The world economy is stagnant five years after the financial crash, a new United Nations economic report says.
The outlook is backed up by global foreign exchange group Saxo Bank.
Geneva-based UN Conference on Trade and Development said the global economy remains flat.
“The global economy is still struggling to return to a strong and sustained growth path,” UNCTAD reported.
The rate of world output was 2.2 per cent in 2012, and is forecast to grow at a similar rate in 2013, it says.
Developed countries are expected to show the poorest performance, with around one per cent increase in gross domestic product. Developing and transition economies are likely to grow by almost five per cent and three per cent respectively.
“Prior to the Great Recession, exports from developing and transition economies grew rapidly owing to buoyant consumer demand in the developed countries, mainly the United States. This seemed to justify the adoption of an export-oriented growth model,” a formula bound to crash, the report says.
“But the expansion of the world economy, though favourable for many developing countries, was built on unsustainable global demand and financing patterns. Thus, reverting to pre-crisis growth strategies cannot be an option,” the UNCTAD report said.
“The dominance of finance over real economic activities persists, and may even have increased further. Yet financial reforms at the national level have been timid at best, advancing very slowly, if at all.”
“The momentum in pushing for reform has all but disappeared from the international agenda. Consequently, the outlook for the world economy and for the global environment for development continues to be highly uncertain,” the report said.
The outlook is backed up by global foreign exchange group Saxo Bank in the its financial outlook for Q4.
With or without the support of further quantitative easing from the major central banks, global growth is headed for a slowdown, Saxo’s analysts said today.
“The global economy is running on empty,” Saxo’s chief economist Steen Jakobsen said.
“2014 will see a bigger discussion on what is the real exit strategy from the current ‘extend and pretend’.
“Right now the market only sees two paths: Inflating the economy to reduce the burden of debt, or writing off the debt between treasuries and central banks.
“But I believe there is a third way: A repeat of the 1940s – the last time fed was this involved in so-called helping the market.
“Back then, the Fed got saved by disinflation and a recession brought on by the very same policy which today slows the path towards recovery too much easy money. History is about to repeat itself only because we fail to learn and to embrace the need for change.”
Saxo said that with the intensifying need to reset interest rate expectations after the US Federal Reserve’s non-tapering of its asset-buying program, there is a perfect storm brewing on the economic horizon.
The Bank argues that a weak economy and in particular the struggling labour market will force the Fed’s hand, and instead of tapering it will have to increase its QE next year as the economy is too weak to weather a pullback in Fed support.
“As the markets adjust to the prospect of more QE rather than less, we may see another bout of hope that extend and pretend will continue to pump asset valuations ever higher.
“However, further ahead, likely sometime early in 2014, the QE cycle – or at least the markets response to it – will begin to falter as Fed policy will increasingly risk losing credibility.
“In the end, all major historic shifts in policy have only come as a result of massive stock market declines or unemployment rates becoming too high and painful to ignore.
“In other words, QE will only be threatened as a policy tool when the markets roundly reject it, rather than celebrating it.”
