.

Lower middleincome countries

Upper middle

income countriesLeast developedcountries

High-incomecountries

Low-incomecountries

Prospects or the least developed countriesa

Most least developed countries (LDCs) have weathered the crisis relatively well owing to their limited

exposure to the international nancial system and, in the case o a number o non-uel exporters,

their relatively low exports-to-gross domestic product (GDP) ratios. Yet, none o the LDCs have been

immune to the synchronized global slowdown, which depressed exports and reduced investment.

The crisis has set back the progress made in these countries towards achieving the Millennium

Development Goals (MDGs). The welare losses suered in late 2008 and early 2009 will be long-

lasting, as nearly all LDCs will see a recovery well below pre-crisis growth rates in the outlook or 2011

and 2012. The outlook diers signicantly across countries, however.

A number o LDCs have been severely aected by natural disasters. Haiti was hit by a

catastrophic earthquake, with damage totalling about 120 per cent o the countrys GDP or 2009.

Droughts in the Sahel have severely aected Chad, Mauritania and especially Niger, where up to

hal the population has aced acute ood shortages. In Benin, months o heavy rain resulted in the

worst ooding since 1963. Meanwhile, a number o countries, including Aghanistan, the Democratic

Republic o the Congo, Haiti and Liberia, obtained some nancial relie through debt relie or debt

restructuring.

Economic activity in most LDCs improved in 2010 along with the recovery in interna-

tional trade and the rebound in many commodity prices. In addition, growth in several economies

was supported by increased government spending. Aggregate growth or the group will accelerate

rom 4.0 per cent in 2009the lowest rate in over a decadeto about 5.5 per cent in 2010-2012,

with signicant divergence among the poorest and structurally handicapped nations (see gure).

Nevertheless, growth will remain well below the annual average o 7.2 per cent during the period

2003-2008. In the ve uel-exporting LDCs, growth is orecast to decelerate rom an annual average

o 9.2 per cent in 2003-2008 to 4.6 per cent in 2010-2012, with oil output declining in Equatorial Guinea

Box I.2

a While the group o leastdeveloped countries (LDCs)

includes 49 economies, onlythe 38 members or whichmacroeconomic data areavailable are covered here.For details on the denitiono the category o LDCs,see http://www.un.org/esa/policy/devplan/.


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and growth decelerating to about 5 per cent in Angola. By contrast, growth or uel-importing LDCs

will accelerate rom 5.5 per cent in 2009 to 6.1 per cent in the outlook period, only marginally below

the 6.3 per cent average during the period 2003-2008. Yet, these aggregate gures mask consider-

able variation in both subgroups.

The economies o several LDCs in East and Southern Arica are expected to perorm

strongly in the near term, with GDP projected to grow at 6 per cent or more in 2011-2012. This ex-

pectation is based in part on available macroeconomic policy space, improved governance and

planned increases in public expenditures, especially inrastructure. GDP growth alone will not suce

to meet major development challenges. For example, in countries like Mozambique, despite high

and sustained GDP growth or many years, ood insecurity remains a central concern. It is likely that

continuing ood price hikes will lead to growing ood security pressures in other LDCs as well.

Growth in most West Arican LDCs, except Liberia, will continue to be rather modest

owing to severe gaps in inrastructure, especially insucient power generation capacity and high

transport costs, which are not expected to be overcome in the near term.

Bangladeshthe most populous LDCproved to be relatively resilient to the nan-

cial crisis owing to robust domestic demand, partly supported by increased government spending.

During 2010, however, GDP growth was hampered by a slowdown in industrial output owing to

energy shortages, slower growth in remittance inows and, early in the year, a sharp deceleration in

the garments sector as a result o weak demand rom Europe and the United States. With investment

spending expected to strengthen, GDP growth is orecast to pick up slightly, to 6.0 per cent in 2011

and 6.2 per cent in 2012.

Political instability and ragile security conditions are aecting economic develop-ment in a number o LDCs, including the Comoros, Eritrea, Haiti, Madagascar, Nepal, Somalia, Togo

and Yemen. For these countries, any lasting progress in the medium run will ultimately depend on

improved domestic stability and security. There are also concerns regarding the situation in many

coastal West Arican LDCs (the Gambia, Guinea, Guinea-Bissau, Liberia, Senegal and Sierra Leone),

where drug tracking is undermining the security situation as well as eorts to strengthen govern-

ance and the promotion o the rule o law.

As the recovery is proceeding at dierent speeds, all LDCs ace two common downside

risks. First, the slowdown and scal tightening in developed economies threaten to aect aid ows in

the near term. Second, any deterioration in global ood markets will accentuate the problem o ood

insecurity, particularly or the 21 LDCs that heavily depend on ood aid. b

Box I.2 (contd) Divergence in economic performance in least developed countries, 2003-2011

AnnualGDPgrowthrateinpercentage

2003-2007 2008 2009 2010 2011

20

10

0

-10

b Food and AgricultureOrganization o the United

Nations (FAO), Countriesin crisis requiring external

assistance or ood, GlobalInormation and Early

Warning System (GIEWS),September 2010. Available

rom http://www.ao.org/giews/english/hotspots/

index.htm (accessed on 28October 2010).


Note: The ve horizontalbars, rom bottom to top,

correspond to the minimum,the mean o the rst quartile,

the median, the mean o

the third quartile and themaximum value o the inter-quartile range between the

third and rst quartiles o thedistribution o the observed

data. The outliers arerepresented by the dots.


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9Global outlook

Table I.2Frequency o high and low growth o per capita output, 20082012

Number o

countries

monitored

Decline in GDP per capita

Growth o GDP per capita

exceeding 3 per cent

2008 2009 2010a 2011b 2012b 2008 2009 2010a 2011b 2012b

Number o countries

World 160 29 95 20 11 7 72 21 59 66 73

o which:

Developed economies 35 16 33 6 5 2 6 0 4 6 8

Economies in transition 18 0 10 2 0 0 15 3 10 12 15

Developing countries 107 13 52 12 6 5 51 18 45 48 50

o which:

Arica 51 6 19 7 5 4 25 11 17 21 22

East Asia 13 2 8 1 1 1 4 3 12 11 12

South Asia6 2 0 0 0 0 4 2 3 3 3

Western Asia 13 1 8 0 0 0 7 1 3 4 5

Latin America 24 2 17 4 0 0 11 1 10 9 8

Memorandum items:

Commonwealth o Independent States 12 0 5 1 0 0 10 3 10 11 11

Least developed countries 39 5 13 8 5 4 20 8 9 15 15

Sub-Saharan Aricac 44 6 17 7 5 4 21 9 13 17 17

Landlocked developing countries 25 2 8 2 1 1 17 8 13 12 14

Small island developing States 17 4 7 3 1 1 7 2 4 6 5

Shared Percentage o world populationd

Developed economies 15.3 11.3 14.4 1.3 1.1 0.2 1.2 0.0 2.1 0.9 1.4

Economies in transition 4.7 0.0 3.4 0.1 0.0 0.0 3.6 0.6 4.1 4.3 4.5Developing countries 80.0 6.1 17.4 1.5 0.4 0.4 61.5 50.3 65.9 63.8 65.5

o which:

Arica 14.3 1.1 3.5 0.9 0.4 0.4 9.8 5.2 7.8 8.3 8.3

East Asia 29.9 0.1 4.0 0.0 0.0 0.0 25.2 25.1 29.9 28.6 29.9

South Asia 24.3 3.9 0.0 0.0 0.0 0.0 21.6 21.1 21.7 22.0 22.3

Western Asia 3.0 1.1 2.1 0.0 0.0 0.0 0.7 0.1 1.2 1.5 1.9

Latin America 8.5 0.2 7.8 0.6 0.0 0.0 5.2 0.0 6.8 5.2 5.2

Memorandum items:

Commonwealth o Independent States 4.3 0.0 3.1 0.1 0.0 0.0 3.3 0.6 4.1 4.2 4.3

Least developed countries 11.1 0.5 2.1 1.0 0.4 0.4 8.2 4.7 6.2 7.1 6.5

Sub-Saharan Aricac 8.9 1.1 2.6 0.9 0.4 0.4 5.8 2.6 3.7 4.3 3.8

Landlocked developing countries 5.1 0.3 0.8 0.3 0.2 0.2 3.9 2.8 3.3 3.0 3.2

Small island developing states 0.8 0.3 0.2 0.2 0.0 0.0 0.5 0.0 0.3 0.3 0.4

Source: UN/DESA, including population estimates and projections rom World Population Prospects: The 2008 Revision.

a Partly estimated.

b Forecast, based in part on Project LINK and baseline projections o the United Nations World Economic Forecasting Model.

c Excluding Nigeria and South Arica.

d Percentage o world population or 2005.


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countries achieved per capita growth rates o 3 per cent or more, which is sometimes consid-ered the minimum rate needed to acilitate substantial poverty reduction. In comparison,beore the crisis in 2007, there were 68 developing countries with welare increases abovethat threshold. In sub-Saharan Arica, 13 countries registered per capita growth o morethan 3 per cent in 2010, compared with 23 in 2007. In the outlook, 48 developing countries

are expected to have per capita growth o more than 3 per cent in 2011, and 50 in 2012.

Outlook or employment

Next to the continued nancial ragility in developed countries, the lack o remunera-tiv

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UN - World Economic Situation and Prospects 2011