A mixed picture of the global crisis

The world economy remains fragile and the economic outlook is still uncertain. There have been a few encouraging signs recently of better-than-expected performance here and there. Some are interpreting this as an indication that we may be turning the corner with regard to a possible return to previous patterns of economic growth, but excessive optimism is unwarranted.

Although financial markets are showing signs of stabilising, the crisis is far from over, particularly in the many developing countries that are only now starting to feel its full effect on their trade and economic growth. The collapse of aggregate demand is still working its way through the global economy while unemployment continues to increase. We should not forget that this crisis is unprecedented in its depth, breadth, and global impact.

The global economy continues to contract; the World Bank forecasts a 2.9 per cent shrinkage for 2009. The latest World Trade Organisation (WTO) forecast for 2009 is a contraction of merchandise trade of 10 percent in volume (down from our previous estimate of 9 percent), with a 14 percent decline for developed economies, and a 7 percent decline for developing countries.

Certain sectors of trade in services appear to be holding up better than others, and better than merchandise trade overall. This is of course welcome news, although not enough to alter the likelihood that the world economy will remain in a recessionary or low-growth mode for some time to come, and that the recovery, when it arrives, is likely to be much slower than we would like it to be.

The last monitoring report of the WTO, released July 13, presents a mixed picture of recent trade policy developments: On the one hand, there have been some signs of improvement as more governments have introduced trade-opening and facilitating measures in the last three months. This is exactly what is needed from trade policy makers in current circumstances: to reaffirm their commitment to, and confidence in, open markets.

On the other hand, there has been further slippage towards increased restriction and distortion in certain tradable goods sectors of the world economy. And there is no indication yet of governments more generally unwinding or removing the trade-restricting or distorting measures that they imposed early on in the crisis.

I am not suggesting, though, that this represents an outbreak of high-intensity protectionism and a widespread resort to trade restrictions and counter-retaliation. We can continue to take heart in the fact that the WTO's multilateral trade rules continue to provide a valuable insurance policy against protectionism spiralling out of control. But the longer we delay the final settlement of the Doha Development Round of world trade negotiations, the less room we have for complacency about the future.

This crisis is one of the biggest challenges that the multilateral trading system has faced since its inception, and it has a human face. Poverty alleviation targets, whether as part of the Millennium Development Goals (MDGs) or otherwise, have become more challenging to achieve because of, among other things, the decline in export demand for goods.

Global solutions

This is a global crisis that requires global solutions. We have seen that no economy in the world is immune. The crisis is hitting hardest the majority of developing countries, which have no margin of comfort to buffer its impact. They lack the financial means to provide fiscal stimulus packages to help re-boot their economic growth, subsidies to help their farmers or businesses ride out the contraction of their markets, or social safety nets to help protect their populations from declining incomes and to prevent families from being pushed back under the poverty line. One thing is clear: if Aid for Trade was urgent before the economic crisis, it is essential today. It is the investment that will allow many developing countries to prepare to exit the crisis by enhancing their trade capacity.

At a time when the global economy is still fragile worldwide and in face of the unprecedented decline in trade flows, we must send a clear and credible message that protectionism is not the answer. We have had that clarity from the G20 leaders in April as well as from G8+ leaders meeting in Italy on July 8-10. For credibility there is no better guarantee than to conclude the Doha Round, and I am pleased to say that we are witnessing the renewal of high-level engagement in the negotiations and a genuine desire to finally bring these talks, initiated in November 2001, to a successful conclusion.


(The writer is director-general of the WTO)

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