How will growth occur? Strategies for a better economy

ACCORDING TO the United Nations, World Economic Situation and Prospect (WESP) 2014, global economic growth is expected to be better this year than last year.

Global gross domestic product is expected to grow anywhere between three and 3.3 per cent as countries gradually recover from the aftermath of the global financial crisis. This global growth, critically depends on the volume of international trade. Increased trade will boost economic activities, which can reduce high global unemployment rates, including youth unemployment, especially in some Caribbean countries, like Jamaica, where structural unemployment is high and the informal economy employs a significant proportion of people. To curtail the unemployment problem, countries should continue to tailor-make macroeconomic and government policies to fit domestic conditions and implement measures to increase productivity and innovation.

What is this environment like?

Trade agreements are becoming increasingly important to the efficient functioning of global trade. Throughout the Doha round of negotiations, multilateral trade has been on a standstill, while regional trade negotiations around the world are booming.

The Doha Development Round or the Doha Development Agenda started in 2001. It is the current trade negotiations between members of the World Trade Organisation (WTO), aimed at reducing trade barriers and revising trade rules between countries which should increase international trade. According to the WESP 2014, there has been very little agreement in the Doha round in three major areas: agriculture, development and trade facilitation.

Currently, there are two major regional trade agreements that are being negotiated. These are the Transatlantic Trade and Investment Partnership between the United States and the European Union (EU) 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. China is the largest trading country, but the EU is the largest trading region and CARICOM, as union, is among the lowest in intra-regional trade.

What is the global trade situation?

Global trade is expected to grow by 4.7 per cent this year and 5.3 per cent in 2015. 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 WTO Roberto Azveldo, countries cannot sit around and wait for trade to increase 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. Notwith-standing 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 theglobal markets?

Better harvesting of major crops has led to a fall in global food prices. Oil prices have been fluctuating much since last year as a result of global geopolitical issues. Commodity prices are not expected to change much this year. High inventory, coupled with weak demand, have contributed to a decline in base metal prices. The flow of capital to developing countries declined in 2013 and has been characterised by increased 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?

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 market place. 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 2014 urges internal policy organisation 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. These resources will help countries, advance closer to the Millennium Development Goal and help to build a strong foundation for sustainable development for 2105 and beyond.

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 editorial@gleanerjm.com.