Global economy: Going getting tougher?

The latest: the International Monetary Fund (IMF) has cut its 2014 global growth forecast to 3.3 per cent from 3.4 per cent, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injection of cash by the world's central banks. With Japan's economy floundering, the euro zone at risk of recession and the U.S. recovery too weak to generate a rise in incomes, the IMF's steering committee said focusing on growth was the priority.
Global trade is decelerating too. In 2010 it made up lost ground from the recession, expanding by 12.8 per cent. It has since slowed, to 6.2 per cent in 2011 and to 3.0 per cent in 2013. The World Trade Organisation (WTO) had forecast growth of 4.7 per cent this year but revised that figure down to 3.1 per cent in September, 2014. One of the main culprits, it reckons, is weak growth in imports in commodity-exporting countries, due to their straitened circumstances.
All is not well in the oil front! Just how much trouble to expect depends on the scale of the drop in its price. In the short-term commodity prices are a function of shifts in expectations of global demand, along with passing interruptions in supply. When the financial crisis took hold in late 2008, the price of raw materials plummeted.
Oil prices fell from a high of $144 a barrel in the summer of 2008 to $33 a barrel in December of that year. Yet by late 2010, as global growth recovered on the back of rapid expansion in emerging markets, the price was nearing $100 again. Actually, producing countries, many of which are relatively poor, suffer when prices drop. The last great bust, which began in the late 1970s, was a drag on developing economies for two decades (while the commodity boom of the 2000s was a big contributor to fast-growing incomes in the developing world). Low prices can mean financial turmoil for governments that relied on high ones to fund generous spending. A big enough bust could rattle financial markets around the world.
The current, gentler slide in prices also reflects a weakening world economy. Since 2010 global GDP (gross domestic product) growth, measured on a purchasing-power-parity basis, has slipped from more than 5.0 per cent a year to just over 3.0 per cent. Among other top rankers, the Chinese economy expanded at a double-digit pace in 2010 but may struggle to grow by 7.0 per cent this year.
Now, the IMF member countries said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically. "A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high," the International Monetary and Financial Committee said on behalf of the Fund's 188 member countries. The IMF panel urged countries to carry out politically tough reforms to labour markets and social security to free up government money to invest in infrastructure to create jobs and lift growth. It also called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. Though no central bank was named, yet the warning appeared aimed at the U.S. Federal Reserve, which will end its quantitative easing policy this month and appears poised to begin raising interest rates around the middle of next year.
Actually, oil is struggling to find a floor after Saudi Arabia made clear that it was focused on maintaining market share, not supporting prices with unilateral production cuts. Other members also appear to be taking a similar tack.
As the things stand now for developing economies like India, Bangladesh and Vietnam, it is to be remembered that there is no short-cut route to bolstering the growth engine. Planning itself is a continuous process. More important is proper implementation of the plans. Priority fixation must be done at the top. No planning is better than bad planning!
The government must continue to work on removing infrastructure bottlenecks and further strengthen the financing of infrastructure development for expansion of the economy, as the Confederation of Indian Industry (CII), the leading Indian industry body, has very recently suggested.  
The business body projects investment requirement in infrastructure development to the tune of Rs 643 billion (64.3 lakh crore) during the period 2014/15-2018/19, where private sector will have to play a crucial role in achieving the desired goal.  The development of corporate bond market, among others, is required for meeting the funding requirements of the industry and the economy. Thus, it becomes imperative to look into the very successful global models for benchmarking best practices and devising an implementable roadmap for the Indian economy. Corporate bond market (CBM), as a stable and reliable source of finance, provides a pivotal mechanism for sustaining business investment, infrastructure development, and economic growth, CII also pointed out.   In its latest report [Corporate Bond Market: Benchmarking Global Best Practices into Indian perspective], CII has analysed the role CBM has played in infrastructure development for many economies globally and brings out key recommendations for the policymakers to implement in the Indian context.  
The World Trade Organisation (WTO) forecasts a rebound in growth and trade next year. Yet a return to the heady growth rates of the 2000s is unlikely, [and risks abound, too - from conflict in Ukraine to Ebola in West Africa. Clearly, the rich world's recovery is anything but assured; but the euro zone, which accounts for 13 per cent of global output, is once again teetering on the brink of recession. China, an almost insatiable consumer of raw materials in recent years, is perhaps the biggest risk. No doubt, the authorities there are trying to rebalance growth away from commodity-intensive investment in housing and other infrastructure. Side by side, they also want to stem credit growth. If they overshoot and undermine growth, commodity prices will fall further.
Finally, it is to be remembered that the global economy is structured to systematically funnel wealth to the very top of the pyramid, and this centralisation of global wealth is accelerating with time.  According to the United Nations, 85 super wealthy people have more money than the poorest 3.5 billion people on the planet combined and 1.2 billion of those poor people live on less than $1.25 a day.  Seven out of every ten people on the planet live in countries where the gap between the wealthy and the poor has increased in the last three decades.  Despite our technological advances, somewhere around a billion people go to bed hungry every single night.  And when our fundamentally flawed financial system would finally collapse, it will be the poor that will suffer the worst. Again, the total number of unemployed workers in G20 counties is now up to 93 million and that it is increasing with each passing day.  You see, the truth is that the United States is not the only one dealing with a systemic unemployment crisis.  This is literally happening all over the planet.  So what is causing this crisis?  
Is there any hope that it will be turned around?
Yes, there will be if the international cooperation in every field of life happens to be there!

DR  B K  Mukhopadhyay is a Management Economist and an International Commentator on Business and Economic Affairs.
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