World economy on shaky ground, India faring well due to domestic demand: UN

The world economy remains on a shaky ground a decade after the 2008 financial crisis as the global economic growth is "spasmodic" and many economies are operating below potential, a United Nations trade report said Wednesday.

The report by the United Nations Conference on Trade and Development (UNCTAD) also said that trade tariff tussle between the two major economies, the US and China, is a symptom of a "deeper malaise".

It, however, added that four BRICS nations, including India, are doing better because of their domestic demand.

Even as the global economy has picked up since early 2017, growth remains spasmodic and many countries are operating below potential, said the UNCTAD ' Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion'.

Global trade war is running towards a "deeper economic malaise" at a time when many countries are growing below potential, even as BRICS nations are doing better because of domestic demand.

The US and China have indulged in a bitter trade war, with both the countries slapping higher tariffs on each other's imports. This year is unlikely to see a change of gear, the report said.

The UN trade report said that since 2008 many advanced countries have abandoned domestic sources of growth, most noticeably with the turnaround of the Eurozone from a deficit to a surplus region.

Looking outward for growth can be done only by tapping domestic demand of other countries, the report said, adding the countries where domestic demand is strong are relying on higher debt.

But in both such cases, the growth is hindered by the ever-present threat of financial instability, it said further.

The bigger emerging economies are doing better this year and commodity exporters can expect an improvement while prices remain firm.

"Except for the Russian Federation, growth in the other four BRICS countries - Brazil, India, China and South Africa - relies heavily on domestic demand," the UNCTAD said.

However, this is not the case for many emerging economies. As downside risks increasing and financial fault lines widening in several countries, the report sees economic storm clouds gathering.

The USD 250 trillion debt stock presently, which is 50 per cent higher than at the time of the 2008 crisis, is three times the size of the global economy, the UNCTAD said.

"The world economy is again under stress," said Mukhisa Kituyi, Secretary General, UNCTAD.

"The immediate pressures are building around escalating tariffs and volatile financial flows but behind these threats to global stability is a wider failure -- since 2008 -- to address the inequities and imbalances of our hyperglobalised world."

Global trade continues to be dominated by big firms and their control of global value chains, the report said.

The spread of these chains contributed to a rapid growth of trade from the mid-1990s till the financial crisis with developing countries posting the fastest growth, including by trading more with each other.

As most of the trade been unequal with gains skewed in favour of lead firms, whether or not they amount to a trade war, the recent rounds of tariff hikes will disrupt a trading system drawn increasingly around value chains, it said.

Although the trade growth in 2018 will likely by similar to that of 2017, it added.

In the real world, trade wars are a symptom of a degraded economic system and multilateral architecture, the report said, adding while this disease is a vicious circle of corporate political capture and rising inequality where money is used to gain political power and political power is used to make money.

"Old and new pressures are weighing down on multilateralism," Kituyi said.

"In our interdependent world, inward-looking solutions do not offer a way forward, the challenge is to find ways to make multilateralism work."

The UNCTAD report has advocated to prioritise three actions -- tie trade discussions to a commitment to full employment and rising wages, regulate predatory corporate behaviour and guarantee sufficient policy space to ensure that countries can manage their integration in line with the sustainable development goals.