How has the global economy been growing?
According to the United Nations, World Economic Situation and Prospect (WESP) 2015, the global economy is projected to grow by 3.1 per cent and 3.3 per cent in 2015 and 2016, respectively. Global economic growth for 2014 averaged just above 2.6 per cent, recovering marginally from the previous years.
Despite existing global geopolitical tension and country, specific handicaps, global growth is anticipated to be more robust this year. Even though Caribbean and Latin American countries have been impacted negatively by country-specific issues as well, growth is expected to be positive in the region.
How will growth occur?
Last year, global growth was critically dependent on the volume of international trade. This year, it is no different. Increased trade is necessary to increase economic activity, which can reduce high unemployment rates including youth unemployment.
To facilitate this, macroeconomic and government policies should be tailor-made to fit domestic conditions and measures implemented to increase productivity and innovation.
The forthcoming logistics hub and its subsections will play a role in increasing commerce, and open avenues to increase Jamaica's role in international trade. Training and education continue to play a vital role in transforming peoples' skill set and knowledge to suit the global trade environment.
What is this environment like?
Favourable trade agreements have been highlighted as an important factor to the efficient functioning of global trade. There are two major regional trade agreements that are being negotiated. The Transatlantic Trade and Investment Partnership, between the United States and the European Union, and the Trans-pacific Partnership, between 12 countries including Japan and the United states. There are concerns that developing countries have been marginalised in some of the new trade agreements, which might have a negative impact on their overall trade performance.
Intra-regional trade in CARICOM is one of the lowest in the world, simply because most of the islands have the same resources, hence the same goods to trade with each other, and minor country-specific advantages are not fully explored. In the European Union, for example, France specialises in champagne and cognac. Germany specialises in automobiles. Trading among each other in this case is easier because countries specialise in different goods.
What is the global trade situation?
Global trade is expected to grow by 4.7 per cent in 2015 and five per cent in 2016. Global trade has been somewhat unstable since the financial crisis in 2008. Declining by 12 per cent in 2009, increasing by 11 per cent in 2010 and averaging approximately 2.2 per cent growth in 2011 and 2012.
According to the director of the World Trade Organization, Roberto Azveldo, countries cannot sit around and wait for trade to increase by itself. He urges countries to enter new trade liberalisation agreements and increase efforts to complete the Doha round of negotiations. This, he highlighted, would provide a strong foundation for global trade in the future, and a great stimulus in today's slow growth environment. Notwithstanding this, some countries attest slow trade liberalising agreements to their responsibility to protect infant industries and prevent foreign goods from flooding domestic markets.
What about the global markets?
Oil prices have been fluctuating a lot since last year as a result of global geopolitical issues. Commodity prices are not expected to change greatly this year. High inventory, coupled with weak demand, has contributed to a decline in base metal prices. The flow of capital to developing countries has improved since 2013 and has been characterised by increase volatility (fluctuation indicating risk). Stock prices have been weaker due to rapid depreciation of local currencies. In Jamaica, Foreign Direct Investment flows are gradually recovering from the troughs it encountered in 2010 and 2011, even though it is still below the average $800 billion per annum experienced before the financial crisis of 2008.
What other aspects are
important for long run growth?
Once again, given that the local market is very small, relative to the rest of the world, Jamaican businesses should network more among themselves, and share ideas to increase output for competitiveness within the global marketplace.
Long-term financing for sustainable economic, social and environmental development is also essential.
Throughout the developing world, there has been insufficient investment in critical areas necessary for development including infrastructure, health care, training, education and sanitisation services.
The WESP 2015 urges internal policy organisations to make as much resources as possible available to developing countries to increase their prospects for sustainable development, especially in countries like Jamaica with limited fiscal space and financial needs for social safety and poverty alleviation.
- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email email@example.com.